<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 333- LA
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
USTEL, INC.
(Name of small business issuer in its charter)
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MINNESOTA 4813 95-4362330
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
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2775 SOUTH RAINBOW BOULEVARD, #102
LAS VEGAS, NEVADA 89102
(702) 247-7400
(Address and telephone number of principal executive offices)
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2775 SOUTH RAINBOW BOULEVARD, #102
LAS VEGAS, NEVADA 89102
(702) 247-7400
(Address and telephone number of principal place of business or intended place
of business)
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ROBERT L.B. DIENER
PRESIDENT, CHIEF EXECUTIVE OFFICER
2775 SOUTH RAINBOW BOULEVARD, #102
LAS VEGAS, NEVADA 89102
(702) 247-7400
(Name, address, and telephone number of agent for service)
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COPIES TO:
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LEIB ORLANSKI, ESQ.
SUSAN B. KALMAN, ESQ. KENNETH J. BARONSKY, ESQ.
FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN MILBANK, TWEED, HADLEY & MCCLOY
9100 Wilshire Boulevard, 8th Floor East 601 South Figueroa Street
Beverly Hills, California 90212 Los Angeles, California 90017-5735
Telephone (310) 273-1870 Telephone (213) 892-4000
Facsimile (310) 274-8357 Facsimile: (213) 629-5063
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Approximate date of Commencement of Proposed Sale to Public: As soon as
practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM PRICE MAXIMUM OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
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Common Stock $0.01 par value(2).......... 2,875,000 $6.00 $17,250,000 $6,345.52
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Representative's Warrants(3)............. 160,000 $0.001 $160 $0.055
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Common Stock $0.01 par value(4).......... 160,000(5) $7.20 $1,152,000 $397.24
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Total....................................................................................... $6,345.58
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 by reference to the last sale price reported on the
Nasdaq Market on September 25, 1996.
(2) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(3) To be issued to the Representative of the Underwriters.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1996
2,500,000 SHARES
(LOGO)
USTEL, INC.
COMMON STOCK
------------------------------
Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by UStel, Inc. ("UStel" or the "Company") and 500,000 by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of Common Stock by the Selling Stockholders. The last sale price for the
Common Stock on the Nasdaq Small-Cap Market on September 25, 1996 was $6.00 per
share. See "Price Range of Common Stock." The Company intends to apply for
quotation of the Common Stock on the Nasdaq National Market System, effective
upon completion of this offering. The Company's Nasdaq symbol is "USTL."
------------------------
SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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Per Share.................. $ $ $ $
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Total(3)................... $ $ $ $
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(1) Excludes the value of warrants (the "Representative's Warrants") to purchase
up to 160,000 shares of Common Stock. The Company and the Selling
Stockholders have agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,914,820 payable by the Company
including, the Representative's non-accountable expense allowance. See
"Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
375,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. To the extent
that the option is exercised, the Underwriters will offer the additional
shares at the Price to Public shown above. If the option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to the right to reject any order in whole or in part and
certain other conditions. It is expected that delivery of such shares will be
made against payment therefor at the offices of Cruttenden Roth Incorporated,
Irvine, California, or through the facilities of the Depository Trust Company on
or about , 1996.
------------------------------
CRUTTENDEN ROTH
I N C O R P O R A T E D
The date of this Prospectus is , 1996
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission in accordance with the Exchange Act may
be inspected and copied at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such material concerning the Company
can be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Public Regional Office, 5670
Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3848, and copies
of all or any part of the Registration Statement may be obtained from such
offices or by mail from the Public Reference Section of the Commission at its
principal office upon the payment of the fees prescribed by the Commission.
Concurrently herewith the Company is filing an S-3 Registration Statement
covering 2,217,851 shares of Common Stock to be sold by certain selling
stockholders and warrant holders and an S-4 Registration Statement covering
1,076,923 shares of Common Stock to be issued in a merger.
The Commission also maintains a World Wide Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALL-CAP MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
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 under "Risk Factors" and
elsewhere in the Prospectus. The following summary is qualified in its entirety
by the more detailed information and the financial statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted herein, all
information in this Prospectus (i) assumes that the Underwriters' over-allotment
option and the Representative's Warrants (as defined below) are not exercised;
(ii) assumes that an aggregate of 310,000 options and 1,021,000 warrants
outstanding are not exercised; (iii) gives effect to the issuance of 1,076,923
shares of Common Stock pursuant to the Merger (as defined below) and 275,000
shares of Common Stock to be sold by a Selling Stockholder in this Offering upon
conversion of a portion of the Series A Convertible Preferred Stock; and (iv)
does not give effect to the conversion of a $500,000 convertible debentures into
71,429 shares of Common Stock, or the conversion of the remaining Series A
Convertible Preferred Stock into 275,000 shares of Common Stock. See
"Capitalization," "Business -- Recent Developments," "Description of
Securities," and "Underwriting."
THE COMPANY
UStel provides long distance telecommunications services, consisting
primarily of direct dial long distance telephone transmissions, to commercial
customers throughout the United States. Customers who have selected the Company
as their long distance carrier can call any point in the United States or any
foreign country at rates that generally are lower than those charged by AT&T
Corp. ("AT&T"), MCI Telecommunications Corporation ("MCI") and Sprint
Communications, L.P. ("Sprint").
Since commencing operations in January, 1993, the Company's subscriber base
has grown to approximately 12,500 customers at June 30, 1996. The Company's
monthly revenues have increased from approximately $10,000 in January, 1993 to
approximately $2,000,000 in June, 1996.
In addition to long distance telecommunications services, the Company also
offers a variety of service options, including "1 +" dialing, "800" service,
calling cards, operator services, private line networks and data transmission.
Separate rates are charged for interstate, intrastate and international calls.
While intrastate rates vary depending upon the state and international rates
vary based upon the country called, interstate calls, regardless of destination,
generally are charged on a flat rate per minute (or increment thereof) based
upon the time of day.
In mid-1994, UStel entered into a non-exclusive sales agency agreement with
Consortium 2000, Inc. ("Consortium 2000"). Consortium 2000 provides
telecommunications consulting services to a diversified client base by analyzing
the customer's long distance calling patterns, usage volume and specialized
telecommunications needs, and recommending calling plans and carriers (or
combinations of carriers) to achieve the most cost-effective result. Consortium
2000 acts as a sales agent for a broad base of long distance carriers; however,
for a significant portion of its clients, UStel frequently represents the
low-cost provider and as of June 30, 1996 approximately 70% of Consortium 2000's
clients were customers of UStel. Consortium 2000 is principally compensated in
the form of commissions payable by each carrier with whom business is placed. As
of June 30, 1996 approximately 75% of UStel's customers were referred to the
Company by Consortium 2000.
On August 14, 1996, UStel, Consortium 2000 and Consortium Acquisition
Corporation entered into a Merger Agreement and Plan of Reorganization (the
"Merger Agreement" and "Merger") pursuant to which 1,076,923 shares of UStel are
to be issued to the shareholders of Consortium 2000, in exchange for all of the
outstanding shares of Consortium 2000. The Merger is subject to approval by the
stockholders of UStel and certain other conditions. Upon consummation of the
Merger, Consortium 2000 will become a wholly-owned subsidiary of UStel. This
offering is contingent upon the closing of the Merger. See "Business -- Recent
Developments".
3
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The Company believes it can achieve significant benefits through the
Merger. The Company will realize immediate cost savings because a substantial
portion of the commissions historically paid by Ustel to Consortium 2000 for
customer referrals will be eliminated. In addition, members of Consortium 2000's
management, who have recently joined the Company, plan to implement several
programs designed to increase the Company's customer base and profitability. For
example, management intends to implement a new in-house billing system in order
to reduce the amount of time between the provision of services by the Company
and the collection of payments from its customers.
Also on August 14, 1996 and in connection with the Merger a change in
management and control of UStel occurred as a result of a purchase of 612,750
shares of UStel Common Stock by the Palisades USTL Trust (the "Trust"), the
trustee of which is Royce Diener. The shares were purchased from two trusts of
which Noam Schwartz, the former President and Chief Executive Officer of UStel,
was at one time trustee. Concurrently therewith, Royce Diener became Chairman of
the Board of UStel, Robert L.B. Diener became the new President and Chief
Executive Officer of UStel, and Messrs. Jerry Dackerman and Wouter van Biene
became the new Executive Vice President and Chief Financial Officer respectively
of UStel. Messrs. Diener, Dackerman and van Biene also became members of UStel's
seven person board. Messrs. Dackerman and van Biene are founders and substantial
shareholders of Consortium 2000.
The Company was incorporated in California on March 11, 1992, as U.S. Tel,
Inc. and changed its corporate name to UStel, Inc. on April 20, 1992. The
Company commenced operations as a long distance carrier in January 1993. On
January 4, 1994, the Company effected a recapitalization of its capital stock in
connection with its reincorporation merger to Minnesota prior to its initial
public offering of Common Stock. Its corporate headquarters are located at 2775
South Rainbow Boulevard, Suite 102, Las Vegas, Nevada 89102 and its telephone
number is (702) 247-7400.
4
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THE OFFERING
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Common Stock offered hereby:
By the Company............................. 2,000,000
By the Selling Stockholders(1)............. 500,000
Common Stock to be outstanding after this
offering(1)(2)............................. 5,478,774 shares
Use of Proceeds.............................. The net proceeds to the Company will be used
for capital expenditures, repayment of debt,
working capital and other general corporate
purposes. See "Use of Proceeds."
Risk Factors................................. Prospective investors should consider
carefully the factors set forth under the
"Risk Factors."
Nasdaq Symbol................................ USTL
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(1) Includes 275,000 shares of Common Stock to be sold by a Selling Stockholder
that will be issued by the Company upon the conversion of the Series A
Convertible Preferred Stock (the "Series A Preferred") and 225,000 shares
to be sold by the Trust.
(2) Includes 1,076,923 shares of Common Stock to be issued in the Merger.
5
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SUMMARY FINANCIAL DATA
The following table sets forth summary historical and pro forma financial
data for UStel for the years ended December 31, 1992 through 1995 and for the
six months ended June 30, 1995 and 1996. Such information and data should be
read in conjunction with the "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and the Company's Financial Statements and
Pro Forma Condensed Financial Statements including in each case the related
Notes thereto included elsewhere in this Prospectus.
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<CAPTION>
PERIOD FROM
MARCH 11, 1992 SIX MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------------------------------------- --------------------------------------
-------------- PRO FORMA PRO FORMA
OPERATIONS DATA: 1992 1993 1994 1995 1995(1) 1995 1996 1996 (1)
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Revenues........ $ 5,740 $1,600,147 $6,118,480 $16,127,575 $17,877,642 $6,996,751 $ 10,526,503 $11,515,057
Total operating
expenses...... (318,890) (2,286,981) (6,982,051) (16,252,143) (17,810,535) (6,940,582) (10,268,526) (11,446,285)
Income (loss)
from
operations.... (313,150) (686,834) (863,571) (124,568) 67,107 56,169 257,977 68,772
Net interest
expense....... -- (41,686) (117,780) (136,377) (147,051) (8,031) (186,013) (183,602)
Net income
(loss)........ (313,150) (765,552) (1,075,442) (371,711) (302,856) 48,138 71,964 (114,830)
Net income
(loss) per
share......... (0.33) (0.81) (0.83) (0.23) (0.11) 0.03 0.03 (0.03)
Weighted average
common shares
outstanding... 950,000 950,000 1,291,913 1,600,000 2,676,923 1,600,000 2,735,195 3,812,118
</TABLE>
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<CAPTION>
JUNE 30, 1996
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PRO
BALANCE SHEET DATA: ACTUAL FORMA(1) AS ADJUSTED (1)(2)
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Working capital............................................... $ 2,024,586 $2,537,052 $11,112,232
Total assets.................................................. 14,801,610 19,645,293 21,358,198
Notes payable to banks........................................ 4,025,691 4,125,691 1,037,691
Notes payable to others....................................... 1,484,000 1,484,000 236,000
Convertible subordinated debentures........................... 500,000 537,381 537,381
Total debt.................................................... 6,009,691 6,147,072 1,811,072
Total stockholders' equity.................................... 5,433,490 9,633,440 19,718,620
</TABLE>
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(1) Gives effect to the consummation of the Merger. See "Business -- Recent
Developments". For information regarding pro forma adjustments made to the
Company's historical financial data, see the Pro Forma Condensed Financial
Statements, and the Notes thereto, contained elsewhere in this Prospectus.
(2) As adjusted to reflect the issuance of 275,000 shares of Common Stock upon
conversion of a portion of the Series A Preferred and the sale of 2,000,000
shares of Common Stock by the Company and the receipt and application of
approximately $6,272,275 of the net proceeds from this offering to the
reduction of the Company's indebtedness. See "Use of Proceeds."
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RISK FACTORS
Investment in the securities offered hereby involves a high degree of risk.
Prospective investors should carefully consider all of the information in this
Prospectus, including the following risk factors.
LACK OF IN-HOUSE BILLING SYSTEM; PRESSURE ON WORKING CAPITAL
Because the Company does not yet have an in-house billing system, it is
dependent upon a third-party billing services provider to send out bills to the
Company's customers for usage of the services provided by the Company. Because
of the reliance on an outside billing service it is uneconomical for the Company
to render bills more frequently than once a month. Typically, this results in
bills for services being mailed out between 20 to 30 days after the end of the
month in which the services are rendered. The Company is required to pay for the
use of third-party long distance lines in advance of the receipt of payment by
the Company from its customers for the use of the services provided by the
Company. This condition requires the Company to utilize its working capital
facility to finance payables pending collection of its receivables. In September
1996, the Company entered into an agreement with WilTel to finance a portion of
its approximately $5,600,000 outstanding payable due to WilTel. Pursuant to this
agreement, WilTel agreed to defer payment on approximately $3,900,000 owed by
the Company to WilTel. Such amount bears interest at 15% per annum and will be
paid out of the proceeds of this offering, and in any event no later than
November 10, 1996. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Lack of Liquidity."
The Company intends to apply a portion of the proceeds of this offering to
install an in-house billing system which the Company expects will enable it to
render its bills on a more frequent billing cycle and to receive payments from
its customers more rapidly. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION; TECHNOLOGICAL ADVANCES
The Company is primarily engaged in providing telecommunications services
in the long distance telephone industry which is a competitive industry that is
significantly affected by new service introductions and the market activity of
major industry participants. As a service provider in the long distance
telecommunications industry, the Company competes with numerous carriers
including the three dominant carriers, AT&T, MCI and Sprint, all of which have
substantially greater name recognition, more extensive transmission networks and
significantly greater engineering and marketing capabilities and substantially
greater financial and personnel resources than those available to the Company.
AT&T continues to be the leading provider of long distance telephone
service, and its pricing and services largely determine the prices and services
offered by resellers and other long distance telephone carriers. Generally, the
Company endeavors to provide its long distance telephone services at a lower
cost than comparable services offered by AT&T, MCI or Sprint. Accordingly, the
ability of the Company to compete effectively in the long distance
telecommunications industry will depend upon its ability to offer and maintain
services at competitive rates.
In addition, under current government policy, almost any entity with
sufficient capital can freely enter the domestic long distance
telecommunications market. Moreover, recent legislation eliminated the ban on
local telephone companies competing in the long distance market. The Company may
therefore face additional new competition. Furthermore, a continuing trend
toward consolidation, mergers, acquisitions and strategic alliances in the
telecommunications industry could also give rise to significant market entry of
new competitors to the Company or to significant competition for the Company's
customers. There can be no assurance that the Company will be able to compete
successfully with existing or future competitors. See "Business -- Competition."
The telecommunications industry has been characterized by steady
technological change, frequent new service introductions and evolving industry
standards. The Company believes that its future success will depend on its
ability to anticipate such changes and to offer market responsive services on a
timely basis that
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meet these evolving industry standards. There can be no assurance that the
Company will have sufficient resources to make the investments necessary to
acquire new technology or to introduce new services that would satisfy an
expanded range of customer needs.
LIMITED OPERATING HISTORY; LOSSES IN PRIOR PERIODS
The Company commenced operations in 1993 and has only a limited operating
history upon which potential investors may base an evaluation of its
performance. Potential investors, therefore, have limited historical financial
information upon which to base an evaluation of the Company's performance and an
investment in shares of the Company's Common Stock. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development.
The Company reported net losses of $765,552, $1,075,442 and $371,711 for
the years ended December 31, 1993, 1994 and 1995, respectively. Losses incurred
through December 31, 1994 were attributable primarily to startup costs required
to develop the Company's long distance telephone operations and the costs
associated with transmitting calls on behalf of a rapidly expanding customer
base. While the Company reported net income of $71,964 for the six months ended
June 30, 1996, there can be no assurance that the Company will sustain
profitability or positive cash flows from operating activities in the future. If
the Company is unable to maintain profitability or positive cash flows from
operating activities, it may be unable to meet its working capital or future
debt service requirements, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis, Financial Condition and Results of
Operations" and the Company's Financial Statements and the Notes thereto
contained elsewhere in this Prospectus.
DEPENDENCE UPON THIRD PARTY TRANSMISSION FACILITIES
The future profitability of the Company is based upon its ability to
transmit its customers' long distance telephone calls on a cost effective basis
over transmission facilities leased from facilities based long distance carriers
that compete with the Company. The Company owns only a limited portion of the
transmission facilities needed to complete all of its customers' long distance
telephone calls. Accordingly, the Company is vulnerable to changes in its lease
arrangements and the Company's direct dial long distance telephone business and
the profitability thereof is dependent upon its ability to enter into cost
effective lease arrangements, both long and short term, with facilities based
carriers for the transmission of calls. While the Company believes that it has
ample access to transmission facilities at attractive rates and expects to
continue to have such access, there can be no assurances that leased capacity
will continue to be available at cost-effective rates. See
"Business -- Transmission Network."
IMPLEMENTATION OF THE MERGER
This offering is contingent on the closing of the Merger. While UStel
believes the Merger provides significant benefits to UStel, there may be
difficulty in assimilating the employees from Consortium 2000 into UStel and
assuring that the two management teams will work efficiently together.
Furthermore, there can be no assurance as to how the Consortium 2000 customers
who look to it for independent advice will perceive Consortium 2000 after it
becomes a wholly-owned subsidiary of UStel. Consortium 2000's clients accounted
for approximately 75% of the Company's customer base at June 30, 1996. If, as a
result of the Merger or for any other reason, Consortium 2000 is no longer able
to successfully market the Company's services, the Company's business would be
materially and adversely affected. See "Business -- Consortium 2000."
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH
Although the Company has experienced significant growth in a relatively
short period of time and intends to continue to grow rapidly, there can be no
assurance that the growth experienced by the Company will continue or that the
Company will be able to achieve the growth contemplated by its business
strategy. Implementation of the Company's growth strategy, including the pending
acquisition of Consortium 2000, will place additional demands upon the Company's
management, operational and other resources and will require
8
<PAGE> 10
additional long distance transmission capacity, additional working capital and
billing and information systems. See "Management's Discussion and Analysis of
Results of Operations and Financial Results -- Liquidity and Capital Resources."
The Company's ability to continue to grow may be affected by various factors,
many of which are not within the Company's control, including federal and state
regulation of the telecommunications industry, competition, the transmission
capacity of the Company's long distance carriers and adverse changes in customer
attrition, minute-usage patterns or response rates to the Company's marketing
efforts. While the Company believes that its capital resources, network and
infrastructure provide a platform for future growth, the Company's ability to
continue to manage its growth successfully will require it to further enhance
its operational, management, financial and information systems and controls and
to expand, train and manage its employee base. In addition, as the Company
increases its service offerings and expands its targeted markets, there will be
additional demands on its customer service support and sales, marketing and
administrative resources. There can be no assurance that the Company will
successfully manage its expanding operations, and if the Company's management is
unable to manage growth effectively, the Company's business, operating results,
and financial condition could be materially and adversely affected.
GOVERNMENT REGULATION
Certain of the Company's operations are subject to regulation by the
Federal Communications Commission (the "FCC") under the Communications Act of
1934, as amended (the "Communications Act"). In addition, certain of the
Company's businesses are subject to regulation by state public utility or public
service commissions. Changes in the regulation of, or the enactment or changes
in interpretation of legislation affecting, the Company's operations could have
a material adverse affect on the Company and the value of the Common Stock.
Recently, the federal government enacted the Telecommunications Act of 1996 (the
"Telecommunications Act"), which, among other things, allows the regional bell
operating companies ("RBOCs") and others to enter the long distance business.
Entry of the RBOCs or other entities, such as electric utilities and cable
television companies, into the long distance business may have a negative impact
on the Company or its customers. The Company anticipates that certain of such
entrants will be strong competitors because, among other reasons, they may enjoy
one or more of the following advantages: they may (i) be well capitalized; (ii)
already have substantial end user customer bases; or (iii) enjoy cost advantages
relating to local loops and access charges. The introduction of additional
strong competitors into the switched long distance business would mean that the
Company would face substantially increased competition. This could have a
material adverse effect on the Company and the value of the Common Stock. In
addition, the Telecommunications Act provides that state proceedings may in
certain instances determine access charges the Company is required to pay to the
local exchange carriers ("LECs"). No assurance can be given that such
proceedings will not result in increases in such rates. Such increases could
have a material adverse effect on the Company or its customers and on the value
of the Common Stock. See "Business -- Government Regulation."
EQUIPMENT FAILURES; NATURAL DISASTER
Although the Company carries "commercial property/business interruption"
insurance, such insurance does not include coverage of certain natural
disasters. A major equipment failure or a natural disaster affecting any one of
the Company's switching facilities could have a material adverse effect on the
Company's operations.
CONTROL BY PRINCIPAL STOCKHOLDERS; ANTI-TAKEOVER CONSIDERATIONS
Immediately following this offering, the officers and directors of the
Company and the shareholders of Consortium 2000 will own or control
approximately 33.5% of the outstanding shares of Common Stock. Consequently,
such persons will likely have the power to control the Company. See "Principal
and Selling Stockholders." Upon completion of this offering, the Company will
have authorized 5,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock"). The Board of Directors has designated 550,000 shares of the authorized
preferred stock as Series A Convertible Preferred Stock (the "Series A
Preferred") and 95,000 shares of authorized preferred stock as Series B
Convertible Preferred Stock (the "Series B Preferred"). All
9
<PAGE> 11
of the Series B Preferred has been issued and converted in September 1996 into
95,000 shares of Common Stock. The remaining authorized shares of Preferred
Stock are undesignated and may be issued by the Board of Directors on such
terms, and with such rights, preferences and designations, as the Board of
Directors may determine without future shareholder action. In addition, the
Company is subject to certain provisions of the Minnesota Business Corporation
Act that limit the voting rights of shares acquired in certain acquisitions and
restrict certain business combinations. Some or all of the foregoing factors
could have the effect of discouraging certain attempts to acquire the Company
which could deprive the Company's stockholders of opportunities to sell their
shares of Common Stock at prices higher than prevailing market prices and could
make it more difficult for a third party to acquire the Company. See
"Description of Securities -- Preferred Stock."
LIMITED MARKET FOR COMMON STOCK
Prior to this offering the Company's Common Stock was traded on the Nasdaq
Small-Cap Market. The Company believes there are only two active market-makers
in the Company's stock. Daily trading volume to date has been very limited and
frequently there have been no trades on a given day. The Company intends to
apply for listing of the Company's Common Stock on the Nasdaq National Market
prior to the completion of this offering. No assurances can be made that the
Common Stock will be approved for listing on the Nasdaq National Market and,
even if the Company's Common Stock is listed, no assurance can be made that
there will be sufficient liquidity in the Common Stock to effectuate large
volume trades in the Company's Common Stock.
CUSTOMER ATTRITION
The Company believes that customer attrition is inherent in the long
distance telecommunications industry. Attrition in the long distance
telecommunications industry is generally attributable to a number of factors,
including (i) initiatives of existing and new competitors as they engage in,
among other things, national advertising campaigns, telemarketing programs and
the issuance of cash and other forms of customer "win back" incentives and other
customer acquisition programs prevalent in the residential long distance market
and (ii) the termination of service for non-payment. Although the level of
attrition experienced by the Company has not had a material adverse effect on
its financial results, the Company only began operations in January 1993 and,
accordingly, the level of customer attrition experienced to date may not be
indicative of future attrition levels. In addition, there can be no assurance
that any steps taken by the Company to counter increased customer attrition will
be successful. An increase in the Company's attrition rate or a decrease in the
customer minute-usage pattern could have a material adverse effect upon the
Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock may be significantly
affected by announcement of expanded services by the Company or its competitors,
acquisitions of related companies, changes in governmental regulations and
variations in quarterly operating results, among other factors. The stock market
has recently experienced volatility which has been unrelated to the operating
results of such companies. Such volatility, as well as general economic,
political and market conditions, such as recessions and military conflicts, may
adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act through the exercise of outstanding registration
rights or otherwise, could have an adverse effect on the market price of the
Common Stock and the ability of the Company to raise capital in the future. The
shares of Common Stock sold in this offering will be eligible for immediate
resale, except to the extent acquired by affiliates of the Company.
Additionally, 486,429 shares of Common Stock which are "restricted securities,"
as that term is defined in Rule 144 owned by persons who are not affiliates of
the Company are currently eligible for sale under Rule 144. In accordance with
the terms of certain registration rights agreements, the
10
<PAGE> 12
Company intends to register with the Commission up to approximately 3,134,774
shares of Common Stock (the "Registration Rights Shares") concurrently with this
offering. Approximately 2,900,000 of the Registration Rights Shares will be
subject to lock-up agreements with the Representative, whereby such shares may
not be sold for a 180-day period following the date of this Prospectus without
the prior written consent of the Representative. Upon the expiration or waiver
of lock-up agreements with the Underwriters, the Registration Rights Shares will
be eligible for sale in the public market or pursuant to the registration
statement filed with respect to the Registration Rights Shares. Pursuant to
lock-up agreements with the Underwriters, directors, officers and certain
stockholders of the Company, have agreed not to offer, sell or contract to sell,
or otherwise dispose of, directly or indirectly, or announce the offering of,
any shares of Common Stock, including any such shares beneficially or indirectly
owned or controlled, or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for 180 days from the date of this
Prospectus, without the prior written consent of the Representative.
Approximately 346,428 shares of Common Stock are currently eligible for sale
pursuant to Rule 144. See "Description of Securities," "Shares Eligible for
Future Sales" and "Underwriting."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including, without limitation, the statements under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Business"
regarding the anticipated benefits of the Merger, the competition resulting from
the new telecommunications legislation, the anticipated benefits from the
installation of the in-house billing system, and other matters are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are set forth in these "Risk
Factors," as well as elsewhere in this Prospectus. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock, after deducting underwriting discounts and offering expenses payable by
the Company are estimated to be approximately $10,085,180. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. The Company intends to use approximately $6,272,275 from the net
proceeds from the sale of the Common Stock to repay or reduce existing
indebtedness, approximately $300,000 to purchase computer hardware and software
and related services for an in-house billing system, approximately $1,200,000 to
purchase capital equipment for upgrading the Company's switches and the balance
for other general corporate purposes.
The debt to be paid or reduced consists of the following:
(i) $900,000 of $1,939,011 owed to Coast Business Credit under
revolving and equipment lines of credit. The revolving line accrues
interest at a variable rate of interest equal to the Bank of America
Reference Rate plus 2% per annum (totaling 10.25% at September 15, 1996).
The equipment line accrues interest at a variable rate of interest equal to
the Bank of America Reference Rate plus 3.5% per annum (totaling 11.5% at
September 15, 1996). Of the aggregate of $2,700,000 owing on these lines of
credit, $2,300,000 was used for working capital and $400,000 was used to
purchase certain switching equipment from TYC, Inc., a corporation
wholly-owned by Barry Epling. See "Certain Transactions."
(ii) $88,000 owed to Kamel B. Nacif for a loan bearing interest of 12%
per annum due on the earlier of demand or March 1, 1998. This loan was used
for working capital purposes.
(iii) $1,248,000 owed to Jeflor, Inc. on a loan bearing interest at
the rate of 12% per annum, payable quarterly, interest only commencing in
September, 1996, due in June, 1997. This loan was used for working capital
purposes.
(iv) $3,870,275 owed to WilTel, the Company's primary long distance
carrier, due the earlier of November 10, 1996 or the completion of this
offering. The debt is evidenced by a promissory note bearing interest at
the rate of 15% per annum. This amount was used to finance payables to
WilTel.
(v) $166,000 owing to Solomon, Ross, Grey & Company, a California
general partnership, which is affiliated with Andrew J. Grey, a director of
the Company. This sum is due upon the completion of this offering and bears
interest at 10% per annum. This debt is owing for consulting services
rendered to the Company.
Pending the application of the proceeds of this offering as set forth
above, the Company will invest such proceeds in short-term, interest bearing,
investment grade securities.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the cash, short-term debt and total
capitalization of the Company as of June 30, 1996, on a pro forma basis to
reflect the Merger and on a pro forma basis, as adjusted to reflect the sale of
20,000 shares of Common Stock, the conversion of a portion of the shares of
Series A Preferred into 275,000 shares of Common Stock and the sale of 2,000,000
shares of Common Stock in this offering (at an assumed offering price of $6.00
per share) and the application of net proceeds to the Company therefrom to repay
$6,262,275 of indebtedness. The table should be read in conjunction with the
Company's Financial Statements and Pro Forma Condensed Financial Statements,
including in each case the Notes thereto, appearing elsewhere herein. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED
---------- ---------- ----------
<S> <C> <C> <C>
Cash:
Unrestricted cash................................... $ 650,309 $ 766,377 $3,079,282
Restricted cash(2).................................. 2,110,005 2,110,005 10,005
----------- ----------- -----------
Total cash............................................ $2,760,314 $2,876,382 $3,089,287
=========== =========== ===========
Short-term debt:
Notes payable to banks(3)........................... $4,025,691 $4,125,691 $1,037,691
Notes payable to others(4).......................... 1,484,000 1,484,000 236,000
----------- ----------- -----------
Total short-term debt................................. $5,509,691 $5,609,691 $1,273,691
----------- ----------- -----------
Long-term debt:
12% Convertible Subordinated Debentures(5).......... 500,000 537,381 537,381
----------- ----------- -----------
Total long-term debt.................................. $ 500,000 $ 537,381 $ 537,381
----------- ----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and 645,000 Series A and B Convertible
Preferred Stock outstanding actual and pro forma;
275,000 Series A Convertible Preferred Stock, as
adjusted......................................... 6,450 6,450 2,750
Common Shares, $0.01 par value per share:
40,000,000 shares authorized, 2,011,851 shares
issued and outstanding actual; 3,088,774 shares
issued and outstanding proforma; and 5,478,774
shares issued and outstanding as adjusted........ 20,119 30,888 54,788
Additional paid-in capital.......................... 7,860,761 12,049,992 22,114,972
Accumulated deficit................................. (2,453,890) (2,453,890) (2,453,890)
----------- ----------- -----------
Total stockholders' equity............................ 5,433,440 9,633,440 19,718,620
----------- ----------- -----------
TOTAL CAPITALIZATION.................................. $11,443,131 $15,780,512 $21,529,692
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the Merger. See "Business -- Recent Developments."
(2) Consists of certificates of deposits pledged to secure repayment of the
Company's notes payable to banks. In July, 1996, the Company applied the
certificates of deposit against $2,100,000, the balance of the lines of
credit, leaving a balance owing of $1,925,691.
(3) Under a line of credit of up to $5,000,000 with Coast Business Credit.
(4) See Note 3b of Notes to Financial Statements.
(5) See Note 5 of Notes to Financial Statements.
13
<PAGE> 15
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded in the over-the-counter market since
June 22, 1994 and is included in the Nasdaq Small-Cap Market under the symbol
"USTL". The following table sets forth for the quarters indicated the high and
low closing bid prices per share of Common Stock as reported by the Nasdaq
Small-Cap Market. Prices represent inter-dealer quotations, without adjustment
for retail mark-ups, mark-downs, or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
1994
Third Quarter.............................................. $6.75 $5.125
Fourth Quarter............................................. 7.50 6.25
1995
First Quarter.............................................. $7.50 $6.00
Second Quarter............................................. 7.00 5.00
Third Quarter.............................................. 6.50 4.75
Fourth Quarter............................................. 6.25 4.75
1996
First Quarter.............................................. $6.50 $5.00
Second Quarter............................................. 7.00 5.75
Third Quarter (through September 25)....................... 6.75 6.00
</TABLE>
The 2,119,000 shares of Common Stock outstanding as of September 25, 1996
were held by approximately 125 record holders.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not anticipate paying any cash dividends in the foreseeable future. Instead the
Company intends to retain any earnings to provide funds for use in its business.
The Company's line of credit with Coast Business Credit restricts payment of
cash dividends. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources."
14
<PAGE> 16
SELECTED FINANCIAL DATA
The selected financial and balance sheet data for 1992 through 1995 set
forth below are derived from the audited Financial Statements of the Company.
The Financial Statements at December 31, 1993, 1994 and 1995 and for the years
ended December 31, 1993, 1994 and 1995 have been audited by BDO Seidman, LLP and
are included elsewhere herein. The selected financial data set forth below at
June 30, 1995 and 1996 and for the six months ended June 30, 1995 and 1996 are
derived from the Company's unaudited Financial Statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation of these data. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996 or any
other interim period. The selected financial data are qualified in their
entirety by reference to, and should be read in conjunction with, the Financial
Statements and related notes and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11, 1992
(INCEPTION) TO SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
-------------- ------------------------------------ -----------------------
1992 1993 1994 1995 1995 1996
-------------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Revenues............................ $ 5,740 $1,600,147 $6,118,480 $16,127,575 $6,996,751 $10,526,503
--------- ----------- ----------- ----------- ----------
Operating expenses:
Cost of services sold............. 3,563 1,248,463 4,696,106 11,542,374 5,159,835 7,241,355
General and administrative........ 199,821 637,263 1,412,649 3,071,788 1,165,074 1,830,340
Selling........................... 113,909 368,361 785,933 1,460,010 547,355 1,074,719
Depreciation and amortization..... 1,597 32,894 87,363 177,971 68,318 122,112
--------- ----------- ----------- ----------- ----------
Total operating expenses............ 318,890 2,286,981 6,982,051 16,252,143 6,940,582 10,268,526
--------- ----------- ----------- ----------- ----------
Income (loss) from operations....... (313,150) (686,834) (863,571) (124,568) 56,169 257,977
Income (loss) from rental
operations........................ -- (62,025) (101,705) -- -- --
Net gain on sale of property........ -- 24,993 7,614 -- -- --
Net interest income................. -- (41,686) (117,780) (136,377) (8,031) (186,013)
Relocation costs(1)................. -- -- -- 110,766 -- --
--------- ----------- ----------- ----------- ----------
Net income (loss)................... $ (313,150) $ (765,552) $(1,075,442) $ (371,711) $ 48,138 $ 71,964
========= =========== =========== =========== ==========
Net income (loss) per share......... $ (0.33) $ (0.81) $ (0.83) $ (0.23) $ 0.03 $ 0.03
========= =========== =========== =========== ==========
Weighted average common shares
outstanding....................... 950,000 950,000 1,291,913 1,600,000 1,600,000 2,735,195
========= =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT JUNE 30,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit)............................ $ (338,102) $(1,186,289) $3,722,506 $2,200,440 $ 2,024,586
Total assets......................................... 130,314 2,696,601 7,318,627 11,978,031 14,801,610
Notes payable to banks............................... -- 375,000 770,000 2,900,000 4,025,691
Notes payable to others.............................. 334,421 400,000 -- 1,500,000 1,484,000
Long-term debt, net of current portion............... -- 969,516 -- -- --
Convertible subordinated debentures.................. -- -- 500,000 500,000 500,000
Total debt........................................... 334,421 1,744,516 1,270,000 4,900,000 6,009,691
Total stockholders' equity (deficit)................. (213,150) (498,594) 4,088,234 3,787,773 5,433,440
</TABLE>
- ---------------
(1) The Company incurred relocation costs resulting from the move of its
operations center from Los Angeles, California and Clearwater, Florida to
Las Vegas, Nevada.
15
<PAGE> 17
PROFORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On August 14, 1996, UStel, Inc., Consortium Acquisition Corporation (a
wholly-owned subsidiary created by UStel, Inc.) and Consortium 2000, Inc.
entered into a Merger Agreement and Plan of Reorganization ("Merger Agreement").
Under the terms of the Merger Agreement, Consortium Acquisition Corporation will
be merged with Consortium 2000, Inc., with Consortium 2000, Inc. being the
surviving corporation in the merger. The following unaudited Proforma Condensed
Balance Sheet as of June 30, 1996 gives effect to the Merger Agreement and is
based on the estimates and assumptions set forth herein and in the notes to such
statements. The merger will be accounted for as a purchase, with the assets
acquired and liabilities assumed at fair values, and the results of Consortium
2000, Inc.'s operations included in UStel, Inc.'s financial statements from the
date of acquisition. The merger was accounted for as a purchase since all of the
criteria for a pooling of interest were not met. This proforma information has
been prepared utilizing the historical financial statements and notes thereto.
The unaudited Proforma Condensed Financial Statements do not purport to be
indicative of the results which actually would have been obtained had the merger
been effected on the dates indicated or of the results which may be obtained in
the future.
The unaudited Proforma Condensed Financial Statements are based on the
purchase method of accounting for the aforementioned transaction. The unaudited
Proforma Condensed Balance Sheet and the unaudited Proforma Condensed Statements
of Operations and the related notes should be read in conjunction with UStel,
Inc.'s audited financial statements contained elsewhere in this Prospectus. In
management's opinion, all adjustments necessary to reflect the acquisition have
been made.
16
<PAGE> 18
USTEL, INC.
PROFORMA CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PROFORMA
USTEL, INC. CONSORTIUM 2000, INC. ADJUSTMENTS PROFORMA
----------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash.............................. $ 650,309 $ 116,068 $ 766,377
Restricted cash................... 2,110,005 0 2,110,005
Accounts receivable............... 7,424,475 862,712 8,287,187
Prepaid expenses.................. 707,967 129,988 837,955
------------- ------------ -------------
10,892,756 1,108,768 12,001,524
Property & equipment.............. 2,465,670 101,434 2,567,104
Accumulated depreciation.......... (353,451) (54,844) (408,295)
------------- ------------ -------------
2,112,219 46,590 2,158,809
Other assets...................... 1,796,635 73,088 1,869,723
Goodwill.......................... 0 0 3,615,237(4a) 3,615,237
------------- ------------ -------------
$14,801,610 $ 1,228,446 3,615,237 $19,645,293
============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & accrued
expense......................... $ 3,127,054 $ 506,302 $ 3,633,356
Accrued revenue taxes............. 231,425 0 231,425
Notes payable..................... 5,509,691 100,000 5,609,691
------------- ------------ -------------
8,868,170 606,302 9,464,472
Long-term debt.................... 500,000 37,381 537,381
------------- ------------ -------------
500,000 37,381 537,381
Stockholder's equity.............. 5,433,440 584,763 3,615,237(4a) 9,633,440
------------- ------------ -------------
$14,801,610 $ 1,228,446 3,615,237 $19,645,293
============= ============ =============
</TABLE>
See accompanying notes to proforma condensed financial statements.
17
<PAGE> 19
USTEL, INC.
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PROFORMA
USTEL, INC. CONSORTIUM 2000, INC. ADJUSTMENTS PROFORMA
----------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................ $16,127,575 $ 3,148,773 (1,398,706)(4b) $17,877,642
Cost of Services Sold.......... 11,542,374 1,149,972 (1,398,706)(4b) 11,293,640
----------- --------------------- ----------- -----------
Gross Profit......... 4,585,201 1,998,801 0 6,584,002
Selling........................ 1,460,010 0 1,460,010
General & Administrative....... 3,071,788 1,617,364 4,689,152
Depreciation & amortization.... 177,971 9,000 180,762(4b) 367,733
----------- --------------------- ----------- -----------
Income (loss) from
operations......... (124,568) 372,437 180,762 67,107
Interest expense............... 136,377 10,674 147,051
----------- --------------------- -----------
Relocation costs............... 110,766 -- 110,766
Income before
taxes.............. (371,711) 361,763 180,762 (190,710)
Income taxes................... 112,146 112,146
----------- --------------------- ----------- -----------
Net income........... $ (371,711) $ 249,617 180,762 $ (302,856)
========== ================ ========= ==========
Pro Forma information:
Net Loss per share... $ (0.23) $ (0.11)
========== ==========
Shares used in per
share
calculation........ 1,600,000 2,676,923
========== ==========
</TABLE>
See accompanying notes to proforma condensed financial statements.
18
<PAGE> 20
USTEL, INC.
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PROFORMA
USTEL, INC. CONSORTIUM 2000, INC. ADJUSTMENTS PROFORMA
----------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $10,526,503 $ 1,814,642 (826,088)(4b) $11,515,057
Cost of Services Sold.......... 7,241,355 797,728 (826,088)(4b) 7,212,995
---------- ---------- -----------
Gross Profit......... 3,285,148 1,016,943 0 4,302,062
Selling........................ 1,074,719 0 1,074,719
General & Administrative....... 1,830,340 1,109,738 2,940,078
Depreciation & Amortization.... 122,112 6,000 90,381 218,493
---------- ---------- -----------
Income from
operations......... 257,977 (98,824) 90,381 68,772
Interest....................... 186,013 (2,411) 183,602
---------- ---------- -----------
Income before
taxes.............. 71,964 (96,413) 90,381 (114,830)
Income taxes................... 0 0 0
---------- ---------- -----------
Net income........... $ 71,964 $ (98,413) 90,381 $ (114,830)
========== ========== ===========
Pro Forma Information:
Net Income (loss) per
share.............. $ .03 $ (.03)
==========
Shares used in per
share
calculation........ 2,735,195 3,812,118
==========
</TABLE>
See accompanying notes to proforma condensed financial statements.
19
<PAGE> 21
USTEL, INC.
NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER AGREEMENT AND PLAN OF REORGANIZATION
On August 14, 1996, UStel, Inc. ("UStel"), Consortium Acquisition
Corporation (a wholly-owned subsidiary created by UStel, Inc.) and
Consortium 2000, Inc. entered into a Merger Agreement and Plan of
Reorganization ("Merger Agreement"). Under the terms of the Merger
Agreement, (a) Consortium Acquisition Corporation will be merged with
Consortium 2000, Inc., with Consortium 2000, Inc. being the surviving
corporation in the merger; and (b) all of the capital stock of Consortium
2000, Inc. will be converted into an aggregate of 1,076,923 shares of the
Common Stock of UStel, Inc. As a result of the Merger Agreement, Consortium
2000, Inc. will become a wholly-owned subsidiary of UStel.
2. EFFECT OF ACQUISITION
The adjustments to the Proforma Condensed Balance Sheet as of June 30, 1996
reflects the merger as if it occurred on June 30, 1996. The Proforma
Condensed Statements of Operations for the year ended December 31, 1995 and
for the six month period ended June 30, 1996 reflect the acquisition as if
it occurred on the first day of each period.
3. HISTORICAL FINANCIAL STATEMENTS OF CONSORTIUM 2000, INC.
Consortium 2000, Inc. has a June 30 fiscal year end. In order to bring
Consortium 2000, Inc. a statement of operations up to UStel's December 31
fiscal year end, the results of Consortium 2000, Inc.'s operations for the
six month period ended June 30, 1995 were combined with its results of
operations for the six month period ended December 31, 1995.
4. PROFORMA ADJUSTMENTS
a. The proforma adjustments to the condensed balance sheet are as follows:
(1) To reflect the acquisition of Consortium 2000, Inc. and the
allocation of the purchase price on the basis of the fair values of
the assets acquired and liabilities assumed. The components of the
purchase price and its allocation to the assets and liabilities of
Consortium 2000, Inc. are as follows:
<TABLE>
<S> <C>
Total purchase price (1,076,923 shares X $3.90).......... $4,200,000
Book value of Consortium 2000, Inc....................... (584,763)
----------
Goodwill................................................. $3,615,237
=========
</TABLE>
b. The proforma adjustments to the condensed statements of operations are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
(1) Adjustment to revenue for elimination of
intercompany sales............................. $ 1,398,706 $826,088
(2) Adjustment to cost of services sold for
elimination of intercompany sales.............. (1,398,706) (826,088)
(3) Amortization of goodwill over 20 years.......... 180,762 90,381
---------- --------
$ 180,762 $ 90,381
========== ========
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
INTRODUCTION
The Company was formed in March, 1992, although the Company did not
commence significant operations until January, 1993. Since January, 1993, the
Company's monthly revenues have grown from $10,000 to approximately $2,000,000
in June, 1996. In addition, the number of subscribers to the Company's long
distance telephone service has grown to approximately 12,500 at June, 1996.
On August 14, 1996, UStel, Consortium 2000 and Consortium Acquisition
entered into a Merger Agreement and Plan of Reorganization (the "Merger
Agreement" and "Merger") pursuant to which 1,076,923 shares of UStel are to be
issued to the shareholders of Consortium 2000, in exchange for all of the
outstanding shares of Consortium 2000. Upon consummation of the Merger,
Consortium 2000 will become a wholly-owned subsidiary of UStel. The earnings of
Consortium 2000 will be included in the Company's results on a go forward basis
as reflected in the unaudited Proforma Condensed Financial Statements.
The Company's primary cost is for local access services, which represents
the cost of originating and terminating calls through local networks owned and
operated by local telephone companies such as USWest and Pacific Telesis,
combined with the cost of utilizing usage-sensitive transmission facilities and
leasing long-haul bulk transmission lines from facilities-based carriers.
The Company's profit margin depends, among other things, on the volume of
its operations, on the type of services provided and on the mix between use of
usage-sensitive transmission facilities and long-haul bulk transmission lines.
Initial increases in volume may increase the use of usage-sensitive transmission
facilities relative to fixed rate bulk transmission facilities. The Company does
not expect this to have a significant impact on profit margin due to volume
discounts that are available on usage-sensitive transmission facilities and the
ability to shift to fixed rate long-haul bulk transmission facilities at
relatively low volumes of activity.
QUARTERLY FINANCIAL DATA
From inception through December 31, 1994, and during each quarter in that
period, the Company incurred losses from operations and net losses. Beginning in
the first quarter of 1995, the Company's operations expanded to a point where
revenues have exceeded the combination of minimum underlying fixed costs plus
variable costs associated with the production of that revenue. The following
table sets forth certain quarterly financial information for 1994 and the first
two quarters of 1996. The selected quarterly financial information set forth
below is derived from the Company's unaudited financial statements and, in the
opinion of management, includes all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation of this
information. Results for the first and second quarters of 1996 are not
necessarily indicative of the results that may be expected for the third and
fourth quarters ending December 31, 1996 or for any future period.
<TABLE>
<CAPTION>
1996 - THREE MONTHS
1995 - THREE MONTHS ENDED ENDED
----------------------------------------------------- ------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
--------- --------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $3,142,512 $3,854,239 $4,313,267 $4,817,557 $4,903,267 $5,623,236
Total operating expenses............. 3,121,261 3,804,321 4,618,928 4,707,632 4,810,345 5,458,181
Income (loss) from operations........ 21,251 49,918 (305,651) 109,925 92,923 165,055
Net income (loss).................... 9,020 56,928 (469,429) 31,770 1,398 70,567
</TABLE>
21
<PAGE> 23
The following table sets forth certain items in the Company's statements of
earnings as a percentage of net sales for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Income (loss) from operations..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services sold............................. 78.0 76.8 71.6 73.7 68.8
----- ----- ----- ----- -----
Gross profit...................................... 22.0 23.2 28.4 26.3 31.2
Selling, general and administrative expenses...... 64.9 37.4 29.2 25.5 28.7
----- ----- ----- ----- -----
Income (loss) from operations..................... (42.9) (14.1) (.8) 0.8 2.5
Net interest (expense)............................ 2.6 2.5 1.6 0.1 1.8
----- ----- ----- ----- -----
Earnings before income taxes...................... (47.8) (17.6) (2.3) 0.7 0.7
Income tax expense................................ -- -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................................. (47.8)% (17.6)% (2.3)% 0.7% 0.7%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996 COMPARED
TO
SIX MONTHS ENDED JUNE 30, 1995
Revenues for the six months ended June 30, 1996 were $10,526,503 as
compared to $6,996,751 for the six months ended June 30, 1995. The increase in
revenues in 1996 was the result of expansion from a customer base of 3,400 at
June 30, 1995 to a customer base in excess of 12,500 at June 30, 1996.
Cost of services sold for the six months ended June 30, 1996 was $7,241,355
as compared to $5,159,835 for the six months ended June 30, 1995. The increase
in cost of services sold, similar to the increase between periods in revenue,
was the result of the expansion in the Company's customer base. Cost of services
sold for the six months ended June 30, 1996 was 68.8% of the revenues produced
in the first half of 1996. Cost of services sold for the six months ended June
30, 1995 was 73.8% of the revenues produced in the first half of 1995. The
Company expects continued improvement in this ratio over the next 12 months due
to increasing volume and the accompanying volume discounts from the Company's
suppliers.
General and administrative expenses for the six months ended June 30, 1996
were $1,830,340 as compared to $1,165,074 for the six months ended June 30,
1995. The increase in general and administrative expenses was the result of
increased staff and related costs in support of increased revenues being
produced by the Company.
Selling expenses for the six months ended June 30, 1996 were $1,074,719 as
compared to $547,355 for the six months ended June 30, 1995. The increase in
selling expenses reflect the costs associated with recruiting the expansion and
retention of the Company's customer base from commencement through June 30,
1996.
Depreciation and amortization for the six months ended June 30, 1996 was
$122,112 as compared to $68,318 for the six months ended June 30, 1995.
Amortization of the Company's start-up cost asset was $9,838 for each of the
six-month periods ended June 30, 1996 and June 30, 1995, respectively.
Depreciation for the six months ended June 30, 1996 was $112,274 as compared to
$58,480 for the six months ended June 30, 1995.
The increase in depreciation was the result of the Company's increasing
investments in telephone switching equipment and facilities to handle increased
telephone traffic and increased investment in the computer hardware and software
that supports the operations of the telephone equipment and related billing
activities. The Company's investment in these fixed assets increased from
approximately $1,604,000 at June 30, 1995 to approximately $2,466,0000 at June
30, 1996.
During the six-month period ended June 30, 1996 the Company reported income
from operations of $257,977 versus income from operations of $56,169 for the
six-month period ended June 30, 1995. Interest
22
<PAGE> 24
expense for the six months ended June 30, 1996 was $272,928 as compared to
$64,722 for the six months ended June 30, 1995. The Company continues to utilize
short-term bank lines of credit to supplement its periodic needs for cash in
operations. At June 30, 1996 the Company had outstanding borrowings on such
lines of credit in the amount of $2,100,000, after paydown of $1,000,000
principal in March, 1996, at interest rates that are tied to the prime rate of
interest. In December, 1995, the Company obtained a Senior Credit Facility in
the amount of up to $5 million. This Credit Facility bears interest at the prime
rate plus 2% per annum, with a minimum of $15,000 interest expense per month.
Accordingly, interest expense charged for the six months ended June 30, 1996 was
$122,752, including amortization of related loan fees over thirty-six months.
Interest income for the six months ended June 30, 1996 was $86,915,
principally from the Company's holdings of bank certificates of deposit and
accrual of interest on officers loans, as compared to $56,691 for the six months
ended June 30, 1995.
During the six-month period ended June 30, 1996 the Company reported net
income of $71,964 versus net income of $48,138 for the six-month period ended
June 30, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER, 1994
During the year ended December 31, 1995 the Company reported an operating
loss of $124,568 versus an operating loss of $863,571 for the year ended
December 31, 1994.
Revenues for the year ended December 31, 1995 were $16,127,575 as compared
to $6,118,480 for the year ended December 31, 1994. The increase in revenues in
1995 was the result of expansion from a customer base of 2,240 at December 31,
1994 to a customer base in excess of 9,000 at December 31, 1995.
Cost of services sold for the year ended December 31, 1995 was $11,542,374
as compared to $4,696,106 for the year ended December 31, 1994. The increase in
cost of services sold, similar to the increase in revenue, was the result of the
expansion in the Company's customer base. Cost of services sold for the year
ended December 31, 1995 was 71.6% of the revenues produced in that period of
1995. Cost of services sold for the year ended December 31, 1994 was 76.8% of
the revenues produced in that period of 1994. The Company expects continued
improvement in this ratio over the next twelve months due to increasing volume
and the accompanying volume discounts from the Company's suppliers.
Selling expenses for the year ended December 31, 1995 were $1,460,010 as
compared to $785,933 for the year ended December 31, 1994. The increase in
selling expenses reflected the costs associated with the expansion of the
Company's customer base from commencement through December 31, 1995. Because of
the increased revenues from the Company's expanding customer base, selling
expenses as percentage of revenues decreased from approximately 12.8% in the
year ended December 31, 1994 to approximately 9.1% in the year ended December
31, 1995.
General and administrative expenses for the year ended December 31, 1995
were $3,071,788 as compared to $1,412,649 for the year ended December 31, 1994.
The increase in general and administrative expenses includes $515,000 of
provisions for losses on receivables plus increased staff and related costs in
support of increased revenues being produced by the Company. Depreciation for
the year ended December 31, 1995 was $158,297 as compared to $47,947 for the
year ended December 31, 1994. The increase in depreciation was the result of the
Company's investments in telephone switching equipment and facilities to handle
increased telephone traffic and investments in computer hardware and software
that supports the operations of the telephone equipment and related billing
activities. The Company's investment in these fixed assets increased from
$824,172 at December 31, 1994 to $1,604,357 at December 31, 1995.
Interest expense for the year ended December 31, 1995 was $260,437 as
compared to $152,063 for the year ended December 31, 1994. Interest income for
the year ended December 31, 1995 was $124,060 as compared to $34,283 for the
year ended December 31, 1994. In each period, interest income was earned from
the Company's holdings of bank certificates of deposit.
23
<PAGE> 25
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
During the years ended December 31, 1994 and 1993, the Company incurred
losses from operations of $863,571 and $686,834, respectively. During these
periods the Company's operations expanded but were not sufficient to cover fixed
and variable expenses.
Revenue for the year ended December 31, 1994 was $6,118,480 as compared to
$1,600,147 for the year ended December 31, 1993. The increase in revenue was the
result of expansion from the Company's customer base of 840 at December 31, 1993
to in excess of 2,200 at December 31, 1994.
Cost of services sold for the year ended December 31, 1994 was $4,696,106
as compared to $1,248,463 for the year ended December 31, 1993. The increase in
cost of services sold, similar to the increase in revenue, is the result of the
expansion in customer base. Cost of services sold for the year ended December
31, 1994 was 76.75% of revenue compared to 77.89% of revenue for the year ended
December 31, 1993.
Selling expenses for the year ended December 31, 1994 were $785,933 as
compared to $368,361 for the year ended December 31, 1993. The increase in
selling expenses reflects the costs associated with the expansion of the
Company's customer base.
General and administrative expenses for the year ended December 31, 1994
were $1,412,649 as compared to $637,263 for the year ended December 31, 1993.
The increase in general and administrative expenses is the result of increased
staff and related costs to support the Company's increased revenue.
Depreciation and amortization for the year ended December 31, 1994 was
$87,363 as compared to $32,894 for the year ended December 31, 1993.
Amortization of start-up costs accounted for $19,674 in each of the years ended
December 31, 1993 and December 31, 1994. Depreciation for the year ended
December 31, 1994 was $67,689 as compared to $13,220 for the year ended December
31, 1993.
The increase in depreciation results from the Company's increased
investment in telephone switching equipment and facilities to handle increased
telephone traffic as well as increased investment in computer hardware and
software to support expanded operations and related billing activities. The
Company's investment in these fixed assets increased to $824,172 at December 31,
1994 from $295,709 at December 31, 1993.
In June, 1993, the Company purchased for investment fourteen condominiums
in Santa Monica, California. In 1993, holdings of these condominiums resulted in
a loss from rental operations of $62,025 (including depreciation of $20,114 and
interest expense of $78,902) and a gain of $24,993 from the sale of one unit. In
1994, holding of these condominium resulted in a loss from rental operations of
$101,705 (including depreciation of $37,908 and interest expense of $124,630)
and a gain of $47,205 on the sale of one unit. In December, 1994, the Company
disposed of the remaining twelve condominium units and the debt related to the
condominiums, at a loss at disposition of $39,591.
Interest expense for the year ended December 31, 1994 was $152,063 as
compared to $41,686 for the year ended December 31, 1993. In January, 1994, the
Company, in a private placement, sold $500,000 of 12% Convertible Subordinated
Debentures to investors, resulting in $60,000 in interest expenses in 1994 with
no comparable expense in 1993. In addition, the Company continues to utilize
short-term bank lines of credit to supplement its periodic needs for operating
capital. At December 31, 1994, the Company had outstanding borrowings on such
lines of credit in the amount of $770,000, at interest rates higher than those
experienced in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position at June 30, 1996 was approximately
$2,575,000. Almost since its inception, the Company has experienced pressure on
its working capital position due to operating losses, the need to continually
invest in telecommunications equipment and a significant increase in accounts
receivable due to growth in operations.
24
<PAGE> 26
During the first six months of 1996 the Company utilized net cash of
$1,691,072 for operating activities and an increase in customer accounts
receivable.
The Company is required to pay the costs of providing communications
services to its customers, consisting primarily of local access charges for
obtaining usage-sensitive transmission capacity or leasing fixed-rate bulk
transmission facilities, before the Company receives payment from its customers
relating to those costs.
Because the Company does not yet have an in-house billing system, it is
dependent upon a third-party billing services provider to send out bills to the
Company's customers for usage of the services provided by the Company. Because
of the reliance on an outside billing service it is uneconomical for the Company
to render bills more frequently than once a month. Typically, this results in
bills for services being mailed out between 20 to 30 days after the end of the
month in which the services are rendered. The Company is required to pay for the
use of third-party long distance lines in advance of the receipt of payment by
the Company from its customers for the use of the services provided by the
Company. This strains the Company's working capital as it is required to seek
sources for financing the differences between the payables and receivables.
The Company intends to apply a portion of the proceeds of this offering to
install an in-house billing system which would enable the Company to render its
bills on a more frequent billing cycle and to receive payments from more of its
customers on or before the date the Company is required to pay for the usage of
the long distance lines leased by the Company from third parties.
At June 30, 1996, the Company's accounts receivable, net of allowance for
doubtful accounts, was approximately $7,134,686. In addition, through June 30,
1996, the Company had invested approximately $2,297,000 in switching and related
equipment and in computer hardware and software.
To raise funds to meet the periodic cash needs for operations and fixed
asset acquisition, the Company has relied in the past on bridge financing in
amounts ranging from $100,000 to $1,500,000 at any particular time. Funds from
the initial public offering of common stock and the private placement of Series
A Preferred in 1994 enabled the Company, generally, to avoid these short-term
bridge financings, other than arrangements with banks for short-term lines of
credit. At June 30, 1996, the Company had borrowings outstanding under bank
lines of credit in the amount of $4,025,691. These bank lines of credit were
fully drawn at June 30, 1996. The lines of credit were secured by $2,100,000 of
certificates of deposits. Subsequent to June 30, 1996, the Company applied the
certificates of deposit against the lines of credit, leaving a balance owing of
$1,925,691.
In October, 1995, the Company borrowed $1,500,000 pursuant to the terms of
a one-year term loan. Borrowing under the agreement bears interest at 10% per
annum on a daily principal balance outstanding during the three calendar months
prior to each interest payment date on the first day of each calendar quarter.
The agreement calls for the issuance of warrants for the purchase of up to one
hundred thousand shares of the Company's Common Stock at a price of $5.00 per
share, exercisable over the term of the loan. This loan was repaid in January,
1996 by the issuance of 160,000 common shares of the Company plus $725,000.
In December, 1995, the Company obtained a senior Credit Facility ("Credit
Facility" or "Line") in the amount of up to $5,000,000 with an asset-based
lender. Amounts drawn under the Credit Facility accrue interest at a variable
rate equal to the Bank of America Reference Rate plus 2% per annum. The Line is
secured by accounts receivable and all of the Company's other assets.
Under the Credit Facility, the Company can borrow up to an amount which is
the lesser of $5 million or 85% of the Company's eligible receivables. Subject
to the $5 million maximum borrowing, in addition to amounts supported by
receivables, the Company may borrow on a 36-month term loan basis up to the
lesser of $1.5 million or a formula amount based on the fair value of new
equipment and the liquidation value of existing equipment. The amount
outstanding under the Credit Facility at June 30, 1996 was $1,925,691.
In February, 1996, the Company borrowed $400,000 from a related party. This
loan matures in November 1996 and bears interest at the annual rate of 8%. In
June, 1996, $116,000 of this borrowing was repaid. Interest is payable at the
earlier of maturity of the loan or repayment of the full amount borrowed.
25
<PAGE> 27
In June, 1996, the Company borrowed $1,200,000 from an unrelated party. The
one-year note bears interest at the annual rate of 12% and is unsecured.
Interest is payable at maturity. In conjunction with this loan the Company
agreed to issue warrants for acquisition of up to 540,000 of its common shares
at a price of $5.00 per share. Warrants for purchase of 120,000 common shares
were issuable at the time the loan was funded. Additional warrants become
issuable in increments for 60,000 common shares each at intervals of ninety days
after funding of the loan so long as the loan remains unpaid.
As of September 9, 1996, the Company was indebted to WilTel, the Company's
primary long distance carrier, in the amount of $5,595,963. This amount was
settled by the payment of $1,000,000 by the Company on that date and an
agreement by the Company to remit $735,688 by September 27, 1996, and to remit
payment of its October 1, 1996 invoice to WilTel no later than October 31, 1996,
and to provide WilTel with a second lien against all of its assets and customer
base. WilTel agreed to allow the Company to defer the balance owing in the
amount of $3,860,275 to the earlier of November 10, 1996 or the completion of
this offering. The deferred amount is evidenced by a promissory note that bears
interest at a rate of 15% per annum.
At December 31, 1995, the Company has available net operating loss
carryforwards of approximately $5,908,000 for income tax purposes, which expire
in varying amounts through 2010. Federal tax rules impose limitations on the use
of net operating losses following certain changes in ownership. As of June 30,
1996 the net operating loss carryover may be utilized at a rate of approximately
$402,000 per year, (subject to the Company generating sufficient income from
operations). The amount of the net operating loss carryover that may be utilized
per year to off-set income may be further limited as a result of the
consummation of this offering.
The loss carryforward generated a deferred tax asset of approximately
$2,186,000. The deferred tax asset was not recognized due to uncertainties
regarding its realization, accordingly, a 100% valuation allowance was provided.
IMPACT OF NEW ACCOUNTING STANDARDS
Recent Pronouncements
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will become
effective for the Company's fiscal year ending June 30, 1997. The Company has
studied the implications of SFAS 121 and, based on its initial evaluation, does
not expect it to have a material impact on the Company's financial condition or
results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies that elect not to
adopt the new method of accounting. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 disclosures will be effective for
fiscal years beginning after December 31, 1995.
26
<PAGE> 28
BUSINESS
GENERAL
The Company provides long distance telecommunications services, consisting
primarily of direct dial long distance telephone transmissions to commercial
customers throughout the United States. The Company's customers can call any
point in the United States or any foreign country accessible to customers of
AT&T at rates that are generally lower than those charged by AT&T, MCI and
Sprint. Since commencing operations in January, 1993, the Company's subscriber
base has grown to in excess of 12,500 customers in June, 1996, consisting
primarily of medium-sized businesses located predominantly in the State of
California. In addition, the Company's monthly revenues have increased from
approximately $10,000 in January, 1993 to approximately $2,000,000 in June,
1996.
The Company owns two switch centers located in Los Angeles and Beverly
Hills, California, and leases switch capacity in New York, New York from WilTel,
a national telecommunications service provider. The Company is seeking to
increase its customer base and usage of its switches in order to attain the
volume levels necessary to realize the economic advantages from routing such
traffic through its owned or leased switch capacity. The following table
provides certain information concerning the Company's switching centers:
<TABLE>
<CAPTION>
PERCENTAGE
PORTS UTILIZED
UTILIZED AT AT
AVAILABLE JUNE 30, JUNE 30,
LOCATION PORTS 1996 1996
- ------------------------------------------------------------- --------- ----------- ----------
<S> <C> <C> <C>
110 East Ninth Street, Los Angeles, CA....................... 15,000 788 5.3%
9560 Wilshire Boulevard, Beverly Hills, CA................... 15,000 1,364 9.1%
60 Hudson Street, New York, NY(1)............................ 38,400 648 1.7%
</TABLE>
- ---------------
(1) This switch is leased and is shared with WilTel.
The Company is primarily a non-facilities based interexchange carrier that
routes its customers' calls over a transmission network consisting primarily of
dedicated long distance lines secured by the Company from a variety of other
carriers. This enables the Company to avoid the substantial capital requirements
of building and maintaining its own extensive transmission facilities. The terms
of these lease arrangements vary from month-to-month to longer term arrangements
and the lease costs may be priced on a usage sensitive basis or at a fixed
monthly rate. Because the amount the Company charges its customers for long
distance telephone calls is not based on the cost to transmit such calls, long
distance calls transmitted over facilities leased on a fixed-cost basis
generally are more profitable to the Company than long distance calls
transmitted over usage sensitive circuits, assuming a sufficient volume of calls
is routed over the fixed-cost route. Approximately 65% of the Company's call
volume is transmitted via dedicated lines. Accordingly, the Company's strategy
is to reduce overall transmission costs by entering into long-term agreements
with other carriers to lease dedicated lines at fixed monthly rates and to route
as many of its customers' calls as possible over such lines. The success of this
strategy depends on the Company's ability to generate a sufficient volume of its
customers' calls over such facilities to exceed the fixed costs of leasing such
facilities.
RECENT DEVELOPMENTS
A change of control of UStel occurred on August 14, 1996, as a result of a
stock purchase and the appointment of new Board members, both effective on that
date. On August 14, 1996, the Trust purchased an aggregate of 612,750 UStel
shares for an aggregate consideration of $4,381,163 from two family trusts of
which Noam Schwartz, the former President of UStel, was at one time a trustee.
Royce Diener, the Chairman of the Board of UStel, serves as trustee of the
Trust. The consideration for the shares consisted of cash and purchase money
notes. The notes are payable in installments over a two-year period and are
secured by the shares purchased. In addition to his voting power over the
612,750 UStel shares purchased on August 14, 1996, Mr. Diener beneficially owns
an additional 136,333 UStel shares consisting of 53,000 shares of Common Stock
and immediately exercisable warrants to purchase an additional 83,333 shares of
Common Stock.
27
<PAGE> 29
Messrs. Dackerman and Van Biene, both founders of and substantial shareholders
in Consortium 2000, sit on the Consortium 2000 board of directors with Mr.
Diener. Coincident with the acquisition of the shares, Messrs. Robert L.B.
Diener, Jerry Dackerman and Wouter van Biene were elected to the Board of
Directors of the Company and agreed to serve as President and Chief Executive
Officer, Executive Vice President and Chief Financial Officer, respectively, of
UStel.
Concurrent with the purchase of the shares of Common Stock by the Trust,
the Company entered into the Merger Agreement. Pursuant to the Merger Agreement,
all of the capital stock of Consortium 2000 will be converted into an aggregate
of 1,076,923 shares of the Common Stock of UStel. As a result of the Merger,
Consortium 2000 will become a wholly-owned subsidiary of UStel. Consortium 2000
currently has a marketing agreement with UStel pursuant to which it markets
telephone services on behalf of UStel. Royce Diener, a director of UStel is also
a director and a principal shareholder of Consortium 2000. The Merger will be
effected following approval of the Merger by the stockholders of UStel and
Consortium 2000. The Merger Agreement is subject to certain conditions,
including receipt of stockholder approval, and other conditions as are more
fully set forth in the Merger Agreement. The closing of the Merger is a
condition of this offering.
The Company believes it can achieve significant benefits through the
Merger. The Company will realize immediate cost savings because a substantial
portion of the commissions historically paid by Ustel to Consortium 2000 for
customer referrals will be eliminated. In addition, members of Consortium 2000's
management, who have recently joined the Company, plan to implement several
programs designed to increase the Company's customer base and profitability. For
example, management intends to implement a new in-house billing system in order
to reduce the amount of time between the provision of services by the Company
and the collection of payments from its customers.
CONSORTIUM 2000
Consortium 2000 is a telecommunications marketing and consulting services
provider which refers telecommunications customers to long distance carriers,
regional carriers, interexchange carriers, resellers and other aggregators. It
derives its revenues from sales agent commissions paid by the carriers to whom
it refers its customers. Consortium 2000 obtains customers by offering to
analyze the customer's long distance calling patterns, usage volume and the
specialized telecommunications needs of its individual customers. Utilizing
network analysis software and the expertise of its employees, Consortium 2000
provides its customers with recommendations as to which long distance carrier is
best suited to provide the particular and specialized telecommunication needs of
its individual clients at the lowest possible costs. Because Consortium 2000
represents 12,000 nationwide major telecommunications users, it is able to
negotiate volume discounts on behalf of its clients.
Consortium 2000 has independent sales agent agreements with most of the
major long distance carriers and is able to recommend an array of carriers to
its customers or it can recommend a division of the customer's business among
several carriers in order to avoid excessive concentration with a single
carrier. Consortium 2000 also provides its customers with ongoing
telecommunications services and technical support by monitoring any changes in
client needs as well as developments in the telecommunications field which may
provide new opportunities for service to its clients. Consortium 2000 is not a
long distance carrier, reseller, rebiller or representative for any particular
long distance provider and does not operate a telecommunications network. It
does, however, utilize the purchasing power and economies-of-scale of its client
base in order to negotiate with a variety of long distance providers for special
pricing and enhanced services for its clients.
In mid-1994, UStel entered into a non-exclusive sales agent agreement with
Consortium 2000. At June 30, 1996, approximately 75% of UStel's customers were
referred to the Company by Consortium 2000. Conversely, approximately 70% of
Consortium 2000's revenues during the six months ended June 30, 1996 consisted
of sales commissions resulting from referrals of customers to UStel. After the
Merger with UStel, Consortium 2000 will continue to function as an independent
communication services management consultant with the ability to place members
with a broad range of carriers. Based upon its knowledge of comparative tariffs
among alternative carriers, Consortium 2000 believes that UStel is often a
low-cost alternative and will accordingly continue, where appropriate to its
clients' needs, to refer its customers to UStel. However, where a
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customer's needs are better served by another carrier, Consortium 2000 will
refer such customer to the appropriate carrier and UStel will earn a sales agent
commission with respect to such business. There can be no assurance as to how
the Consortium 2000 customers who look to it for independent advice will
perceive Consortium 2000 after it becomes a wholly-owned subsidiary of UStel.
If, as a result of the Merger, or for any other reason, Consortium 2000 is no
longer able to successfully market the Company's services, the Company's
business would be materially and adversely affected.
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BUSINESS STRATEGY
The Company's strategy is to achieve continued growth and profitability by
focusing its marketing efforts on small- to mid-sized businesses and by reducing
its overall cost of delivering long distance telecommunications services. The
Company's specific objectives are as follows:
Continue to Market Long Distance Telecommunications Services through its
Agent Network. The Company believes that direct sales are the most effective
means of adding customers who will have long-term loyalty to the Company. In
this regard, primarily utilizing the Consortium 2000 agent network, the Company
believes that it can access new customers by continuing to market itself as a
low-cost alternative compared to other long distance carriers introduced to the
customer by Consortium 2000.
Increase Name Recognition. The Company believes that its name is
well-recognized in the industry as providing reliable, low-cost
telecommunications services together with excellent customer service. The
Company will seek to increase customer awareness by targeting its products to
affinity and such other groups which the Company believes will provide it access
to large customer bases.
Leverage Consortium 2000's Diverse Client Base and Relationships With
Affiliated Long Distance Carriers. The Company believes that through Consortium
2000, it can market to a diverse group of potential commercial customers, and
where appropriate, participate with larger carriers in providing services to
these customers. The Company believes that following consummation of the Merger,
the Company will be able to maintain client relationships and earn agent
commissions from other carriers, even where the Company is not selected as the
customer's primary long distance carrier.
Utilize Synergies of Consortium 2000 Merger. The Company believes that
significant cost efficiencies can be achieved through the integration of the
Consortium 2000 upon consummation of the Merger and consolidation of certain key
functions within the combined companies.
Install In-house Billing System. The Company believes that it can achieve
significant cost-savings and reduce reliance on its working capital facility by
installing its own dedicated billing system. The Company believes that the
system will enable it to produce billings on a more timely basis and permit
multiple billing cycles per month. The Company also believes that the system
will also enhance customer service and reduce billing errors.
Increase Shared-Tenant Services. The Company has installed its
telecommunications equipment in two buildings where there are large numbers of
commercial telecommunications users. By placing switching equipment in these
locations, the Company can essentially become the customer's local telephone
carrier and further decrease the cost of providing long distance services to
these customers. The Company intends to provide shared tenant services in the
future on an opportunistic basis in circumstances where the economics justify
the capital expenditures associated with providing such service.
Increase International Traffic. The Company has a number of contracts with
foreign telecommunications carriers who utilize the Company's facilities to
terminate traffic either in the United States or in other foreign countries. In
this manner, the Company provides "wholesale" services to the foreign carrier
and is directly compensated by the carrier. Several carriers in Israel direct a
portion of their international traffic to the Company's switching equipment in
New York City. The Company then transmits the call to its final destination. The
Company believes that the opportunity exists to provide such foreign call
termination services from a number of countries.
Decrease Network Costs. As a result of its substantial growth in traffic
over the past two years, the Company has the opportunity to achieve reductions
in its cost of carrying traffic over its network. The Company expects that these
cost reductions will come from three principal initiatives -- (1) negotiation of
more favorable rates with its underlying long distance carriers through volume
guarantees and the ability to pay for services on a more timely basis, (2)
implementation of strategically placed switching and related equipment to route
more traffic through the Company's fixed-cost circuits and (3) conversion of
variable cost traffic to fixed cost circuits as warranted by call volume.
Make Strategic Acquisitions. The Company believes that opportunities exist
to acquire other small- to mid-sized long distance carriers. Typically, smaller
carriers face difficulty reaching a critical mass of business
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and accessing capital for expansion. Many of these carriers have attractive
regional customer bases which can easily be routed through the Company's
existing long distance telephone network.
THE LONG DISTANCE INDUSTRY
On January 1, 1984, AT&T's divesture of the Bell System went into effect.
As a result of the divestiture decree (the "AT&T Divestiture Decree"), AT&T was
forced to divest its 22 Bell Operating Companies ("BOCs"), which were
reorganized under seven RBOCs, such as Pacific Telesis and US West. 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 LECs. The LECs 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 interLATA long distance business, but was
prohibited from providing intraLATA long distance and local service. The BOCs
and other local exchange carriers were permitted to compete for intraLATA long
distance and local service, but were prohibited from entering the interLATA long
distance market in which the Company competes, although legislation has been
introduced in Congress that would permit the BOCs and other LECs to compete in
the long distance market.
The AT&T Divestiture Decree also required the LECs to provide all
interexchange carriers, such as the Company, with access to the local telephone
exchange facilities that is "equal in type, quality and price" to that provided
to AT&T. In addition, the LECs were required to conduct a subscription process
allowing consumers to select their long distance carrier. This development,
known 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 interexchange 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
interLATA calls are routed automatically to the consumer's long distance carrier
of choice, while all intraLATA traffic is carried by the LECs. The AT&T
Divestiture Decree and the implementation of equal access constitute the
fundamental regulatory developments that allow interexchange carriers other than
AT&T, such as the Company, to enter and compete in the long distance
telecommunications market.
All interexchange carriers, including AT&T and the Company, pay charges to
the LECs for access to local telephone lines at both the originating and
terminating ends of all long distance calls, unless the Company is able to
install a dedicated line providing direct access from the customer to one of the
Company's switch centers. As is the case with most interexchange carriers,
access charges represent the single largest component of the Company's cost of
revenues. One element of the Company's strategy is to focus on the development
of "shared tenant services" and "shared services providing," where the Company
can install dedicated lines from commercial customers concentrated in a single
location such as a high rise building to the Company's switch centers thereby
bypassing the local access cost.
Since the AT&T Divestiture Decree, the long distance industry has
experienced rapid technological development. Prior significant technological
change was the advent of digital transmission technology, which represented an
improvement over analog technology. Because the BOCs and many LECs converted
rapidly to digital switches, digital technology was necessary for interexchange
carriers to connect to the LECs 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.
The construction of these additional transmission facilities created two
distinct groups in the long distance industry: facilities based carriers
(entities which own their own transmission network) and non-facilities based
carriers (such as the Company). The surge in construction of new long-haul
facilities has created excess transmission capacity for long distance calls.
This excess capacity and the resultant decline in
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transmission rates have both raised the break-even traffic volume for facilities
based carriers and increased the difficulty of obtaining that volume through
their internal customer bases. Accordingly facilities based carriers have become
both wholesalers and retailers, selling their transmission capacity to both
non-facilities based carriers and consumers. Non-facilities based carriers such
as the Company have benefited from the wider availability and the lower cost of
transmission services, as it has become possible for them to lease circuits on
attractive terms, particularly as their volume of business increases to
significant levels.
The AT&T Divestiture Decree prompted several hundred new entrants into the
long distance industry, including the Company. The industry, however, has
experienced rapid consolidation, primarily due to the technological changes
described above. Facilities based carriers, many of which were initially
unprofitable due to their sizable capital outlays, began acquiring other
carriers to increase traffic for their networks in an effort to cover fixed
costs. Similarly, larger non-facilities based carriers began buying smaller
carriers to build their traffic, improve their networking, and increase their
leverage in leasing transmission facilities from facilities based carriers.
As a result of the changes brought about by the AT&T Divestiture Decree,
interexchange carriers, including the Company, generally provide long distance
telephone services at a lower cost than the comparable services offered by AT&T,
MCI and Sprint. The Company's success will depend on its ability to provide
comparable or better services at prices equal to or lower than its competitors
in the future.
LONG DISTANCE SERVICES
The Company provides its customers with 24-hour long distance telephone
services to all points in the United States and to any foreign country
accessible to customers of AT&T. In providing long distance telephone services,
the Company offers a variety of service options, including "1 +" dialing (which
avoids the need to dial a separate access code to access the Company's long
distance service), inbound "800" service, "800" travel service, operator
services, private line networks and data transmission services. Under most of
its service options, the Company charges its customers on the basis of minutes
of usage at rates that vary with the distance, duration and time of day of a
call as well as local access for long distance traffic.
A subscriber may access the Company's telecommunications transmission
network in several ways. If a subscriber is located in a given service
origination area that has been converted to equal access and such subscriber has
selected the Company as its primary long distance carrier, then access is gained
by dialing "1" plus the area code and number desired. A second method of access
is through dedicated access lines, which are private leased lines dedicated to
one or more customers and which provide a direct connection between the
customer's premises and the Company's long distance transmission network.
Another method of access available in both equal access and non-equal access
areas requires a subscriber to dial a seven- or ten-digit access number to reach
the Company's switch. Following the switch's signal, the subscriber then enters
his authorization code, area code and the telephone number of the call
destination. If the switch determines that the subscriber's authorization code
is valid, the switch directs the call to the desired destination through the
most cost-effective intercity transmission circuits then available. The
installation of automatic dialers at a subscriber's location reduces the number
of digits a subscriber must dial to complete a long distance telephone call by
automatically dialing the local seven- to ten-digit access number and the
subscriber's authorization code. The use of dedicated access lines or dialers,
which are used for high-volume subscribers, also eliminates the need to enter an
authorization code. At December 31, 1995, approximately 59% of the Company's
revenues were derived from customers that utilize dedicated access lines and
approximately 40% of such revenues were derived from customers that utilize the
direct dial method of access. Less than 1% of such revenues were derived from
customers that were required to use access numbers and authorization codes.
OTHER SERVICES
The Company makes available to its customers a variety of other service
options. The inbound "800" service, for example, permits the customer to be
billed for long distance calls made to the customer by that customer's clients.
The Company's "800" travel service permits customers to utilize the Company's
network from locations outside of their own service areas. Operator assistance
services provided through third-party
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contractors permit broad based usages of the Company's system from business
establishments and residences. The Company contracts with US Long Distance Inc.,
for operator services where the call is answered in the name of the customer.
The Company's experience with these third party service providers has been
positive. Private line networks offer specialized point-to-point services,
including transmission of data, on a fixed cost basis. The TELCard(TM) calling
card offers international calling capabilities in addition to convenient long
distance usage. The Company also offers its customers special access options for
dedicated long distance lines.
Each customer of the Company receives a detailed monthly call report and
invoice for services from the Company setting forth the date, number called,
duration of call and time and charges for each call. While billing services are
primarily provided through an outside contractor at present, the Company is in
the planning stages of bringing the billing system in-house to achieve greater
control, decreased collection periods and increased profitability. See "Use of
Proceeds." The Company presently bills certain wholesale accounts by an in-house
billing system and also offers specialized billing services, including account
coding which permits identification of long distance calls in a single account
by caller or project.
The Company's long distance telecommunications services are available 24
hours a day, seven days a week. To assist subscribers with questions regarding
services, billing and other matters, the Company maintains a customer service
department and staff which is accessible to subscribers by telephone 24 hours a
day, 365 days a year.
Consortium 2000 provides telecommunications consulting services to a
diversified client base. Consortium 2000 analyzes a customer's long distance
calling patterns, usage volume and specialized telecommunications needs and
recommends equipment requirements, calling plans and carriers to be utilized to
achieve the most effective result. Consortium 2000 also acts as a sales agent
for a broad base of long distance carriers, including the Company, and is
compensated in the form of commissions for business placed with each such
carrier.
TRANSMISSION NETWORK
The Company's transmission network provides the connections from the
subscriber to the call destination. A call may be completed by using either (a)
a fixed-cost, long-haul circuit, connecting the call at a switch center to the
destination city where the call is terminated by a LEC which directs it to the
called party or (b) when all fixed-cost circuits connected to the called city
are in use or if the called area is not served by existing fixed-cost circuits,
switched access services from other carriers. Switched access services are usage
sensitive and may cost more or less than that of a fixed-cost circuit, depending
on the volume of calls to a particular destination.
Switched access circuits are "usage sensitive" because the rates paid for
them may vary with the day, time, frequency and duration of telephone calls
transmitted through such circuits. In contrast, the rates paid by the Company to
lease dedicated line facilities are fixed and therefore do not vary with usage
or time of day. As a result, the Company's fixed-cost circuits are less
expensive to use for routes over which the Company carries high volumes of long
distance traffic. Because the amount the Company charges for long distance
telephone calls is not based on the cost to transmit such calls, long distance
calls transmitted over high-volume, fixed-cost routes generally are more
profitable to the Company than long distance calls transmitted over usage
sensitive circuits, assuming a sufficient volume of calls is routed over the
fixed-cost route. Consequently, to the extent possible, the Company attempts to
connect calls through transmission facilities which are not usage sensitive.
Profitability of the Company's operations depends largely on utilizing
transmission circuits on a cost effective basis. Accordingly, the Company's
strategy is to reduce overall transmission costs by entering into long-term
agreements with other carriers to lease bulk transmission facilities or other
dedicated lines at fixed monthly rates and to route as many of its customers'
calls as is possible over such lines.
Except for certain pricing agreements, the dedicated lines used by the
Company are generally leased on a month-to-month basis. While these
month-to-month arrangements may be terminated upon notice by the Company, they
may not be terminated under current law by the carrier unless the Company fails
to comply with the terms of the lease or unless the service is terminated for
the Company and all other long distance
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telephone carriers. Generally, rates charged under these leases may be increased
or decreased by the carriers upon notice after filing with the FCC for
interstate circuits, or applicable state public utilities commissions ("PUCs")
for intrastate circuits, provided the rates charged apply equally to all users
of the services.
Subject to the foregoing, the Company's strategy is to continue to lease
bulk and/or flat rate circuit capacity and to resell that capacity at usage
sensitive rates to its subscribers. The Company continuously reviews traffic
study programs to analyze its volume of traffic in light of its then-existing
circuit capacity. All circuits which the Company utilizes, with the exception of
local switched access circuits to a switch center, are generally offered by
several common carriers, and any decision concerning which types of circuits to
be used is typically based on individual route cost as well as the transmission
quality of the circuits provided. The continued availability to the Company of
transmission facilities leased at bulk rates is fundamental to the economic and
financial viability of its business.
CALL SWITCHING EQUIPMENT
The Company owns certain computerized network digital switching equipment
that routes certain of its customers' long distance calls. Other customers'
calls are routed through facilities leased by the Company from a variety of
other carriers. A switch is a computer controlled digital processor designed
primarily to route and track telephone calls. Switching equipment operates like
an electronic "toll booth," routing each call to its destination and tracking
the length of the call for billing purposes. A secondary function of a switch is
to determine and effect the least expensive route for each call among a variety
of routing options. Currently the Company owns two digital switching centers and
leases switch capacity from WilTel Inc. Two of the switching centers are located
in Southern California and one is located in New York, New York. The Company's
subscribers can access this call switching equipment through equal access, which
only requires dialing "1", plus the area code and telephone number, by using a
dedicated line, or by dialing a seven- or ten-digit number, authorization code,
identification number (for billing), area code and telephone number. Once a
customer accesses the switching equipment, the equipment "answers" the telephone
call, verifies the caller's billing status, routes the call to the dialed
destination and monitors the call's duration for billing purposes. The Company
has programmed its switching equipment to select the most cost-effective
transmission circuit then available to the Company to complete a call as dialed.
In addition to networking, the Company's switching equipment verifies customers'
pre-assigned authorization codes, records billing data and monitors system
quality and performance. To satisfy increasing or anticipated usage of its long
distance network, the Company has added and will continue to add circuit
capacity at existing switching centers by increasing the number of ports on
existing switches.
RATES AND CHARGES
The Company charges customers on the basis of minutes or partial minutes of
usage at rates that vary with the distance, duration and time of day of the
call. The rates charged are not affected by the cost to the Company of the
particular transmission facilities selected by the Company's network switching
centers for transmission of the call. Discounts are available to customers that
generate higher volumes of monthly usage. The Company continually evaluates the
rates and fees charged for its services and, under appropriate circumstances,
may implement different pricing arrangements for existing or new services.
The Company endeavors to charge rates that are generally lower than those
charged by AT&T and competitive with those charged by other long distance
carriers. The rates offered by the Company may be adjusted in the future as AT&T
and other interexchange carriers continue to adjust their rates.
Once a customer has submitted the proper paperwork and is approved by the
Company's credit department, all pertinent information, i.e., telephone numbers,
calling card data, address, contact person, billing address, etc. is entered
into the Company's information system and the Company's computer network. The
Company's information system then generates the appropriate electronic
instructions which connect the customer to the Company's network.
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Data regarding calls made by the client come from several sources: the
Company's switches; its calling card system; or WilTel, AT&T, Sprint and/or MCI.
After receiving the records of the calls on magnetic media, the Company inputs
the data into the billing system for processing.
Processing by the Company's information system includes: checking for
duplicate call records, confirming that calls to and from numbers that are not
in the Company's system are flagged for further research, verifying that the
origination and termination of calls are from valid telephone numbers and
circuits, and verifying that valid rates exist for each call. Calls which fail
any initial processing checks are placed in a rejected call file for additional
analysis.
All approved calls are rated, taxed and a bill is generated for the
individual clients. The Company's in-house personnel reviews printed bills for
accuracy and appearance before the Company mails them to customers.
Substantially all of the Company's billing services are currently provided
to the Company by a third party. The Company intends to acquire an in-house
billing system. See "Use of Proceeds" and "Management Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources."
MARKETING
The Company's marketing efforts have been and continue to be directed
principally at small-to-medium-sized business and larger residential users. The
Company derives the majority of its revenues from the sale of long distance
telecommunications services to commercial subscribers. Commercial subscribers
typically use higher volumes of telecommunications services than residential
customers and concentrate usage on weekdays and business hours when rates are
highest. Consequently, commercial customers, on average, generate higher
revenues per account than residential customers. While the Company's focus is on
commercial customers in major metropolitan areas, it can provide long distance
services to customers in any area of the United States. The largest
concentration of the Company's customers is in Southern California.
The Company principally markets long distance services through independent
sales agents. These agents are not restricted to specific territories and their
sales efforts are not directed, as to location, by the Company. Through the
Company's marketing agreement with Consortium 2000, a network of approximately
1000 agents have actively marketed the Company's services over the past two
years. The majority of the Company's new accounts over this period have been
procured by Consortium 2000-affiliated agents.
Consortium 2000 maintains agent relationships with various long distance
carriers. The Merger will provide marketing synergy in that the Company will
have the flexibility to place customers with carriers other than the Company who
might be in a better position to service that customer's particular needs, while
still benefiting from the customer relationship through receipt of agent fees
paid by the third-party carrier. From the customer's perspective, this
flexibility represents a value-added element of the client relationship. The
Company also has the ability to divide a customer's business between several
carriers, including the Company, thereby avoiding the problem of risk
concentration resulting from very large accounts. In the case of such large
accounts, as long as the Company is managing the customer's long distance
traffic, over time, additional traffic can be directed to the Company as the
situation warrants.
COMPETITION
As a result of the AT&T Divestiture Decree, numerous competitors, in
addition to AT&T, have entered the long distance telecommunications market,
resulting in profound changes in the competitive aspects of the industry. The
Company competes directly with a number of facilities based common carriers,
including AT&T, MCI and Sprint, all of which have substantially greater
financial, marketing and product development resources than the Company. In
addition, the Company competes with hundreds of smaller regional and local
non-facilities based carriers and resellers. AT&T remains the dominant company
providing domestic long distance telephone service, and its pricing and services
largely determine the prices and services offered by resellers and long distance
telephone carriers providing long distance telephone service. Because the
regulation
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and operations of AT&T and the BOCs are undergoing considerable change, it is
difficult to predict what effects the future operations and regulation of AT&T
will have on the Company's existing and prospective business operations.
In recent years, increased competition among long distance carriers has
resulted in an overall reduction in long distance telephone rates. The impact on
net income of these reductions has been offset somewhat by networking
efficiencies, declining costs in access charges and readily available
transmission facilities, largely due to the expansion of circuit capacity
through the installation of fiber optic transmission facilities. The advent of
fiber optic technology has resulted in another major impact on the long distance
market. Initially, long distance carriers competed with AT&T based strictly on
price. Discounts of 25% to 35% from AT&T rates were typical, because long
distance carriers were attempting to build market share and because their
transmission quality was generally inferior to that of AT&T. The introduction of
fiber optic facilities, however, effectively eliminated AT&T's transmission
quality advantage. Gradually, the industry and consumers begin to recognize the
importance of quality service as well as price, and the price differential has
decreased. Recognition that competition is not solely based on price has led to
a greater emphasis on customer service, with many companies adding product
variety, customized billing and other value-added services.
Unlike the Company's larger facilities based competitors which own their
own transmission facilities, the Company is vulnerable to changes in rates
charged by facilities based carriers for use of their facilities. The Company
has attempted to minimize its vulnerability to cost increases through the
long-term leasing of fiber-optic and other digital transmission circuits. While
cost or concessions paid to customers may, in certain cases, be the primary
consideration for a customer's selection of long distance telephone service, the
Company believes that other factors are significant, including ease of obtaining
access to the long distance network, quality of the telephone connection format
and management information presented in the specialized billing data generated
by the carrier, and enhanced services such as "800" service, repair service and
automated collect calling.
GOVERNMENT REGULATION
GENERAL
The Company competes in an industry that, to a large degree, continues to
be regulated by federal and state government agencies. At approximately the same
time as the required divestiture of the Bell telephone companies by AT&T in
1984, the FCC announced rules that were created to foster a self-regulating
interstate telecommunications industry, relying upon competitive forces to keep
rates and services in check.
The FCC has regulatory jurisdiction over interstate and international
telecommunications common carriers, including the Company. Under Section 214 of
the Federal Communications Act, the FCC must certify a communications common
carrier before it may provide international services. The Company has obtained
Section 214 authorization to provide international services by means of resale.
At August 31, 1996, the Company had obtained a certificate of public
convenience and necessity or equivalent documents from approximately 34 states
to provide long distances services within those states. Regulations within each
of these states, as they pertain to completing direct dial long distance calls
for the Company's customers within the state, are virtually static. As the
Company expands the geographic scope of its direct dial long distance business,
it will be required to obtain additional state regulatory approvals to provide
intrastate long distance service.
FEDERAL REGULATION
In 1981, the FCC substantially deregulated the interstate activities of
non-dominant inter-exchange carriers such as the Company. The FCC later extended
this deregulatory policy to resellers of satellite services, resellers
affiliated with independent telephone companies and facilities based carriers
(such as MCI and Sprint) which compete with AT&T. It retained its jurisdiction
over customer complaint procedures and basic statutory common carrier
obligations to provide nondiscriminatory services and rates. Interstate carriers
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subject to these deregulatory actions were no longer subject to certification by
the FCC or to tariff filing requirements under the Communications Act.
These changes in FCC policy have had the effect of lowering the rates of
AT&T, the dominant provider of long distance telephone service and pricing model
for the Company, and other providers and resellers of long distance services.
The potential continued deregulation of AT&T may have a material adverse effect
on the Company's ability to compete effectively with AT&T.
In connection with the 1984 divestiture by AT&T of the RBOCs, the RBOCs,
and subsequently General Telephone and Electric Company, were directed to
provide all long distance carriers and resellers the same high quality access
and technical interconnection that was previously provided solely to AT&T. The
FCC determined that the access charges to be paid by long distance carriers such
as the Company and other carriers not receiving access equal to that afforded
AT&T would be set initially at a rate offering a substantial discount from the
access charges paid by AT&T. Under equal access, the Company's subscribers enjoy
the convenience of a universal and simple dialing plan and the Company is
provided with equal access to the local exchange. Within the Company's primary
marketing areas, the equal access conversion process is virtually, complete;
therefore, the Company no longer receives the above mentioned discount and must
pay the same access charges as are paid by AT&T.
INTERSTATE ACCESS TRANSPORT PROCEEDING
In an effort to encourage competition in the provision of interstate access
services, the FCC granted increased pricing flexibility to LECs for "access
transport" services. Access transport refers to the connection provided by LECs
between long distance carriers' long distance facilities and the customer's
telephone. These rate structures previously were designed such that local
telephone companies assessed an equal charge per unit of access to all long
distance carriers, regardless of the volume of local access that these long
distance carriers independently generated. Under the new FCC pricing plan,
adopted in the fall of 1993, local telephone companies were allowed to offer
more cost effective access to those long distance carriers with very high access
volumes in a particular local market. Accordingly, long distance carriers with
lesser access requirements, such as the Company, could experience increases in
their overall average access cost relative to larger competitors.
The FCC pricing plan implemented in the fall of 1993 was set to expire in
November, 1995. In principle, the plan has been extended pending resolution of a
comprehensive telecommunications bill which was enacted into law in early 1996.
Under this process, the FCC could grant local telephone companies further
flexibility and could potentially impose a greater burden upon the operations of
the Company's direct dial long distance services. The FCC believes, the
proliferation of competitive access providers and increased long distance
carrier network efficiencies should offset any inequities caused by volume
sensitive access pricing. The Company is unable to predict the course and effect
of the FCC's actions on this issue at this time.
FCC FORBEARANCE POLICY
In 1983, the FCC exempted "non-dominant" long distance carriers from being
required to publicly file rates with the FCC. As a result of the FCC's
"forbearance" policy, long distance carriers such as this Company were permitted
to enter into individual contracts with customers without disclosing the rates
charged to such customers to their competitors or its other customers. In
November, 1992, however, the U.S. Court of Appeals for the D.C. Circuit found
the FCC's "forbearance" policy to be unlawful, ruling that the forbearance
policy violated federal communications law governing the FCC. In response to the
ruling by the federal appeals court, MCI and the Justice Department, on behalf
of the FCC, filed separate appeals with the U.S. Supreme Court requesting that
the appeals court ruling be overturned. In June, 1994, the U.S. Supreme Court
upheld the ruling in the case. As a result, all long distance carriers,
including the Company, are required to publicly file with the FCC the rates
charged for their long distance services.
RECENT LEGISLATION
In February, 1996, the Telecommunications Act was signed into law. The
purpose of the Telecommunications Act is to promote competition in all aspects
of telecommunications. The Telecommunications Act
36
<PAGE> 39
requires telecommunications carriers to interconnect with other carriers and to
provide for resale, number portability, dialing parity, access to rights-of-way
and compensation for reciprocal traffic. Additionally, incumbent local telephone
companies are required to provide nondiscriminatory unbundled access, resale at
wholesale rates and notice of changes that would affect interoperability of
facilities and networks. The FCC is to adopt mechanisms to ensure that essential
telecommunications services are affordable.
The Telecommunications Act also provides that RBOCs may provide long
distance service upon enactment that is out-of-region or incidental to: (1)
audio/video programming; (2) Internet for schools; (3) mobile services; (4)
information or alarm services; and (5) telecommunications signaling. In order
for a BOC to provide inregion long distance service, the Telecommunications Act
requires the BOC to comply with a comprehensive competitive checklist and
expands the role of the U.S. Department of Justice in the FCC's determination of
whether the entry of a BOC into the competitive long distance market is in the
public interest. Additionally, there must be a real facilities-based competitor
for residential and business local telephone service (or the failure of the
potential providers to request access) prior to a BOC providing in-region long
distance service. BOCs must provide long distance services through a separate
subsidiary of at least three years. Until the BOCs are allowed into long
distance or three years have passed, long distance carriers with more than 5
percent of the nation's access lines may not jointly market BOC resold local
telephone service, and states may not require BOCs to provide intraLATA dialing
parity.
Telecommunications companies may also provide video programming and cable
operators may provide telephone service in the same service area. The
Telecommunications Act prohibits telecommunications carriers and cable operators
from acquiring more than 10 percent of each other, except in rural and other
specified areas.
The impact of the Telecommunications Act on UStel is unknown because a
number of important implementation issues (such as the nature and extent of
continued subsidies for local rates) still need to be decided by state or
federal regulators. However, the Telecommunications Act offers opportunities as
well as risks. The new competitive environment should lead to a reduction in
local access fees, the largest single cost in providing long distance service
today. The removal of the long distance restrictions on the BOCs is not
anticipated to have an immediate significant impact on UStel because of the
substantial preconditions that must be met before the BOCs can provide most
in-region long distance services. However, the entry of these local telephone
companies into long distance telecommunications services could result in new
competition and there is a possibility that the local telephone companies will
be able to use local access to gain a competitive advantage over other long
distance providers such as the Company.
On August 1, 1996, the FCC announced the adoption of rules relating to the
manner in which and the price at which potential competitors in the local
services market will be able to obtain local facilities and services from the
incumbent telephone company. The FCC rules have yet to be published. It is
unclear how and when the rules will be implemented and when implemented how they
will affect the Company.
STATE REGULATION
In those states prohibiting intrastate resale, the Company may not engage
in intrastate operations. In those states where intrastate resale is permitted
(at least on an inter-LATA basis), the Company may be required to obtain state
regulatory certification prior to commencing operations. At August 31, 1996, the
Company had received authorization to provide telecommunications services to its
customers in approximately 34 states, and is applying for authorization to
provide telecommunications services to customers in other states. In addition,
the Company is required to maintain on file at the state regulatory commissions
in those states a tariff or schedule of its intrastate rates and charges.
Various state legislatures and public utility commissions are considering a
variety of regulatory policy questions which could adversely affect the Company.
At this time, however, it is impossible to determine what effect, if any, such
regulations, including the cost of compliance with such regulations, may have on
the operations of the Company.
37
<PAGE> 40
EMPLOYEES
At September 15, 1996, the Company had 55 full-time employees, including
five executives, five sales and marketing personnel, five network, technical and
operations personnel, and 40 accounting, administrative and support personnel.
None of the Company's employees are represented by a union. The Company believes
that its employee relations are good. Consortium 2000 currently employs 15
persons full time, including three executives and 12 operations personnel.
PROPERTIES
The Company leases from a third party approximately 5,000 square feet of
office space in Las Vegas, Nevada which it uses as its corporate headquarters
and operations center. The facilities are leased for a term expiring in July,
1998. Rental of approximately $7,500 per month is subject to adjustment based on
changes in various cost of living indices. Consortium 2000 subleases from a
third party approximately 4,900 square feet of office space in Culver City,
California, which it uses as its corporate headquarters and operations center.
The facilities are leased for a term expiring in June, 1998. The monthly rental
payment is approximately $5,000.
The Company also is subject to several operating leases relating to
properties in which its switching facilities are located expiring on various
dates through 1998. See Note 5 to Notes to Financial Statements.
LEGAL PROCEEDINGS
The Company is a party from time to time to litigation or proceedings
incident to its business. There is no pending legal proceeding to which the
Company is party that in the opinion of management is likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
38
<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ---- -----------------------------------------------------
<S> <C> <C>
Royce Diener.................. 78 Chairman of the Board
Robert L. B. Diener........... 48 President, Chief Executive Officer and Director
Barry K. Epling............... 44 Executive Vice President, Chief Operating Officer,
Assistant Secretary and Director
Wouter van Biene.............. 47 Executive Vice President, Chief Financial Officer and
Director
Jerry Dackerman............... 46 Executive Vice President, Marketing and Sales and
Director
Noam Schwartz................. 45 Executive Vice President and Director
Abe M. Sher................... 35 Vice President and General Counsel
Andrew J. Grey................ 40 Director
</TABLE>
Royce Diener has served as an advisor to the Company since July, 1995 and
became a director of the Company in January, 1996 and Chairman on August 14,
1996. Mr. Diener served for over 18 years as President, then Chairman and Chief
Executive Officer of American Medical International, Inc.("AMI"), a
multinational hospital management company listed on the New York Stock Exchange
and included among the S&P 500. He serves on the Board of Directors of Acuson,
Inc. and American Health Properties, Inc., both listed on the New York Stock
Exchange. Among other private companies, Mr. Diener serves on the Board of
Directors of Harvard Medical International, an affiliate of Harvard University.
He recently completed a ten-year term as a director of Advanced Technology
Ventures, a registered investment firm located in Boston, Massachusetts and Palo
Alto, California. Mr. Diener is the father of Robert L. B. Diener.
Robert L. B. Diener has served the Company as a consultant since July,
1995, devoting a substantial portion of his time to the Company's business. He
became Executive Vice President in January 1996 and President and Chief
Executive Officer on August 14, 1996 and now devotes full time to the Company.
In January, 1996, he was appointed Executive Vice President. From its inception
in 1986 through 1993, Mr. Diener served as President and Chief Executive Officer
of American Health Properties, Inc., a New York Stock Exchange listed real
estate investment trust specializing in health care. From 1976 through 1986, Mr.
Diener held various positions with AMI, most recently Group Vice
President -- Corporate Development. For over seven years, he was a principal
business development officer in the international division of AMI, overseeing
projects worldwide. For four years prior to joining AMI, Mr. Diener was engaged
in the private practice of law with a law firm in Los Angeles, California,
concentrating in banking, real estate, corporate and securities law. Mr. Diener
is the son of Royce Diener.
Barry K. Epling has served as Vice-President and a director since March 1,
1993 and became Executive Vice President and Chief Operating Officer in
September, 1995. Prior to joining the Company, he served as a consultant to the
Company. Mr. Epling was employed by AT&T in network and telecommunications
equipment implementation and management, as well as in other managerial
capacities. Before joining AT&T, Mr. Epling worked in network and equipment
implementation and management for RCA Corporation. Subsequent to RCA and AT&T,
Mr. Epling was a principal of Alliance Card, where he developed the
telecommunications network, wrote all communications protocols and managed the
development of software to integrate UNIX, IBM AS 400 and DOS systems. Prior to
March 1, 1993 when he joined the Company, Mr. Epling served as a network and
systems consultant to several long distance carriers, including the Company.
Jerry Dackerman founded Consortium 2000 and has served as its President and
Chief Executive Officer since 1990. On August 14, 1996 he became Executive Vice
President Sales, for UStel and will continue to serve in the capacity as
President and Chief Executive Officer of Consortium 2000 after the Merger is
39
<PAGE> 42
completed. From 1977 to 1991 Mr. Dackerman was President of Robin & Dackerman,
Inc. Prior to 1977 Mr. Dackerman led project teams in design and implementation
of telecommunications voice/data networks for TRW, Hughes Aircraft and Lockheed.
Dr. Wouter van Biene has been the Senior Vice President and Chief Financial
Officer of Consortium 2000, Inc. since 1991. On August 14, 1996 he became
Executive Vice President and Chief Financial Officer of UStel and will continue
to serve in his capacity as Senior Vice President and Chief Financial Officer of
Consortium 2000 after the consummation of the Merger. From 1986 to 1991 he was a
partner with Robin & Dackerman, Inc. From 1972 to 1986 he was employed by AMI
where he achieved the level of Group Vice President -- Information Systems and
Chief Financial Officer for International Operations. Dr. van Biene earned a
doctorate in Economics and Business Administration at the University of
Amsterdam, the Netherlands.
Noam Schwartz founded the Company in July, 1991 and served as President,
Chief Executive Officer and a director since March 20, 1992 to August 14, 1996
when he became an Executive Vice President of the Company. Mr. Schwartz was a
principal of Homestead Management, Inc., a real estate management company, and
Homestead Group Associates, a real estate development and construction company
which constructed over 2,500 apartment units between 1988 and 1991. Mr. Schwartz
also serves as a director of Triangle Development, Inc. and Great American
Homes, Inc.
Abe M. Sher was appointed by the Company as its General Counsel in January,
1996. From June, 1995 to January, 1996, Mr. Sher was an advisor to the Company.
From 1993 through 1995, Mr. Sher served as General Counsel for SpaceWorks, Inc.,
an international service provider specializing in customized on-line
telecommunications applications for large corporations and associations. From
1994 through 1995, Mr. Sher served as a corporate finance consultant to Micro
Bell, Inc., a telecommunications/paging hardware manufacturer. From 1989 to
1991, Mr. Sher was also a principal and served as General Counsel of Atria
Corporation, a real estate development company based in Southern California.
From 1986 to mid-1995, Mr. Sher was also engaged in the private practice of law
in Los Angeles, California.
Andrew J. Grey served as Executive Vice President -- Finance, Chief
Financial Officer from January 1996 to August 14, 1996 and has been director of
the Company since January 1996. From June, 1995 until January, 1996, Mr. Grey
was a consultant to the Company. Mr. Grey is certified public accountant. Mr.
Grey joined the accounting firm of Solomon Ross Grey & Company in 1987. Mr. Grey
began his accounting career with Ernst & Whinney in 1979, where he served as
both an audit supervisor and tax manager and later joined The Baldwin Company, a
real estate developer, where he was employed as Senior Vice President, Treasurer
and Controller and was responsible for accounting, computer systems and
financing.
BOARD OF DIRECTORS
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified or until their
death, resignation or removal. The Company plans to pay its non-employee
directors a $12,000 annual retainer and to reimburse them for reasonable
expenses incurred in attending meetings. Upon completion of this offering, the
Company intends to grant annual options to purchase an aggregate of 12,000
shares of Common Stock at the then market price under its Stock Option Plan to
its non-employee directors. See "-- 1993 Stock Option Plan."
Upon the consummation of this offering, the Company's Board of Directors
will have an Audit Committee and Compensation Committee. The Audit Committee,
which will be comprised of Royce Diener and Andrew J. Grey, will be responsible
for making recommendations concerning the engagement of independent certified
public accountants, approving professional services provided by the independent
certified public accountants and reviewing the adequacy of the Company's
internal accounting controls. The Compensation Committee, which will be
comprised of Royce Diener and Andrew J. Grey, will be responsible for
recommending to the Board of Directors all officer salaries, management
incentive programs and bonus payments.
40
<PAGE> 43
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company did not have a compensation committee.
Messrs. Schwartz and Epling participated in deliberations concerning
compensation of executive officers during 1995. None of the executive officers
of the Company have served on the board of directors or on the compensation
committee of any other related entity.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received by the Company's
President and its other most highly compensated executive officers and key
employees whose total cash and cash equivalent compensation exceeded $100,000
for services rendered to the Company for the years ended December 31, 1993,
1994, and 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
PAYOUTS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------ OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY #
- ------------------------------------------------------ ---- ------------ ------------
<S> <C> <C> <C>
Noam Schwartz,........................................ 1995 $100,000 --
President, Chief Executive Officer, Director 1994(1) $ 60,000 210,000
1993 $ 60,000 --
Barry K. Epling,...................................... 1995 $ 93,600 --
Executive Vice President, Chief Operating Officer, 1994 $ 93,600(2) --
Assistant Secretary, Director 1993 $ 93,600 --
$ 83,415 --
</TABLE>
- ---------------
(1) No compensation was paid to Mr. Schwartz for fiscal 1993. For accounting
purposes, however, the value of the services contributed to the Company by
Mr. Schwartz during this period was deemed to be $60,000. This amount was
recorded as an offset to contributed capital without the receipt or accrual
of payment or the issue of additional shares of Common Stock to Mr.
Schwartz. See Note 4c of the Notes to the Financial Statements.
(2) Paid as consulting fees.
The Company has entered into employment agreements with Noam Schwartz and
Barry Epling that provide for annual salaries of $120,000 (of which Mr. Schwartz
only drew $100,000 in 1995) and $93,600, respectively. Mr. Schwartz's employment
agreement provides for a three-year term ending March 1, 1997. Mr. Epling's
employment agreement provides for a five-year term commencing December 1, 1993,
although the salary provided for in such agreement did not commence until
February 1, 1994. Each of the employment agreements also provides for bonuses to
be paid at the discretion of the Company's Board of Directors.
The compensation of Robert L. B. Diener, in his capacity as the Company's
former Executive Vice President and Secretary, was payable by the Company as
consulting fees under a one-year consulting agreement effective November 1,
1995. Pursuant to this arrangement, the Company agreed to pay Mr. Diener $5,000
per month and to issue him five-year warrants to purchase up to 100,000 shares
of Common Stock at a price of $5.00 per share. On August 14, 1996, Mr. Diener
became President and Chief Executive Officer of the Company and effective
September 1, 1996, his salary was increased to $150,000 per year.
Jerry Dackerman and Wouter van Biene will continue to receive the same
compensation of $180,000 and $140,000, respectively per annum, as each is
currently receiving from Consortium 2000.
In September, 1996, the Company entered into a two-year employment
agreement with Abe M. Sher that provides for a monthly salary of $6,950. Mr.
Sher's employment commitment is for 50% of his working time. The Company
previously granted Mr. Sher five-year warrants to purchase up to 200,000 shares
of
41
<PAGE> 44
Common Stock at $5.00 per share and issued to him 32,000 shares of Common Stock.
All of such warrants are currently exercisable. The 32,000 shares of Common
Stock are restricted from transfer for two years and are forfeitable to the
Company if Mr. Sher elects to terminate his employment with the Company during
that two-year period.
1993 STOCK OPTION PLAN
The 1993 Stock Option Plan (the "Stock Option Plan") provides for the grant
of options to acquire the Company's Common Stock ("Options"), the direct grant
of shares of the Company's Common Stock ("Stock Awards"), the grant of stock
appreciation rights ("SARs"), or the grant of other cash awards ("Cash Awards")
(Stock Awards, SARs and Cash Awards collectively are referred to herein as
"Awards"). Options and Awards under Stock Option Plan may be issued to
executives, key employees and others providing valuable services to the Company
and its subsidiaries. The Options issued may be incentive stock options or
nonqualified stock options. A maximum of 450,000 shares of Common Stock of the
Company may be issued under the Stock Option Plan. Of this amount, 40,000
options are available for grant. The Company anticipates that it will seek
stockholder approval of a proposal to increase the number of shares that may be
issued under the Stock Option Plan to 350,000. If any change is made in the
stock subject to the Stock Option Plan, or subject to any Option or SAR granted
under the Stock Option Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Stock Option Plan
provides that appropriate adjustments will be made as to the maximum number of
shares subject to the Stock Option Plan and the number of shares and exercise
price per share of stock subject to outstanding options.
The Stock Option Plan is administered by the Board of Directors of the
Company or a committee appointed by the Board. The exercise price of all options
granted under the Stock Option Plan must be at least equal to the fair market
value of such shares at the date of grant. The maximum term of options granted
under the Stock Option Plan is ten years. With respect to any participant who
owns stock representing more than ten percent of the voting rights of the
Company's outstanding capital stock, the exercise price of any option must be
equal at least to 110 percent of the fair market value of such shares on the
date of grant.
Options granted under the Stock Option Plan are nontransferable other than
by will or by the laws of descent and distribution upon the death of the option
holder and, during the lifetime of the option holder, are exercisable only by
such option holder. Termination of employment at any time for cause immediately
terminates all options held by the terminated employee.
No options were granted or exercised in the fiscal year ended December 31,
1995. At December 31, 1995, Mr. Schwartz had 138,600 exercisable options and
71,400 unexercisable options, none of which were "in-the-money."
At December 31, 1995, there were outstanding options to acquire 210,000
shares of the Company's Common Stock under the 1993 Stock Option Plan. These
options were granted in January, 1994 to Noam Schwartz, the Company's President,
at an exercise price of $7.50 per share, one-third of which will vest each year
following the date of grant. As of December 31, 1995, no options had been
granted to any other executive officers of the Company and no options had been
exercised. In January, 1996, the Company's Board of Directors approved the
reduction of the exercise price of Mr. Schwartz' outstanding options to $5.00
per share. In January, 1996, the Company also granted to each of Noam Schwartz
and Barry Epling from the 1993 Stock Option Plan options to purchase 100,000
shares of Common Stock at $5.00 per share. In June 1996, Mr. Epling exercised
such options in connection with the Company's acquisition of a switch owned by
Mr. Epling. See "Certain Transactions."
LIMITATION OF DIRECTOR'S LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation limit the liability of its
directors in their capacity as directors to the fullest extent permitted by the
Minnesota Business Corporation Act. Specifically, directors of the Company will
not be personally liable for monetary damages for breach of fiduciary duty as
directors except liability for (i) any breach of the duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not
42
<PAGE> 45
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (iv) violations
of certain Minnesota securities laws, or (v) any transaction from which the
director derives an improper personal benefit.
The Minnesota Business Corporation Act requires that the Company indemnify
any director, officer or employee made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota Indemnification Statute (Minn. Stat. sec. 302A.521) for a complete
statement of such indemnification rights. The Company's Bylaws also require the
Company to provide indemnification to the fullest extent of the Minnesota
Indemnification Statute.
Pursuant to the terms of the Underwriting Agreement, the directors and
officers of the Company also are indemnified against certain civil liabilities
that they may incur under the Securities Act in connection with this offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to officers, directors or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of September 1, 1996 and as adjusted
to give effect to the sale of 2,000,000 shares by the Company and 500,000 shares
by the Selling Stockholders in the offering, and the issuance of 1,076,923
shares in connection with the Merger 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 owning Common Stock, (iii) each executive officer of the
Company owning Common Stock and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED PRIOR BEING OWNED AFTER
TO THE OFFERING(1) OFFERED OFFERING
-------------------- ------- -----------------------
NAME AND ADDRESS(1) NUMBER PERCENT NUMBER NUMBER PERCENT(1)
- ------------------------------------- -------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Robert L.B. Diener(2)................ 210,000 9.0% -- 210,000 3.7%
Jerry Dackerman(13).................. -- * -- 161,566 2.9%
Wouter van Biene(13)................. -- * -- 170,961 3.1%
Abe M. Sher(3)....................... 232,000 10.0% -- 232,000 4.1%
Barry Epling(4)...................... 202,851 9.5% -- 202,851 3.7%
Royce Diener(5)(13).................. 749,083 33.9% 225,000 656,747 11.8%
Noam Schwartz(6)(7)(8)............... 805,750 31.4% -- 805,750 13.6%
Andrew J. Grey(9).................... 95,000 4.5% -- 95,000 1.7%
Kamel B. Nacif(10)................... 550,000 20.5% 275,000 275,000 4.8%
Jeflor, Inc.(11)..................... 120,000 5.3% -- 120,000 2.1%
SAS, Ltd............................. 112,000 5.3% -- 112,000 2.0%
All directors and officers as a group
(eight persons)(12)(13)............ 1,904,684 66.7% 2,144,875 34.6%
</TABLE>
- ---------------
* Less than one percent.
(1) In calculating percentage ownership, all shares of Common Stock which the
named stockholder has the right to acquire upon exercise of stock options
or conversion of convertible securities exercisable or convertible within
60 days of September 15, 1996, are deemed to be outstanding for the purpose
of
43
<PAGE> 46
computing the percentage of Common Stock owned by such stockholder, but are
not deemed to be outstanding for the purpose of computing the percentage of
Common Stock owned by any other stockholder. Percentages may be rounded.
Each of such persons may be reached through the Company at 2775 South
Rainbow Boulevard, Suite 102, Las Vegas, Nevada 98102.
(2) Consists of 5,000 shares of Common Stock and warrants exercisable at
September 15, 1996 to purchase up to 100,000 shares of Common Stock owned
by the Diener Financial Group, and warrants to purchase up to an aggregate
of 105,000 shares of Common Stock owned by Robert L.B. Diener,
individually.
(3) Consists of 32,000 shares of Common Stock, 200,000 shares of Common Stock
issuable upon the exercise of warrants that were exercisable within 60 days
of September 15, 1996. Mr. Sher has executed a proxy giving Noam Schwartz
the right to vote the shares underlying the warrants upon their
acquisition.
(4) Consists of 100,000 shares of Common Stock and 95,000 shares that Mr.
Epling has the right to acquire pursuant to the exercise of an option
granted by Noam Schwartz and his father, David Schwartz. The terms of the
options to acquire these shares are provided in separate Stock Option and
Repurchase Agreements between Mr. Epling and Noam and David Schwartz. The
Stock Option and Repurchase Agreements provide that the shares may be
purchased from such individuals at an exercise price of $1.00 per share.
The option is exercisable immediately and may be exercised at any time on
or before January 12, 1998, provided, however, that in the event Mr.
Epling's employment is terminated for reasons other than death or
disability, the option shall terminate immediately.
(5) Includes 612,750 shares owned by the Trust, a trust established by a group
of investors for which Royce Diener serves as trustee. As trustee, Mr.
Diener is vested with the authority to distribute any income and/or the
principal of the Trust to its beneficiaries in the future. Also consists of
53,000 shares of Common Stock and warrants exercisable at September 15,
1996 to purchase up to 83,333 shares of Common Stock.
(6) Includes 270,750 shares of Common Stock, 95,000 shares of Common Stock
issued to Integrated Financial Consultants, Inc., a company wholly owned by
Andrew J. Grey, a director of the Company. Mr. Grey has executed a proxy
giving Noam Schwartz the right to vote the shares. Also includes 200,000
shares of Common Stock issuable upon the exercise of warrants issued to Abe
M. Sher and 100,000 shares issuable upon the exercise of options granted to
Dan Knoller. Messrs. Sher and Knoller have executed proxies giving Noam
Schwartz the right to vote the shares underlying the warrants and options
upon their acquisition for three years commencing upon January 4, 1996 and
January 1, 1996, respectively.
(7) Includes 140,000 of 210,000 shares issuable upon exercise of options
granted under the Company's 1993 Stock Option Plan as options to purchase
140,000 shares of Common Stock that were exercisable within 60 days of
September 15, 1996.
(8) Does not give effect to the possible exercise of the option referred to in
footnote (4) above.
(9) Consists of 95,000 shares of Common Stock issued to Integrated Financial
Consultants, Inc., a company wholly owned by Mr. Grey.
(10) Consists of 550,000 shares of Common Stock underlying 550,000 shares of
Series A Convertible Preferred issued to Mr. Nacif and the sale of 275,000
shares of Common Stock to be issued upon the conversion of 275,000 shares
of Series A Preferred upon the effective date of this offering.
(11) Consists of warrants to purchase 120,000 shares of Common Stock.
(12) Includes 6,650 shares that Mr. Epling has right to acquire from David
Schwartz pursuant to the exercise of the option from him described in
footnote (4) above and an aggregate of 1,804,684 shares of Common Stock
owned by, or as to which the named directors and executive officers may
acquire, as described in footnotes (4), (5), (6), (7) and (8) above.
(13) Includes 161,566, 170,961, 132,664 shares of Common Stock to be issued in
the Merger to Messrs. Dackerman, van Biene and Royce Diener, respectively,
in exchange for their shareholdings in Consortium 2000.
44
<PAGE> 47
CERTAIN TRANSACTIONS
The Company has advanced funds to Mr. Noam Schwartz. At December 31, 1994
and September 30, 1995, Mr. Schwartz owed the Company approximately $80,000. The
funds advanced to Mr. Schwartz bear interest at a rate of 8%. The funds from Mr.
Schwartz are due on demand.
In mid 1995, the Company retained Consortium 2000 as a non-exclusive
independent sales representative on a commission basis. As part of the
consideration for its engagement, the Company agreed to issue Consortium 2000
warrants to purchase up to 300,000 shares of Common Stock. These warrants are
exercisable in increments of 50,000 shares upon the Company reaching certain
monthly revenue milestones for four years from the date of issuance. The minimum
exercise price of the warrants is $7.50 per share and increases depending on
when specified monthly revenue milestones are met. Royce Diener, a director of
the Company, is the Chairman of the Board of Consortium 2000. These warrants
will be canceled upon consummation of the Merger.
In June, 1995, the Company obtained a revolving line of credit from Bank
Leumi in the amount of $3,000,000, secured by certificates of deposit held by
the bank and guaranteed by Noam Schwartz. This line of credit was fully repaid
in July 1996.
In August, 1995, the Company agreed to engage the Diener Financial Group as
a financial consultant for a period of one year commencing September 1, 1995 and
agreed to grant to the Diener Financial Group five-year warrants to purchase up
to 100,000 shares of the Company's Common Stock at $5.00 per share. The sole
principal of the Diener Financial Group is Robert Diener, who later became the
Company's Executive Vice President and in August, 1996, President and Chief
Executive Officer. Effective September 1, 1996, his compensation will be solely
derived from his position as President and Chief Executive Officer. See
"Management -- Executive Compensation." Pursuant to the Diener Financial Group
engagement, the Company agreed to pay a consulting fee of $7,500 per month
($2,500 per month of which Diener agreed to defer until the Company receives at
least $3,000,000 of new investment capital). The Company also agreed to
additionally compensate the Diener Financial Group in an amount equal to 1%, 2%
and 3% of the senior debt, subordinated debt and equity proceeds, respectively,
raised by the Diener Financial Group for the Company.
In October, 1995, the Company obtained a $1,500,000 term loan from a group
of investors introduced to the Company by the Diener Financial Group. Of the
$1,500,000 loaned to the Company by the investor group, $500,000 came from Royce
Diener. The loan bore interest at 10% per annum payable quarterly and was due in
one year. The loan was secured by the Company's accounts receivable and
unrestricted deposit accounts of the Company to the fullest extent permitted by
law and was convertible at the lenders' option, in whole or in part, into shares
of the Company's Common Stock at the rate of $5.00 per share. The Company also
issued to the members of the investor group five-year warrants to purchase an
aggregate of up to 100,000 shares of Common Stock at $5.00 per share. The
warrants are allocable among the members of the investor group in proportion to
the amount loaned to the Company, which means that Royce Diener, who loaned
one-third of the total term loan, is entitled to one third of the warrants
(i.e., warrants to purchase 33,333 shares of Common Stock). In consideration for
arranging the term loan in 1995, the Company paid Robert Diener $15,000 (1% of
the proceeds raised). The $1,500,000 term loan was repaid by the Company in
January, 1996 from proceeds drawn under its new line of credit with Coast
Business Credit.
In January, 1996, the Company completed a private placement of 160,000
Units (consisting of 160,000 shares of Common Stock and 160,000 Redeemable
Common Stock Purchase Warrants) raising net proceeds of approximately $775,000.
For assisting the Company in connection with this private placement, the Company
paid Robert Diener the sum of $25,000. In November, 1995, the Company granted
Mr. Diener 100,000 Warrants exercisable at $5.00 per share, expiring November,
2000.
In June, 1996, the Company acquired title to a telecommunications switch
owned by Mr. Epling for aggregate consideration in the amount of $716,375.
Consideration was paid by crediting $500,000 as payment for the issuance of
100,000 shares of Common Stock to Mr. Epling pursuant to the exercise of
employee stock options, cancelling approximately $109,949 in interim advances
made by the Company to TYC, Inc., a corporation wholly-owned by Mr. Epling, and
a cancellation of interim advances of approximately $75,522
45
<PAGE> 48
made by the Company to Mr. Epling for upgrading the switch, and the issuance of
an additional 7,851 shares of Common Stock to Mr. Epling based on a $5.00 per
share market value. At the time the switching equipment was acquired, it was
appraised at approximately $716,000.
In consideration of services rendered and to be rendered to the Company and
$95,000 paid in the form of a promissory note due upon the earlier of conversion
or May 31, 2005, in November, 1995 the Company issued to Integrated Financial
Consultants, Inc., a company wholly owned by Andrew J. Grey, director, ("IFC")
95,000 shares of its Series B Convertible Preferred Stock ("Series B
Preferred"). In February, 1996, the Company agreed to cancel the $95,000 note.
In January, 1996, the Company entered into a supplemental consulting
agreement with IFC to provide the services of Mr. Grey as the chief financial
officer and as a director of the Company for up to 20 hours of service per week
for compensation of $12,500 per month. IFC agreed to defer payment of $7,500 per
month until such time as the Company obtained certain additional financing, or
experienced a change in control, as defined in the agreement, or IFC terminated
the services. The amount of deferred compensation is $166,000 and is represented
by a promissory note bearing interest at 10% per annum and is being paid from
the proceeds of this offering. See "Use of Proceeds."
In July, 1996, the Company's Board of Directors authorized the issuance of
20,000 shares of Common Stock to Consortium 2000 at $5.75 per share to reconcile
variances in commissions owed to Consortium 2000 for July, 1995 through March,
1996. Prior to the Merger, these shares will be distributed as a dividends to
the shareholders of Consortium 2000.
In August, 1996, the Company entered into a two-year consulting agreement
with Vanguard Consultants, Inc., a Nevada corporation owned by Ronnie Schwartz
to provide consulting services in the areas of marketing, finance and business
development. Pursuant to this agreement, Vanguard Consultants, Inc. will receive
$7,500 per month for such services.
Pursuant to the Merger Agreement, all of the outstanding shares of
Consortium 2000 will be converted into 1,076,923 shares of Common Stock and
Consortium 2000 will become a wholly owned subsidiary of the Company. See
"Business -- Recent Developments."
Noam Schwartz, an executive vice president and director of the Company, and
his brother, Ronnie Schwartz, personally guaranteed the Company's credit
facility with Jeflor, Inc. As of September 1, 1996, the amount outstanding under
this facility was $1,248,000. The Company intends to use the proceeds of this
offering to repay this loan. See "Use of Proceeds."
Under Minnesota law, officers and directors of the Company may enter into
transactions or contracts with the Company provided generally that (i) the
transaction is fair to the Company at the time it is authorized or approved;
(ii) the stockholders approve the transaction after disclosure of the
relationship or interest; or (iii) after disclosure to the Board of Directors, a
majority of the disinterested board members authorize the transaction. In
addition, any transaction involving a loan, guarantee or other financial
assistance by the Company to an officer or director requires approval of the
Board of Directors.
RELATED PARTY TRANSACTIONS
The Company has entered and anticipates that it will enter into business
transactions with certain of its principal stockholders and entities that are
owned or controlled by certain of its principal stockholders, including the
acquisition of Consortium 2000. Although the Company may continue to enter into
such transactions in the future, its policy is not to enter into transactions
with related persons unless the terms thereof are at least as favorable to the
Company as those that could be obtained for unaffiliated third parties and are
approved by a majority of disinterested directors.
46
<PAGE> 49
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $0.01 per share (the "Common Stock") and 5,000,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock").
COMMON STOCK
At September 15, 1996, there were 2,119,000 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, the holders of a majority of the stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to preferences that may be applicable to any then outstanding
Preferred Stock, the holders of Common Stock will be entitled to receive such
dividends, if any, as may be declared by the Board of Directors from time to
time out of legally available funds. Upon liquidation, dissolution or winding up
of the Company, the holders of Common Stock will be entitled to share ratably in
all assets of the Company that are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
holders of any Preferred Stock then outstanding. The holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock will be subject to the
rights of the holders of shares of any series of Preferred Stock that the
Company may issue in the future.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, par value $0.01 per share. The Board of Directors is authorized, subject
to any limitations prescribed by the laws of the State of Minnesota, but without
further action by the Company's stockholders, to provide for the issuance of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding) without any further vote or action by the stockholders.
The Board of Directors has designated 550,000 shares of Preferred Stock as
Series A Convertible Preferred Stock ("Series A Preferred") all of which were
outstanding as of September 15, 1996 and 95,000 shares of Series B, all of which
were converted into Common Stock in September 1996. Each share of Series A
Preferred entitles the holder to dividends at the same rate paid to holders of
Common Stock and is convertible at any time into one share of Common Stock,
subject to adjustment for stock splits, stock dividends and other similar
events. Holders of Series A Preferred are entitled to vote on all matters
submitted or required to be submitted to stockholders on an as if converted
basis and, except as required by law, vote together with the Common Stock and
not as a separate class. Upon the liquidation, dissolution or winding up of the
Company (including for such purposes certain mergers or consolidations and the
sale of all of the assets of the Company) holders of each outstanding share of
Series A Preferred shall be entitled to receive, prior to holders of Common
Stock, an amount equal to approximately $5.45 per share.
The unissued Preferred Stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by the Company's stockholders, and may include voting
rights, preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions as determined by the Board of Directors.
Although the Company has no present plans to issue any new shares of Preferred
Stock, the issuance of Preferred Stock in the future could adversely affect the
rights of the holders of Common Stock, and therefore, reduce the value of the
Common Stock. In particular, specific rights granted to future holders of
Preferred Stock could be used to restrict the Company's ability to merge with or
sell its assets to a third party, thereby preserving control of the Company by
present owners.
The Board of Directors may authorize and issue additional Preferred Stock
with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. In
47
<PAGE> 50
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
current plan to issue any additional shares of Preferred Stock.
CONVERTIBLE SUBORDINATED DEBENTURES
The Company also has outstanding Convertible Subordinated Debentures in the
aggregate principal amount of $500,000, which bear interest at the rate of 12%
per annum, payable quarterly on the first day of January, April, July and
September, commencing April 1, 1994, with all principal and accrued interest due
and payable on or before December 31, 1998. The principal amount of the
Debentures is convertible on any payment date into shares of the Company's
Common Stock at a price of $7.00 per share. If the aggregate principal amount of
the Convertible Subordinated Debentures were converted, an aggregate of 71,428
shares of Common Stock would be issued.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the holder of the
Series A Preferred Stock, Integrated Financial Consultants, Inc., a company
wholly-owned by Andrew J. Grey, a director of the Company, the investors in the
December 29, 1995 $160,000 private placement, Noam Schwartz, David Schwartz, the
RGB 1993 Family Trust (the "RGB Trust"), the TAD 1993 Family Trust (the "TAD
Trust"), (the Palisades USTL Trust, the trustee of which is Royce Diener,
chairman of the Company, now owns the RGB Trust's and TAD Trust's shares along
with the registration rights), and to the holders of warrants issued in
connection with the October, 1995 $1,500,000 line of credit, the holder of the
Representative's Warrants, Jeflor, Inc., Abe Sher and Norcross Securities, Inc.
for the shares issuable pursuant to the exercise of their warrants or options,
as the case may be, and to certain other parties. The total number of shares as
to which the Company has granted registration rights is 2,217,851. Concurrent
with this offering, the Company intends to register all of the above shares with
the Commission. Also concurrent with this offering the Company intends to
register with the Commission under Form S-4 the 1,076,923 shares to be issued in
the Merger. With the exception of Norcross Securities, Inc., the
Representative's Warrants and certain holders of small amounts of shares to be
held by the shareholders of Consortium 2000, all of the shares being registered
will be subject to lock-up agreements with the Representative, whereby such
shares may not be sold for a 180 day period following the date of this
Prospectus without the Representative's consent.
48
<PAGE> 51
WARRANTS
The following table sets forth certain information as of September 15, 1996
with respect to the issuance or agreements to issue by the Company of warrants
to purchase Common Stock:
<TABLE>
<CAPTION>
NAME OF HOLDER/ MAX. SHARES
DATE OF DESCRIPTION OF ISSUABLE UPON EXERCISE DATE FIRST EXPIRATION
ISSUANCE GROUP EXERCISE (#) PRICE ($) EXERCISABLE DATE BACKGROUND OF WARRANTS
- ------------ ------------------ ------------- --------- ----------- ---------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/94........ Registered 16,000 5.00 6/94 N/A In consideration of financial
Consulting Group markets investor relations services.
6/94........ Norcross 65,000 6.25 6/95 6/99 Granted to the Underwriter upon
Securities, Inc. completion of the Company's initial
public offering.
8/95........ Diener Financial 100,000 5.00 10/95 10/00 Issued in connection with engagement
Group as a financial consultant to the
Company.
10/95....... $1,500,000 term 100,000 5.00 10/95 10/00 Issued to investors making
loan investors $1,500,000 term loan to the Company.
11/95....... Robert L. B. 100,000 5.00 11/95 11/00 Issued in connection with Mr.
Diener Diener's engagement as a consultant
to the Company
1/96........ Abe M. Sher 200,000 5.00 (1) 12/01 Issued in connection with Mr. Sher's
engagement as Vice President and
General Counsel.
12/95....... Investors in 160,000 7.50 5/96 5/01 Issued as part of 160,000 Units
equity private (consisting of 160,000 shares of
placement. Common Stock and 160,000 Redeemable
Common Stock Purchase Warrants) in a
private placement completed in
December, 1995.
9/96........ Dan Knoller 100,000 5.00 9/96 8/01 Issued in connection with Mr.
Knoller's engagement as Vice
President Business Affairs.
6/96........ Jeflor, Inc. 180,000(2) 5.00 8/96 6/01 Issued in connection with a loan for
$1,200,000.
Total............. 1,021,000
===========
</TABLE>
- ---------------
(1) The warrants are fully vested.
(2) At the time the loan was made, Jeflor, Inc. received warrants to purchase
120,000 shares of Common Stock, exercisable any time after August 20, 1996;
thereafter, warrants accrue to Jeflor, Inc. in 60,000 increments every 90
days that the loan remains unpaid. If the loan is extended past June 19,
1997, Jeflor, Inc. will receive an additional 60,000 warrants for every 90
days the loan remains unpaid up to a maximum of 540,000 warrants. It is
anticipated that the Company will retire this debt in full with the proceeds
of this offering on or about 90 days from August 20, 1996. See "Use of
Proceeds."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer, Inc., Denver, Colorado.
49
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. Sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity capital in the future.
Upon the completion of this offering, the Company will have 5,478,774
shares of Common Stock outstanding, assuming no exercise of options after
September 15, 1996. Of these shares, the 2,500,000 shares sold in this offering
and the 650,000 shares sold in the Company's initial public offering will be
freely tradable without restriction under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining shares of Common Stock held by existing
stockholders were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act. These shares may be sold in
the public market only if registered, or pursuant to an exemption from
registration such as Rule 144, 144(k) or 701 under the Securities Act.
Concurrently with this offering the Company intends to file a registration
statement with the Commission with respect to the Registration Rights Shares.
Approximately 2,900,000 of the Registration Rights Shares will be subject to
lock-up agreements with the Representative whereby such shares may not be sold
within 180 days of this Prospectus without the prior written consent of the
Representative. The Company's directors, executive officers and substantially
all other stockholders, of the Company who own the Common Stock immediately
prior to the completion of this offering, have entered into lock-up agreements
under which they have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of, or agree to dispose of, directly or
indirectly, any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable for or convertible into Common Stock
owned by them for a period of 180 days after the date of this Prospectus,
without the prior written consent of the Representative.
As of September 15, 1996, 1,021,000 shares of Common Stock were subject to
outstanding warrants, 275,000 shares of Common Stock are issuable upon
conversion of the remainder of the Series A Preferred, and 71,429 shares of
Common Stock are issuable upon conversion of the $500,000 convertible
debentures. See Notes 5 and 6 of Notes to the Company's Financial Statements.
All of these shares, exclusive of the shares issuable upon conversion of the
$500,000 convertible debentures, are subject to the lock-up agreements described
above. Upon expiration of the lock-up agreements, approximately 140,000 shares
subject to outstanding vested options will become eligible for immediate public
resale and the 275,000 shares of Common Stock issuable upon conversion of the
Series A Preferred and 71,429 shares of Common Stock issuable upon conversion of
the $500,000 convertible debentures, will be immediately eligible for sale under
Rule 144 subject in some cases to volume limitations pursuant to Rule 144.
Concurrently with this offering, 2,217,851 Registration Rights Shares and
1,076,923 shares to be issued in the Merger will be entitled to registration and
subject to lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
required filing of a Form 144 with respect to such sale. Sales under Rule 144
are generally subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Under
Rule 701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the effective date of this offering are entitled to
sell such shares 90 days after the effective date of this offering in reliance
on Rule 144, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
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<PAGE> 53
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modifications will have a material effect on
the times when shares of the Company's Common Stock become eligible for resale.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated is acting as representative (the "Representative"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth opposite
each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Cruttenden Roth Incorporated.............................................
---------
Total.................................................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company. The
nature of the Underwriters' obligation is such that they are committed to
purchase and pay for all the shares of Common Stock if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain securities dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such selected dealers may
reallow, a concession not in excess of $ per share to certain brokers
and dealers. After the offering, the price to the public, concession, allowance
and reallowance may be changed by the Representative.
The Company has granted the Underwriters an option, exercisable during the
45-day period after the date of this Prospectus, to purchase up to 375,000
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus, less the underwriting discounts and commissions. The
Underwriters may exercise this option to cover over-allotments, if any. To the
extent that the Underwriters exercise this option, each of the Underwriters will
be committed, subject to certain conditions, to purchase such additional shares
of Common Stock in approximately the same proportion as set forth in the above
table.
The Company has paid the Representative $15,000 on account of the
Underwriters' expenses in connection with this offering to be applied to a
non-accountable expense allowance equal to 3% of the aggregate offering price of
the shares of Common Stock to be sold in this offering.
The Company has agreed to issue to the Representative, for total
consideration of $160, warrants (the "Representative's Warrants") to purchase up
to 160,000 shares of Common Stock, at an exercise price per
51
<PAGE> 54
share equal to 120% of the initial public offering price per share. The
Representative's Warrants are exercisable for a period of four years commencing
one year from the date of this Prospectus, and are not transferrable for a
period of one year except to the officers of the Representative or successors to
the Representative. The Representative's Warrants include net exercise
provisions permitting the holders to pay the exercise price by cancellation of a
number of shares with a fair market value equal to the exercise price of the
Representative's Warrants. The holders of the Representative's Warrants will
have no voting, dividend or other stockholders rights until the Warrants
exercised. In addition, the Company has granted certain rights to holders of the
Representative's Warrants to register the Representative's Warrants and the
Common Stock underlying the Representative's Warrants.
The Company has agreed not to issue, and all of the Company's officers and
directors and certain stockholders have agreed not to sell, or otherwise dispose
of shares of Common Stock or other equity securities of the Company for 180 days
after the date of this Prospectus without the prior written consent of the
Representative.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and their controlling persons
against certain liabilities under the Securities Act, or to contribute to
payments the Underwriters and their controlling persons may be required to make
in respect thereof.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters and other members of
the selling group intend to engage in passive market making in the Company's
Common Stock during the cooling off period.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon the
Company by Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation,
Beverly Hills, California. Certain legal matters will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.
EXPERTS
The financial statements of UStel, Inc. at December 31, 1994 and 1995, and
for each of the three years in the years ending December 31, 1995 and the
financial statements of Consortium 2000, Inc. at June 30, 1996 and for the year
ended June 30, 1996 appearing in this Prospectus and Registration Statement have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
52
<PAGE> 55
USTEL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF USTEL, INC.
Report of Independent Certified Public Accountants............................. F-2
Audited financial statements
Balance sheets at December 31, 1994 and 1995................................. F-3
Statements of operations for the years ended December 31, 1993, 1994 and
1995...................................................................... F-4
Statements of changes in stockholders' equity for the years ended December
31, 1993, 1994 and 1995................................................... F-5
Statements of cash flows for the years ended December 31, 1993, 1994 and
1995...................................................................... F-6
Summary of accounting policies................................................. F-7
Notes to financial statements.................................................. F-9
Unaudited financial statements
Condensed balance sheet as at June 30, 1996.................................. F-14
Condensed statement of operations for six months ended June 30, 1995 and
1996...................................................................... F-15
Condensed statement of changes in stockholders' equity for the six months
ended June 30, 1996....................................................... F-16
Condensed statement of cash flow for the six months ended June 30, 1995 and
1996...................................................................... F-17
Summary of accounting policies............................................... F-7
Notes to condensed financial statements...................................... F-18
HISTORICAL FINANCIAL STATEMENTS OF CONSORTIUM 2000, INC.
Report of Independent Certified Public Accountants............................. F-20
Financial statements
Balance sheet at June 30, 1996............................................... F-21
Statement of operations for the year ended June 30, 1996..................... F-22
Statement of changes in stockholders' equity for the year ended June 30,
1996...................................................................... F-23
Statement of cash flows for the year ended June 30, 1996..................... F-24
Summary of accounting policies................................................. F-25
Notes to financial statements.................................................. F-26
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UStel, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of UStel, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of UStel,
Inc. at December 31, 1994 and 1995, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
April 4, 1996
F-2
<PAGE> 57
USTEL, INC.
BALANCE SHEETS
ASSETS (Note 2)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Current
Cash............................................................. $2,207,034 $ 1,200
Restricted cash.................................................. 1,000,000 3,133,433
Accounts receivable, less allowance for doubtful accounts
of $188,000 and $652,000...................................... 2,618,358 5,900,722
Due from related parties (Note 3(a))............................. 444,366 348,519
Prepaid expenses................................................. 183,141 506,824
---------- -----------
Total current assets..................................... 6,452,899 9,890,698
---------- -----------
Property and equipment
Office furniture and equipment................................... 760,431 1,440,294
Leasehold improvements........................................... 63,741 164,063
---------- -----------
824,172 1,604,357
---------- -----------
Less accumulated depreciation.................................... (82,879) (241,176)
---------- -----------
Net property and equipment............................... 741,293 1,363,181
---------- -----------
Other assets
Start-up costs less accumulated amortization of $39,348 and
$59,022....................................................... 59,021 39,347
Deferred charges (Note 1)........................................ 65,414 684,805
---------- -----------
$7,318,627 $11,978,031
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Notes payable (Note 2)........................................... $ 770,000 $ 2,900,000
Payable to related party (Note 3(b))............................. -- 1,500,000
Accounts payable................................................. 1,113,590 2,078,954
Accrued expenses................................................. 102,218 113,525
Accrued revenue taxes............................................ 744,585 1,097,779
---------- -----------
Total current liabilities................................ 2,730,393 7,690,258
Convertible subordinated debentures (Note 5)....................... 500,000 500,000
---------- -----------
Total liabilities........................................ 3,230,393 8,190,258
---------- -----------
Commitments and contingencies (Note 4)
Stockholders' equity (deficit) (Notes 5, 6 and 7):
Series A Convertible Preferred Stock, $.01 par value,
5,000,000 shares authorized and 550,000 shares outstanding
(Liquidation Preference $3,000,000)........................... 5,500 5,500
Series B Convertible Preferred Stock, $.01 par value,
95,000 shares authorized and 95,000 outstanding in 1995....... -- 950
Common stock, $.01 par value, 40,000,000 shares authorized;
1,600,000 shares issued and outstanding....................... 16,000 16,000
Additional paid-in capital....................................... 6,220,878 6,386,178
Note receivable (Note 3(e))...................................... -- (95,000)
Accumulated deficit.............................................. (2,154,144) (2,525,855)
---------- -----------
Total stockholders' equity............................... 4,088,234 3,787,773
---------- -----------
$7,318,627 $11,978,031
========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE> 58
USTEL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................. $1,600,147 $ 6,118,480 $16,127,575
Operating expenses
Cost of services sold.............................. 1,248,463 4,696,106 11,542,374
General and administrative......................... 637,263 1,412,649 3,071,788
Selling............................................ 368,361 785,933 1,460,010
Depreciation and amortization...................... 32,894 87,363 177,971
---------- ----------- -----------
Total operating expenses................... 2,286,981 6,982,051 16,252,143
---------- ----------- -----------
Loss from operations................................. (686,834) (863,571) (124,568)
Loss from rental operations (Note 3(e)).............. (62,025) (101,705) --
Net gain on sale of property (Note 3(e))............. 24,993 7,614 --
Relocation costs..................................... -- -- (110,766)
Interest income...................................... -- 34,283 124,060
Interest expense..................................... (41,686) (152,063) (260,437)
---------- ----------- -----------
Net loss................................... $ (765,552) $(1,075,442) $ (371,711)
========== =========== ===========
Net loss per share................................... $ (0.81) $ (0.83) $ (0.23)
========== =========== ===========
Weighted average number of common shares
outstanding........................................ 950,000 1,291,913 1,600,000
========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE> 59
USTEL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------- PAID-IN ACCUMULATED NOTE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
------- ------ --------- ------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.......... -- $ -- 950,000 $ 9,500 $ 90,500 $ (313,150) $ -- $ (213,150)
Shareholder contributions
(Note 3(c))................... -- -- -- -- 480,108 -- -- 480,108
Net loss for period............. -- -- -- -- -- (765,552) -- (765,552)
------- ------ --------- ------- ---------- ----------- ---------- ----------
BALANCE, December 31, 1993........ -- -- 950,000 9,500 570,608 (1,078,702) -- (498,594)
Sale of shares to public........ -- -- 650,000 6,500 2,595,770 -- -- 2,602,270
Sale of preferred shares........ 550,000 5,500 -- -- 2,994,500 -- -- 3,000,000
Contribution to capital......... -- -- -- -- 60,000 -- -- 60,000
Net loss for period............. -- -- -- -- -- (1,075,442) -- (1,075,442)
------- ------ --------- ------- ---------- ----------- ---------- ----------
BALANCE, December 31, 1994........ 550,000 5,500 1,600,000 16,000 6,220,878 (2,154,144) -- 4,088,234
Sale of preferred shares........ 95,000 950 -- -- 165,300 -- (95,000) 71,250
Net loss for period............. -- -- -- -- -- (371,711) -- (371,711)
------- ------ --------- ------- ---------- ----------- ---------- ----------
BALANCE, December 31, 1995........ 645,000 $6,450 1,600,000 $16,000 $6,386,178 $(2,525,855) $(95,000) $3,787,773
======== ======= ========= ======== ========== ============ ========= ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE> 60
USTEL, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss........................................... $(765,552) $(1,075,442) $ (371,711)
Adjustments to reconcile net loss to net cash
used in operating activities:
Contributed services............................ 60,000 -- --
Depreciation and amortization................... 53,008 125,643 229,971
Provisions for losses on accounts receivable.... 30,000 158,000 464,000
Net gain on sale of property.................... (24,993) (7,614) --
Increase (decrease) from change in:
Checks issued against future deposits......... 32,668 (32,668) --
Accounts receivable........................... (980,612) (1,821,467) (3,746,364)
Prepaid expenses and other.................... 1,897 (108,466) (323,683)
Accounts payable and accrued expenses......... 814,530 1,136,820 1,329,865
Other items................................ (43,831) (21,583) (619,391)
--------- ----------- ---------
Net cash used in operating activities...... (822,885) (1,646,777) (3,089,313)
--------- ----------- ---------
Cash flows from investing activities
Proceeds from sale of property..................... 122,986 142,877 --
Purchase of equipment.............................. (267,429) (528,463) (780,185)
--------- ----------- ---------
Net cash used in investing activities................ (144,443) (385,586) (780,185)
--------- ----------- ---------
Cash flows from financing activities
Proceeds from notes payable........................ 785,000 395,000 4,030,000
Restricted cash.................................... -- (1,000,000) (2,133,433)
Proceeds from sale of common stock................. -- 2,602,270 --
Proceeds from sale of preferred stock.............. -- 3,000,000 71,250
Proceeds from issuance of convertible debenture.... -- 500,000 --
Related parties payable............................ (99,864) (665,395) 95,847
Payments on debt................................... (137,916) (592,678) (400,000)
Shareholder contributions.......................... 420,108 -- --
--------- ----------- ---------
Net cash provided by financing activities............ 967,328 4,239,197 1,663,664
--------- ----------- ---------
Net increase (decrease) in cash...................... -- 2,206,834 (2,205,834)
Cash, beginning of period............................ 200 200 2,207,034
--------- ----------- ---------
Cash, end of period.................................. $ 200 $ 2,207,034 $ 1,200
========= =========== =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE> 61
USTEL, INC.
SUMMARY OF ACCOUNTING POLICIES
THE COMPANY
UStel, Inc. (the "Company") was formed on March 11, 1992 as a long-distance
telephone service provider. The Company offers competitive discounted calling
plans which are available to customers in the United States, Puerto Rico, and
the Virgin Islands. On January 12, 1994, the Company effected a recapitalization
of its capital stock in connection with its re-incorporation in Minnesota. In
connection with the recapitalization, the Company exchanged all its outstanding
common shares (1,000 shares) for 950,000 shares of the reincorporated company's
common shares. Accordingly, the financial statements were retroactively
restated.
REVENUE RECOGNITION
Revenue is recognized upon completion of the telephone call.
PROPERTY AND EQUIPMENT
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis ranging from
five to fifteen years.
DEFERRED CHARGES
Deferred charges consists of loan fees, offering costs and certain costs
incurred in connection with expanding the Company's market position. Loan fees
are amortized over the life of the related loan. Offering costs will be charged
against paid-in capital if the private offering is consummated. If the private
offering is not consummated, such costs will be charged to operations during the
period it becomes evident that the above mentioned transaction will not be
completed. Costs incurred to expand the Company's market position are amortized
over the period of benefit not to exceed twenty-four months. It is the Company's
policy to periodically review and evaluate that the benefits associated with
these costs are expected to be realized and therefore deferral and amortization
is justified.
INCOME TAXES
Income taxes are accounted for under Financial Accounting Standards Board,
FAS No. 109, "Accounting for Income Taxes." Under this standard, deferred tax
assets and liabilities represent the tax effects, calculated at currently
effective rates, of future deductible taxable amounts attributable to events
that have been recognized on a cumulative basis in the financial statements.
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
common shares outstanding during the periods. Common stock equivalents relating
to stock options, warrants and convertible preferred stock are not included in
the computation since their effect is anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SIGNIFICANT RISKS AND UNCERTAINTIES
The Company is primarily a non-facilities based inter-exchange carrier that
routes customers' call over a transmission network consisting primarily of
dedicated long distance lines secured by the Company from a variety of other
carriers. One of these carriers provides the call record information from which
the Company
F-7
<PAGE> 62
USTEL, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
bills approximately 75% of its customer base. Management believes other carriers
could provide the same services on comparable terms.
CONCENTRATIONS OF CREDIT RISKS
The Company maintains cash balances at one financial institution. Deposits
not to exceed $100,000 are insured by the Federal Deposit Insurance Corporation.
At December 31, 1995, the Company has uninsured cash in the amount of
approximately $3,035,000.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND RESTRICTED CASH
The carrying amount approximates fair value due to the short maturity of
those instruments.
NOTES PAYABLE
The fair value of the Company's notes payable is based on quoted market
prices for similar issues of debt with similar remaining maturities.
CONVERTIBLE DEBENTURE
The fair value of the Company's convertible debentures is estimated based
upon current market borrowing rates for loans with similar terms and maturities.
RECLASSIFICATIONS
Certain financial statement items have been reclassified to conform to the
current year's presentation.
F-8
<PAGE> 63
USTEL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DEFERRED CHARGES
Deferred charges consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
------- --------
<S> <C> <C>
Development costs....................................... $ -- $336,690
Offering costs.......................................... -- 164,792
Loan fees............................................... -- 35,000
Calling card program.................................... -- 118,157
Deposits and other...................................... 65,414 82,166
-------- ---------
65,414 736,805
Accumulated amortization................................ -- (52,000)
-------- ---------
$65,414 $684,805
======== =========
</TABLE>
NOTE 2 -- NOTES PAYABLE
In September 1994, the Company entered into revolving credit agreements
with two banks that provide for secured borrowings aggregating $1.4 million and
expiring in September 1995. Borrowings under the agreements bear interest at the
banks' prime lending rate. The credit agreements are collateralized by a
security interest in substantially all of the Company's assets plus a restricted
certificate of deposit for $1 million. Borrowing under the credit agreements
amounted to $770,000 at December 31, 1994.
During June 1995 and September 1995, the Company entered into revolving
credit agreements with a bank that provides for secured borrowings aggregating
$1 million and $2 million, respectively, expiring in May 1996. Borrowings under
the agreements bear interest at the bank's prime lending rate. The credit
agreements are collateralized by three certificates of deposits totalling $3.1
million. Borrowing under the credit agreements amounted to $2.9 million at
December 31, 1995.
In December 1995, the Company obtained a Senior Credit Facility ("Credit
Facility" and "Line") in the amount of up to $5 million with an asset-based
lender. Amounts drawn under the Credit Facility accrue interest at a variable
rate equal to the Bank of America Reference Rate plus 2% per annum. The Line is
secured by accounts receivable and all of the Company's other assets. Under the
Credit Facility, the Company can borrow up to an amount which is the lesser of
$5 million or 85% of the Company's eligible receivables. Subject to the $5
million maximum borrowing, in addition to amounts supported by receivables, the
Company may borrow on a 36-month term loan basis up to the lesser of $1.5
million or a formula amount based on the fair value of new equipment and the
liquidation value of existing equipment. No amounts were outstanding under the
Credit Facility as of December 31, 1995.
F-9
<PAGE> 64
USTEL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS
(a) Related Parties Receivables
At December 31, 1994 and 1995, the Company has amounts due from various
related parties relating to telephone services and loans as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Due for telephone services:
Related entities..................................... $ 56,538 $ 20,505
Officers............................................. 51,949 144,567
Loans:
Related entities..................................... 132,822 --
Officers............................................. 164,247 181,658
Employees............................................ 65,000 1,789
-------- --------
$444,366 $348,519
======== ========
</TABLE>
(b) Related Parties Payable
In October 1995, the Company entered into a revolving credit agreement with
a related party that provides for secured borrowing aggregating $1.5 million and
expiring in October 1996. Borrowing under the agreement bears interest at 10%
per annum on a daily principal balance outstanding during the three calendar
months prior to each interest payment date. The credit agreement is
collateralized by a security interest in the Company's unrestricted deposit
accounts and accounts receivable. The agreement calls for the issuance of
warrants for the purchase of up to 100,000 shares of the Company's common stock
at $5.00 per share, exercisable over a period of five years. Borrowing under the
credit agreement amounted to $1.5 million at December 31, 1995. This loan was
repaid in January 1996 by the issuance of 160,000 common shares of the Company
plus $725,000.
(c) Shareholder Contributions
During 1993, the President and shareholder assumed and paid Company debts
which amounted to $420,108 in the aggregate. This amount was then contributed to
additional paid-in capital. In addition, the Company recorded $60,000 in salary
expense related to the value of services contributed by the President.
(d) Stock Note Payable
In consideration of services rendered and to be rendered to the Company and
$95,000 paid in the form of a promissory note due upon the earlier of conversion
or May 31, 2005, in November 1995 the Company issued to one of its officers,
95,000 shares of Series B Preferred Stock.
(e) Rental Property Held For Investment
During 1993, the Company acquired land and buildings, which consisted of
fourteen condominium units, from a company owned by a related party. The assets
acquired were recorded at predecessor cost of approximately $1,424,000. The
Company assumed first trust deeds of $1,097,501 and existing second trust deeds
of $359,812, which amounted to $1,457,313. The difference of $33,313 was
accounted for as a reduction of the amounts due to the related party. One of the
units was sold during 1993, resulting in a gain of $24,993, the remaining units
were sold during 1994 at a gain of $7,614.
F-10
<PAGE> 65
USTEL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Loss from rental operations included in the statements of operations
include rental operations for the years ended December 31, 1993 and 1994 as
follows:
<TABLE>
<CAPTION>
1993 1994
-------- ---------
<S> <C> <C>
Rental income......................................... $ 46,933 $ 68,054
Operating expenses.................................... (9,942) (7,221)
Interest expense...................................... (78,902) (124,630)
Depreciation expense.................................. (20,114) (37,908)
-------- ---------
Loss from rental operations........................... $(62,025) $(101,705)
======== =========
</TABLE>
(f) Sales Agent
In August 1995, the Company retained an independent sales representative on
a commission basis. As part of the consideration for its engagement, the Company
agreed to issue the sales agent warrants to purchase up to 300,000 shares of
common stock. These wares are exercisable in increments of 50,000 shares upon
the company reaching certain monthly revenue milestones for four years from the
date of issuance. The minimum exercise price of the warrants is $7.50 per share
and increases depending on when specified monthly revenue milestones are met. A
director of the Company is Chairman of the Board of the sales agent.
(g) Financial Consultant
In August 1995, the Company engaged a financial consultant for a period of
one year and agreed to grant five-year warrants to purchase up to 100,000 shares
of the Company's common stock at $5.00 per share. The Company also agreed to pay
the consultant $7,500 per month plus 1%, 2% and 3% of the senior debt,
subordinated debt and equity, respectively raised by the consultant for the
Company. The consultant is the son of a member of the Company's Board of
Directors.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company occupies certain office and switching facilities under
operating leases expiring on various dates through 1998 with options to renew on
switching facilities. Rent expense under these arrangements was $120,000;
$120,000; and $124,000 for the years ended December 31, 1993, 1994 and 1995.
Insurance and maintenance expenses covering these facilities are the Company's
obligations.
At December 31, 1995 future minimum lease commitments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OFFICE SPACE SWITCHING FACILITIES TOTAL AMOUNT
-------------------------------- ------------ -------------------- ------------
<S> <C> <C> <C>
1996............................ $ 59,928 $ 39,394 $ 99,322
1997............................ 59,928 4,060 63,988
1998............................ 59,928 -- 59,928
-------- ------- --------
$179,784 $ 43,454 $223,238
======== ======= ========
</TABLE>
Employment Agreements
The Company entered into employment agreements with two executive officers
of the Company. One agreement provides for an annual salary of $93,600 for a
term of five years commencing on December 1, 1993. The second agreement provides
for an annual salary of $120,000 for a term of three years commencing on March
1, 1994. Both agreements also provide for bonuses to be paid to the officers at
the discretion of the Company's Board of Directors.
In January 1996, the Company entered into a three-year employment agreement
with an officer that provides for annual salaries of $60,000 in the first year,
$96,000 in the second year and $132,000 in the third year. The Company also
granted the officer options to purchase up to 200,000 shares of common stock at
$5.00 per share and to issue to him 32,000 shares of common stock.
F-11
<PAGE> 66
USTEL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONVERTIBLE SUBORDINATED DEBENTURES
In January 1994, the Company issued 12% Convertible Subordinated Debentures
(Debentures) in the aggregate amount of approximately $500,000. The Debentures
bear interest at the rate of 12% per annum. Principal and accrued interest will
be due and payable on or before December 30, 1998. At any time prior to the
payment in full, the Debentures can be converted into shares of the Company's
common stock at the rate of $7.00 per share, subject to adjustment (as defined).
The proceeds were used to repay notes payable of $400,000 and the balance was
used for working capital purposes.
NOTE 6 -- PREFERRED STOCK
During September 1994, the Company issued 550,000 shares of $.01 par value
Series A Convertible Preferred Stock ("Preferred"). Each share of Preferred
entitles its holder to receive dividends at the same rate paid to common
stockholders. Unless the Company pays or declares dividends with respect to
common shares, the Company has no obligation to declare or pay dividends with
respect to the Preferred. Each share of Preferred is convertible into one share
of common stock, as adjusted, for such things as stock splits, stock dividends
and other similar dilutive occurrences. At any time subsequent to October 16,
1995, each holder of record of Preferred may, at his or her option, convert all
or part of the Preferred shares held into fully paid common shares.
In connection with the issuance of the Preferred shares described above,
the Company committed to pay a finders fee for the placement of the Preferred
shares. The Company will issue 112,000 common shares plus $46,000 in
satisfaction of the finders fee. This transaction has not been reflected in the
financial statements since the shares have not been issued and the effect on the
financial statements is not material. The Company anticipates that the common
shares will be issued during the second quarter of 1996.
During November 1995, the Company issued 95,000 shares of $.01 par value
Series B Convertible Preferred Stock ("Series B"). Each share of Series B
entitles its holder to receive dividends at the same rate paid to common
stockholders. Unless the Company pays or declares dividends with respect to
common shares, the Company has no obligation to declare or pay dividends with
respect to Series B. Each share of Series B is convertible into one share of
common stock, as adjusted, for such things as stock splits, stock dividends and
other similar dilutive occurrences. Each holder of record of Series B may, at
the option of the holder, convert all or part of the shares of Series B held by
that recordholder into fully paid nonassessable shares of common stock, if the
Company files a registration statement or there is a change in control of the
Company.
NOTE 7 -- COMMON STOCK
Public Offering
During 1994, the Company completed an initial public offering ("IPO"), of
650,000 shares of the Company's common stock. The Company received net proceeds
from the IPO amounting to $2,602,270 (after deducting offering costs of
$647,730).
In connection with the IPO described above, the Company granted to the
underwriter, warrants to acquire 65,000 shares of the Company's common stock.
The warrants are exercisable for a period of four years commencing one year
after the date of the prospectus (June 22, 1994) at an exercise price of $6.25
(125% of the public offering price). This warrant is outstanding as of December
31, 1995.
Stock Option Plan
The Company adopted a stock option plan to provide for the grant of options
to key employees to acquire up to 450,000 shares of the Company's common stock.
The option price per share may not be less than 100% of the fair market value of
a share on the date the option is granted, and the maximum term of an option may
not exceed ten years. There are currently 210,000 options granted and
outstanding under the 1993 stock option plan. These options were granted to the
President of the Company at an exercise price of $7.50 per share, one-third
which will vest each year. In January 1996, the Board of Directors passed a
resolution reducing the
F-12
<PAGE> 67
USTEL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
exercise price from $7.50 to $5.00 per share. In January 1996, the Company also
granted to each of two officers options to purchase 100,000 shares of common
stock at $5.00 per share.
NOTE 8 -- INCOME TAXES
At December 31, 1995, the Company has available net operating loss
carryforwards of approximately $5,908,000 for income tax purposes, which expire
in varying amounts through 2010. Federal tax rules impose limitations on the use
of net operating losses following certain changes in owner ship. Such a change
in control occurred during 1994. As a result $3,208,000 of the net operating
loss carryforwards are subject to limitation. The net operating loss carryover
may be utilized at a rate of approximately $402,000 per year.
The loss carryforward generated a deferred tax asset of approximately
$2,186,000. The deferred tax asset was not recognized due to uncertainties
regarding its realization, accordingly, a 100% valuation allowance was provided.
NOTE 9 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities for the year ended December 31, 1993 were as
follows:
The Company acquired fourteen condominiums from a related party in exchange
for assuming notes payable amounting to $1,457,313 collateralized by deeds of
trust.
The related party paid $82,186 to the mortgage holders on behalf of the
Company. The Company increased their notes payable related party and decreased
their long-term debt by that amount.
Cash paid for interest during the year ended December 31, 1993 amounted to
$28,600.
Non-cash investing and financing activities for the year ended December 31,
1994 were as follows:
Cash paid for interest during the year ended December 31, 1994 amounted to
$91,160.
During 1994, an officer/shareholder note payable amounting to $60,000 was
contributed to paid in capital.
Non-cash investing and financing activities for the year ended December
31, 1995 were as follows:
Cash paid for interest during the year ended December 31, 1995 amounted to
$260,437.
During 1995, the Company issued 95,000 shares of Series B Convertible
Preferred in payment of services plus a promissory note for $95,000.
NOTE 10 -- SUBSEQUENT EVENT
In January 1996, the Company completed a private placement of 160,000 Units
(consisting of 160,000 shares of common stock and 160,000 redeemable common
stock purchase warrants) raising net proceeds of approximately $775,000. For
assisting the company with the private placement, the Company paid a Diener
Financial Group the sum of $25,000 and granted the director 100,000 warrants
exercisable at $5.00 per share, expiring November 2000.
F-13
<PAGE> 68
USTEL, INC.
CONDENSED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995 (UNAUDITED)
------------
(AUDITED)
<S> <C> <C>
ASSETS
Current
Cash............................................................ $ 1,200 $ 650,309
Restricted cash................................................. 3,133,433 2,110,005
Accounts receivable less allowance for doubtful accounts of
$652,000 and $564,000, respectively.......................... 5,144,502 7,134,686
Due from related parties........................................ 348,519 289,789
Prepaid expenses................................................ 506,824 707,967
Other current assets............................................ 756,220 -0-
------------ -----------
Total current assets.................................... 9,890,698 10,892,756
Property and equipment
Office furniture & equipment.................................... 1,440,294 2,296,771
Leasehold improvements.......................................... 164,063 168,899
------------ -----------
1,604,357 2,465,670
Less accumulated depreciation................................... (241,176) (353,451)
------------ -----------
Net property and equipment.............................. 1,363,181 2,112,219
Other assets
Other receivables, net.......................................... -- 576,992
Start-up costs, less accumulated amortization of $59,022 and
$68,859, respectively........................................ 39,347 29,511
Deferred charges (Note 2)....................................... 684,805 1,190,132
------------ -----------
$ 11,978,031 $14,801,610
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Notes payable (Note 3).......................................... $ 2,900,000 $ 4,025,691
Payable to related party (Notes 4, 5)........................... 1,500,000 1,484,000
Accounts payable and accrued expenses........................... 2,192,479 3,127,054
Accrued revenue taxes........................................... 1,097,779 231,425
------------ -----------
Total current liabilities............................... 7,690,258 8,868,170
Long-term liabilities
Convertible subordinate debentures................................ 500,000 500,000
------------ -----------
Total liabilities....................................... 8,190,258 9,368,170
------------ -----------
Stockholders' equity
Series A & B convertible preferred stock........................ 6,450 6,450
Common stock.................................................... 16,000 20,119
Additional paid-in capital...................................... 6,291,178 7,860,761
Accumulated deficit............................................. (2,525,855) (2,453,890)
------------ -----------
Total stockholders' equity.............................. 3,787,773 5,433,440
------------ -----------
Total liabilities and stockholders' equity.............. $ 11,978,031 $14,801,610
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-14
<PAGE> 69
USTEL, INC.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................... $6,996,751 $10,526,503
Operating expenses
Cost of services sold............................................ 5,159,835 7,241,355
Selling.......................................................... 547,355 1,074,719
General and administrative....................................... 1,165,074 1,830,340
Depreciation and amortization.................................... 68,318 122,112
---------- -----------
Total operating expenses................................. 6,940,582 10,268,526
---------- -----------
Income from operations............................................. 56,169 257,977
Interest expense, net of interest income........................... (8,031) (186,013)
---------- -----------
Net income............................................... $ 48,138 $ 71,964
========== ===========
Earnings per share amounts:
Primary.......................................................... 0.03 0.03
========== ===========
Fully diluted.................................................... 0.02 0.03
========== ===========
Weighted average common shares outstanding:
Primary.......................................................... 1,600,000 2,735,195
========== ===========
Fully diluted.................................................... 2,441,612 2,806,624
========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-15
<PAGE> 70
USTEL, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1996 THROUGH JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- -------------------- PAID-IN ACCUMULATED TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- ------ --------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... 645,000 $6,450 1,600,000 $16,000 $6,291,178 $(2,525,855) $3,787,773
Conversion of debt...... -- -- 160,000 1,600 798,400 -- 800,000
Cost of preferred stock
placement issued in
prior period.......... -- -- 112,000 1,120 (47,120) -- (46,000)
Acquisition of switching
equipment............. -- -- 100,000 1,000 499,000 -- 500,000
Cost of raising
capital............... -- -- 39,851 399 79,303 -- 79,702
Issuance of warrants
related to debt....... -- -- -- -- 240,000 -- 240,000
Net income for period... -- -- -- -- -- 71,965 71,965
-------- ------ --------- ------- ---------- ----------- ----------
Balance, June 30, 1996.... 645,000 $6,450 2,011,851 $20,119 $7,860,761 $(2,453,890) $5,433,440
======== ======= ========= ======== ========== ============ ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-16
<PAGE> 71
USTEL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 48,138 $ 71,964
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization......................... 68,318 122,112
Provision for losses on accounts receivable........... 134,965 244,466
Change in operating assets and liabilities
Accounts receivable................................ (635,558) (2,234,650)
Other assets....................................... (756,220) 756,220
Due from related parties........................... (472,948) 58,730
Prepaid expenses................................... (126,620) (201,143)
Accounts payable and accrued expenses.............. 699,326 68,222
Other receivables.................................. (16,490) (576,992)
----------- -----------
Net cash used in operating activities......... (1,057,089) (1,691,072)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment................................... (345,312) (861,313)
Increase in deferred charges............................ -- (505,327)
----------- -----------
Net cash used in investment activities........ (345,312) (1,366,640)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash......................................... (2,133,433) 1,023,428
Proceeds from notes payable............................. 1,450,000 11,642,635
Payment on debt......................................... (120,000) (8,959,242)
----------- -----------
Net cash provided by financing activities..... (803,433) 3,706,821
----------- -----------
Net decrease in cash.................................... (2,205,834) 649,109
Cash, beginning of period............................... 2,207,034 1,200
----------- -----------
Cash, end of period..................................... $ 1,200 $ 650,309
========== ==========
Supplemental information
Interest paid......................................... $ 50,222 $ 242,533
Income taxes paid..................................... 800 12,638
</TABLE>
See accompanying notes to condensed financial statements.
F-17
<PAGE> 72
USTEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996
NOTE 1 -- INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1996 and
June 30, 1995, respectively, are unaudited. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair representation of the results of the interim
periods. The results of operations for the six-month periods ended June 30, 1996
are not necessarily indicative of the results for the entire year.
NOTE 2 -- DEFERRED CHARGES
Deferred charges consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Development costs................................ $336,690 $ 210,287
Offering costs................................... 164,792 699,068
Loan fees........................................ 35,000 131,253
Calling card program............................. 118,157 138,109
Deposits and others.............................. 82,166 82,165
-------- ---------
736,805 1,260,882
Accumulated amortization......................... (52,000) (70,750)
-------- ---------
$684,805 $1,190,132
======== =========
</TABLE>
NOTE 3 -- NOTES PAYABLE
In June 1995 and September 1995, the Company entered into a revolving
credit agreements with a bank that provided for secured borrowings aggregating
$1.0 million and $2.1 million, respectively, expiring in July 1996. Borrowings
under the agreements bear interest at the bank's prime lending rate. The credit
agreements were collateralized by two certificates of deposit at that same bank
totalling $2.1 million. In July 1996, this outstanding credit line was paid off
by offsetting the outstanding balance against the certificates of deposit used
as collateral. Borrowings under the remaining credit agreement amounted to $2.1
million at June 30, 1996.
In December 1995, the Company obtained a Senior Credit Facility ("Credit
Facility" and "Line") in the amount of up to $5 million with an asset-based
lender. Amounts drawn under the Credit Facility accrue interest at a variable
rate equal to the Bank of America Reference Rate plus 2% per annum. The Line is
secured by accounts receivable and all of the Company's other assets. Under the
Credit Facility, the Company can borrow up to an amount which is the lesser of
$5 million or 85% of the Company's eligible receivables. Subject to the $5
million maximum borrowing, in addition to amounts supported by receivables, the
Company may borrow on a 36-month term loan basis up to the lesser of $1.5
million or a formula amount based on the fair value of new equipment and the
liquidation value of existing equipment. Amounts outstanding under the Credit
Facility at June 30, 1996 were $1,925,691.
NOTE 4 -- SHORT-TERM BORROWINGS
During March 1996 the Company borrowed $400,000 from a related party. The
notes mature in November 1996 and bear interest at the annual rate of 8%. In
June 1996 $116,000 of this borrowing was repaid. Interest is payable at the
earlier of maturity or repayment of the full amount borrowed.
F-18
<PAGE> 73
USTEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND JUNE 30, 1996
During June 1996 the Company borrowed $1,200,000 from an unrelated party.
The two-year note bears interest at the annual rate of 12% and is unsecured.
Interest is payable at maturity. In conjunction with this loan the Company
agreed to issue warrants for acquisition of up to 540,000 of its common shares
at a price of $5.00 per share. The value of the warrants were estimated at
$240,000 and the amount will be amortized to interest expense over the life of
the loan. Warrants for purchase of 120,000 common shares were issuable at the
time the loan was funded. Additional warrants become issuable in increments for
60,000 common shares each at intervals of ninety days after funding of the loan
so long as the loan remains unpaid.
NOTE 5 -- RELATED PARTIES PAYABLE
In October 1995 the Company borrowed $1,500,000 pursuant to the terms of a
one-year term loan. Borrowing under the agreement bears interest at 10% per
annum on a daily principal balance outstanding during the three calendar months
prior to each interest payment date on the first day of each calendar quarter.
The agreements calls for the issuance of warrants for the purchase of up to one
hundred thousand shares of the Company's common stock at a price of $5.00 per
share, exercisable over the term of the loan. The loan is secured by the
Company's trade accounts receivable and certain other assets. Borrowings under
the credit agreement amounted to $1,500,000 at December 31, 1995. This loan was
repaid in January 1996 by the issuance of 160,000 common shares of the Company
plus $725,000.
In June 1996 the Company acquired title to switching facilities in Beverly
Hills CA from an officer of the Company for $678,471. Consideration for the
switch was 100,000 shares of the Company's Common Stock and cancellation of
interim advances made by the Company in connection with the upgrading of the
switching equipment in the amount of $178,471. At the time the switching
equipment was acquired, it had been appraised for approximately $716,000.
In January, 1996, the Company completed a private placement of 160,000
Units (consisting of 160,000 shares of Common Stock and 160,000 Redeemable
Common Stock Purchase Warrants) raising net proceeds of approximately $775,000.
For assisting the Company in connection with this private placement, the Company
paid Diener Financial Group the sum of $25,000. In November, 1995, the Company
granted Mr. Diener 100,000 Warrants exercisable at $5.00 per share, expiring
November, 2000.
In June, 1996, the Company acquired title to a telecommunications switch
owned by Mr. Epling for aggregate consideration in the amount of $716,375.
Consideration was paid by crediting $500,000 as payment for the issuance of
100,000 shares of Common Stock to Mr. Epling pursuant to the exercise of
employee stock options, cancelling approximately $109,949 in interim advances
made by the Company to TYC, Inc., a corporation wholly-owned by Mr. Epling, and
a cancellation of interim advances of approximately $75,522 made by the Company
to Mr. Epling for upgrading the switch, and the issuance of an additional 7,851
shares of Common Stock to Mr. Epling based on a $5.00 per share market value. At
the time the switching equipment was acquired, it was appraised at approximately
$716,000.
In January, 1996, the Company entered into a supplemental consulting
agreement with IFC to provide the services of Mr. Grey as the chief financial
officer and as a director of the Company for up to 20 hours of service per week
for compensation of $12,500 per month. IFC agreed to defer payment of $7,500 per
month until such time as the Company obtained certain additional financing, or
underwent a change in control, as defined in the agreement, or IFC terminated
the services. In February, 1996, the Company agreed to cancel the $95,000 note
in consideration of services rendered and to be rendered by IFC and the payment
by IFC of $5,000 to the Company.
F-19
<PAGE> 74
USTEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND JUNE 30, 1996
NOTE 6 -- SUBSEQUENT EVENTS
On August 14, 1996, UStel, Inc. ("UStel"), Consortium Acquisition
Corporation (a wholly-owned subsidiary created by UStel, Inc.) and Consortium
2000, Inc. entered into a Merger Agreement and Plan of Reorganization ("Merger
Agreement"). Under the terms of the Merger Agreement, (a) Consortium Acquisition
Corporation will be merged with Consortium 2000, Inc., with Consortium 2000,
Inc. being the surviving corporation in the merger, and (b) all of the capital
stock of Consortium 2000, Inc. will be converted into an aggregate of 1,076,923
shares of the Common Stock of UStel, Inc. As a result of the Merger Agreement,
Consortium 2000, Inc. will become a wholly-owned subsidiary of UStel. The merger
is contingent upon the completion of the Company raising additional financing.
In July, 1996, the Company's Board of Directors authorized the issuance of
20,000 shares of Common Stock to Consortium 2000 at $5.75 per share to reconcile
variances in commissions owed to Consortium 2000 for July, 1995 through March,
1996. Prior to the Merger, these shares will be distributed as a dividend to the
shareholders of Consortium 2000.
In August, 1996, the Company entered into a two-year consulting agreement
with Vanguard Consultants, Inc., a Nevada corporation, to provide consulting
services in the areas of marketing, finance and business development. Pursuant
to this agreement, Vanguard Consultants, Inc. will receive $7,500 per month for
such services.
As of September 9, 1996, the Company was indebted to WilTel, the Company's
primary long distance carrier, in the amount of $5,595,963. This amount was
settled by the payment of $1,000,000 by the Company on that date and an
agreement by the Company to remit $735,688 by September 27, 1996, and to remit
payment of its October 1, 1996 invoice to WilTel no later than October 31, 1996,
and to provide WilTel with a second lien against all of its assets and customer
base. WilTel agreed to allow the Company to defer the balance owing in the
amount of $3,860,275 to the earlier of November 10, 1996 or the completion of an
offering.
F-20
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Consortium 2000, Inc.
Culver City, California
We have audited the accompanying balance sheet of Consortium 2000, Inc. as
of June 30, 1996, and the related statements of operations, shareholders' equity
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the financial position of
Consortium 2000, Inc. at June 30, 1996, and the results of its operations and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
September 20, 1996
F-21
<PAGE> 76
CONSORTIUM 2000, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1996
----------
<S> <C>
Current
Cash........................................................................... $ 116,068
Accounts receivable, less allowance for doubtful accounts of $115,000.......... 810,470
Due from related parties (Note 1, a)........................................... 52,242
Employee advances.............................................................. 18,642
Prepaid expenses............................................................... 103,092
Loans to officers (Note 1, b).................................................. 8,254
----------
Total current assets................................................... 1,108,768
----------
Furniture and equipment..........................................................
Furniture and fixtures......................................................... 22,107
Professional equipment......................................................... 79,327
----------
101,434
Less accumulated depreciation.................................................. (54,844)
----------
Net furniture and equipment............................................ 46,950
----------
Other assets
Deposits....................................................................... 5,000
Intangible assets, less accumulated amortization of $74,510 (Note 2)........... 68,088
----------
Total assets........................................................... $1,228,446
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank loan (Note 3)............................................................. $ 100,000
Accounts payable............................................................... 6,026
Accrued agent fee.............................................................. 405,347
Accrued expenses............................................................... 84,170
Deferred salaries.............................................................. 37,381
Dividends payable.............................................................. 10,764
----------
Total current liabilities.............................................. 643,683
----------
Commitments and contingencies (Note 4)
Stockholders' equity
Common stock, no par value, with a stated value of $0.01 each, 30,000,000
shares authorized; 6,753,009 shares issued and 6,750,009 shares
outstanding................................................................. 67,530
Additional paid-in capital..................................................... 1,036,166
Accumulated deficit............................................................ (518,933)
----------
Total shareholders' equity............................................. 584,763
----------
Total liabilities and shareholders equity.............................. $1,228,446
=========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-22
<PAGE> 77
CONSORTIUM 2000, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30, 1996
------------------
<S> <C>
Revenues.................................................................. $3,416,851
Cost of service provided.................................................. 1,500,187
----------
Gross profit......................................................... 1,916,664
----------
Operating expenses
Depreciation and amortization........................................... 9,000
General and administrative.............................................. 2,071,656
----------
Loss from operations...................................................... (163,992)
----------
Other income (expense)
Other income............................................................ 71,541
Interest income......................................................... 4,301
Interest expense........................................................ (3,717)
----------
Net loss before income tax................................................ (91,867)
Income tax provision...................................................... 800
----------
Net income...................................................... $ (92,667)
==========
Net loss per share........................................................ $ (.01)
==========
Weighted average number of shares outstanding............................. 6,751,676
==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-23
<PAGE> 78
CONSORTIUM 2000, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995......................... 6,753,009 $67,530 $1,036,166 $(351,528) $946,168
Dividend paid................................ -- -- -- (61,866) (61,866)
Treasury stock purchased (Note 5)............ (3,000) -- -- (2,871) (2,871)
Net loss for period.......................... -- -- -- (92,667) (92,667)
--------- ------- ---------- --------- --------
Balance, June 30, 1996......................... 6,750,009 $67,530 $1,036,166 $(518,933) $584,763
========= ======== ========== ========== =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-24
<PAGE> 79
CONSORTIUM 2000, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30, 1996
------------------
<S> <C>
Cash flows from operating activities
Net Loss................................................ $(92,667)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 15,600
Change in operating assets and liabilities
Accounts receivable................................ 208,098
Prepaid expenses and other......................... (50,569)
Accounts payable and accrued expenses.............. 1,262
Payments for deferred salaries..................... (57,585)
Other items........................................ 2,811
------------------
Net cash provided by operating activities....... 26,950
------------------
Cash flows from investing activities
Purchase of equipment................................... (26,673)
------------------
Net cash used in investing activities........... (26,673)
------------------
Cash flows from financing activities
Dividends paid.......................................... (61,866)
Treasury stock purchased................................ (2,871)
Proceeds from bank loans................................ 100,000
------------------
Net cash provided by financing activities....... 35,263
------------------
Net increase in cash...................................... 35,540
Cash, beginning of period................................. 80,528
------------------
Cash, end of period....................................... $116,068
==============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-25
<PAGE> 80
CONSORTIUM 2000, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
Consortium 2000, Inc. (the "Company") was formed in December 1988 under the
laws of the State of California. The major business of the Company is to conduct
consultative marketing service for designing, developing, operating and managing
a telecommunication users group to produce savings for its member clients. The
Company provides services to various clients who are connecting with long
distance carriers throughout the nation.
REVENUE RECOGNITION
Revenue is recognized upon completion of the telephone call.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SIGNIFICANT UNCERTAINTIES
The Company's commission revenue is based upon its clients' usage of
telephone services with various long distance carriers. A majority of its
commission revenue comes from the Company's business clients. Generally, any
economic fluctuation in business client's operations will have significant
impact on their telephone usage. Accordingly, the fluctuation in the usage of
the Company's clients will have affected the commission revenue of the Company.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term debt
securities purchased with an original maturity of three months or less to be
cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for all doubtful accounts. The balance of
the allowance is based on review of the current status of accounts receivable.
The allowance for doubtful accounts was $115,000 as of June 30, 1996.
EQUIPMENT AND FURNITURE
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Professional Equipment...................................... 5 years
Furniture and fixtures...................................... 5 years
</TABLE>
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
F-26
<PAGE> 81
CONSORTIUM 2000, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consists of start-up costs which are stated at cost.
Amortization is computed using the straight-line method over twenty years.
INCOME TAX
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, which requires the Company to recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets using enacted rates in effect in the years in which the differences are
expected to reverse.
At June 30, 1996, the Company has available net operating loss
carryforwards of approximately $500,000 for income tax purposes, which expire in
varying amounts through 2010. Federal tax rules impose limitations on the use of
net operating losses following certain changes in ownership.
The loss carryforward generated a deferred tax asset of approximately
$185,000. The deferred tax asset was not recognized due to uncertainties
regarding its realization, accordingly, a 100% valuation allowance was provided.
During fiscal year 1996, the Company incurred a loss. As a result, the tax
provision of $800 represents the minimum payment required for State income tax
purposes.
EARNINGS PER SHARE
Earnings per share was computed by dividing net loss for the year ended
June 30, 1996 by the weighted average number of shares for the year ended June
30, 1996.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
NOTE 1 -- RELATED PARTY TRANSACTIONS
(a) Due from Related Party
R & R Ventures, Inc. (R&R) is an agent which markets residential services
and is engaged by the Company. A board member and shareholder of the Company
owns 50% of R&R. In November, 1995, the Company and R&R agreed that R&R would
allow the Company to deduct R&R's commission from the Company to offset the
$75,422 that R&R owes to the Company. As a result of deducting commissions
earned by R&R from the Related Receivables, the remaining balance due from R&R
as of June 30, 1996 was $52,242.
(b) Officer Loan Receivables
The balance due to the company from an officer is $8,254. Interest accrues
monthly at seven percent per annum.
F-27
<PAGE> 82
CONSORTIUM 2000, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
NOTE 2 -- INTANGIBLE ASSETS
Intangible assets as of June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Start-up cost..................................................... $142,598
Less accumulated amortization..................................... 74,510
--------
$ 68,088
========
</TABLE>
NOTE 3 -- BANK LOAN
In May of 1996, the Company obtained a revolving line of credit of $200,000
from a commercial bank for working capital purposes. The loan matures at March
1, 1997 and has a variable interest rate (1% over the bank's prime rate). The
revolving line of credit is subject to certain restrictive covenants. At June
30, 1996, the Company was in violation of all of the financial ratio
requirements due to the write-off of $775,943 which was due from UStel, Inc. The
Company obtained a waiver of default from the lender which temporarily waives
the specific events of default for a period not to exceed sixty days.
NOTE 4 -- OPERATING LEASES
The Company conducts its operations from facilities that are leased under a
56 month noncancelable operating lease expiring in June 1998.
The following is a schedule of future minimum rental payments required
under the above operating lease as of June 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
-----------
<S> <C> <C> <C>
1997 ....................................................... $60,000
1998 ....................................................... 60,000
</TABLE>
NOTE 5 -- SHAREHOLDERS' EQUITY
In October of 1995, the Company repurchased 3,000 shares of common stock
from one of its shareholders for $3,750 and agreed to sell these shares to a key
employee. Per the employee stock purchase agreement, the employee will make
installment payment each payroll period, and has made 15 installment payments.
When the employee fulfills his performance, the Company will make a contribution
for the difference between the employee's installment payments and the stock
price of $3,750. As of June 30, 1996, the treasury stock balance was $2,871.
NOTE 6 -- SUBSEQUENT EVENT
On August 14, 1996, UStel, Inc. ("UStel"), Consortium Acquisition
Corporation (a wholly-owned subsidiary created by UStel, Inc.) and Consortium
2000, Inc. entered into a Merger Agreement and Plan of Reorganization ("Merger
Agreement"). Under the terms of the Merger Agreement, (a) Consortium Acquisition
Corporation will be merged with Consortium 2000, Inc., with Consortium 2000,
Inc. being the surviving corporation in the merger; and (b) all of the capital
stock of Consortium 2000, Inc. will be converted into an aggregate of 1,076,923
shares of the Common Stock of UStel, Inc. As a result of the Merger Agreement,
Consortium 2000, Inc. will become a wholly-owned subsidiary of UStel.
As a result of entering into the Merger Agreement, the Company agreed to
write off a one time difference of $775,943 between UStel, Inc.'s commission
expenses to the Company and the Company's commission revenue from UStel, Inc.
during the fiscal year ended June 30, 1996. This difference was included in
general and administrative expenses. The management of the Company agreed not to
pursue collection of bad debt from UStel, Inc.
F-28
<PAGE> 83
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
Summary................................ 3
Risk Factors........................... 7
Use of Proceeds........................ 12
Capitalization......................... 13
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Results of Operations and Financial
Condition and Projections............ 21
Business............................... 27
Management............................. 39
Principal & Selling Stockholders....... 43
Certain Transactions................... 45
Description of Securities.............. 47
Shares Eligible for Future sale........ 50
Underwriting........................... 51
Legal Matters.......................... 52
Experts................................ 52
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
[LOGO]
2,500,000 SHARES
USTEL, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
CRUTTENDEN ROTH
INCORPORATED
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation limit the liability of its
directors in their capacity as directors to the fullest extent permitted by the
Minnesota Business Corporation Act. Specifically, directors of the Company will
not be personally liable for monetary damages for breach of fiduciary duty as
directors except liability for (i) any breach of the duty of loyalty to the
Company or its shareholders, (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) dividends or
other distributions of corporate assets that are in contravention of certain
statutory or contractual restrictions, (iv) violations of certain Minnesota
securities laws, or (v) any transaction from which the director derives an
improper personal benefit.
The Minnesota Business Corporation Act requires that the Company indemnify
any director, officer or employee made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota indemnification statute (Minn. Stat. sec. 302A.521) for a complete
statement of such indemnification to the fullest extent of the Minnesota
indemnification statute.
Pursuant to the terms of the Underwriting Agreement, the directors and
officers of the Company also are indemnified against certain civil liabilities
that they may incur under the Securities Act of 1933, as amended, in connection
with this offering, Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended may be permitted to officers, directors or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses estimated in connection with the issuance
and distribution of the Company's securities, other than underwriting discounts
and the Representative's nonaccountable expense allowance. Except for the SEC
registration fee and NASD filing fee, all expenses are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 6,345
NASD filing fee................................................ 2,225
Nasdaq Stock Market listing fee................................ 25,000
Representative's non-accountable expense allowance............. 536,250
Printing and engraving expenses................................ 80,000
Accounting fees and expenses................................... 80,000
Legal fees and expenses........................................ 220,000
Blue Sky filing fees and expenses.............................. 15,000
Transfer Agent's fees and expenses............................. 5,000
Director's and Officer's Liability Insurance................... 80,000
Miscellaneous expenses......................................... 25,000
------
Total........................................................ $1,074,820
======
</TABLE>
II-1
<PAGE> 85
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its incorporation and initial organization in 1992, the
Company issued and sold an aggregate of 1,000 shares of Common Stock to Noam
Schwartz for a total of $100,000 in cash, without registration under the
Securities Act of 1933, as amended (the "Act"), in reliance upon the exemptions
provided from such registration by Sections 3(a)(11) and/or 4(2) of the Act.
Since the issuance of the stock to Noam Schwartz, Mr. Schwartz has assumed debts
of the Company equal to $420,098 in the aggregate, which amount has been added
to additional paid-in capital.
In October and December, 1993, the Company issued and sold $200,000 in
principal amount of 12% notes to Sherwood Capitol, Inc. and $200,000 in
principal amount of 12% notes to Oxford Investments, Ltd., respectively, without
registration under the Act in reliance upon exemptions provided from
registration by Sections 3(a)(3) and/or 4(2) of the Act. The notes were repaid
in January, 1994 from the proceeds of the sale of the 12% Convertible
Subordinated Debentures described below. A loan fee of $5,000 was paid to the
lender with respect to each of the loans.
In January, 1994, the Company issued and sold $500,000 in principal amount
of 12% Convertible Subordinated Debentures to a limited group of accredited
investors without registration under the Act in reliance upon the exemptions
provided from such registration by Sections 4(2) and/or 4(6) of the Act. The 12%
Convertible Subordinated Debentures were issued and sold to Raquel Grunwald,
Robert Sachs, Stephen C. Ksieski, Peter G. Kaltman, David L. Schwartz,
Dynamation Research Corp., Gal Lipkin, President and Yoel Iny. The 12%
Convertible Subordinated Debentures are due and payable on or before December
31, 1998 and are convertible into 71,428 shares of Common Stock at a conversion
price of $7.00 per share.
In April, 1994, the Company issued and sold $250,000 in principal amount of
10% notes to Sherwood Capitol, Inc. without registration under the Act in
reliance upon exemptions provided from registration by Sections 3(a)(3) and/or
4(2) of the Act. The notes were due and payable in the amount of $150,000 on
April 11, 1994 and $100,000 on April 30, 1994. The maturity date of these
notices was extended to June 15, 1994. The notes were repaid in the third
quarter of 1994.
In September, 1994, the Company issued 550,000 shares of Series A
Convertible Preferred Stock (the "Series A Preferred") to Kamel B. Nacif for
$3,000,000 in cash, and the Company issued 112,000 shares of Common Stock to
SAS, Ltd. as a finder's fee in connection with the issuance of the Series A
Preferred to Mr. Nacif. The Company did not register these shares in reliance
upon the exemption from registration provided by Section 4(2) of the Act.
In November, 1995, the Company issued 95,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred") to Integrated Financial Consultants,
Inc. in consideration of services rendered and to be rendered to the Company and
$95,000 paid in the form of a promissory note due upon the earlier of conversion
on May 31, 2005. In February, 1996, the Company cancelled the note in
consideration of services rendered and to be rendered to the Company and $5,000
in cash. The Company did not register these shares in reliance upon the
exemption from registration provided by Section 4(2) of the Act.
In December, 1995, the Company issued and sold 160,000 units, consisting of
160,000 shares of Common Stock and 160,000 Redeemable Common Stock Purchase
Warrants (the "Units") to a limited group of investors without registration
under the Act in reliance upon the exemption provided from such registration by
Section 4(2) of the Act. The Units were issued and sold to Frederic Rheinstein,
Amnon Barness, Caren Barness, James B. Jacobson, trustee of the Jacobson Family
Trust U/D/T 8/25/76, Marianna Smith, U.S. Rentals, Inc., Robert L.B. Diener and
Royce Diener.
In June, 1996, the Company issued 7,851 shares of Common Stock to Barry
Epling at $5.00 per share in connection with the sale and assignment by Mr.
Epling, individually, and d/b/a TYC Corporation, and TYC, Inc., a corporation
wholly-owned by Mr. Epling, to the Company of certain switching equipment,
rights and leases for aggregate consideration of $716,375. The Company did not
register these shares in reliance upon the exemption from registration provided
by Section 4(2) of the Act.
II-2
<PAGE> 86
In August, 1995, the Company issued 20,000 shares of Common Stock to
Consortium 2000, Inc. ("Consortium 2000") at $5.75 per share to reconcile
variances in commissions owed to Consortium 2000 for July, 1995 through March
31, 1996. The Company did not register these shares in reliance upon the
exemption from registration provided by Section 4(2) of the Act.
Pursuant to the Merger Agreement and Plan of Reorganization, dated August
14, 1996, by and among the Company, Consortium Acquisition Corporation, and
Consortium 2000, and subject to the approval of the Company's stockholders, the
Company has agreed to issue 1,076,923 shares of Common Stock to the shareholders
of Consortium 2000 in return for 5,298,031 shares of Consortium 2000. Class A
Common Stock, no par value, and 1,454,978 shares of Consortium 2000 Class B
Common Stock. The shares will be issued to Royce Diener, Jim Jacobson, C. Joseph
LaBonte, MSM, Inc., Jerry Dackerman, Bruce Robin, Wouter van Biene, Jennifer
Flinton Diener, Richard Colburn, Stanley Beyer, Amnon Barness, Wilhelmina
Diener, Rich Hirsch, Robert Robin, Annette Levey, Steve Krammer, Richard Fritch,
Peter Rosenblum, Don Burgess, Raymond Parks, Burt Vaupen, Laura Delgado, Dave
Delgado, Art Rosenberg, Jeff Good, Mark Kelly, Chuck Di Pietro, William Kasoff,
Stella Powell, Jay Helfert, Larry Kimball, Richard Franz, Sally Hanes and Warren
Reid. These shares will be issued in reliance upon an exemption from
registration under Section 4(2) of the Act.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBITS
- -------------- --------------------------------------------------------------------------------
<C> <S>
1.3 Warrant Agreement with underwriter, Norcross Securities, Inc.(1)
1.4* Form of Underwriting Agreement with Cruttenden Roth Incorporated
3.1 Articles of Incorporation(1)
3.1-a Statement of Designations, Preferences and Rights of Series A Convertible
Preferred Stock(2)
3.1-b Statement of Designation and Preferences and Rights, Series B Preferred Stock
(included in Exhibit 10.25 below)(3)
3.2 Bylaws(1)
4.1 Form of Certificate evidencing shares of Common Stock(1)
4.2 Form of 12% Convertible Subordinated Debenture(1)
5.1 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein on legality*
10.1 Federal Communications Commission Order, Authorization and Certificate dated
October 20, 1992(1)
10.2 Certificate of Public Convenience and Necessity to Resell Intrastate
Telecommunications Services in the State of California(1)
10.3 Carrier Switched Services Agreement between the Company and WilTel, Inc. dated
March 10, 1993(1)
10.3.1 Collocate Agreement with WilTel, Inc., January 9, 1995(3)
10.4 Agreement between the Company and Cyberlink dated December 30, 1993(1)
10.5 Lease Agreement between the Company and CaliforniaMart, dated June 11, 1993(1)
10.7 Smart Card License Agreement between the Company and Communications Product
Development Inc.(1)
10.8 Phone Service Card Agreement between the Company and Globalcom 2000 dated August
26, 1993(1)
10.9 Phone Service Card Agreement between the Company and Starcom, Inc. dated June
28, 1993(1)
10.10 Agreement between the Company and the Los Angeles County Metropolitan
Transportation Authority(1)
10.11 Agreement between the Company and the Collegiate Stores Cooperative(1)
10.12 Lease between the Company and U.S. Century Group/Homestead Group Associates(1)
</TABLE>
II-3
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBITS
- -------------- --------------------------------------------------------------------------------
<C> <S>
10.12-a,b,c (a) Leases for 3400 square feet in Las Vegas, Rainbow Interim Partners, June 19,
1995;
(b) NY Lease Forty-Seventh-Fifth Company, July, 1994; (C)PacTel Meridian
Systems, Equipment Agreement, April 15, 1994(3)
10.13 First Amended and Restated Purchase Contract Receipt for Deposit and Escrow
Instructions between the Company and 2721 Street Associates Inc. dated December
9, 1993(1)
10.14 Installment Collateral Note and Promissory Note between the Company and the
Israel Discount Bank, Ltd.(1)
10.15 $100,000 Promissory Note between Homestead Group Associates and Noam Schwartz
dated December 20, 1992(1)
10.16 $43,948.09 Promissory Note between U.S. Century Group and Noam Schwartz dated
March 31, 1993(1)
10.17 $376,159.48 Promissory Note between U.S. Century Group and Noam Schwartz dated
December 31, 1992(1)
10.18 Employment Agreement between the Company and Noam Schwartz dated February 1,
1994(1)
10.19 Employment Agreement between the Company and Barry Epling dated December 1,
1993(1)
10.20 1993 Stock Option Plan(1)
10.21 Form of 1993 Option Agreement(1)
10.22 Stock Option Agreement between Noam Schwartz and Barry Epling dated December 1,
1993(1)
10.23 Stock Option Agreement between David Schwartz and Barry Epling dated December 1,
1993(1)
10.24 Employment Agreement with Abe Sher, January 4, 1996(3)
10.24-a Modification to Employment Agreement with Abe Sher.
10.25 Consulting Agreement, Integrated Financial Consultants, November 10, 1995, and
Supplement and Cancellation of Indebtedness, January 10, 1996(3)
10.26 Coast Business Credit Agreement, December 21, 1995(3)
10.27 $1.5 Million Secured Credit Agreement, September 9, 1995(3)
10.28 Consortium 2000 Agreement, August 5, 1994(3)
10.29 Subscription Documents, 160 Units, January 15, 1996, Form of(3)
10.30 Registered Consulting Group Agreement, June 20, 1994(3)
10.31 Cruttenden Engagement Agreement, October 27, 1995(3)
10.32 Bank Leumi Line of Credit Agreement dated June 28, 1995(3)
10.33 Robert L. Diener Consulting Agreements dated November 1, 1995, August 15,
1995(3)
10.34 Service Agreement with Cardservice International, December 21, 1993(3)
10.35 Interconnect Agreement, Euronet International, December 17, 1994(3)
10.36 Marketing Agreement, Gardena Communications, Inc., January 28, 1994(3)
10.37 Service Agreement, Digital Communications of America, Inc., October 14, 1992(3)
10.38 Carrier Transport and Switched Services Agreement, December 15, 1993,(4)
10.39 Telecommunication Services Agreement, WilTel, Inc., July 25, 1994, Confidential
Redacted Version.(4)
10.40 Merger Agreement and Plan or Reorganization by and among UStel, Inc., Consortium
Acquisition Corporation and Consortium 2000, Inc. dated August 13, 1996 (exhibit
2 to the Company's report on Form 8-K filed with the SEC on August 27, 1996)(5)
10.41 Registration Rights Agreement dated August 14, 1996 between UStel, Inc. and
Consortium 2000 Shareholders (exhibit 10.1 to the Company's report on Form 8-K
filed with the SEC on August 27, 1996)(5)
</TABLE>
II-4
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBITS
- -------------- --------------------------------------------------------------------------------
<C> <S>
10.42 Registration Rights Agreement dated August 14, 1996 between UStel, Inc. and Noam
Schwartz, David Schwartz, the RGB 1993 Family Trust and the TAD 1993 Family
Trust (exhibit 10.2 to the Company's report on Form 8-K filed with the SEC on
August 27, 1996)(5)
10.43 Promissory Note, and ancillary agreement, by and between the Registrant and
Kamel B. Nacif, February 29, 1996
10.44 Beverly Hills Switching Equipment Letter Agreement, by and among the Registrant,
Barry Epling individually and d/b/a TYC and TYC, Inc., June 5, 1996
10.45 Employment and Non Disclosure Agreement by and between the Registrant and Danny
Knoller, September 1, 1996
10.46 Consulting Agreement by and between the Registrant and Vanguard Consultants,
Inc., August 1, 1996
10.47 Indemnification Agreement by and between the Registrant and Noam Schwartz,
August 2, 1996
10.48 Letter Agreement by and between the Registrant and Consortium 2000, Inc., August
7, 1996
10.49 Amendment Number One to Loan and Security Agreement, Secured Promissory Note and
Amended and Restated Secured Promissory Note by and between the Registrant and
Coast Business Credit, September , 1996
10.50 Cancellation of Indebtedness Agreement by and between the Registrant and
Integrated Financial Consultants, Inc., February, 1996
10.51 Letter Agreement by and between the Registrant and WorldCom, September 10, 1996
10.52 Sublease by and between Consortium 2000, Inc., and Primdex Corporation,
September 25, 1993.
10.53 Sales Agency Agreement by and between Consortium 2000, Inc., and WorldCom, Inc.,
d/b/a/ LDDS WorldCom, June 1, 1995 Confidential Redacted Version.
10.54 Hertz Technologies, Inc., Marketing Agreement and Amendments No. 1 and 2
thereto, by and between Consortium 2000, Inc., and Hertz Technologies, Inc.,
July 7, 1995 Confidential Redacted Version.
10.55 Distributor Program Agreement and Amendment No. 1 and 2 thereto, by and between
Consortium 2000, Inc., and LCI International Telecom Corp., November 3, 1994,
January 31, 1996 and March 26, 1996, respectively, Confidential Redacted
Versions.
10.56 Marketing Services Agreement by and between Consortium 2000, Inc., and New
Enterprise Wholesale Telephone Services, Limited Partnership, August 15, 1994
Confidential Redacted Version.
10.57 Consortium 2000 and Call Points, Inc., Agreement by and between Consortium 2000
and Call Points, Inc., September 7, 1995 Confidential Redacted Version.
10.58 Client Contract by and among Consortium 2000, Inc., Verifications Plus, Advanced
Data-Com, Inc., January 24, 1996 Confidential Redacted Version.
10.59 Promissory Note, Commercial Security Agreement and Letter Agreement by and
between Consortium 2000, Inc., and City National Bank, May 28, 1996, May 28,
1996 and May 30, 1996, respectively.
10.60-a,b,c,d (a) Letter Agreement by and between the Registrant and Jeflor, Inc., June 10,
1996,
(b) Subordinated Convertible Debenture, June 19, 1996,
(c) Warrant, June 21, 1996,
(d) Guaranty of Loan by Noam Schwartz, Ronnie Schwartz and Haskel Iny, June 17,
1996.
11 Computation of Earnings per Share
23.1 Consent of BDO Seidman, LLP, dated September 25, 1996.
23.2 Consent of Freshman, Marantz, Orlanski Cooper & Klein (included in Opinion,
Exhibit 5.1).
24 Power of Attorney, included in signature page on II-7.
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 89
(1) Incorporated by reference to the Company's Registration Statement and
Amendments No. 1 through No. 2 on Form SB-2 (Registration No. 33-75210-LA)
declared effective June 21, 1994.
(2) Incorporated by reference to the Company's 10-KSB for the year ended
December 31, 1995, filed with the SEC on April 16, 1996 commission file
0-24098; same exhibit number
(3) Incorporated by reference to the Company's Amendment No. 1 to 10-KSB for the
year ended December 31, 1995 filed with the SEC on August 27, 1996
commission file 0-24098.
(4) Incorporated by reference to the Company's report on Form 8-K, filed with
the SEC on August 27, 1996
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; and
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE> 90
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California on September 27, 1996.
USTEL, INC.
By: /s/ ROBERT L. B. DIENER
------------------------------------
Robert L. B. Diener
President/Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert L.B. Diener and Wouter van
Biene, acting individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by said attorney to any and all
amendments to said Registration Statement.
In accordance with the requirement of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<C> <S> <C>
/S/ ROBERT L. B. DIENER Dated: September 27, 1996 President, Chief Executive
- ----------------------------------- Officer, and Director
Robert L. B. Diener (Principal Executive Officer)
/s/ WOUTER VAN BIENE Dated: September 27, 1996 Executive Vice President,
- ----------------------------------- Chief Financial Officer and
Wouter van Biene Director (Principal Financial
Officer)
/s/ BARRY K. EPLING Dated: September 27, 1996 Executive Vice President,
- ----------------------------------- Assistant Secretary and
Barry K. Epling Director
/s/ ROYCE DIENER Dated: September 27, 1996 Chairman of the Board
- -----------------------------------
Royce Diener
/s/ JERRY DACKERMAN Dated: September 27, 1996 Executive Vice President,
- ----------------------------------- Sales and Director
Jerry Dackerman
/S/ NOAM SCHWARTZ Dated: September 27, 1996 Vice President and Director
- -----------------------------------
Noam Schwartz
Dated: September 27, 1996 Director
- -----------------------------------
Andrew J. Grey
</TABLE>
II-7
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<C> <S>
1.3 Warrant Agreement with underwriter, Norcross Securities, Inc.(1)
1.4* Form of Underwriting Agreement with Cruttenden Roth Incorporated
3.1 Articles of Incorporation(1)
3.1-a Statement of Designations, Preferences and Rights of Series A Convertible
Preferred Stock(2)
3.1-b Statement of Designation and Preferences and Rights, Series B Preferred Stock
(included in Exhibit 10.25 below)(3)
3.2 Bylaws(1)
4.1 Form of Certificate evidencing shares of Common Stock(1)
4.2 Form of 12% Convertible Subordinated Debenture(1)
5.1 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein on legality*
10.1 Federal Communications Commission Order, Authorization and Certificate dated
October 20, 1992(1)
10.2 Certificate of Public Convenience and Necessity to Resell Intrastate
Telecommunications Services in the State of California(1)
10.3 Carrier Switched Services Agreement between the Company and WilTel, Inc.
dated March 10, 1993(1)
10.3.1 Collocate Agreement with WilTel, Inc., January 9, 1995(3)
10.4 Agreement between the Company and Cyberlink dated December 30, 1993(1)
10.5 Lease Agreement between the Company and CaliforniaMart, dated June 11,
1993(1)
10.7 Smart Card License Agreement between the Company and Communications Product
Development Inc.(1)
10.8 Phone Service Card Agreement between the Company and Globalcom 2000 dated
August 26, 1993(1)
10.9 Phone Service Card Agreement between the Company and Starcom, Inc. dated June
28, 1993(1)
10.10 Agreement between the Company and the Los Angeles County Metropolitan
Transportation Authority(1)
10.11 Agreement between the Company and the Collegiate Stores Cooperative(1)
10.12 Lease between the Company and U.S. Century Group/Homestead Group
Associates(1)
10.12-a,b,c (a) Leases for 3400 square feet in Las Vegas, Rainbow Interim Partners, June
19, 1995;
(b) NY Lease Forty-Seventh-Fifth Company, July, 1994; (C)PacTel Meridian
Systems, Equipment Agreement, April 15, 1994(3)
10.13 First Amended and Restated Purchase Contract Receipt for Deposit and Escrow
Instructions between the Company and 2721 Street Associates Inc. dated
December 9, 1993(1)
10.14 Installment Collateral Note and Promissory Note between the Company and the
Israel Discount Bank, Ltd.(1)
10.15 $100,000 Promissory Note between Homestead Group Associates and Noam Schwartz
dated December 20, 1992(1)
10.16 $43,948.09 Promissory Note between U.S. Century Group and Noam Schwartz dated
March 31, 1993(1)
10.17 $376,159.48 Promissory Note between U.S. Century Group and Noam Schwartz
dated December 31, 1992(1)
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<C> <S>
10.18 Employment Agreement between the Company and Noam Schwartz dated February 1,
1994(1)
10.19 Employment Agreement between the Company and Barry Epling dated December 1,
1993(1)
10.20 1993 Stock Option Plan(1)
10.21 Form of 1993 Option Agreement(1)
10.22 Stock Option Agreement between Noam Schwartz and Barry Epling dated December
1, 1993(1)
10.23 Stock Option Agreement between David Schwartz and Barry Epling dated December
1, 1993(1)
10.24 Employment Agreement with Abe Sher, January 4, 1996(3)
10.24-a Modification to Employment Agreement with Abe Sher.
10.25 Consulting Agreement, Integrated Financial Consultants, November 10, 1995,
and Supplement and Cancellation of Indebtedness, January 10, 1996(3)
10.26 Coast Business Credit Agreement, December 21, 1995(3)
10.27 $1.5 Million Secured Credit Agreement, September 9, 1995(3)
10.28 Consortium 2000 Agreement, August 5, 1994(3)
10.29 Subscription Documents, 160 Units, January 15, 1996, Form of(3)
10.30 Registered Consulting Group Agreement, June 20, 1994(3)
10.31 Cruttenden Engagement Agreement, October 27, 1995(3)
10.32 Bank Leumi Line of Credit Agreement dated June 28, 1995(3)
10.33 Robert L. Diener Consulting Agreements dated November 1, 1995, August 15,
1995(3)
10.34 Service Agreement with Cardservice International, December 21, 1993(3)
10.35 Interconnect Agreement, Euronet International, December 17, 1994(3)
10.36 Marketing Agreement, Gardena Communications, Inc., January 28, 1994(3)
10.37 Service Agreement, Digital Communications of America, Inc., October 14,
1992(3)
10.38 Carrier Transport and Switched Services Agreement, December 15, 1993,(4)
10.39 Telecommunication Services Agreement, WilTel, Inc., July 25, 1994,
Confidential Redacted Version.(4)
10.40 Merger Agreement and Plan or Reorganization by and among UStel, Inc.,
Consortium Acquisition Corporation and Consortium 2000, Inc. dated August 13,
1996 (exhibit 2 to the Company's report on Form 8-K filed with the SEC on
August 27, 1996)(5)
10.41 Registration Rights Agreement dated August 14, 1996 between UStel, Inc. and
Consortium 2000 Shareholders (exhibit 10.1 to the Company's report on Form
8-K filed with the SEC on August 27, 1996)(5)
10.42 Registration Rights Agreement dated August 14, 1996 between UStel, Inc. and
Noam Schwartz, David Schwartz, the RGB 1993 Family Trust and the TAD 1993
Family Trust (exhibit 10.2 to the Company's report on Form 8-K filed with the
SEC on August 27, 1996)(5)
10.43 Promissory Note, and ancillary agreement, by and between the Registrant and
Kamel B. Nacif, February 29, 1996
10.44 Beverly Hills Switching Equipment Letter Agreement, by and among the
Registrant, Barry Epling individually and d/b/a TYC and TYC, Inc., June 5,
1996
10.45 Employment and Non Disclosure Agreement by and between the Registrant and Dan
Knoller, September 1, 1996
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<C> <S>
10.46 Consulting Agreement by and between the Registrant and Vanguard Consultants,
Inc., August 1, 1996
10.47 Indemnification Agreement by and between the Registrant and Noam Schwartz,
August 2, 1996
10.48 Letter Agreement by and between the Registrant and Consortium 2000, Inc.,
August 7, 1996
10.49 Amendment Number One to Loan and Security Agreement, Secured Promissory Note
and Amended and Restated Secured Promissory Note by and between the
Registrant and Coast Business Credit, September , 1996
10.50 Cancellation of Indebtedness Agreement by and between the Registrant and
Integrated Financial Consultants, Inc., February, 1996
10.51 Letter Agreement by and between the Registrant and WorldCom, September 10,
1996
10.52 Sublease by and between Consortium 2000, Inc., and Primdex Corporation,
September 25, 1993.
10.53 Sales Agency Agreement by and between Consortium 2000, Inc., and WorldCom,
Inc., d/b/a/ LDDS WorldCom, June 1, 1995 Confidential Redacted Version.
10.54 Hertz Technologies, Inc., Marketing Agreement and Amendments No. 1 and 2
thereto, by and between Consortium 2000, Inc., and Hertz Technologies, Inc.,
July 7, 1995 Confidential Redacted Version.
10.55 Distributor Program Agreement and Amendment No. 1 and 2 thereto, by and
between Consortium 2000, Inc., and LCI International Telecom Corp., November
3, 1994, January 31, 1996 and March 26, 1996, respectively, Confidential
Redacted Versions.
10.56 Marketing Services Agreement by and between Consortium 2000, Inc., and New
Enterprise Wholesale Telephone Services, Limited Partnership, August 15, 1994
Confidential Redacted Version.
10.57 Consortium 2000 and Call Points, Inc., Agreement by and between Consortium
2000 and Call Points, Inc., September 7, 1995 Confidential Redacted Version.
10.58 Client Contract by and among Consortium 2000, Inc., Verifications Plus,
Advanced Data-Com, Inc., January 24, 1996 Confidential Redacted Version.
10.59 Promissory Note, Commercial Security Agreement and Letter Agreement by and
between Consortium 2000, Inc., and City National Bank, May 28, 1996, May 28,
1996 and May 30, 1996, respectively.
10.60-a,b,c,d (a) Letter Agreement by and between the Registrant and Jeflor, Inc., June 10,
1996,
(b) Subordinated Convertible Debenture, June 19, 1996,
(c) Warrant, June 21, 1996,
(d) Guaranty of Loan by Noam Schwartz, Ronnie Schwartz and Haskel Iny, June
17, 1996.
11 Computation of Earnings per Share.
23.1 Consent of BDO Seidman, LLP, dated September 25, 1996.
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Company's Registration Statement and
Amendments No. 1 through No. 2 on Form SB-2 (Registration No. 33-75210-LA)
declared effective June 21, 1994.
(2) Incorporated by reference to the Company's 10-KSB for the year ended
December 31, 1995, filed with the SEC on April 16, 1996 commission file
0-24098; same exhibit number
(3) Incorporated by reference to the Company's Amendment No. 1 to 10-KSB for the
year ended December 31, 1995 filed with the SEC on August 27, 1996
commission file 0-24098.
(4) Incorporated by reference to the Company's report on Form 8-K, filed with
the SEC on August 27, 1996
<PAGE> 1
EXHIBIT 10.24(a)
UStel, INC.
April 14, 1996
Abe Sher, Esq.
337 South Weatherly Drive
Beverly Hills, CA 90211
Dear Mr. Sher:
I refer to the Employment and Non-Disclosure Agreement dated as of
January 4, 1996 (the "Agreement"), between UStel, Inc. ("Employer"), and you
("Employee"). It is my understanding that the Agreement is the only contract,
oral or written, between Employer and Employee with respect to the terms and
conditions of Employee's employment by Employer, whether as an employee or an
independent contractor. Capitalized terms used but not otherwise defined herein
will have the meanings ascribed thereto in the Agreement.
This letter is intended to modify the Agreement in certain respects as
follows:
1. The Agreement will expire, at no penalty to Employer, at the
close of business on August 31, 1998.
2. For the remaining term of the Agreement, Employee's Salary will
be $6,950 per month for a commitment of 50% of his working time.
Such amount shall be inclusive of all other allowances or
payments of any description. In particular, Employee will not be
entitled to any automobile or cellular telephone allowance.
3. Employee has waived (a) his right to receive any finder's fee,
as provided in Section 6 of the Agreement, in the case of
obtaining Financing Sources, or otherwise, and (b) any rights
to which he might otherwise be entitled as a result of a "change
in control", under Section 2 of the Agreement, or otherwise.
4. Employee shall be entitled to receive reimbursement of approved
business expenses upon presentation of proper documentation in
accordance with Employer's normal policy regarding reimbursement
of expenses.
Except as to the extent modified hereby and not inconsistent herewith,
the Agreement remains in full force and effect.
If the foregoing is acceptable to you, please so indicate by signing a
copy of this letter in the place indicated below and returning it to us,
whereupon this letter will memorialize a binding agreement between Employer
and Employee.
Very truly yours,
By: /s/ Robert Diener
---------------------------------
Robert Diener, President
Accepted and Agreed to:
/s/ Abe Sher
- ------------------------
Abe Sher
<PAGE> 1
EXHIBIT 10.43
PROMISSORY NOTE
$400,000.00 Las Vegas, Nevada
FOR VALUE RECEIVED, the undersigned, UStel, Inc. ("Borrower"), promises
to pay to KAMEL NACIF ("Lender") upon demand, and if no demand is made then on
March 1, 1998, at such place as shall be designated by Lender, in lawful money
of the United States of America, the principal sum of FOUR HUNDRED THOUSAND AND
00/100 dollars ($400,000.00), or so much thereof as may be advanced and be
outstanding hereunder, with interest thereon, to be computed at the rate of 12%
per annum, payable as hereinafter set forth.
Interest shall accrue from the date funds are advanced by Lender to
Borrower under this Note. Payments of interest only shall be made quarterly in
arrears from the date funds are first advanced under this Note from Lender to
Borrower; provided, however, that the first quarterly payment of interest only
due on June 1, 1996 shall be accrued and added to principal. Payments of
quarterly interest shall commence on September 1, 1996, and shall thereafter be
due and payable on each December 1, March 1, June 1, and September 1 throughout
the term of this Note.
Advances hereunder, to the total amount of the principal sum stated
above, may be made by the Lender at the oral or written request of Noam
Schwartz, who is authorized to request advances and direct the disposition of
any such advances until written notice of the revocation of such authority is
received by the Lender at the office designated above. Any such advances shall
be conclusively presumed to have been made to or for the benefit of the Borrower
when the Lender believes in good faith that such requests and directions have
been made by an authorized person, or when said advances are deposited to the
credit of the account of Borrower regardless of the fact that a person other
than the person designated herein may have requested such advance.
Upon the Borrower's failure to make any payment called for hereunder,
the Lender, at Lender's option, may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without presentment,
demand, protest or notice of dishonor, all of which are expressly waived by
Borrower, and the holder shall have no obligation to make any further advances
hereunder. Borrower agrees to pay all costs and expenses, including reasonable
attorneys' fees, expended or incurred by the holder in connection with the
enforcement of this Note, the collection of any sums due hereunder, any actions
for declaratory relief in any way related to this Note, or the protection or
preservation of any rights of the Lender hereunder. This Note shall be
construed in accordance with the laws of the State of Nevada.
<PAGE> 2
The undersigned Borrower further agrees to pay to Lender, concurrently
with the payment of all principal and accrued interest hereunder, an additional
sum equal to eight percent (8%) of the total principal sum advanced hereunder
by Lender to Borrower as and for a loan fee.
USTEL, INC.,
A Minnesota Corporation
By: /s/ Noam Schwartz
------------------------------
NOAM SCHWARTZ, President
2
<PAGE> 3
AGREEMENT
This Agreement ("Agreement") is entered into as of February 29, 1996,
by and between UStel, Inc., a Minnesota corporation ("UStel"), and Kamel B.
Nacif ("Nacif") with respect to the following facts:
R E C I T A L S:
A. WHEREAS, Nacif is presently the record owner of five hundred
fifty thousand (550,000) shares of UStel Preferred Stock A (the "Nacif
Shares"); and
B. WHEREAS, UStel is in need of an immediate cash infusion of Four
Hundred Thousand Dollars ($400,000.00) to pay certain current liabilities; and
C. WHEREAS, Nacif is willing to lend UStel the sum of Four Hundred
Thousand Dollars ($400,000.00) (the "Loan") in accordance with the terms and
provisions of that certain Promissory Note (the "Note"), a copy of which is
attached hereto as Exhibit "A", in consideration for certain additional rights
to be granted by UStel in connection with Nacif's Shares, and UStel is amenable
to granting said additional rights, as set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Incorporation of Recitals.
The statements set forth in Paragraphs A through C above are
incorporated herein by this reference.
2. Grant of Additional Rights with Respect to Nacif's Shares.
In consideration for Nacif agreeing to make the Loan as
evidenced by the Note, UStel hereby agrees as follows:
2.1 In the event UStel raises additional capital through a
secondary offering of equity and/or convertible debentures, at Nacif's option,
up to twenty percent (20%) of the proceeds from such offering shall be paid to
Nacif in consideration for Nacif's sale, as part of such secondary offering of
up to fifty percent (50%) of the Nacif Shares, with the per share consideration
to be received by Nacif for the Nacif Shares sold to be at the same per share
price as the UStel shares and/or convertible debentures are sold in such
secondary offering. Nacif shall bear no costs or expenses in connection with
such sale of the Nacif Shares;
2.2 In the event UStel raises additional funds through a debt
offering, at Nacif's option, up to twenty percent (20%) of the proceeds from
such debt offering (whether through private placement or public sources), shall
be utilized to redeem up to fifty percent (50%) of the Nacif Shares, at a price
equal to the
1
<PAGE> 4
greater of the prevailing market price of Ustel shares as of the date prior to
consummation of the debt financing, or Seven Dollars and Fifteen Cents ($7.15)
per share. Nacif shall pay no expenses in connection with such stock
redemption.
3. Miscellaneous Provisions.
3.1 The invalidity of any provision of this Agreement as
determined by a court of competent jurisdiction, shall in, no way affect the
validity of any other provision hereof.
3.2 Time is of the essence.
3.3 Any titles or captions contained in this Agreement
are for convenience only and shall not be deemed part of the text of this
Agreement.
3.4 This Agreement contains all agreements and
representations of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to such matter shall be effective.
No representations, implied or otherwise, have been made by any party hereto to
another party hereto unless expressly set forth herein. This Agreement may be
modified in writing only, signed by the parties in interest at the time of the
modification.
3.5 Any and all notices, demands, or other communication
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made to another party if served either personally or
if deposited in the United States mail, certified or registered, postage
prepaid, return receipt requested. If such notice is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice is given by mail, it shall be conclusively deemed given
seventy-two (72) hours after deposit thereof in the United States mail,
addressed to the party to whom such notice, demands or other communication is
to be given, as hereinafter set forth:
TO: UStel, Inc.
2775 South Rainbow Boulevard
Suite 102-A
Las Vegas, NV 89102
TO: Kamel B. Nacif
c/o Mazliach Gamliel
517 North Foothill Road
Beverly Hills, CA 90210
3.6 No waiver by the parties of any provision hereof
shall be deemed a waiver of any other provision hereof or any subsequent breach
of the parties of the same or any other provision. The parties consent to or
approval of any act shall not be deemed to render unnecessary the obtaining of
the parties consent to or approval of any subsequent act by the parties,
2
<PAGE> 5
3.7 This Agreement is executed and intended to be
performed in the State of California, and the laws of that State shall govern
its interpretation and effect.
3.8 Each of the parties hereto shall execute and deliver
any and all additional papers, documents, and other assurances, and shall do
any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder to carry out the intent of the
parties hereto.
3.9 This Agreement shall be binding upon and inure to the
benefit of the respective successors, assigns, and personal representatives of
the parties, except to the extent of any contrary provision in this Agreement.
3.10 The parties may execute this Agreement in two (2) or
more counterparts, which shall, in the aggregate, be signed by all of the
parties; each counterpart shall be deemed an original instrument as against any
party who has signed it.
3.11 All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identification of the person or persons, firm or firms, corporation or
corporations may require.
3.12 In the event of a dispute hereunder, the prevailing
party shall be entitled to its reasonable attorneys' fees and costs.
3.13 Nothing herein shall be construed or interpreted as
reducing any other rights and privileges belonging to Nacif in connection with
the Nacif Shares.
USTEL, INC., A Minnesota
Corporation
By:
------------------------------
NOAM SCHWARTZ, President
---------------------------------
KAMEL B. NACIF
3
<PAGE> 1
EXHIBIT 10.44
[USTEL LETTERHEAD]
June 5, 1996
Barry Epling, individually
and dba TYC
8617 Chiquita Drive
Las Vegas, NV 89128
TYC, Inc.
9560 Wilshire Boulevard
Suite 475
Beverly Hills, CA 90210
Attention: Barry Epling
RE: Beverly Hills Switching Equipment
---------------------------------
Dear Barry:
This shall serve to memorialize the agreement entered into between you,
individually and dba TYC and TYC, Inc., a California corporation (collectively,
"you" or "TYC" herein), collectively as Seller, and UStel, Inc., a Minnesota
corporation ("UStel"), as Buyer, with respect to the purchase of the certain
telephone switching system and associated cables and equipment owned by you and
located at 9560 Wilshire Boulevard, 131 S. Rodeo Drive, and 9536 Wilshire
Boulevard, Beverly Hills, California 90212 (collectively, the "Switching
Equipment"). The Switching Equipment is currently being operated by TYC, Inc., a
California corporation, a corporation wholly owned by you.
TYC, Inc. is also the current lessee of the leasehold premises located at 9560
Wilshire Blvd., Suite 475, Beverly Hills, California (the "Leasehold Premises")
on which the Switching Equipment is located. A more complete description of the
Switching Equipment is set forth in that certain System & Site Evaluation of
G-Services, Inc. dated March 13, 1996 and attached hereto as Exhibit "A".
The purchase of the Switching Equipment shall also include the purchase of (i)
any and all rights to telephone traffic currently operating on Switching
Equipment; (ii) any and all rights to cables, wires and other equipment located
in or about the building of which the Leasehold Premises are a part which
rights currently belong to TYC; and (iii) the assignment of that certain lease
for the Leasehold Premises on which the Switching Equipment is located.
<PAGE> 2
Barry Epling
June 5, 1996
Page Two
Specifically, the agreement reached is summarized as follows:
1. PURCHASE PRICE. The purchase price for the Switching Equipment
shall be $716,375.00 (the "Purchase Price").
2. PAYMENT TERMS. The Purchase Price shall not be payable in cash,
but shall be paid as follows:
(i) The sum of $500,000.00 shall be credited against, and be
deemed a payment in lieu of, the $500,000.00 currently payable by you for the
exercise price of the options to purchase 100,000 shares of common stock of
UStel under UStel's 1993 Stock Option Plan, which stock options were granted to
you in January, 1996; and
(ii) The outstanding balance billed currently owed by TYC to
UStel through October 1995, in the amount of $102,948.51 (the "Billed TYC
Receivable") shall be cancelled by UStel upon the close of this transaction and
shall be offset against the Purchase Price. Any additional amounts owed by TYC
to UStel from and after October 1995 which have not yet been billed (the
"Unbilled TYC Receivable") shall remain the obligation of TYC and may be
credited against the Purchase Price Balance in Paragraph 2(iv) below. Further,
any amounts owing to TYC as a rental for the Switching Equipment shall be
credited to TYC and subtracted from the Unbilled TYC Receivable; and
(iii) The personal obligation currently owed by you to UStel in
the amount of $75,522.23 (the "Personal Obligation") shall also be credited
against the Purchase Price; and
(iv) The Purchase Price balance ("Purchase Price Balance") of
$37,904.26 shall be satisfied by the issuance to you of 7,851 common shares of
stock of UStel, with a $5.00 per share price, as may be adjusted as set forth in
Paragraph 2(ii), above.
3. TRANSFER OF TITLE; ASSIGNMENT OF LEASE. The formal transfer of
the Switching Equipment shall be effectuated by your execution of a Bill of Sale
in a form substantially similar to that attached hereto as Exhibit "B" and
incorporated herein by reference. You further agree to assign to UStel any and
all rights, title and interest of TYC, Inc. as tenant of the subject Leasehold
Premises forthwith, by executing this from of Assignment Agreement substantially
similar to that attached hereto as Exhibit "C" and incorporated herein by
reference. You agree to do any other act, including, without limitation,
executing any other document(s) reasonably necessary or appropriate to carry out
the terms and intent of this Agreement.
<PAGE> 3
Barry Epling
June 5, 1996
Page Three
4. Representations & Warranties. You represent and warrant as
follows:
a. You are the sole owner of the Switching Equipment and you
have not previously transferred or assigned any interest therein to any other
party;
b. The Switching Equipment is currently owned by you free and
clear of any and all encumbrances, liens, attachments, and/or any other
asserted or unasserted claims;
c. TYC, Inc. is currently the tenant of the Leasehold Premises
and has not previously transferred or assigned its interest therein to any
other party; and
d. You are duly authorized and empowered to enter into this
Agreement, and such actions do not constitute a violation of any law, regulation
or agreement affecting the Switching Equipment and/or the Leasehold Premises.
e. The lease for the Leasehold Premises is in full force and
effect free of any defaults by tenant.
5. Indemnity. You agree to indemnify, defend and hold UStel free
and harmless from and against any and all claims, demands, lawsuits, expenses
and liabilities suffered by UStel in connection with your failure to carry out
the terms of this Agreement, or otherwise in connection with the inaccuracy of
any representation or warranty made herein.
6. Independent Counsel and Advice. You acknowledge that UStel has
made no representation or warranty regarding the tax and/or legal ramifications
of this transaction. As you are an officer and director of UStel, you have
been advised to seek independent legal and tax advice regarding this
transaction, and you represent that you have either done so or voluntarily
elected to decline such independent advice and counsel.
7. Governing Law; Venue. This Agreement shall be construed in
accordance with the laws of the State of Nevada. Any action brought under this
Agreement shall be filed in a court of competent jurisdiction in Clark County,
Nevada.
8. Attorneys' Fees. The prevailing party to any lawsuit arising
under this Agreement shall be entitled to recover, in addition to other
damages, reasonable attorneys' fees and costs of suit.
<PAGE> 4
BILL OF SALE
In consideration for the payment of the sum of SEVEN HUNDRED SIXTEEN
THOUSAND THREE HUNDRED SEVENTY FIVE dollars ($716,375.00), payable in accordance
with that certain letter agreement entered into between UStel, Inc. as buyer,
and Barry Epling, individually and dba TYC and TYC, Inc., a California
corporation, collectively, as seller, of even date, receipt of which is hereby
acknowledged, Barry Epling, individually and dba TYC ("Seller") hereby grants,
sells, transfers, and delivers to UStel, Inc. ("Buyer") all right, title, and
interest in that certain telephone Switching Equipment and telephone traffic
more specifically described in that certain System and Site Evaluation of G
Services, Inc. dated March 13, 1996 and incorporated herein by reference.
Seller hereby covenants and guarantees that it is the lawful owner of
said goods, that they are free from all liens and encumbrances, that he has the
right to sell same; and that Seller will defend Buyer's title against the
claims and demands of any and all persons. The undersigned hereby individually
warrants that he or she is authorized to execute this Bill of Sale on behalf of
Seller.
Dated: June 5, 1996
/s/ BARRY EPLING
--------------------------------------
Barry Epling, individually and dba TYC
TYC, Inc. a California corporation
By: /s/ BARRY EPLING
--------------------------------
Barry Epling, its President
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AND NON DISCLOSURE AGREEMENT
THIS EMPLOYMENT AND NON DISCLOSURE AGREEMENT ("Agreement") is made,
entered into and effective as of this 1st day of April, 1996, by and between
UStel, Inc. ("Employer"), and Dan Knoller, an individual ("Employee"), with
reference to the following facts:
R E C I T A L S
WHEREAS Employee has been employed under an informal employment
agreement with Employer since the date first set forth above;
WHEREAS Employee previously was engaged by Employer as an independent
contractor from January 1, 1994 through December 31, 1995 (the "Independent
Agent Relationship");
WHEREAS, pursuant to the Independent Agent Relationship, Employee had
been receiving, through December 31, 1995, commissions as his primary
compensation from Company for the independent contractor services he had been
providing;
WHEREAS, the parties have agreed to terminate Employee's Independent
Contractor's relationship effective as of December 31, 1995 and to employ
Employee as of January 1, 1996;
WHEREAS the parties hereto wish to formalize the employment
relationship as more fully set forth herein;
WHEREAS, as a result of both Employee's employment with Employer, and
the Independent Agent Relationship, Employee has acquired knowledge of
Employer's trade secrets, including confidential information concerning product
and service marketing plans and strategy, pricing policies, customer needs and
peculiarities, and customer lists and detailed information regarding Employer's
technology incorporated in Employer's products and services (the "Trade
Secrets");
WHEREAS, Employer desires that Employee be employed as set forth herein,
such employment to become effective on the date first set forth above; and
WHEREAS, Employee is willing to be employed by Employer as described
under the terms and conditions herein stated;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, it is hereby agreed by
and between the parties hereto as follows:
1
<PAGE> 2
1. Employment, Services, and Duties
1.1 Employer hereby employs Employee and Employee hereby
agrees to perform the services of Executive Vice President Business Affairs,
with the duties consistent therewith. Employee agrees to devote all of his
efforts, and shall devote a minimum of forty hours (40) per week (during
regular business hours) to rendering the services for which Employee has been
hired. Employee shall not engage in any other activity which conflicts with or
otherwise might be deemed a business opportunity of UStel during the term of
this Agreement. Employee shall render his services to Employer by and subject
to the instructions and directions of Employer's Chief Executive Officer to
whom Employee shall directly report.
2. Term and Termination
2.1 Unless sooner terminated pursuant to Paragraph 2.2 hereof,
Employee's employment shall commence on the date first set forth above and
shall continue for a period of one year unless extended by the mutual agreement
of Employer and Employee (the "Term").
2.2 Employee's employment shall terminate prior to the
expiration of the Term upon the happening of any of the following events:
(a) Upon the death of Employee;
(b) For cause by the Employer, that is to say only:
(i) if Employee is convicted of (or pleads nolo
contendere to) or at any time prior to employment by Employer, has been
convicted of (or pled nolo contendere to) a crime of dishonesty or breach of
trust or crime leading to incarceration of more than ninety (90) days
(including, without limitation, embezzlement or theft from Employer) or the
payment of a penalty or fine of $10,000 or more;
(ii) upon a determination by Employer that Employee
has engaged in willful misconduct in the performance of his duties under this
Agreement or has refused to perform the services which he has been hired to
perform, or has committed an act of fraud, theft or dishonesty against Employer;
(iii) if Employee engages or participates, in any
manner, in any business which competes with or would otherwise be deemed a
business opportunity of Employer;
(iv) if Employee has materially breached any of the
terms of this Agreement or any other material legal obligation to Employer
including, without limitation, a breach of trust or fiduciary duty involving
Employer or a material violation of policies or procedures of Employer and has
not cured any such breach within thirty (30) days after having been given
written notice thereof by Employer; or
2
<PAGE> 3
(v) any determination of "cause" as used in this Section
2.2(b) shall be made only in good faith by an affirmative majority vote of the
Board of Directors of the Employer;
(d) By mutual agreement between Employer and Employee; or
(e) Without cause, by Employer or at Employee's option upon a
change in control of Employer (e.g. there is a change in the beneficial
ownership of the controlling equity of Employer sufficient to elect a majority
of the Board of Directors.)
2.3 Except for the remaining obligations set forth in Sections 7, 8, 9
and 10 herein, in the event that Employee's employment is terminated pursuant
to Sections 2.2(a), (b), (c) or (d) herein, neither Employer or Employee shall
have any remaining duties or obligations hereunder, except that Employer shall
pay to Employee, or his representatives, on the date of termination of
employment ("Termination Date").
(i) such compensation as is due pursuant to Section 3.1(a)
herein, prorated through the Termination Date; and
(ii) expense reimbursements due and owing to Employee as of
the Termination Date.
2.4 Except for the remaining obligations set forth in Sections 7, 8, 9
and 10 herein, in the event that Employee's employment is terminated pursuant
to Section 2.2(e) (without cause or pursuant to Employee's option upon a change
in control), neither Employer nor Employee shall have any remaining duties or
obligations hereunder, except that Employer shall pay to Employee, or his
representatives, on the Termination Date.
(i) in one lump sum, all such compensation as is due pursuant
Section 3.1(a) through the Term.
(ii) whatever non-discretionary bonus or incentive
compensation is provided by any plan for the year of termination, prorated
through the Termination Date; and
(iii) expense reimbursements, if any, due and owing to
Employee as of the Termination Date.
2.5 There is no Section 2.5.
2.6 There is no Section 2.6.
2.7 This Agreement shall not be terminated by any:
(a) Merger, whether the Employer is or is not the surviving
corporation; or
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<PAGE> 4
(b) Transfer of all or substantially all of the assets or capital
stock of the Employer.
2.8 In the event of any merger, transfer of assets or capital stock,
dissolution, liquidation, or consolidation, the surviving corporation or
transferee, as the case may be, shall be bound by and shall have the benefits
of this Agreement, and the Employer shall take all action to ensure that such
corporation or transferee is bound by the provisions of this Agreement, provided
however, that upon a change of control Employee may terminate his employment
pursuant to Section 2.2(e) above.
3. Compensation
3.1 As the total consideration for the services which Employee agrees
to render hereunder, Employee is entitled to the following:
(a) An annual salary ("Salary") of Ninety Six Thousand Dollars
($96,000) in year one of the Agreement, payable in equal installments monthly
on those days when Employer normally pays its employees, said Salary to be
subject to annual review.
(b) Employee shall be entitled to standard vacations based on
number of years of employment with Employer. Employer's vacation shall be under
Employer's usual policies applicable to all employees.
(c) Such other benefits as the Board of Directors of Employer,
in its sole discretion, may from time to time provide.
3.2 Employer shall have the right to deduct from the compensation
due to Employee hereunder any and all sums required for social security and
withholding taxes and for any other federal, state, or local tax or charge
which may be in effect or hereafter enacted or required as a charge on the
compensation of Employee.
3.3 The commission agreement previously entered into between the
parties shall be deemed terminated as of the date first set forth above. Any
and all sums payable to Employee thereunder through December 31, 1995 shall be
paid within 60 days of the date of this Agreement.
4
<PAGE> 5
4. Options
4.1 Employee shall be entitled to participate in either
Employer's 1993 Stock Option Plan or a separate plan consistent herewith (in
which case this Section 4 shall constitute such separate plan), pursuant to
which Employee shall receive the following incentive stock options in year one
of the Agreement.
(a) As a finder's fee for introducing Employer to
Euronet and Telrad, 100,000 shares of Employer's common stock, at an exercise
price of Five Dollars ($5.00) per share, which shall be deemed to have vested
on April 1, 1996, subject to adjustment as set forth in Schedule "A" hereto;
(b) Employee shall grant an irrevocable proxy for
three (3) years in favor of Noam Schwartz on any shares derived from the
exercise of the options granted pursuant to this Section 4.1 of this Agreement;
(c) Employee shall not sell, transfer or hypothecate
any shares derived from the exercise of the options granted pursuant to this
Section 4.1 unless and until Employer files a registration statement under the
appropriate SEC form (S1 or S3) in which case these shares shall be included in
such registration, such Form shall be filed on the sooner of when management
options are registered with the SEC or two (2) years from the date hereof.
(d) All shares derived from the exercise of options
granted pursuant to this Section 4.1 will be restricted and subject to Rule
144. The options granted hereunder shall be non-transferable except by will or
descent to the estate of Employee.
(e) The aggregate number of shares subject to the
options granted pursuant to this Section 4.1 shall be proportionately adjusted
for any increase or decrease in the number of outstanding shares of Stock of
Employer resulting from a subdivision or consolidation of shares or any other
capital adjustment or the payment of a stock dividend or any other increase or
decrease in the number of such shares effected without the Employer's receipt
of consideration therefor in money, services or property.
(f) All options granted hereunder shall vest upon a
change of control or upon the occurrence of any event described in Section 2.8
above.
4.2 Notwithstanding Section 3.1(b)(1). Employee shall be
entitled to participate in Employee incentive stock options, such options to be
deteremined by the Board of Directors in their discretion.
5
<PAGE> 6
5. Expenses
5.1 Subject to the limitations set forth in Paragraph 3.2
above, Employer shall reimburse Employee for all travel, lodging, office,
entertainment and other miscellaneous out-of-pocket expenses reasonably incurred
by him in connection with the performance of the services to be rendered
hereunder. Employee shall be required to obtain Employer's prior written
consent for any expense or aggregate expenses exceeding $500.00 in any given
month. Such reimbursement shall be promptly made upon presentation to Employer,
provided that:
(a) Each such expenditure is of a nature qualifying
it as a proper deduction of the Federal and State Income Tax Return of Employer;
and
(b) Employee furnishes to Employer adequate records
and other documentary evidence required by Federal and State statutes and
regulations issued by the appropriate taxing authorities for the substantiation
of each such expenditure as an income tax deduction.
6. Section 6 Intentionally Omitted
7. Non-Competition
(a) During the term of this Agreement, Employee shall not,
directly or indirectly, engage or participate in, prepare or set up, assist or
have any interest in any person, partnership, corporation, firm, association, or
other business organization, entity or enterprise (whether as an employee,
officer, director, agent, security holder, creditor, consultant or otherwise)
that engages in any activity, which is the same as, similar to, or competitive
with any activity now engaged in by Employer or in any way relating to the
business currently conducted by Employer in those geographic areas where
Employer conducts its business.
(b) Nothing contained in this Agreement shall be deemed to
preclude Employee from purchasing or owning, directly or beneficially, as a
passive investment, one percent (1%) or less of any class of a publicly traded
security of any entity, if he does not actively participate in or control,
directly or indirectly, any investment or other decisions with respect to such
entity.
8. Confidentiality
Employee shall keep all Trade Secrets confidential; use Trade
Secrets only in the course of his duties hereunder; maintain in trust, as
Employer's property, all documents concerning Employer's business, including his
own work papers of any kind including telephone directories and notes, and any
and all copies thereof in his possession or under his control; and transfer to
Employer all documents that belong to Employer and any and all copies that are
in his possession or under his control when his Employment terminates, or at any
other time upon request by Employer.
6
<PAGE> 7
9. Injunctive Relief
Employee hereby acknowledges and agrees that it would be
difficult to fully compensate Employer for damages resulting from the breach or
threatened breach of Sections 7 and 8 herein and, accordingly, that Employer
shall be entitled to temporary and injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions, to
enforce such Sections without the necessity or proving actual damages therewith.
This provision with respect to injunctive relief shall not, however, diminish
Employer's right to claim and recover damages or enforce any other of its legal
and/or equitable rights or defenses.
10. Severable Provisions
The provisions of this Agreement are severable and if any one or
more provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding and
enforceable.
11. Binding Agreement
This Agreement shall inure to be benefit of and shall be binding
upon Employer, its successors and assigns.
12. Captions
The Section captions are inserted only as a matter of
convenience and reference and in no way define, limit or describe the scope of
this Agreement or the intent of any provisions hereof.
13. Entire Agreement
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement that are not set forth otherwise herein. This Agreement supersedes
any and all prior agreements, written or oral, between Employee and Employer and
its affiliates. No modification of this Agreement shall be valid unless made in
writing and signed by the parties hereto and unless such writing is made by an
executive officer of Employer. The parties hereto agree that in no event shall
an oral modification of this Agreement be enforceable or valid.
14. Governing Law
This Agreement shall be governed and construed in accordance
with the laws of the State of Nevada. Any action arising hereunder shall be
brought in the appropriate court with venue in Las Vegas, Nevada.
7
<PAGE> 8
15. Notices
All notices and other communications under this Agreement shall
be in writing (including, without limitation, telegraphic, telex, telecopy or
cable communication) and mailed, telegraphed, telexed, telecopied, cabled or
delivered by hand or by a nationally recognized courier service guaranteeing
overnight delivery to a party at the following address (or to such other
address as such party may have specified by notice given to the other party
pursuant to this provision).
If to the Employer to:
Noam Schwartz, President
UStel, Inc.
2775 South Rainbow Blvd., Ste 102
Las Vegas, NV 89102
Telephone: (702) 247-7400
Facsimile: (702) 247-7447
If to the Employee, to:
Dan Knoller
---------------------------------
---------------------------------
Telephone: 011-972-3-649-6969
All such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three days after deposit in the
mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the cable company,
delivered by hand to the addressee or one day after delivery to the courier
service.
16. Attorney's Fees
In the event that any party shall bring an action or proceeding
in connection with the performance, breach or interpretation hereof, then the
prevailing party in such action as determined by the court or other body having
jurisdiction shall be entitled to recover from the losing party in such action,
as determined by the court or other body having jurisdiction, all reasonable
costs and expense of litigation or arbitration, including reasonable attorney's
fees, court costs, costs of investigation and other costs reasonably related to
such proceeding.
8
<PAGE> 9
IN WITNESS WHEREOF, this Employment Agreement is executed as of the day
and year first above written.
"EMPLOYEE" "EMPLOYER"
USTEL, INC.
By:
- ----------------------------------- -----------------------------------
DAN KNOLLER Noam Schwartz,
ITS: President/CEO
9
<PAGE> 10
SCHEDULE "A"
ADJUSTMENT TO STOCK OPTIONS
The Option being granted to Employee under this Agreement shall be
subject to a credit against exercise price based on the performance of Employee
in procuring telecommunications traffic revenue ("Procured Revenue") for the
Company. Specifically, Employee shall be entitled to a credit against exercise
price per share for maintaining the certain levels of Procured Revenues, for a
period of 12 months from the date of this Agreement.
Employee shall maintain a minimum of $250,000.00 per month in Procured
Revenue, without credit against exercise price (the "Base Revenue Level"). For
each additional $200,000.00 in monthly Procured Revenue (without discount or
adjustment) above the Base Revenue Level, which additional monthly revenue must
be maintained (and collected by Company) for a period of 12 months from the date
of this Agreement (April 1, 1996). Employee shall be entitled to a $1.00 per
share credit against exercise price. By way of example, if Employee's Procured
Revenue for the period of 12 months from the date of this Agreement is
$450,000.00 per month, and Company actually collects such Procured Revenue,
Employee shall be entitled to a $1.00 per share credit against option exercise
price.
10
<PAGE> 11
Barry Epling
June 5, 1996
Page Four
If the terms set forth above accurately reflect the terms of our
agreement, please confirm same by signing and dating this letter in the spaces
below.
Very truly yours,
UStel, Inc.
/s/ Noam Schwartz
Noam Schwartz
President/CEO
/clk
AGREED AND APPROVED:
/s/ Barry Epling 6/5/96
- -------------------------------------- ----------
Barry Epling, Individually and dba TYC Date
TYC, Inc., a California corporation
By: /s/ Barry Epling 6/5/96
---------------------------------- ----------
Barry Epling, its President Date
<PAGE> 1
EXHIBIT 10.46
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT is entered into as of this 1st day of August,
1996, by and between USTEL, INC., a Minnesota Corporation ("UStel"), and
VANGUARD CONSULTANTS, INC., a Nevada Corporation ("Vanguard"), with reference to
the following facts:
R E C I T A L S:
---------------
A. WHEREAS, UStel is engaged in the business of providing long
distance and various other telecommunication services world-wide (the
"Telecommunication Services"), and
B. WHEREAS, UStel wishes to engage the services of Vanguard for a
period of two (2) years as a consultant to provide consulting services to UStel
in accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, it is agreed as follows:
1. Incorporation of Recitals.
-------------------------
The statements set forth in Paragraph A and B above are
incorporated herein by this reference.
2. Consulting Services.
--------------------
2.1 Vanguard will render services as an independent consultant
to UStel, providing its advice and expertise in the areas of marketing, finance
and business development, insofar as they relate to the Telecommunication
Services provided by UStel on a world-wide basis.
2.2 Vanguard shall be required to devote such amount of its
productive time, ability and attention to the foregoing consulting services
during the term of this Agreement as it, in its sole discretion, deems
necessary to accomplish the purposes hereof.
2.3 Vanguard acknowledges that it may not and shall not
directly or indirectly bind or otherwise commit UStel to perform under any
agreement or contract nor is it authorized to execute any document or agreement
on behalf of UStel.
2.4 Vanguard shall not be subject to the direction or control
of UStel with respect to its day-to-day activities, and may select the manner
and means with which it renders services hereunder.
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<PAGE> 2
3. Term.
The term of this Agreement shall commence on August 1, 1996,
and shall continue for a term of two (2) years.
4. Compensation.
In consideration for Vanguard's services hereunder, UStel shall
pay Vanguard the sum of Seven Thousand Five Hundred Dollars ($7,500.00) per
month, payable in semi-monthly installments of Three Thousand Seven
Hundred Fifty Dollars ($3,750.00) each, throughout the term of the Agreement.
5. Expenses.
All travel, lodging, entertainment and other miscellaneous
out-of-pocket expenses incurred by or on behalf of Vanguard in connection with
the performance of the services to be rendered hereunder shall be the sole
responsibility of Vanguard.
6. Agreement Not to Divulge or Use Trade Secrets.
6.1 Vanguard's work under this Agreement will or may involve
disclosure to it of confidential information of UStel, Ustel's affiliates and/or
customers of UStel and their affiliates. Such confidential information may
include but is not limited to trade secrets, proprietary technical information,
plans, pricing policies, and supplier lists (the "Confidential Information").
Vanguard will receive all such Confidential Information in confidence and will
not at any time disclose, publish or use the same, or authorize or make it
possible for anyone else to use the same, unless such information has ceased to
be secret or confidential as evidenced by general public knowledge. These
prohibitions however shall not apply where use of the Confidential Information
is required in the conduct by Vanguard of its services hereunder or where UStel
has otherwise consented in writing.
6.2 This prohibition as to publication and disclosure shall
not restrict Vanguard in the rendering of services hereunder, provided that
such services do not involve the disclosure to others, or use by it, of the
Confidential Information.
7. Independent Contractor.
The parties hereto acknowledge and agree that Vanguard is an
independent contractor of UStel and that no employer-employee relationship
exists as between them.
8. Notices.
Any and all notices, demands, or other communication required or
desired to be given hereunder by any party shall be in writing and shall be
validly given or made to another party if served either personally or if
deposited in the United States mail,
2
<PAGE> 3
certified or registered, postage prepaid, return receipt requested. If such
notice is served personally, service shall be conclusively deemed made at the
time of such personal service. If such notice is given by mail, it shall be
conclusively deemed given seventy-two (72) hours after deposit thereof in the
United States mail, addressed to the party to whom such notice, demands or
other communication is to be given, as hereinafter set forth:
TO: Vanguard Consultants, Inc.
3160 South Valley View, Suite 205
Las Vegas, NV 89102
TO: UStel, Inc.
2775 South Rainbow Boulevard
Suite 102-A
Las Vegas, NV 89102
9. Miscellaneous Provisions.
9.1 The invalidity of any provision of this Agreement as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
9.2 Time is of the essence.
9.3 Any titles or captions contained in this Agreement are
for convenience only and shall not be deemed part of the text of this Agreement.
9.4 This Agreement contains all agreements of the parties
with respect to any matter mentioned herein. No prior agreement or understanding
pertaining to such matter shall be effective. This Agreement may be modified in
writing only, signed by the parties in interest at the time of the modification.
9.5 No waiver by the parties of any provision hereof shall
be deemed a waiver of any other provision hereof or any subsequent breach of the
parties of the same or any other provision. The parties consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of the
parties consent to or approval of any subsequent act by the parties.
9.6 This Agreement is executed and intended to be performed
in the State of California, and the laws of that State shall govern its
interpretation and effect.
9.7 Each of the parties hereto shall execute and deliver any
and all additional papers, documents, and other assurances, and shall do any and
all acts and things reasonably necessary in connection with the performance of
their obligations hereunder to carry out the intent of the parties hereto.
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<PAGE> 4
9.8 This Agreement shall be binding upon and inure to the benefit
of the respective successors, assigns, and personal representatives of the
parties, except to the extent of any contrary provision in this Agreement.
9.9 The parties may execute this Agreement in two or more
counterparts, which shall, in the aggregate, be signed by all of the parties;
each counterpart shall be deemed an original instrument as against any party
who has signed it.
9.10 All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as the
identification of the person or persons, firm or firms, corporation or
corporations may require.
9.11 In the event of a dispute hereunder, the prevailing party shall
be entitled to its reasonable attorneys' fees and costs.
IT WITNESS WHEREOF, this Agreement is executed at Los Angeles,
California as of the date first above written.
"UStel"
USTEL, INC., A Minnesota Corporation
By: /s/ NOAM SCHWARTZ
----------------------------------
NOAM SCHWARTZ, President
"Vanguard"
By:
---------------------------------
4
<PAGE> 1
EXHIBIT 10.47
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is entered into as of the 2nd day of
August, 1996, by and between NOAM SCHWARTZ ("Schwartz") and USTEL, INC., a
Minnesota Corporation, with respect to the following facts:
R E C I T A L S :
A. WHEREAS, Schwartz is President, CEO, shareholder, and one of the
founders of UStel, Inc., a Minnesota Corporation ("UStel"); and
B. WHEREAS, UStel is engaged in the business of providing long
distance telephone service and related telecommunication services on a
worldwide basis; and
C. WHEREAS, certain vendors and/or creditors of UStel have required
Schwartz to personally guarantee contracts and/or obligations of UStel as a
condition to providing or continuing to provide services or other consideration
to UStel; and
D. WHEREAS, UStel and Schwartz agree that UStel should indemnify
Schwartz and hold him harmless in connection with any claims, damages, or
liabilities that might arise as a result of his having executed guaranties of
UStel obligations.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Incorporation of Recitals.
The statements set forth in Paragraph A through D above are
incorporated herein by this reference.
2. Indemnification Agreement.
For valuable consideration, UStel hereby agrees to indemnify,
protect, defend, and hold Schwartz harmless in connection with any claims,
liabilities, expenses, obligations, indebtedness, and/or damages, of any kind or
nature, arising out of or connected with any guarantees given by Schwartz for
UStel obligations and/or liabilities, including but not limited to personal
guarantees of UStel obligations to Wiltel, Jeflor, a Panamanian Corporation,
and/or the State of California Public Utilities Commission. In the event
Schwartz must bring action or seek the services of an attorney in order to
enforce these provisions, UStel shall further pay all of Schwartz' legal
expenses
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<PAGE> 2
and costs in connection with enforcing this Indemnification Agreement.
IN WITNESS WHEREOF, this Agreement is entered into as of the date first
above written, at Las Vegas, Nevada.
USTEL, INC., a Minnesota Corporation
By:
----------------------------------
BARRY EPLING,
Secretary
--------------------------------------
NOAM SCHWARTZ
2
<PAGE> 1
EXHIBIT 10.48
[USTEL LETTERHEAD]
August 7, 1996
Mr. Wouter van Biene
Senior Vice President/CFO
Consortium 2000, Inc.
6167 Bristol Parkway, Suite 300
Culver City, CA 90230
Dear Wouter:
This letter serves to memorialize the understanding reached between Consortium
2000 and UStel, Inc. regarding the variance between our two companies with
respect to commissions which are scheduled as follows:
C2000 UStel, Inc. Variance
---------- ------------ ----------
July 1995 $ 120,127 $ 74,835 $ 45,292
August 1995 150,463 55,674 94,789
September 1995 151,201 95,012 56,189
October 1995 165,773 116,090 49,683
November 1995 180,970 94,357 86,613
December 1995 144,480 136,650 7,830
---------- ---------- ----------
Total for the Six Months
Ended December 31, 913,014 572,618 340,396
---------- ---------- ----------
January 1996 191,694 55,549 136,145
February 1996 194,744 79,692 115,052
March 1996 182,403 182,151 252
---------- ---------- ----------
Total for the Quarter
Ended March 31, 1996 568,841 317,392 251,449
---------- ---------- ----------
TOTAL $1,481,855 $ 890,010 $ 591,845
========== ========== ==========
<PAGE> 2
Mr. Wouter van Biene
August 7, 1996
Page 2
The management of Consortium 2000 and UStel, Inc. have reviewed the commission
calculation provided by Barry Epling, Chief Operating Officer of UStel, Inc.
Based on review of the commission analysis, Consortium 2000 and UStel, Inc.
agree that the total commission earned for the six months ended December 31,
1995 and the quarter ended March 31, 1996 shall be $572,618 and $317,392,
respectively. Consortium 2000 waives any further claim for commission due
through March 31, 1996.
USTEL, INC.
By:
-----------------------------
Andrew J. Grey
Chief Financial Officer
CONSORTIUM 2000
By:
----------------------------
Wouter Van Biene
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.49
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of
September___, 1996 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of December 21, 1995 (as amended from time to time, the
"Loan Agreement"), by and between USTEL, INC., a Minnesota corporation
("Borrower"), on the one hand, and COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association, a California corporation ("Coast"),
on the other hand. All initially capitalized terms used in this Amendment
shall have the meaning ascribed thereto in the Loan Agreement unless
specifically defined herein.
R E C I T A L S
WHEREAS, pursuant to the terms of the Loan Agreement, Coast originally
agreed to provide to Borrower an Equipment Acquisition Loan in the maximum
principal amount of Seven Hundred Thousand Dollars ($700,000); and
WHEREAS, Borrower has requested, and Coast has agreed, to extend a
separate Equipment Acquisition Loan as a term loan in the principal amount of
Four Hundred Thousand Dollars ($400,000) as a sub-facility under the $700,000
total Equipment Acquisition Loan facility; and
WHEREAS, in order to facilitate the aforementioned, the parties hereto
desire to amend the Loan Agreement in accordance with the terms and provisions
of this Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
AMENDMENT
Section 1. AMENDMENT TO SECTION 3 OF LOAN AGREEMENT. Section 3 of
the Loan Agreement is hereby amended by adding thereto a new subsection 3.12 as
follows:
"3.12 Consortium 2000 Guaranty. Upon the Consummation
of the merger of Consortium 2000, Inc., a California
corporation ("C2000"). With Borrower's wholly-owned
subsidiary Consortium Acquisition Corporation, a California
corporation, as contemplated by that certain Merger Agreement
and Plan of Reorganization, dated August 14, 1996 among
Borrower, C2000 and CAC, Borrower shall cause C2000, as
1
<PAGE> 2
the survivor of such merger, to execute and deliver to Coast a
continuing guaranty of the Obligations, secured by such assets of
C2000 as Coast may require, all in form and substance satisfactory
to Coast."
Section 2. AMENDMENT TO SECTION 1 OF SCHEDULE. Section 1 of the
Schedule to the Loan Agreement is hereby amended by deleting such Section in
its entirety and replacing it with the following:
"1. CREDIT LIMIT
(Section 1.1): Loans in an amount not to exceed the lesser of a
total of Five Million Dollars ($5,000,000) at any
one time outstanding (the "Maximum Dollar Amount"),
or the sum of (a), (b), (c) and (d) below:
(a) Loans (the "Receivable Loans") in an amount not
to exceed either: (1) 80% of the amount of
Borrower's Eligible Receivables (as defined in
Section 8 above); or, (2) 85% of the amount of
Borrower's Eligible Receivables if dilution is
less than 5%, with eligibility in either case
up to ninety (90) days past invoice date, plus
(b) Loans (the "$300,000 Equipment Acquisition
Loans") in an amount not to exceed the lesser
of:
(1) (A) with respect to new Equipment to be
purchased by Borrower, 80% of the value of
the new Equipment to be purchased, less
installation charges, or (B) with respect
to used Equipment to be purchased by
Borrower, 80% of the appraised liquidation
value of the used Equipment to be
purchased, less installation charges, or
(2) Three Hundred Thousand Dollars ($300,000),
plus
(c) Term Loan (the "$400,000 Equipment Acquisition
Loan") in the original principal
2
<PAGE> 3
amount of Four Hundred Thousand Dollars
($400,000). The Equipment Acquisition Term
Loan will be repayable in thirty-five (35)
equal monthly installments of principal of
Eleven Thousand One Hundred Dollars ($11,100)
per month plus interest commencing September
30, 1996, together with a final payment of all
then outstanding principal and accrued and
unpaid interest on August 31, 1999; plus
(d) Term Loans (the "Term Loans"), payable in
thirty-six (36) equal monthly installments, in
an amount not to exceed the lesser of:
(1) 80% of the liquidation value (subject to
appraisal) of Borrower's Eligible
Equipment (as defined in Section 8 above),
or
(2) Eight Hundred Thousand Dollars
($800,000)."
Section 3. AMENDMENT TO SECTION 2 OF SCHEDULE. Section 2 of the
Schedule to the Loan Agreement is hereby amended by deleting such Section in
its entirety and replacing it with the following:
"2. INTEREST.
Interest Rate
(Section 1.2): All Receivable Loans, the $300,000 Equipment
Acquisition Loans and the Term Loans shall bear
interest at a rate equal to the "Prime Rate" plus
2.0 percentage points (200 basis points) per annum,
calculated on the basis of a 360-day year for the
actual number of days elapsed. The $400,000
Equipment Acquisition Loan shall bear interest at a
rate equal to the "Prime Rate" plus 3.5 percentage
points (350 basis points) per annum, calculated on
the basis of a 360-day year for the actual number
of days elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as of the first
day of each month, and the interest to be charged
for each month shall be based on
3
<PAGE> 4
the highest "Prime Rate" in effect during said
month, but in no event shall the rate of interest
charged on any Loans in any month be less than 7%
per annum. "Prime Rate" means the actual "Reference
Rate" or the substitute therefor of the Bank of
America NT & SA whether or not that rate is the
lowest interest rate charged by said bank. If the
Prime Rate, as defined, is unavailable, "Prime Rate"
shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day
of the month, as the base rate on corporate loans at
large U.S. money center commercial banks.
Minimum Monthly Interest
(Section 1.2): Fifteen Thousand Dollars ($15,000) per month.*
Section 4. CONDITION PRECEDENT. The effectiveness of this Amendment
is expressly conditioned upon:
4.1 Receipt by Coast of an executed copy of this Amendment;
4.2 Receipt by Coast of an executed Amended and Restated
Secured Promissory Note (Equipment Acquisition Loans), in the original
principal amount of Three Hundred Thousand Dollars ($300,000), executed by
Borrower to the order of Coast; and
4.3 Receipt by Coast of an executed Secured Promissory
Note, in the original principal amount of Four Hundred Thousand Dollars
($400,000), executed by Borrower to the order of Coast, respecting Borrower's
$400,000 Equipment Acquisition Loan.
4.4 Receipt by Coast of payment of a closing fee equal to
$4,000.
4.5 Receipt by Coast of a Landlord's Waiver and Agreement,
in form and substance satisfactory to Coast, executed by the owner of the
premises commonly known as 9560 Wilshire Boulevard, Suite 475, Beverly Hills,
CA 90212; provided, that in lieu of providing such Landlord's Waiver and
Agreement, Borrower may satisfy this condition by issuing to Coast warrants for
22,000 shares of Borrower's common stock, exercisable at a price equal to $0.01
per share and otherwise in form and substance satisfactory to Coast; provided,
further, that in the event such Landlord's Waiver and Agreement is later
obtained by Borrower and delivered to Coast, Coast shall return one-half of
such warrants to Borrower.
4
<PAGE> 5
Section 5. ENTIRE AGREEMENT. The Loan Agreement, as amended hereby,
embodies the entire agreement and understanding between the parties hereto and
supercedes all prior agreements and understandings relating to the subject
matter hereof. Borrower represents, warrants and agrees that in entering into
the Loan Agreement and consenting to this Amendment, it has not relied on any
representation, promise, understanding or agreement, oral or written, of, by or
with, Coast or any of its agents, employees, or counsel, except the
representations, promises, understandings and agreements specifically contained
in or referred to in the Loan Agreement, as amended hereby.
Section 6. CONFLICTING TERMS. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects,
the Loan Agreement, as amended and supplemented hereby, shall remain in full
force and effect.
Section 7. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one agreement, and any party hereto may execute this
Amendment by signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
USTEL, INC.,
a Minnesota corporation ("Borrower")
By
------------------------------------------
President or Vice President
By
------------------------------------------
Secretary or Ass't Secretary
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift & Loan
Association ("Coast")
By
------------------------------------------
Title
-------------------------------------
5
<PAGE> 6
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to
the order of COAST BUSINESS CREDIT, a division of Southern Pacific Thrift and
Loan Association, a California corporation ("Coast"), at 12121 Wilshire
Boulevard, Suite 111, Los Angeles, California, or at such other address as the
holder of this Note shall direct, the principal sum of Four Hundred Thousand
Dollars ($400,000). The principal balances hereof shall be payable in
thirty-five (35) equal monthly installments of $11,100 each commencing on
September 30, 1996, and thereafter on the last day of each month. The entire
remaining unpaid principal balance of this Note, plus any and all accrued and
unpaid interest, shall be due and payable on the earlier of: (i) the last day of
the thirty-sixth (36th) month following the date hereof, or (ii) the date the
Loan and Security Agreement between the Borrower and Coast, dated as of December
31, 1995, as amended by that certain Amendment Number One to Loan and security
Agreement, dated as of even date herewith (as amended, the "Loan Agreement")
terminates by its terms or is terminated by either party in accordance with its
terms.
This Note shall bear interest on the unpaid principal balance hereof
from time to time outstanding at a rate equal to the "Prime Rate" (as
hereinafter defined) plus 3.5 percentage points (3.5%) basis points) per annum,
but in no event shall the interest rate in any month be less than 7.0% per
annum, interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed. As used herein, the term "Prime Rate" shall
mean the accrual "Reference Rate" or the substitute therefor of the Bank of
America NT&SA whether or not that rate is the lower interest rate charged by
said bank. The interest rate applicable to this Note shall be adjusted
monthly, as of the first day of each month, and the interest rate charged
during each month shall be based on the highest Prime Rate in effect during
said month. If the Prime Rate is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate of corporate loans at large U.S.
money center banks. Accrued interest shall be payable monthly, in addition to
the principal payments provided above, commencing on the due date of the first
(1st) principal payment hereunder, and continuing on the last day of each
succeeding month until the entire principal balance hereof has been paid in
full.
Principal of, and interest on, this Note shall be payable in lawful
money of the United States of America. If a payment hereunder becomes due and
payable on a Saturday, Sunday or legal holiday, the due date thereof shall be
extended to the next succeeding business day, and interest shall be payable
thereon during such extension.
In the event any payment of principal or interest on this Note is not
paid in full when due, or if any other default or events of default occurs
under the Loan Agreement or any other present or future instrument, document,
or agreement between Borrower and Coast, Coast may, at its option, at any time
thereafter, declare the entire unpaid principal balance of this Note plus all
accrued interest to be immediately due and payable, without notice or demand.
Without limiting the foregoing, and without limiting Coast's other rights and
remedies, in the event any installment of principal or interest is not paid in
full on or before the date due, Borrower agrees that it would be impracticable
or extremely difficult to fix the accrual damages resulting therefrom to Coast,
and therefore the Borrower agrees immediately to pay to Coast an amount equal
to 5% of the installment (or portion thereof) not paid, as liquidated damages,
to compensate Coast for the internal administrative expenses in administering
the default. The acceptance of any installment of principal or interest by
Coast after the time when it becomes due, as herein specified, shall not be
held to establish a custom, or to waive any rights of Coast to enforce payment
when due of any further installments or any other rights, nor shall any failure
or delay to exercise any rights be held to waive the same.
1
<PAGE> 7
All payments hereunder are to be applied first to costs and fees
referred to hereunder, second to the payment of accrued interest and the
remaining balance to the payment of principal. Any principal prepayment
hereunder shall be applied against principal payments in the inverse order of
maturity. Coast shall have the continuing and exclusive right to apply or
reverse and reapply any and all payments hereunder in its sole discretion.
Borrower agrees to pay all costs and expenses (including without
limitation attorney's fees) incurred by Coast in connection with or related to
this Note, or its enforcement, whether or not suit be brought. Borrower hereby
further waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note.
This Note is secured by the Loan Agreement and all other present and
future security agreements between Borrower and Coast. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement, or any
other present or future document, instrument or agreement, between Borrower and
Coast, and all of Coast's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this
Note shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Coast, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
COAST AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i)
THIS NOTE: OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
COAST AND BORROWER: OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF COAST OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER.
This Note is payable in, and shall be governed by the internal laws of,
the State of California.
USTEL, INC.,
a Minnessota corporation
By
Title:
------------------------------
2
<PAGE> 1
EXHIBIT 10.50
Cancellation of Indebtedness Agreement
--------------------------------------
This Cancellation of Indebtedness Agreement (the "Agreement") is made
this ____ day of February, 1996, by and between Integrated Financial
Consultants, Inc. ("IFC"), and UStel, Inc. a Minnesota corporation (the
"Corporation"), with reference to the following facts:
R E C I T A L S
---------------
WHEREAS, Corporation engaged IFC pursuant to a consulting agreement
dated June 26, 1995 as amended on November 10, 1995 ("Consulting Agreement") to
render consulting services to Corporation;
WHEREAS, the Consulting Agreement provided that IFC would provide
consulting services and receive Ninety-Five Thousand (95,000) shares of the
stock of Corporation (the "Shares") in exchange therefor, provided IFC also
execute and deliver a promissory note (the "Note") to the Corporation in the
amount of Ninety-Five Thousand Dollars ($95,000.00), such Note being dated
November 10, 1995 and being attached hereto as Exhibit "A" and incorporated
herein by this reference;
WHEREAS, the Consulting Agreement required IFC to provide the
Corporation with five (5) to ten (10) hours of consulting services each week;
WHEREAS, IFC has provided consulting services substantially in excess
of the hours required under the Consulting Agreement, and IFC will continue to
provide consulting services pursuant to the Consulting Agreement.
WHEREAS, the Corporation is willing to cancel the Note as payment for
the additional consulting services rendered by IFC to the Corporation as well as
the payment of Five Thousand Dollars ($5,000.00);
NOW THEREFORE, in consideration of the foregoing premises and the
covenants contained herein, IFC and Corporation hereby agree as follows:
1. Cancellation of Note: IFC hereby agrees to pay Five Thousand
Dollars ($5,000.00) to Corporation upon execution hereof.
Corporation agrees to cancel the Note upon its receipt of the
Five Thousand Dollars ($5,000.00). Upon payment of such Five
Thousand Dollars ($5,000.00), Corporation shall endorse the Note
with the legend "Cancelled" and return the original Note to IFC.
<PAGE> 2
2. Further Services: IFC shall continue to perform consulting
services pursuant to the terms of the Consulting Agreement.
3. Offset for Evaluation Services: To the extent that IFC has
expended funds (and not been reimbursed therefor) as provided in
the Consulting Agreement, including but not limited to travel
expenses, for evaluation services on behalf of and as requested
by Corporation, IFC is entitled to an offset against the Five
Thousand Dollars ($5,000.00) due Corporation pursuant to
Paragraph 1 above.
4. Entire Agreement: This Agreement constitutes the entire
understanding and agreement between the parties with respect to
the subject matter hereof.
5. Authority: Any individual signing this Agreement on behalf of
any entity represents and warrants that he has full authority to
do so.
6. Attorneys Fees: In the event that either party hereto fails to
perform any of tis obligations under this Agreement or in the
event a dispute arises concerning the meaning or interpretation
of any provisions of this Agreement, the defaulting party or the
party not prevailing in such dispute, as the case may be, shall
pay any and all costs and expenses incurred by the other party
in enforcing and establishing its rights hereunder, including,
without limitation, court costs and reasonable counsel fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date indicated above.
UStel, Inc.
By:
--------------------------------------
Integrated Financial Consultants, Inc.
By:
--------------------------------------
2
<PAGE> 1
EXHIBIT 10.51
[WORLDCOM LETTERHEAD]
VIA FACSIMILE (310)-396-8608
UStel, Inc.
31 Sea Colony Drive
Santa Monica, CA 90403
Attention: Mr. Robert L.B. Diener, President and CEO
Dear Rob:
On behalf of Don Wilmoth, Scott Williams, Kirk Bartgis, and myself please let us
say thanks to both you and Jerry Dackerman for traveling to Tulsa September 9,
1996 to meet with us to settle amicably the balance owing WorldCom from UStel of
$5,595,963.09. Also, we thank you for the check in the amount of $1,000,000.
Please let me confirm the financial settlement issues we discussed, as follows:
1- UStel will remit payment of the balance of its September 1, 1996
current invoice in the original amount of $1,735,688.09, or only
$735,688.09 no later than Friday, September 27, 1996.
2- UStel will remit payment of its October 1, 1996 invoice no later
than October 31, 1996.
3- UStel will agree to allow WorldCom a second secured position
against all assets and customer base behind the first secured
position of Coast Business Credit.
4- WorldCom agrees to create a lump sum note for the past due
balance on account of $3,860,275.11 due and payable no later
than November 10, 1996, to include interest at 15% from the date
of any past due monthly charge. We understand that payment will
result from your anticipated offering currently underway through
your investment banking firm of Cruttenden-Roth, Inc.
5- WorldCom will contact both references you furnished for Coast
Business Credit and Cruttenden-Roth, Inc.
6- We look forward to receiving your financial projections and
copies of correspondence from your investment banker.
7- Upon receipt via return facsimile of your signed ratification to
these financial settlement issues, WorldCom will rescind the
"credit hold" position against your accounts.
<PAGE> 2
UStel, Inc.
September 10, 1996
Page 2 of 2
Please let me hear from you via return facsimile so that we can proceed with our
most amicable settlement. We wish you and the new ownership of UStel the best,
as we hope to have a continued good relationship well into the future.
Once again, thanks for the visit and the check.
Yours very truly,
/s/ Bob Vetera
Robert S. Vetera
Director of Corporate Credit
SIGNED AND ACCEPTED THIS 10TH DAY OF SEPTEMBER, 1996, BY:
/s/ Robert L. B. Diener
- -------------------------------------
Robert L. B. Diener, President and CEO
cc: Don Wilmoth
Scott Williams
Bob Brejcha
Mitch Lindner
Kirk Bartgis
<PAGE> 3
REVISED
US TEL INC
ACCOUNT BALANCE SUMMARY
AS OF 9/9/96
<TABLE>
<CAPTION>
ACCOUNT 9/1/96 8/1/96 7/1/96 6/1/96 5/1/96 4/1/96 UAC PAST
NUMBER BALANCE CURRENT 1-30 31-60 61-90 91-120 120+ DUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
181202 784,111.10 225,960.73 271,472.31 286,678.06 - - - - 558,150.37
181203 238,360.14 81,444.61 83,266.76 73,648.77 - - - - 156,915.53
181204 4,009,584.46 1,237,492.96 1,037,495.84 897,837.70 301,605.83 326,691.55 208,460.58 - 2,772,091.50
181205 178,196.93 65,490.75 62,623.67 50,082.51 - - - - 112,706.18
182279 3,232.40 343.57 461.80 2,427.03 - - - - 2,888.83
182281 532.78 41.11 103.97 387.70 - - - - 491.67
182282 (3,450.00) 0.00 - - - - - (3,450.00) (3,450.00)
182300 154.09 2.24 2.28 150.00 - - - (0.43) 151.85
183029 301,131.99 105,765.89 100,286.87 95,079.23 - - - - 195,366.10
P/L - 5478 84,109.31 19,146.23 17,073.18 695.35 47,194.55 - - - 64,963.08
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 5,595,963.20 1,735,688.09 1,572,786.68 1,406,986.35 348,800.38 326,691.55 208,460.58 (3,450.43) 3,860,275.11
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL PAST DUE AMOUNT 3,860,275.11
TOTAL DISPUTED PRE 12/95 (182,559.92)
CREDIT GRANTED PRE 12/95 47,342.62
TOTAL DISPUTED 3/96 (183,000.00)
TOTAL DISPUTED 6/96 (181,523.54)
VOLUME DISC. DISPUTE (79,701.31)
- --------------------------------------------------------------------------------------------------------
TOTAL LESS DISPUTES 3,280,832.96
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
September 10, 1996
Robert S. Vetera
Director of Corporate Credit
LDDS/WorldCom
One Williams Center
Tulsa, OK 74172
Re: UStel, Inc./Wiltel Account Balance
Dear Bob:
Jerry and I genuinely appreciated the time that you spent with us yesterday.
We pledge every effort possible to resolve these matters as quickly as feasible
and to evolve into a normal working relationship.
Attached is an executed copy of your letter of today's date. I will forward
the information you have requested as expeditiously as possible and work with
you to implement this arrangement. The only point that I would make, which I
am sure is not an issue, is that we assume that this agreement does not
constitute a final resolution of any disputed amounts which have not been
previously closed.
Again, thank you for your rapid response to the resolution of this matter.
Sincerely,
ROBERT L. B. DIENER
cc: Jerry Dackerman
Wouter van Biene
<PAGE> 1
EXHIBIT 10.52
STANDARD SUBLEASE
American Industrial Real Estate Association
[LOGO]
1. PARTIES. This Sublease, dated, for reference purposes only, September 25,
1993, is made by and between Primedex Corporation (herein called "Sublessor")
and Consortium 2000, Inc. (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Los Angeles, State of California, commonly known as Third floor premises
(Room 300) and described as located in the north side of 6167 Bristol Parkway
in Culver City, consisting of approximately 4909 rentable square feet. Said
real property, including the land and all improvements thereon, is hereinafter
called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for 56 months commencing
on November 1, 1993 and ending on June 30, 1998 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties
shall be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to
all provisions hereof, such occupancy shall not advance the termination date
and Sublessee shall pay rent for such period at the initial monthly rates set
forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $5000.00, in advance, on the 1st day of each month of the
term hereof. Sublessee shall pay Sublessor upon the execution hereof of
$5000.00 as rent for November, 1993. Rent for any period during the term
hereof which is for less than one month shall be a prorata portion of the
monthly installment. Rent shall be payable in lawful money of the United
States to Sublessor at the address stated herein or to such other persons or at
such other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $5000.00 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general
office use for a telephone consulting and sales company and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Sublessee acknowledges that
neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated June 11, 1987, with amendments dated Dec. 20,
1989, October 8, 1991 and June 5, 1992 wherein Tishman West Management, as agent
for Metropolitan Insurance Company is the lessor, hereinafter referred to as the
"Master Lessor."
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: Article #10, Page 9, Fourth Amendment to office space lease,
"Option to Extend Term", Article #13, Pages 14-20, Fourth Amendment to office
space lease, "First Availability, Reserved Floor, Article #14, pages 20-25,
Tenant's Fourth Floor First Availability Options, Article #15, Page 26-28
Fourth Amendment to Office Space Lease, Exterior Sign.
<PAGE> 2
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations."
The obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject however, to any earlier termination of the Master
Lease without the fault of the Sublessor and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option receive
and collect, directly from Sublessee all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply
with Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease to
pay to Master Lessor the rents due and to become due under the Sublease
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master lessor and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee
for any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then this Sublease, nor the
Master Lessor's consent, shall not be effective unless, within 10 days of the
date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
after the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the
Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said opinion to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
CityPacific a licensed real estate broker, (herein called "Broker"), a fee as
set forth in a separate agreement between Sublessor and Broker, or in the event
there is no separate agreement between Sublessor and Broker, the sum of
$15,900.00 for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right
of first refusal granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, or if
Broker is the procuring cause of any lease, sublease, or sale pertaining to the
Premises or any adjacent property which Sublessor may own or in which Sublessor
has an interest, then as to any of said transactions Sublessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of the execution of this Sublease. Notwithstanding the foregoing,
Sublessor's obligation under this Paragraph 10.2 is limited to a transaction in
which Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to
renew the Master Lease, to purchase the Premises or any part thereof, or to
lease or purchase adjacent property which Master Lessor may own or in which
Master Lessor has an interest or if Broker is the procuring cause of any other
lease or sale entered into between Sublessee and Master Lessor pertaining to
the Premises, any part thereof, or any adjacent property which Master Lessor
owns or in which it has an interest, then as to any of said transactions
Master Lessor shall pay to Broker a fee, in cash, in accordance with the
schedule of Broker in effect at the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew as to any
extension or renewal upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of
Sublessor or Master Lessor under this Paragraph 10. Broker shall be deemed to
be a third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the
Broker named herein who seeks to enforce a right hereunder.
<PAGE> 3
12. Additional Provisions- If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here.
13. Improvements- The premises shall be subleveled as is. No improvements
of any kind shall be performed by Sublessor prior to Sublessee's occupancy of
the premises.
14. Escalation- The base rental shall be fixed for the term. A 1994 base
year shall be utilized to determine Sublessee's pro-rata share of increase in
the building's operating expenses and real estate taxes.
15. Free Rent- Provided Sublessee has not been in default in the payment
of the rent due under this sublease, Sublessor shall abate the rent due for
three months, commencing on months 6,15 and 26.
16. Parking- Sublessee shall be entitled to use eight surface parking
spaces for the term of the sublease at no charge.
17. Proposition 13- Sublessee shall not be responsible for any increases in
real estate tax increases per Proposition 13 that may result from the sale of
the building during the term.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING
THERETO.
Executed at
---------------------------- ----------------------------------
on By
------------------------------------- -------------------------------
address By
-------------------------------- -------------------------------
- --------------------------------------- "Sublessor" (Corporate Seal)
Executed at 6133 Bristol Parkway
---------------------------- ----------------------------------
on 10-1-93 By
------------------------------------- -------------------------------
address Culver City, Calif. 90230 By
-------------------------------- -------------------------------
- --------------------------------------- "Sublessee" (Corporate Seal)
Executed at
---------------------------- ----------------------------------
on By
------------------------------------- -------------------------------
address By
-------------------------------- -------------------------------
- --------------------------------------- "Master Lessor" (Corporate Seal)
Executed at
---------------------------- ----------------------------------
on
------------------------------------- ----------------------------------
address
-------------------------------- ----------------------------------
- --------------------------------------- "Guarantors"
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071,
(213) 687-8777.
<PAGE> 4
[GRAPHIC - FLOOR PLAN]
<PAGE> 5
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here.]
13. Improvements- The premises shall be subleveled as is. No improvements
of any kind shall be performed by Sublessor prior to Sublessee's
occupancy of the premises.
14. Escalation- The base rental shall be fixed for the term. A 1994 base
year shall be utilized to determine Sublessee's pro-rata share of
increase in the building's operating expenses and real estate taxes.
15. Free Rent- Provided Sublessee has not been in default in the
payment of the rent due under this sublease, Sublessor shall abate the
rent due for three months, commencing on months 6, 15 and 26.
16. Parking- Per the Master Lease.
17. Proposition 13- Sublessee shall not be responsible for any increases in
real estate tax increases per Proposition 13 that may result from the
sale of the building during the term.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR
THE TRANSACTION RELATING THERETO.
Executed at
----------------------- -----------------------------------
on By
-------------------------------- --------------------------------
address By
--------------------------- --------------------------------
- ----------------------------------- "Sublessor" (Corporate Seal)
Executed at 6133 Bristol Parkway
----------------------- -----------------------------------
on By
-------------------------------- --------------------------------
address Culver City, Calif. 90230 By
--------------------------- --------------------------------
- ----------------------------------- "Sublessee" (Corporate Seal)
Executed at
----------------------- -----------------------------------
on By
-------------------------------- --------------------------------
address By
--------------------------- --------------------------------
- ----------------------------------- "Master Lessor" (Corporate Seal)
Executed at
----------------------- -----------------------------------
on By
-------------------------------- --------------------------------
address By
--------------------------- --------------------------------
- ----------------------------------- "Guarantors"
Form 401 778
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 3450
So. Figueroa St., M-1, Los Angeles, CA 90071. (213)687-8777
(c) 1978 - by American Industrial Real Estate Association. All rights reserved.
No part of these works may be reproduced in any form without permission in
writing.
<PAGE> 1
EXHIBIT 10.53
SALES AGENCY AGREEMENT
FOR
THE SALE OF TELECOMMUNICATIONS SERVICES
This Sales Agency Agreement (THE "AGREEMENT") is made and entered into
as of the 1st day of June, 1995 (THE "EFFECTIVE DATE") by and between WorldCom,
Inc. d/b/a LDDS WorldCom ("LDDS"), a Georgia corporation with its place of
business in East Rutherford, New Jersey and CONSORTIUM 2000 ("SALES AGENCY") ,
a California corporation with its principal place of business in Culver City,
California and whose Federal Tax Identification Number is 95-4217361. For and
in consideration of the mutual promises and covenants set forth hereinafter,
the parties agree as follows:
1. PRIOR AGREEMENT
a. The parties acknowledge there currently exists between them a
Master Sales Agency Agreement for the Sale of
Telecommunications Services dated November 1, 1993 between
Sales Agency and WorldCom Network Services, Inc. (formerly
WilTel, Inc.), an LDDS affiliate, as amended by that certain
Addendum dated January 11, 1994, that certain Amended and
Restated Appendix D dated March 25, 1994 and that certain
Modification to that Certain Amended and Restated Appendix D
dated September 28, 1994 (COLLECTIVELY, THE "PRIOR
AGREEMENT"). As of the date of this Agreement, the parties
agree that the Prior Agreement shall be null and void.
b. Notwithstanding anything to the contrary contained in
Subsection 1(a) above, LDDS agrees to pay the following
commissions (COLLECTIVELY, THE "PRIOR COMMISSIONS") on the net
(i.e., after the application of discounts, if any) monthly
measured usage charges for Switched Services sold by Sales
Agency under the Prior Agreement with respect to those End
Users listed on Schedule 1, which is attached hereto and
incorporated herein by reference ("EXISTING CUSTOMERS"), or
with respect to those current prospects as of the date of this
Agreement which have been specifically identified by Sales
Agency and approved by LDDS and which are listed on Schedule
1A, which is attached hereto and incorporated herein by
reference ("POTENTIAL CUSTOMERS"):
(i) on all WilPLUS IV, Option 1 Service sold by
Sales Agency to Existing Customers under the Prior
Agreement on or before July 19, 1994;
CONFIDENTIAL
Page 1 of 15
<PAGE> 2
(ii) on all WilPLUS IV, Option 1 Service sold by
Sales Agency to Existing Customers under the Prior
Agreement after July 19, 1994;
(iii) on all Switched Services sold by Sales
Agency to Potential Customers; and
(iv) on all Switched Services sold by Sales
Agency to Pioneer Financial Services, Inc.
("PIONEER").
c. The Prior Commissions will continue to be paid by LDDS as long
as the end users associated with the Prior Commissions remain
an LDDS customer subject to Subsections 5(a)and 5(b) below;
provided, however, LDDS reserves the right, exercisable in its
sole discretion, to adjust or revise the monthly measured
usage charges of Existing Customers (including Pioneer and
Potential Customers) in the event of toll fraud, PIC disputes
or any other extraordinary event including without limitation,
bad debt.
2. RELATIONSHIP
a. LDDS appoints Sales Agency (and Sales Agency accepts such
appointment) as its non-exclusive authorized sales
representative for the sale of LDDS' telecommunications
services listed in Article I of Appendix A which is attached
hereto and incorporated herein by reference and as may be
amended from time to time (THE "SERVICES") to residential and
commercial end users (HEREINAFTER REFERRED TO AS "CUSTOMERS").
b. LDDS reserves the right to add, discontinue, supersede or
alter any of the Services subject to this Agreement, including
but not limited to the charges for such Services. Such right
may be exercised by LDDS at any time during the Initial Term
of this Agreement or any extension thereof. Any successor
Services (which will not include any new or additional
Services) ("SUCCESSOR SERVICES") may be sold by Sales Agency
during the Initial Term (and any extensions thereof) of this
Agreement; provided, however, LDDS reserves the right,
exercisable in its sole discretion, to adjust the amount of
Commissions (as described in Section 5) to be paid to Sales
Agency relative to such Successor Services.
c. Sales Agent's use of the term "AUTHORIZED SALES AGENCY OF
LDDS" will only be as specified in Section 9 of this Agreement
entitled "Authorized Use of LDDS Name". Sales Agency will
only identify itself as an Authorized Sales Agency of LDDS
with respect to the Services and in all
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Page 2 of 15
<PAGE> 3
other cases will identify itself as an independent business.
d. Neither party hereto is an employee of the other and neither
has any right nor any authority to act on behalf of the other
beyond that expressly granted herein. Sales Agency shall
conduct its business at its own initiative, responsibility and
expense.
e. During the Initial Term of this Agreement and any extension
thereof, LDDS reserves the right, without obligation or
liability to Sales Agency for payment of compensation or
otherwise, to market the Services, whether through its own
employees, agents or representatives, through other
independent representative(s), or otherwise.
f. Provided Sales Agency complies with Subsection 5(m) below,
Sales Agency may telemarket the Services provided such
telemarketing (including verification of orders obtained
therefrom) conforms with applicable FCC and state regulations,
including without limitation the regulations promulgated by
the FCC in 47 C.F.R., Part 64, Subpart K. Section 64.1100 or
any successor regulations. For the purposes of this
Agreement, "telemarketing" shall mean developing customer
leads by "cold calling" potential customers over the telephone
and shall include without limitation the utilization of
telemarketing centers and the canvassing of potential
customers by means of auto dialers or similar methods.
3. TERM
a. This Agreement shall become effective as of the Effective Date
and shall continue in effect for a period of five (5) years
(THE "INITIAL TERM") , subject to cancellation by either party
at any time during the Initial Term upon not less than ninety
(90) days written notice to the other party. Upon expiration
of the Initial Term, unless terminated as provided in
Subsection (b) below, this Agreement shall automatically
continue in force on a month-to-month basis subject to
termination by either party on thirty (30) days written
notice.
b. LDDS may terminate this Agreement (i) if Sales Agency becomes
insolvent, makes an assignment for the benefit of creditors or
files a petition for reorganization; (ii) if a petition in
bankruptcy is filed by or against Sales Agency; or (iii) if
Sales Agency is in breach of this Agreement or is otherwise in
default to LDDS or any LDDS parent, subsidiary or affiliated
company under this or any other agreement which default is not
cured within any applicable cure period. LDDS agrees to give
Sales Agency (x) seven (7) days notice in which to cure a
default under Subsections 2(f), 3(c), 6(f) and 13(a), and (y)
thirty (30) days notice in which to cure any other default
CONFIDENTIAL
Page 3 of 15
<PAGE> 4
hereunder. Any notice period given under this Subsection (b)
shall be without prejudice for any claim for damages or any
other right of LDDS under this Agreement at the time of such
termination.
c. Customers obtaining Services sold by Sales Agency shall be
customers of LDDS in all respects and Sales Agent shall have
no property right in such Customers. During the Initial Term
(and any extensions thereof), Sales Agency agrees not to
contact any Customers for the purpose of inducing them to
switch to another long distance services provider.
4. EXCLUDED ACCOUNTS/EXCLUSIVE TERRITORY
For purposes of this Agreement, subject to Section 1 above, LDDS
hereby excludes (i.e., Sales Agency shall not receive a Commission on)
any sales to the following Customers (HEREINAFTER COLLECTIVELY
REFERRED TO AS "EXCLUDED ACCOUNTS"):
(i) Customers for which an order was placed for the
installation of Service by Sales Agency prior to the
date of this Agreement.
(ii) Customers for which a prior order was placed with
LDDS by someone other than Sales Agency (which shall
include delivery to LDDS of a services agreement
directly by a Customer) subject to the sole
discretion of LDDS.
(iii) Customers outside the geographic territory described
in Article II of Appendix A, which is attached hereto
and incorporated herein by reference (THE "AUTHORIZED
TERRITORY").
(iv) As provided in the applicable Commission Plan (as
defined below) as may be amended from to time.
(v) From time to time, any specific customers, potential
customers or end users (which includes working
telephone numbers (WTNs), billed telephone numbers
(BTNs) and automatic number identifications ("ANIs"))
of which Sales Agency has received at least thirty
(30) days' notice from LDDS.
5. COMMISSION
a. LDDS agrees to pay Sales Agency a commission on collected
revenues (THE "COMMISSION") pursuant to the schedule, terms
and conditions set forth in this Agreement and Article III of
Appendix A attached hereto and incorporated herein by
reference (THE "COMMISSION PLAN"), for the sale of Service to
any Customer within the Authorized
CONFIDENTIAL
Page 4 of 15
<PAGE> 5
Territory, that is not an Excluded Account as described in
Section 4 above.
b . Notwithstanding the Commission Plan described in Article III
of Appendix A, upon (i) the scheduled expiration of the
Initial Term of this Agreement as defined in Subsection 3(a)
above, (ii) LDDS' early cancellation of this Agreement upon
ninety (90) days' notice pursuant to Subsection 3(a) above,
or (iii) LDDS' termination of this Agreement pursuant to
Subsection 3(b) above, LDDS will continue paying Sales Agency
the following Commission based on the Aggregate Monthly Volume
(as defined in Article III of Appendix A) for Switched
Services sold by Sales Agency to Customers during the Initial
Term who remain LDDS Customers after the scheduled expiration
or early cancellation of the Initial Term:
<TABLE>
<CAPTION>
Aggregrate Amount Commission
----------------- ----------
<S> <C>
$250,000+
$200,000 - $249,999
$150,000 - $199,999
$100,000 - $149,999
$ 50,000 - $ 99,999
$ 0 - $ 49,999
</TABLE>
c. Sales Agency will receive a Commission upon execution by a
Customer of an approved LDDS service agreement ("SERVICE
AGREEMENT") , as may be amended from time to time by LDDS.
Commissions will be paid (i) within forty-five (45) days after
the end of the month in which Customers are billed by LDDS,
and (ii) only so long as the Service remains installed.
"INSTALLED SERVICE" shall mean the completion of the
activation of facilities and placement of equipment, if any,
necessary for LDDS to provide the Service in question. LDDS
shall have no liability for and Sales Agency shall not be
entitled to Commissions for any Service ordered by Service
Contract but not installed, even if such failure is due to the
acts or omissions of LDDS.
d. Commission advances will be calculated at one hundred percent
(100%) of the billed revenue, that is, after taking into
account the application of any discounts. Provided, however,
in the event a Customer does not pay an invoice in full within
ninety (90) days after the relevant invoice date ("DELINQUENT
CUSTOMER"), LDDS may, at its sole option, deduct from the
amount owed Sales Agency an amount equal to the Commissions
paid on all then past due amounts attributable to said
Delinquent Customer. Further, LDDS will not pay any future
Commissions with respect to said Delinquent Customer.
However, as soon as the Delinquent Customer is current on all
LDDS invoices, LDDS will (i) resume paying Commissions as
provided herein with respect to said Delinquent Customer, and
(ii) pay all
CONFIDENTIAL
Page 5 of 15
<PAGE> 6
Commissions deducted from Sales Agency (if any) due to such
Delinquent Customer. In the event a Customer cancels Service
prior to the end of any minimum term liability associated with
such Service, Sales Agency shall be entitled to a pro rata
share of the amount, if any, received by LDDS as a
cancellation charge, provided payment therefor is received by
LDDS within sixty (60) days of the invoice date for the
cancellation charge in question.
e. Remittance of all Commissions due Sales Agency will be
according to the Commission Plan. A monthly statement listing
all sales of Services for which Sales Agency is being paid a
Commission will be provided by LDDS. All remittances shall be
paid by LDDS in U.S. dollars.
f. LDDS reserves the right not to pay Sales Agency Commissions in
the event more than ten percent (10%) of the Services sold
hereunder are used directly or indirectly by Sales Agency or
any affiliate of Sales Agency. Further, Sales Agency shall
not use any portion of the Commission in order to offer any
Customer a rebate, credit, or other similar form of
compensation.
g. LDDS reserves the right, exercisable in its sole discretion,
to adjust or revise the monthly measured usage charges of
Customers in the event of toll fraud, PIC disputes or any
other extraordinary event including without limitation, bad
debt.
h. Sales Agency will be solely responsible for the payment of
taxes and other fees that may be due as a result of LDDS'
payment of a Commission as described herein.
i. LDDS shall have the right to set off against any payment due by
it hereunder (including without limitation, Commissions due
pursuant to this Section 5) any amounts owed to it by Sales
Agency under this Agreement or any other agreement between
Sales Agency and LDDS or Sales Agency and any parent,
subsidiary or affiliated company of LDDS, including without
limitation, Disputed Transfer Charges (as described in
Subsection 6(m) below). If, for any reason whatsoever
(including without limitation, termination of this Agreement),
at the end of any calendar month any amount is due LDDS from
Sales Agency, LDDS may, at its option, demand that such amount
be paid to it in cash by Sales Agency within thirty (30) days
after the last day of such calendar month.
CONFIDENTIAL
Page 6 of 15
<PAGE> 7
6. SALES AGENCY'S RESPONSIBILITIES
Sales Agency agrees to:
a. Sell and take orders for LDDS' tariffed offerings as further
described in Article I of Appendix A in coordination with LDDS
as appropriate and necessary.
b. Upon request, provide LDDS for its review all proposals for
the Services and permit LDDS to conduct periodic sales reviews
and account reviews with Sales Agency.
c. Establish and maintain a trained and capable sales force
necessary to sell the Services. Sales Agency further agrees
that such sales force shall meet all reasonable quality and/or
certification standards which may be established by LDDS from
time to time.
d. Sell the Services to non-Excluded Accounts in Sales Agency's
Authorized Territory in accordance with the prices, terms and
conditions set forth in the applicable tariffs, price lists
and Service Contracts of LDDS, as may be amended from time to
time; provided, it is understood that LDDS is under no
obligation to provide nontariffed pricing or nontariffed
Service to any Customers or potential customers.
e. Make only such representations concerning the price, tariff,
contract terms and conditions, functions, capabilities,
characteristics, design, installation date or availability of
any Services that have been approved by LDDS.
f. Market the Services in a manner consistent with the standard
for marketing of such Services which LDDS shall specify as
necessary to protect service marks or trade names used in
connection with the Services. All activities of Sales Agency
hereunder shall be in compliance with such sales, service and
engineering standards promulgated by LDDS which are then in
effect. Provided, Sales Agency may only use those marketing
and sales material which have been (i) supplied by LDDS, or
(ii) produced by Sales Agency and prior approved by LDDS. In
the event LDDS determines, in its sole discretion, that
certain of Sales Agency's marketing or sales practices are
misleading or otherwise objectionable, LDDS shall notify Sales
Agency in writing to immediately cease such activities. In
the event such activities continue, LDDS will have the right
to terminate this Agreement in accordance with Subsection 3(b)
above.
g. Use commercially reasonable efforts at all times to give
prompt, courteous and efficient service to Customers, act in
accordance with the highest standards of honesty, integrity
and fair dealing in all dealings with such
CONFIDENTIAL
Page 7 of 15
<PAGE> 8
Customers and LDDS, and do nothing which would tend to
discredit, dishonor, reflect adversely upon or in any manner
injure the reputation of LDDS.
h. Explain the Services and advise Customers on the use of such
Services and, if applicable, the compatibility of the Services
with other LDDS products and services offered for sale by
Sales Agency.
i. Notify LDDS immediately upon notice to it of any Customer
attempting to cancel any Service Contract delivered by Sales
Agency.
j. Provide LDDS with a 24 hour seven day per week maintenance
number to which LDDS will be able to call toll free to report
Service problems following installation or any other inquires
regarding the maintenance of Service. Sales Agency will make
available to LDDS qualified personnel on a full-time basis who
are capable of clearing service problems and coordinating the
resolution of maintenance or Service problems with LDDS's
Customer Service and Service maintenance personnel.
k. Maintain insurance coverage in amounts and according to the
terms set forth in Appendix B, which is attached hereto and
incorporated herein by reference.
l. Maintain documents and records ("RECORDS") supporting the
sales of Services which are the subject of this Agreement for
a period of not less than twelve (12) months or such other
longer period as may be required by applicable law, rule or
regulation and which are capable of being produced within a
reasonable period of time upon the request of LDDS.
m. Obtain appropriate and valid letters of agency in writing
("LOA") from all Customers in the form prescribed by LDDS
which will designate LDDS as Customer's "Primary Interexchange
Carrier", and submit to LDDS such LOAs duly executed by
Customers with each Order submitted by Sales Agency. LDDS
reserves the right to verify, in a manner determined solely by
LDDS, any or all LOAs submitted by Customer. In the event
there are disputed transfers in connection with Customers
obtained by Sales Agency for whatever reason, Sales Agency
will be responsible for (i) all reasonable charges incurred by
LDDS to transfer Customers to the LDDS network in accordance
with standard LEC charges, (ii) all reasonable charges
incurred by LDDS to transfer Customers back to their previous
interexchange carrier in accordance with standard LEC charges,
(iii) all reasonable measured usage charges repaid to Customer
as determined in the sole discretion of LDDS, and (iv) any
other reasonable damages suffered by or awards against LDDS
resulting from disputed transfers (COLLECTIVELY, THE "DISPUTED
TRANSFER CHARGES").
CONFIDENTIAL
Page 8 of 15
<PAGE> 9
n. Cooperate fully, at LDDS's expense, in the collection,
compilation and maintenance of data required to be reported by
LDDS pursuant to any federal or state statute, regulation or
order. LDDS represents that to the best of its knowledge, as
of the date of this Agreement, there are no reporting
requirements imposed on LDDS which require cooperation of
Sales Agency other than in completing standard sales documents
and maintaining Records.
7. SERVICES BY LDDS
a. LDDS may, in its sole discretion, offer the following services
(at a cost, if any, to be borne by Sales Agency if Sales Agency agrees
to such services):
(i) Marketing of the Services and the provision of
promotional literature to Sales Agency in such
quantities as LDDS deems appropriate.
(ii) The provision of training to Sales Agency's employees
to the extent determined by LDDS.
(iii) The provision of technical support to Sales Agency's
personnel to the extent determined by LDDS.
b. LDDS also agrees to perform, directly or through a third
party, the following functions:
(i) Credit approvals and credit limit updates, billing
and commercially reasonable collection functions for
the Services sold by Sales Agency under this
Agreement.
(ii) Install, maintain and support the Service(s) sold by
Sales Agency pursuant to this Agreement in accordance
with LDDS's applicable tariffs and Service Contracts.
Provided, however, LDDS shall have no responsibility
for or liability in connection with any other
services or products sold by Sales Agency. LDDS
reserves the right to deal directly with the
Customer(s) in all matters, including but not limited
to those involving the installation, maintenance,
support and removal of the Services. Provided,
further, Sales Agency shall receive commission credit
for sales arising from such dealings which are not
otherwise restricted under Section 5 above.
8. SERVICE ORDERING PROCEDURES, CREDIT AND CANCELLATION OF SERVICE
a. From time to time, LDDS shall inform Sales Agency of the terms
on which it is willing to accept orders ("ORDERS") for the
Services, including Customer payment, standards
CONFIDENTIAL
Page 9 of 15
<PAGE> 10
of Customer creditworthiness, standard installation intervals,
physical availability of facilities, order and Service
Contract format, data requirements and other specifications as
to the manner of conducting business.
b. Sales Agency shall submit all Orders for Services to provided
by LDDS on completed Service Contracts which have been prior
approved by LDDS. LDDS agrees to receive and process Service
Contracts for Services from Sales Agency through its
centralized customer service group ("LDDS SUPPORT GROUP") in
accordance with its normal practices.
c. All Orders for Services shall be subject to (i) the
availability of suitable facilities which shall be determined
in the sole discretion of LDDS, and (ii) the approval and
acceptance by LDDS in accordance with its common carrier
rights and obligations. LDDS reserves the right, exercisable
in its sole discretion, to (i) reject any Order submitted by
Sales Agency, or (ii) discontinue offering or selling any
Service to any Customer. In the event of such rejection or
discontinuance, LDDS shall not incur any liability to Sales
Agency.
d. LDDS reserves the right to independently verify the
creditworthiness of any Customer and to reject any Customer,
before or after the Service Contract is accepted by LDDS on
the basis of its credit history or financial condition.
e. LDDS reserves the right to require a deposit, secured
collateralizations, or letters of credit, from any Customer in
an amount to be determined by LDDS, in its sole discretion,
based on the estimated usage of the Customer. Further, LDDS
may increase the amount of the deposit in the event Customer's
usage exceeds said usage estimate.
f. LDDS reserves the right to cancel Service to any Customer for
non-payment or other cause in accordance with applicable
Service Contracts or LDDS tariff.
9. AUTHORIZED USE OF LDDS NAME
a. Sales Agency may refer to itself during the term of this
Agreement as an "AUTHORIZED LDDS SALES AGENCY" solely in
connection with Services sold by Sales Agency hereunder.
Further, LDDS grants Sales Agency a limited license to use its
name and federally registered and protected service marks (and
any other service marks authorized by LDDS) solely for the
purpose of obtaining Customers under this Agreement; provided,
however, any use by Sales Agency of LDDS' name and service
marks must be prior approved, in writing, by LDDS.
CONFIDENTIAL
Page 10 of 15
<PAGE> 11
b. Sales Agency shall refer to itself as an authorized agent of
LDDS whenever it refers to the Services in promotional,
advertising, or other materials. In addition, Sales Agency
shall provide to LDDS for its prior review and written
approval, which approval may be withheld for any reason, all
promotions, advertising or other materials or activity using
or displaying LDDS' name, the Services or referring to Sales
Agency as an authorized agent of LDDS. Sales Agency agrees to
change or correct, at Sales Agency's expense, any such
material or activity which LDDS, in its sole judgment,
determines to be inaccurate, misleading or otherwise
objectionable.
c. Upon expiration or termination of this Agreement for whatever
reason, Sales Agency shall immediately cease referring to
itself as an "Authorized LDDS Sales Agency."
10. CONFIDENTIAL INFORMATION
a. The parties understand and agree that the terms and conditions
of this Agreement, all documents referenced herein (including
invoices to Customers for Service), communications between the
parties regarding this Agreement or the Services described
herein (including price quotes by LDDS for any Services
proposed to be provided or actually provided to a Customer),
Customer information and information relevant to any other
agreement between the parties (COLLECTIVELY "CONFIDENTIAL
INFORMATION"), are confidential as between Sales Agency and
LDDS.
b. A party shall not disclose Confidential Information unless
subject to discovery or disclosure pursuant to legal process,
or to any other party other than the directors, officers, and
employees of a party or agents of a party including their
respective brokers, lenders, insurance carriers or prospective
purchasers who have specifically agreed in writing to
nondisclosure of the terms and conditions hereof. Any
disclosure hereof required by legal process shall only be made
after providing the non-disclosing party with notice thereof in
order to permit the non-disclosing party to seek an
appropriate protective order or exemption. Violation by a
party or its agents of the foregoing provisions shall entitle
the non-disclosing party, at its option, to obtain injunctive
relief without a showing of irreparable harm or injury and
without bond.
c. The parties further agree that any press release,
advertisement or publication generated by a party regarding
this Agreement, the Service provided hereunder or in which a
party desires to mention the name of the other party or the
other party's parent or affiliated company(ies), will be
submitted to the non-publishing party for its written approval
prior to publication.
CONFIDENTIAL
Page 11 of 15
<PAGE> 12
d. The provisions of this Section 10 will be effective as of the
date of this Agreement and remain in full force and effect for
a period equal to the longer of: (i) one (1) year following
the Effective Date of this Agreement; or (ii) one (1) year
following the termination of all Commissions due Customer
hereunder.
e. Within ten (10) days after the expiration of this Agreement or
the termination of this Agreement by either party for any
reason, each party shall return to the other any physical or
written records containing such confidential information of
the other then in its possession, regardless of whether such
physical or written records were prepared by Sales Agency or
by LDDS.
11. INDEMNIFICATION Sales Agency agrees to indemnify and hold LDDS
harmless from any and all claims, actions, damages, expenses and other
liabilities, including reasonable attorney's fees and costs of litigation,
resulting from Sales Agency's acts, omissions or misrepresentations, regardless
of the form of action, including, but not limited to any Disputed Transfer
charges from local exchange carriers incurred by LDDS for primary interexchange
carrier ("PIC") selection for which Sales Agency cannot produce an appropriate
and valid LOA relevant to the PIC charge in question.
12. LIMITED LIABILITY IN NO EVENT WILL LDDS' PERFORMANCE OR FAILURE TO
PERFORM ITS OBLIGATIONS HEREUNDER (INCLUDING WITHOUT LIMITATION, LDDS' GROSS
NEGLIGENCE OR WILFUL MISCONDUCT) RESULT IN LDDS' LIABILITY TO SALES AGENCY OR
ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR
CONSEQUENTIAL LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE,
LOSS OF CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN
ANY MANNER FROM THIS AGREEMENT WHETHER BASED ON ANY THEORY OF TORT, BREACH OF
CONTRACT OR STATUTE OR WHETHER AT LAW OR IN EQUITY.
13. GENERAL PROVISIONS
a. Assignment; Subcontracting: Sales Agency may not assign this
Agreement, in whole or in part, without the prior written
consent of LDDS which may be given or withheld at the sole
discretion of LDDS. Any attempt to assign any of the rights,
duties or obligations of this Agreement without such consent
shall be void and shall entitle LDDS to terminate this
Agreement in accordance with Subsection 3(b) above
b. Amendment: Except as otherwise provided herein, this Agreement
can be modified only by a written amendment duly signed by
persons authorized to sign agreements on behalf of Sales Agency
and LDDS and shall not be modified or supplemented by any
course of dealing or trade usage.
CONFIDENTIAL
Page 12 of 15
<PAGE> 13
c. Waiver: No course of dealing or failure of either party to
strictly enforce any term, right or condition of this
Agreement shall be construed as a waiver of such term, right
or condition.
d. Surviving Obligations: All obligations and duties which by
their nature extend beyond the expiration or termination of
this Agreement shall survive and remain in effect beyond any
expiration or termination.
e. Choice of Law; Forum: This Agreement is governed by the law of
the State of Oklahoma without regard to choice of law
principles. Any legal action or proceeding with respect to
this Agreement may be brought in the Courts of the State of
Oklahoma in and for the County of Tulsa or the United States
of America for the Northern District of Oklahoma. By
execution of this Agreement, both Customer and LDDS hereby
submit to such jurisdiction, hereby expressly waiving whatever
rights may correspond to either of them by reason of their
present or future domicile. In furtherance of the foregoing,
Customer and LDDS hereby agree to service by U.S. Mail at the
notice addresses referenced in Subsection (k) below. Such
service shall be deemed effective upon the earlier of actual
receipt or seven (7) days from the date of posting.
f. Force Majeure: Neither party shall be held liable for any
delay or failure in performance of any part of this Agreement
because of cause or circumstances beyond its control such as
acts of God, acts of civil or military authorities,
legislative, executive or judicial acts of any governmental
entity, cable cuts, government regulations, embargoes,
epidemics, war, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, or other
major environmental disturbances, power blackouts, strikes, or
from any other cause of whatsoever kind arising without its
actual fault (collectively referred to as "FORCE MAJEURE
CONDITIONS"). In the event of a Force Majeure Condition
affecting either party, both parties shall cooperate as
appropriate to perform their obligations under this Agreement.
g. Successors Bound: This Agreement shall be binding upon and
inure to the benefit of any permitted successors or assigns of
the parties.
h. Acrency Orders: All obligations under this Agreement shall be
subject to legislation and to valid and applicable government
agency orders, regulations, tariff provisions, and decisions
and orders of courts of competent jurisdiction.
i. Severability: Both parties expressly agree that it is not the
intention of either party to violate public policy or state or
federal statutory or common laws and that if
CONFIDENTIAL
Page 13 of 15
<PAGE> 14
any sentence, paragraph, clause or combination thereof in this
Agreement is in violation of the same, such paragraph, clause,
or sentence, or combination of the same shall be inoperative
and the remainder of this Agreement shall remain binding upon
the parties hereto.
j. Headings: The headings in this Agreement are for convenience
only and shall not be construed to define or in any way limit
any terms herein.
k. Notice: All notices, requests, or other communications other
than Service Contracts or related order forms/correspondence
placed with the LDDS Sales Support Group, made under this
Agreement shall be made in writing and shall be deemed
delivered (i) upon actual receipt if hand delivered, (ii)
three (3) business days after posting with the United States
Mail, postage prepaid, certified or registered, (iii) one (1)
business day after pick up by an overnight mail service, or
(iv) one (1) business day after the date of sender's
electronic confirmation of receipt if sent by facsimile
transmission. Notices may be sent to the following addresses
or Fax numbers, which addresses or Fax numbers may be changed
by written notice to the other party.
To Sales Agency: To LDDS:
Consortium 2000 WorldCom, Inc.
6167 Bristol Parkway One Meadowlands Plaza
Suite 300 East Rutherford, NJ 07073
Culver City, CA 90230
Attn: Attn:
------------------- -----------------
l. Improper Payments - Practices: Sales Agency will not use any
funds received under this Agreement for illegal or otherwise
improper purposes related to this Agreement. Sales Agency
will not pay any commissions, fees or rebates to any employee
of LDDS nor favor any employee of LDDS with gifts or
entertainment of significant value. Sales Agency further
represents and undertakes: (i) that in the course of
performing the services contemplated by this Agreement, no
expenditures for other than lawful purposes will be made by
Sales Agency (including the principals or employees thereof or
parties under the control of Sales Agency); (ii) that no
payments will be made by Sales Agency in the performance of
its services under this Agreement to government officials or
the employees or officials of prospective users of
international telecommunications services in contravention of
the prescriptions of the Foreign Corrupt Practices Act of the
United States of America (Pub.L. 100-418, as amended or
hereafter amended), and that no government official has any
direct or indirect ownership or investment interest in Sales
Agency or interest in the revenues or profits of
CONFIDENTIAL
Page 14 of 15
<PAGE> 15
Sales Agency; and (iii) that, on request of LDDS, Sales Agency
shall furnish a certificate attested to by the chief operating
officer or principal of Sales Agency to the effect that Sales
Agency, its officers, directors, principals, employees and
authorized agents thereof performing services under this
Agreement are in compliance with the foregoing representations
and undertakings. If LDDS has reasonable cause to believe
that the provisions of the preceding sentences have been
violated, LDDS, or its representative, may audit the records
of Sales Agency, for the sole purpose of establishing
compliance with such requirements.
m. Entire Agreement: This Agreement consists of all the terms and
conditions contained herein, in the Appendices attached
hereto, and in documents incorporated herein specifically by
reference. This Agreement constitutes the complete and
exclusive statement of the understandings between the parties
and supersedes all proposals and prior agreements (oral or
written) between the parties relating to the subject matter
hereof. No subsequent agreement between the parties
concerning this Agreement or the subject matter hereof shall
be effective or binding unless it is made in writing and
subscribed to by authorized representatives of Sales Agency
and LDDS.
Both parties represent they have read this Agreement, understand it
and agree to be bound by all the terms and conditions stated herein.
WORLDCOM, INC. CONSORTIUM 2000
d/b/a LDDS Worldcom
/s/ GEORGE P. HAMPTON [SIG]
- ----------------------------- -----------------------------------
(Signature) (Signature)
George P. Hampton [SIG]
- ----------------------------- -----------------------------------
(Print Name) (Print Name)
Vice President Executive Vice President
- ----------------------------- -----------------------------------
(Title) (Title)
CONFIDENTIAL
Page 15 of 15
<PAGE> 16
APPENDIX A
This Appendix A is made as of the 1st day of June, 1995, to that
certain Sales Agency Agreement for the Sale of Telecommunications Services,
made by and between WorldCom, Inc. d/b/a LDDS WorldCom ("LDDS") and Consortium
2000 ("SALES AGENCY") dated as of June 1, 1995.
I. SERVICES, RATES AND DISCOUNTS TO BE OFFERED BY SALES AGENCY
a. MTS.
b. CALLING CARD.
c. PERFORMANCE 2000.
d. PRECISION PLUS.
e. HOME PLUS.
f. EXACT CALL.
g. EASY ANSWER.
h. PERFORMANCE 4000.
i. WORLD ONE.
j. WILNET (PRIVATE LINE INTEREXCHANGE SERVICE)
Note: The Services listed in (a) through (i) above (including the
applicable rates and discounts) are further described in LDDS' F.C.C. Tariff
No. 2 as may be amended from time to time, and the Service listed in (j) above
(including the applicable rates and discounts) are further described in
WorldCom Network Services, Inc. d/b/a WilTel (an LDDS affiliate) F.C.C. Tariff
No. 4 as may be amended from time to time.
II. AUTHORIZED TERRITORY
Continental United States of America.
III. COMMISSION PLAN
a. During the Initial Term and any automatic extension thereof,
Sales Agency will receive the following Commissions on each Customer's account
that has a gross monthly usage of at least $10.00.
i. for each International Service sold by Sales Agency,
based on the net billed monthly usage of each Customer's
International measured usage charges (i.e., after discounts).
Page 1 of 2 CONFIDENTIAL
<PAGE> 17
ii. The following Commission for each domestic Service
sold by Sales Agency (which shall include Alaska, Hawaii,
Puerto Rico, the United States Virgin Islands and Washington,
D.C.), based on (i) the net billed monthly usage charges of
each Customer's domestic measured usage charges (i.e., after
discounts), and (ii) the net billed monthly recurring
interexchange Service charges of each Customer's domestic
monthly recurring charges. Commissions shall not be paid on
installation, local access, special construction charges,
taxes or any other charges by a third party).
<TABLE>
<CAPTION>
Aggregate
Monthly Volume* Commission
<S> <C>
$1,000 - $100,000
$100,001 - $200,000
$200,000 - $300,000
$300,001 - $400,000
$400,001 - $500,000
$500,000+
</TABLE>
* For purposes of this Agreement, "Aggregate Monthly
Volume" shall mean (i) the aggregate net (i.e., after
discounts, if any) measured usage charges of all Services
(including without limitation, International Services) sold by
Sales Agency, and (ii) the aggregate net monthly recurring
interexchange Service charges sold by Sales Agency. Aggregate
Monthly Volume shall exclude installation, local access,
special construction charges, taxes or any other charges by a
third party).
b. If, at any time, Sales Agency's Aggregate Monthly Volume is less than
LDDS may at its option cancel this Agreement upon thirty (30) days written
notice at which time LDDS will not be responsible for paying any further
Commissions.
c. No Commissions shall be paid on installation, operator services, local
access, special construction charges, ancillary services, special features
(e.g., enhanced 800 time of day routing), taxes or any other charges or
surcharges by a third party.
d. Commissions shall not be paid in any month in which Sales Agency's
Commissions are less than $100. If Sales Agency's Commissions are less than
LDDS may withhold payment until such amount is at least
Page 2 of 2 CONFIDENTIAL
<PAGE> 18
APPENDIX B
This Appendix B is made as of the 1st day of June, 1995, to that
certain Sales Agency Agreement for the Sale of Telecommunications Services,
made by and between WorldCom, Inc. d/b/a LDDS WorldCom ("LDDS") and Consortium
2000 ("SALES AGENCY") dated as of June 1, 1995.
INSURANCE REQUIREMENTS
1. Sales Agency shall obtain, pay for and maintain insurance for
the coverages and amounts of coverage not less than those set forth
below and shall provide to LDDS certificates issued by insurance
companies satisfactory to LDDS to evidence such coverages. Such
certificates shall provide that there shall be no termination,
non-renewal, or modification of such coverage without thirty (30)
days' prior written notice to LDDS. In the event of any failure by
Sales Agency to comply with the provisions of this paragraph, LDDS
may, at its option, on notice to Sales Agency, suspend this Agreement
until there is full compliance with this paragraph, or terminate the
Agreement.
a. Workers' Compensation complying with the law of the
State or States of operation, whether or not such coverage is
required by law, and Employer's Liability insurance with
limits of $500,000 each accident, including occupational
disease coverage with a limit of $500,000 each employee and
$500,000 disease policy limit. If work is to be performed in
Nevada, North Dakota, Ohio, Wyoming, Washington or West
Virginia, Sales Agency will purchase Workers' Compensation in
the State Fund established in the respective States. Stop Gap
Coverage or Employers Overhead coverage shall be purchased.
b. Commercial General Liability insurance with a
combined single limit for bodily injury and property damage of
$1,000,000 each occurrence and general and products liability
aggregates of $2,000,000 each, covering all insurable
obligations or operations of Sales Agency. Policy shall
include no modifications that reduce the standard coverages
provided under a Commercial General Liability insurance policy
form.
c. Business Automobile Liability insurance with a
combined single limit for bodily injury and property damage of
$1,000,000 each occurrence to include coverage for all owned,
non-owned and hired vehicles.
2. Notwithstanding the requirements contained in Section 1 above,
Sales Agency will not be required to pay for and maintain insurance
for the coverages and amounts of coverage set forth in Section 1 above
if Sales Agency is exempt by applicable state law or statute from
compulsory coverage of such insurance. If Sales Agency is not exempt
by applicable
Page 1 of 2 CONFIDENTIAL
<PAGE> 19
state law or statute from compulsory coverage of such insurance, LDDS
agrees to waive such requirements; provided, however, in such case,
Sales Agency agrees to indemnify and hold LDDS harmless from any and
all claims, actions, damages, expenses and other liabilities,
including reasonable attorney's fees and costs of litigation,
resulting from any workers' compensation claim or claim for bodily
injury and/or property damage asserted by sales Agency or any third
party in conjunction with or arising from the subject matter of this
Agreement.
3. In the event coverage is denied or reimbursement of a properly
presented claim is disputed by the carrier for insurance provided in 1
through 3 above, Contractor shall, upon written request, provide LDDS
with a certified copy of the involved insurance policy or policies
within ten (10) business days of receipt of such request.
4. Sales Agency waives its right, and its underwriters right, of
subrogation against LDDS, its Officers, Directors, Agents, and
Employees thereof, and corporate shareholder and its Officers,
Directors, Agents and Employees thereof, providing that such waiver in
writing, prior to loss does not void or alter coverage.
5. Neither the insurance required herein or the amount or type of
insurance maintained by Sales Agency shall limit or affect the extent
of Sales Agency's liability hereunder for injury, death, loss or
damage.
6. LDDS and its Affiliates, shall not insure or be responsible
for any loss or damage to property of any kind owned or leased by
Sales Agency or its employees, servants and agents. Any policy of
insurance covering the Property owned or leased by Sales Agency
against loss by physical damage shall provide that the underwriters
have given their permission to waive their rights of subrogation
against LDDS, its affiliates and their directors, officers and
employees, directors, officers and employees thereof.
Page 2 of 2 CONFIDENTIAL
<PAGE> 20
SCHEDULE 1
EXISTING CUSTOMERS
1. All ANIs (Residential) under Account Nos. 854-185281 and
854-187924 with WorldCom Network Services, Inc. (an affiliate
of LDDS).
2. See the attached listing of Commercial Accounts.
<PAGE> 21
VENDOR # AGGOO8(CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY, CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
===================================================================================================================================
-- AGING OF INVOICES AS OF 5/16/95 --
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
===================================================================================================================================
<S> <C <C> <C> <C> <C> <C> <C> <C> <C> <C>
BAN8493 EMCO FOOD SERVICE SYSTEMS 03/20/95 04/12/95
BAN8496 EMCO FOOD SERVICE SYSTEMS 03/20/95 04/12/95
BAN8497 EMCO FOOD SERVICE SYSTEMS 03/20/95 04/12/95
BAN8581 PIONEER FINANCIAL SERVICES 03/20/95 04/10/95
BAN8670 METRO BANK 03/20/95 04/05/95
BAN8671 POTTER ROEMER *1 03/20/95
03/20/95 04/03/95
BAN8742 NATIONAL MARKETING SPECIALIST 03/20/95 04/24/95
BAN8995 KIRK PAPER AND GRAPHICS 03/20/95 04/03/95
BAN9182 CONTINENTAL LIFE & ACCIDENT 03/20195 04/03/95
BAN9423 OLSTEN STAFFING SERVICES # 10/20/94 05/01/95
# 11/20/94 05/01/95
* 12/20/94
** 01/20/95
** 02/20/95
*4 03/20/96 05/15/95
2-100-188230 EVANTELL INC. 04/24/95
2-622-183739 ALBERT FISHER FOODS INC
2-623-185439 BELLBOY CORPORATION (PARENT) CR 02/16/95
04/16/95 05/09/95
2-637-183709-0001 FRANCE VACATIONS 04/16/95 05/08/95
2-637-183709-0002 TAHITI VACATIONS 04/16/95 05/09/95
2-637-183709-0003 AOM FRENCH AIRLINES 04/16/95 05/08/95
2-637-184060 HAVEN OF MINSTRIES 04/16/95
2-637-185050 DIRECTORS GUILD OF AMERICA
2-637-185112 BUREAU ONE 04/16/95 04/27/95
2-637-185874 KEANE INC 04/11/95
2-637-185876 DIRECTORIO DE PROFESIONALES 02/16/95
SUPERIORES 03/16/95
04/16/95
2-637-186404-0007 DANIEL, MANN, JOHNSON & M * 12/16/94
*2 04/16/95
2-698-183738 McCABE'S QUALITY FOODS
2-702-181906 FAVERT DEMAREST RUSSO
& LUTKEW
2-707-183698 CHANDLER ADVERTISING (PARE *1 01/16/95
02/16/95
03/15/95
*3 04/16/95
2-707-183806 PPS SECURITY 04/16/95
2-715-185102 SUN SPLASH TOURS INC 02/16/95 04/19/95
2-720-182516 IRA I FISHER
2-720-184982 ALLIED BUYING CORPORATION 04/16/95 04/24/95
2-720-185656 DAVID ABRAMS/FBC IRA I. FISHER
2-721-185471 K. B. FOODS 03/16/95 04/10/95
04/16/95 05/15/95
</TABLE>
Page 1
<PAGE> 22
VENDOR # AGG008 (CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY, CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
===================================================================================================================================
----- AGING OF INVOICES AS OF 5/16/95 ----
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2-722-183732 VALLEY WIDE FLORISTS 04/16/95 05/05/96
2-800-165434 SECREPHONE LTD (PARENT) *1 05/16/94 969.77
*1 06/16/94 2,058.53
CR 06/16/94
*1 07/16/94 1,302.98 15.0%
*1 08/16/94 1,081.67 15.0%
2-852-183886 SHOPSMART, INC. 04/01/95 04/27/95 15.0%
05/01/95
2-852-185436 FAMILY ARCHIVE PRESS 03/16/95 15.0%
04/16/95 15.0%
2-852-188286 LAKEWOOD INSTRUMENTS 04/08/95 05/16/95 15.0%
2-852-343209 UNIVERSITY OF ARIZONA FOUNDATION 15.0%
2-854-058275 DANIEL, MANN, JOHNSON & 15.0%
MENDENHALL
2-854-058323 THE MUSIC CENTER OPERATIN 1 06/01/94 15.0%
*3 04/01/95 15.0%
*3 05/01/95 15.0%
2-854-058346 WILLIAM O'NEIL CO 01/16/95 05/09/95 15.0%
04/16/95 15.0%
2-854-181589 CREDIT MANAGERS ASSOCIATION 04/16/95 05/02/95 15.0%
2-854-182106 S G WHOLESALE ROOFING SUP * 06/16/94 15.0%
** 07/16/94 15.0%
** 08/16/94 15.0%
** 09/16/94 15.0%
2-854-182169 P E O'HAIR 12/WESTBURNE SUPP 04/16/95 05/08/95 15.0%
2-854-182341 PERFORMANCE PRODUCTS *1 11/16/94 15.0%
*3 03/16/95 15.0%
*3 04/16/95 15.0%
2-854-183885 COMMUNITY HOSPITAL OF THE 04/16/95 05/02/95 15.0%
MONTEREY PENNINSULA
2-854-183958 ERVIN, COHEN & JESSUP #1 07/16/94 05/11/95 15.0%
*1 08/16/94 15.0%
#1 09/16/94 05/11/95 15.0%
#1 10/16/94 05/11/95 15.0%
#1 11/16/96 05/11/95 15.0%
*3 02/16/95 03/27/95 15.0%
*3 03/16/95 04/21/95 15.0%
*3 04/16/95 15.0%
2-854-184014 A.S.U. 04/16/95 05/01/95 15.0%
2-854-184015 L.F.P. INC 03/16/95 04/24/95 15.0%
04/16/95 05/03/95 15.0%
2-854-184063 AD PACK NORDEN 15.0%
2-854-185103 MALIBU COMICS 04/16/95 05/08/95 15.0%
2-854-185348 AIMS MEDIA
2-854-185356 VANGUARD STUDIOS 03/16/95 15.0%
04/16/95 15.0%
2-854-185403 NOVED, INC. * 06/08/94 15.0%
* 07/08/94 15.0%
** 08/08/94 15.0%
2-854-185432 CONSORTIUM 2000 *1 10/01/94 15.0%
*1 12/01/94 15.0%
*1 01/01/95 15.0%
* 02/01/95 15.0%
* 05/01/95 15.0%
</TABLE>
Page 2
<PAGE> 23
VENDOR # AGG008(CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY, CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
==========================================================================================================================
AGING OF INVOICES AS OF 5/16/95
----------------------------------
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2-854-185457 CONTRACTORS WARDROBE 03/16/95 04/19/95
04/16/95 05/15/95
2-854-185466 RULE DALE ENTERPRISES INC.
2-854-185484 MAGNAVOX ELECTRONIC SYSTEM 04/16/95 05/01/95
2-854-185868-0001 PACIFIC GLOVE CO 04/16/95 05/08/95
2-854-185688-0002 US SAFETY & SUPPLY INC
2-854-185877 INDUSTRIAL-METAL SUPPLY CO (P 04/16/95 05/09/95
2-854-185910 HUGO NEU-PROLER CO. (PARENT) 04/16/95 05/01/95
2-854-186617 CHAMPION TRAILER MANUFACTURING
2-854-208400 CONSORTIUM 2000 11/16/93
2-854-209116 RADISSON VALLEY CENTER HOTEL
2-854-209117 IMPERIAL BANK 03/16/95
04/16/95 05/01/95
2-854-209130 AHRAHAMMIAN, PAGLIOSSOTTI & TANAKA
2-854-209131 PUBLISHERS WEEKLY 04/16/95 05/15/95
2-854-209133 FRED HAYMAN
2-854-209141 ELLISON MACHINERY CO. *1 06/15/94
*4 04/16/95 05/05/95
2-854-209144 LANDAU PARTNERSHIP 03/16/95
04/16/95
2-858-185140 DIRECT ACCESS COMMUNICATION INC
2-858-185433 C & W FOOD SERVICE INC. 04/16/95 05/15/95
2-859-181117 FAB INC 03/16/95 04/17/95
04/16/95
2-859-182013 ATLANTA DISTRIBUTION MASTER SE
2-859-182014 ATLANTA DISTRIBUTION MASTER SE
2-862-183703 ELKAY PLASTICS (BENSONVILLE)
2-862-183726 ROCK RIVER PROVISION CO., INC. 04/16/95 05/08/95
2-862-185266-0001 NATIONAL HEALTH SERVICES
2-862-185266-0002 CONTINENTAL MARKETING CORP. 04/01/95 04/24/95
06/01/95
2-862-185265-0003 HEALTHCARE REVIEW
2-862-185266-0004 CONTINENTAL LIFE & ACCIDENT 04/01/95 04/24/95
05/01/95
2-862-185266-0005 CONTINENTAL LIFE - BOISE 04/01/95 05/01/95
05/01/95
2-862-185266-0006 NATIONAL MARKETING SPECIALIST 03/01/95
04/01/95
05/01/95 05/08/95
2-862-185266-0007 PIONEER LIFE INSURANCE CO. 04/01/95 04/24/95
05/01/95
2-862-185266-0008 MANHATTAN NATIONAL LIFE 04/01/95 04/24/95
05/01/95
2-862-185266-0009 NATIONAL HEALTH SERVICES-WA 04/01/95 04/24/95
05/01/95
</TABLE>
Page 3
<PAGE> 24
VENDOR # AGG008 (CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY, CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
====================================================================================================================================
----- AGING OF INVOICES AS OF 5/16195 ----
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2-862-185266-0010 PIONEER LIFE INSURANCE CO. CR 03/01/95
04/01/95
05/01/95
2-862-185266-0011 CONTINENTAL LIFE & ACCIDENT 04/01/95 05/01/95
COMPANY - ITASCA 05/01/95
2-862-185266-0012 NATIONAL GROUP LIFE 04/01/95 04/20/95
05/01/95
2-862-185266-0013 NATIONAL MARKETING SPECIALIST 04/01/95 05/08/95
05/01/95
2-862-155266-0014 UNION BENEFIT LIFE INSURANCE CO
2-862-185266-0015 CONTINENTAL MARKETING-DALLA 04/01/95 05/06/95
05/01/95
2-862-185266-0016 MANHATTAN NATIONAL LIFE - BOO 04/01/95 04/24/95
05/01/95
2-862-185266-0017 ASSOCIATION MANAGEMENT CORP
2-862-185266-0018 CONTINENTAL MARKETING CORP 04/01/95 06/06/95
TAMPA 05/01/95
2-862-185266-0019 DESIGN BENEFIT PLANS 03/01/95 05/08/95
04/01/95 05/08/95
05/01/95
2-862-185266-0020 PIONEER / PETER W. NAUERT 03/01/95
04/01/95 05/01/95
05/01/95
2-862-185266-0021 DESIGN BENEFIT PLANS *1 12/01/94
* 01/01/95
* 02/01/95
*3 03/01/95
** 04/01/95
** 05/01/95
2-862-185266-0022 NETWORK AIR MEDICAL SYSTEMS 05/01/95
2-862-185266-0025 THE BARNES GROUP KANSAS CIT 05/01/95
2-862-185266-0026 NATIONAL HEALTH SERVICES INC 05/01/95
2-862-185414 P.C.S. OF ILLINOIS 04/01/95 04/27/95
05/01/95
2-862-190451 P.C.S. OF ILLINOIS (PARENT) 03/01/95 04/27/95
04/01/95
05/01/95
2-863-185817 FARM BOY FOOD SERVICE 03/16/95 05/08/95
04/16/95 05/16/95
2-866-184981 SOMERSET FOOD SERVICE INC. 04/16/95
2-870-185551 SAV MAX FOODS INC. (PARENT * 12/16/94
*4 04/16/95 05/01/95
2-872-181976 WESTBURNE-SUPPLY (PARENT 04/16/95
2-872-184223 ADVANCED COMMUNICATIONS # 07/16/94 05/05/95
TECHNOLOGIES # 08/16/94 05/05/95
# 09/16/94 05/05/95
## 10/16/94 05/05/95
## 11/16/94 05/05/95
## 12/15/94 05/05/95
## 01/16/95 05/05/95
## 02/16/95 05/05/95
## 03/16/95 05/05/95
04/16/95 05/05/95
</TABLE>
Page 4
<PAGE> 25
VENDOR # AGG008 (CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY, CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
================================================================================================================================
-- AGING OF INVOICES AS OF 5/16/95 --
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2-872-185223 D C SALES COMPANY INC. (PAREN 02/16/95
03/16/95
04/16/94
2-872-185364 BARRETT MOVING & STORAGE
2-872-185487 B & B INC. * 10/16/94
* 11/16/94
* 12/16/94
** 01/16/95
** 02/16/95
** 03/16/95
** 04/16/95
2-877-185237 GLITTERWRAP INC. *1 06/16/94
CR 06/16/94
*1 07/16/94
*1 08/16/94
CR 08/16/94
*1 09/16/94
*3 CR 09/16/94
*3 CR 09/16/94
*1 10/16/94
*3 02/16/95 05/01/95
*3 03/16/95
*3 04/16/95
2-879-183767 UNITED SUPPLY (PARENT) 04/16/95 05/04/95
2-879-185387 THE KASHKIN & KLICK INVESTMENT
2-879-186214 SCHREIBER FOODS INTERNATIONA 03/16/95 04/17/95
04/16/95 05/12/95
2-879-186928 STERLAND HOMES LTD. 04/16/95 04/24/95
2-887-183966 EMCO FOOD SERVICE SYSTEM IPA 04/16/95
2-892-209118 VIATA CORPORATION
2-892-209119 CHECKTRONIC
2-892-209126 VAN CHEVROLET
2-892-355206 VIATA CORPORATION
2-893-183870 IDENTITY PROPERTIES INC. (PAREN 03/16/95 04/27/95
04/16/95
2-896-183743 ELKAY PLASTICS INC (SEATTLE)
2-896-185873 PICKERING INDUSTRIES INC.
2-896-206801 NACO
2-898-184061 MERRILL DISTRIBUTING INC
- ---------------------------------------------
TOTAL - ONE PLUS
=============================================
</TABLE>
* - Commission deducted for delinquent customer.
** - Commission held for delinquent customer
*1 - Commission deducted for delinquent customer (deduction is calculated on
short pay).
*2 - Commission released on delinquent customer because other than the one
invoice that is in the "Over 90 Day" Column, the account is current.
*3 - Commission released on delinquent customer because partial payments have
been made.
*4 - Commission released on delinquent customer because invoice has been paid.
# - Delinquent invoice that has been paid.
Page 5
<PAGE> 26
VENDOR # AGG008 (CTM)
CONSORTIUM 2000
6167 BRISTOL PARKWAY, SUITE 300
COLVER CITY. CA 90230
310-827-4200
ONE PLUS COMMISSIONS
APRIL 1995
<TABLE>
<CAPTION>
==========================================================================================================================
AGING OF INVOICES AS OF 5/16/95
----------------------------------
1-30 31-60 61-90 Over 90
Days Days Days Days
Past Past Past Past
CUST # CUSTOMER NAME INVOICE Invoice Invoice Invoice Invoice DATE SHORT COMM COMM
DATE Date Date Date Date CLEARED PAY RATE AMT
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
#1. Short-paid invoice that has been paid in full.
Invoice has now been paid.
1) - All invoices for Viata & Checktronic for the period 11/1/91 through
9/30/92 will not be charged back commissions in accordance with the letter from
Larry Littlefield dated March 12, 1993.
NOTE: Some of the invoices have pay dates that are prior to the invoice
date. The main cause for this is un-applied cash (or credits) that have been
moved to the invoices. The original date (the date cash was received by
treasury) remains as the transaction date.
PREPARED BY: P. JERVIS. 5/20/95
</TABLE>
Page 6
<PAGE> 27
SCHEDULE 1A
POTENTIAL CUSTOMERS
[See attached]
[To Be Supplied By Sales Agency]
<PAGE> 28
ADD ON CLIENT LIST
<TABLE>
<CAPTION>
COMPANY LOCATION SERVICE TYPE CARRIER
<S> <C> <C> <C>
JENE BRAY DBA CALFO BUHL EQUAL ACCESS LDDS
CONTINENTAL MARKETING TAMPA, FL 800 WILTEL
HATTAN NATIONAL LIFE CINCINNATI OH T-1 WILTEL
Cs CHICAGO, IL T-1 WILTEL
ASSOCIATED BRAKE & SUPPLY GARDENA CA T-1 WILTEL
ASSOCIATED TRUCK & BRAKE FRESNO LEASED LINE WILTEL
LANDATA GLENDALE LEASED LINE WILTEL
LANDATA INC GLENDALE CA T-1 WILTEL
& W FOOD SERVICE TALLAHASSEE, FL EQUAL ACCESS WILTEL
LAAG FOODS & POULTRY BREESE, IL 800 LDDS
LAAG FOODS POULTRY INC BREESE, IL EQUAL ACCESS LDDS
MLINGS FLOWERLAND HINSDALE 800 LDDS
MLINGS FLOWERLAND HINSDALE EQUAL ACCESS LDDS
CRAWFORD COUNTY TITLE CO. CUBA 800 LDDS
CRAWFORD COUNTY TITLE CO. CUBA EQUAL ACCESS LDDS
EDITH IRONS ART STUDIO CHOUTEAU, OK EQUAL ACCESS LDDS
JENE BRAY DBA CALFO BUHL EQUAL ACCESS LDDS
JAMES D. WILLIAMS NEWTON FALLS EQUAL ACCESS WILTEL
STEELVILLE MANUFACTURING STEELVILLE EQUAL ACCESS LDDS
SUSAN OGILVIE SUNNYVALE EQUAL ACCESS LDDS
WOODWARD & ASSOCIATES CUBA EQUAL ACCESS LDDS
HAAKER EQUIPMENT CO.INC. POMONA 800 LDDS
HAAKER EQUIPMENT CO.INC. POMONA EQUAL ACCESS LDDS
CENTRAL AIR CONDITIONING WINSTON SALEM NC LEASED LINE WILTEL
UNFINISHED FURNITURE GREENSBORO LEASED LINE WILTEL
</TABLE>
<PAGE> 1
Exhibit 10.54
HERTZ TECHNOLOGIES, INC.
MARKETING AGREEMENT
SERVICE PROVIDED TO HERTZ BY AT&T
THIS AGREEMENT made and entered into this 7th day of July, 1995 by and between
Hertz Technologies, Inc. a Delaware Corporation with principal offices at 225
Brae Blvd., Park Ridge, New Jersey 07656 (hereinafter referred to as "Hertz")
and Consortium 2000 a California Corporation with principal offices at 6167
Bristol Parkway, Suite 300, Culver City, California 90230 (hereinafter referred
to as "Consultant").
RECITALS
WHEREAS, Hertz Technologies, Inc. is a provider of telecommunications products
and/or services (hereinafter referred to as "Hertz"), and now desires to
contract with Consultant to offer said services and/or products to Hertz'
customers;
NOW THEREFORE, the parties agree as follows:
1. APPOINTMENT: Hertz hereby appoints Consultant as a non-exclusive
representative to promote and market the services listed on the attached
Schedule A. Other products and/or services may be added by mutual
agreement of Hertz and Consultant.
2. TERM: This Agreement shall be effective on the date first entered above
and shall continue in full force and effect for 3 years from this date
unless terminated earlier in a manner provided for in this agreement.
3. OBLIGATIONS AND AGREEMENTS OF CONTRACTOR: As marketing contractor for
Hertz, Consultant agrees to perform the following for or on behalf of
Hertz.
a) All customers shall contract directly with Hertz when placing
orders with Consultant, and Consultant shall take such orders
only in the name of, on behalf of, and at such prices, terms and
conditions as authorized by Hertz.
b) Consultant will complete due diligence and establish credit
worthiness on all customers or prospective customers before
submitting orders to Hertz. Hertz retains the right to
independently review the credit application and/or to reject it.
c) Upon the termination or expiration of the Agreement, Consultant
shall promptly return as directed all Hertz property to Hertz.
<PAGE> 2
- 2 -
SERVICE PROVIDED TO HERTZ BY AT&T
d) Consultant further agrees to keep confidential such information
concerning the Hertz products and services and
telecommunications network of which it shall become aware except
as Hertz shall expressly allow as necessary to the marketing of
the Hertz Technologies, Inc.
e) Consultant further agrees to accept responsibility for all
business submitted under this contract, including business
submitted by Consultant's sales associates. This includes, but
is not limited to, total financial responsibility for mis-quotes
or omissions by Consultant or Consultant's sales associates to
Customers relating to facilities, services, or rates provided by
Hertz.
4. ACCEPTANCE OF ORDERS: An order shall be deemed accepted by Hertz only
when it has been reviewed and accepted in writing by Hertz. Except as
may otherwise be provided in Paragraph 5, Hertz, in its absolute
discretion and without incurring any liability of any type to Consultant
or to customer, either for the payment of commission or otherwise:
a) may refuse or reject any order, in whole or in part, whether
solicited by Consultant hereunder or otherwise;
b) may fix the terms and conditions upon which it will accept any
service order;
c) may cancel or permit cancellation by customer of any such
service order after acceptance hereof by Hertz; and
d) may grant such allowance or concessions to the customer as it
may deem proper.
5. COMPENSATION:
a) Hertz shall pay Consultant a commission for customer orders
which Hertz, in its sole discretion, accepts in writing,
according to the attached Schedule B.
<PAGE> 3
- 3 -
SERVICE PROVIDED TO HERTZ BY AT&T
b) Commission to Consultant shall be paid within thirty (30) days
of Hertz' invoice to Customer. With each commission, Hertz will
provide Consultant a statement summarizing the computation of
the commission. All commission payments will be final and
binding upon Consultant unless written objection thereto is
delivered to Hertz within sixty (60) days of Consultant's
receipt of payment.
c) No charge of any king will be assessed for setting up or for
providing the Telephone Discount Service against the customer or
the Consultant other than those outlined in this Agreement.
d) Compensation to Consultant for services or products sold by
Consultant on behalf of Hertz other than the primary service
anticipated by this Agreement (Telephone Discount Service) shall
be assessed and mutually set by the Parties on a case by case
basis and made a part of this Agreement by written amendment.
6. TERMINATION: This Agreement may be canceled and terminated by either
party hereto at any time during the term hereof without penalty, on
providing written notice of intent to terminate to the other party
thirty (30) days prior to the date of intended termination. Should
either party commit a material breach of terms and conditions hereof,
this Agreement may be terminated immediately. This Agreement may also
be terminated immediately if Consultant has failed to disclose prior
marketing of AT&T VTNS and/or WilTel service through any entity which
represents Hertz. No termination hereof shall relieve either party from
liabilities or obligations already accrued.
<PAGE> 4
-4-
SERVICE PROVIDED TO HERTZ BY AT&T
7. INDEPENDENT CONTRACTOR: In entering into and carrying out its
obligations under this Agreement, Consultant shall operate as an
independent contractor. Nothing in this Agreement or in the
relationship between the parties or in the activities of Consultant, its
agents or employees, shall empower them to act as employees of or to
bind in any way Hertz, its subsidiaries or affiliates, except with
regard to the express obligations of Hertz adopted by the terms of the
Agreement.
Nor shall Consultant, its agents or employees, be entitled to
participate in, or receive any benefit or right as an employee under any
Hertz benefit or welfare plans, including but not limited to, employee
insurance, pension, or security plans, as a result of entering into this
contract.
Consultant further agrees that it will make no representations with
respect to its relationship to Hertz except that it has been retained by
Hertz as an independent contractor hereunder.
Consultant shall be responsible for, and Hertz shall have no liability
for, any and all expenses incurred by Consultant in performing its
duties hereunder; including, but not limited to, all travel, meals and
entertainment expenses, etc. Consultant agrees to comply with all
federal, state and local laws and ordinances, regulations and rules now
or hereafter in effect relating to its activity and that of its agents
and employees hereunder.
8. INDEMNIFICATION AND HOLD HARMLESS: Consultant agrees to indemnify and
hold Hertz harmless from all claims, demands, losses, damages, expenses,
including attorney's fees, in any manner caused by, arising from, or
connected with the performance of this Agreement; including, but not
limited to, personal injuries, death and property damages sustained or
claimed to have been sustained by any person or persons (including
without limitation Consultant, its employees or agents) and due, or
claimed to be due, in whole or in part, to any act, omission or
negligence of Consultant or its agents or employees.
<PAGE> 5
-5-
SERVICE PROVIDED TO HERTZ BY AT&T
Without in any way limiting the generality of the foregoing and for the
purpose of accomplishing in part its objectives, Consultant agrees to
maintain, at its own expense, such automobile liability and property
damage insurance as will afford protection against any and all risks
arising out of the operation of automobiles in performance of services
under this Agreement. Consultant agrees to offer proof of such
insurance to Hertz upon request.
9. ASSIGNMENT: Neither party may assign its rights, obligations or
interests under this Agreement to any third party without the prior
written permission of the other party. Notwithstanding the foregoing,
Hertz may assign its rights and liabilities hereunder to any wholly
owned subsidiary or any affiliate company.
10. COMPENSATION UPON EXPIRATION OR TERMINATION: The expiration or
termination of this Agreement shall not affect Hertz' obligation to pay
Consultant's earned commissions in accordance with Paragraph 5 hereto on
orders received and accepted prior to the effective date of such
expiration or termination. Upon expiration or termination, Consultant
shall surrender to Hertz all correspondence, records and other papers
and documents containing proprietary information relating to Hertz'
business, together with such samples, supplies and other articles as
Hertz may have furnished to Consultant.
11. LIABILITY ON EXPIRATION OR TERMINATION: Neither party shall, by reason
of termination or expiration of this Agreement, be liable to the other
for compensation, reimbursement or damage of any kind on account of loss
of profits on anticipated sales or on account of expenditures,
investments, leases or commitments in connection with the business or
goodwill of either party or otherwise.
12. WAIVER OF BREACH: Failure of either party to enforce at any time the
provisions of this Agreement shall not be construed as a waiver thereof
or of its right thereafter to enforce said provision(s).
<PAGE> 6
- 6 -
SERVICE PROVIDED TO HERTZ BY AT&T
13. NOTICE: All notices or other communications made pursuant to this
Agreement shall be in writing, and shall be by certified mail (return
receipt requested) or by personal delivery to the following on behalf of
the respective parties:
to: Hertz Technologies, Inc.
5601 N.W. Expressway
Oklahoma City, OK 73132
Attn: Larry Jordan
With a copy to:
225 Brae Blvd.
Park Ridge, NJ 07656
Attn: General Counsel
and to Consultant at:
Consortium 2000
6167 Briston Parkway, Suite 300
Culver City, CA 90230
Attn: Jerry Dackerman
14. GOVERNING LAW: This Agreement shall, in all respects, be governed by
and interpreted in accordance with the laws of the state of New Jersey.
15. ENTIRE AGREEMENT: This contract contains the entire and only agreement
between the Parties with respect to the subject matter hereof. Any
representations, promises, or conditions in connection therewith not
incorporated herein shall not be binding on either party. This
Agreement supersedes all prior understandings, representations,
negotiations, promises and agreements relative to the subject matter
hereof. No modification, ratifications, rescission, renewal,
abandonment or waiver of this Agreement, or any of its provisions, or
any notice of termination hereof given by the Parties shall be binding
unless made in writing and signed by an officer of the Parties.
<PAGE> 7
- 7 -
SERVICE PROVIDED TO HERTZ BY AT&T
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and
year first above written.
HERTZ TECHNOLOGIES, INC.
By: /s/ LARRY W. JORDAN
--------------------------------
Larry W. Jordan
Title: Director
CONSORTIUM 2000
By: /s/ JERRY DACKERMAN
--------------------------------
Jerry Dackerman
Title: Pres./CEO
<PAGE> 8
SCHEDULE "A"
SERVICE PROVIDED TO HERTZ BY AT&T
SERVICES TO BE MARKETED:
TELECOMMUNICATIONS DISCOUNT SERVICE:
INTRASTATE SERVICE: Intrastate service will be provided only in
jurisdictions in which Hertz has obtained the necessary certification
from the appropriate governmental authority to offer such service.
Consultant may market Hertz' option for VTNS services under the
following criteria:
VOICE SERVICES
A) Customer may take advantage of rate tables A, B, C, and D for
their interstate long distance voice services exclusive of the
volume discount schedule. Intrastate and international long
distance voice services will be provided according to the rates
specified in the general regulations portion of AT&T Tariffs on
file with the F.C.C.
B) Customer may take advantage of rate tables A, B, C, and D for
their Interstate long distance voice services at a mutually
agreed upon volume discount between Consultant and Hertz.
Intrastate and international long distance voice services will
be provided according to the rates specified in the general
regulations portion of AT&T Tariffs on file with the F.C.C.
ACCESS SERVICES
Prices for voice access services are service specific and will be quoted
on a case by case basis. Consultant must provide the area code (NPA)
and next three digits (NXX) to Hertz for quotes.
DATA SERVICES
Prices for data services are service specific and will be quoted on a
case by case basis.
<PAGE> 9
SCHEDULE "B"
SERVICE PROVIDED TO HERTZ BY AT&T
COMMISSION SCHEDULES
Hertz hereby agrees to pay Consultant based upon usage sales a commission rate
at the level specified below. If Consultant's monthly usage falls to the next
lowest level, Consultant agrees that the commission rate will drop
correspondingly.
<TABLE>
<CAPTION>
MONTHLY SALES LEVEL COMMISSION RATE
<S> <C>
0 - .25
.25 - and over
</TABLE>
VOICE SERVICES
A) Customer may take advantage of rate tables A, B, C and D for
their interstate long distance voice services exclusive of the
volume discount schedule. International long distance voice
services will be provided according to the rates specified in
the general regulations portion of AT&T Tariffs on file with the
F.C.C. Intrastate long distance services will be provided by
AT&T according to AT&T's intrastate rates specified in its
tariffs on file with the appropriate state regulatory
authorities.
Consultant will receive commission on monies invoiced to
Customers based on rate schedule A, B, C and D interstate
volumes at the rate specified above.
B) Customer may take advantage of rate tables A, B, C and D for
their interstate long distance voice services at a mutually
agreed upon volume discount between Consultant and Hertz.
International long distance voice services will be provided
according to the rates specified in the general regulations
portion of AT&T Tariffs on file with the F.C.C. Intrastate long
distance services will be provided by AT&T according to AT&T's
intrastate rates specified in its tariffs on file with the
appropriate state regulatory authorities.
<PAGE> 10
Hertz and Consultant will equally contribute to Customer's volume
discount from Consultants commission level and Hertz' remainder
for Customers rate schedule A, B, C and D interstate volumes.
example: Consultant commission equals
The end Customer requires ___ to win the deal.
Consultant contributes ____ of commissions and
Hertz contributes ____ making Consultants
commissions on Customers rate table A, B, C and D
volumes ____ per cent.
ACCESS SERVICES
Prices for voice access services are service specific and will be quoted
on a case by case basis. Consultant must provide the area code (NPA)
and next three digits (NXX) to Hertz for quotes.
No commissions are paid for customer access monies.
DATA SERVICES
Prices for data services are service specific and will be quoted on a
case by case basis.
Commissions and/or referral fees for Data circuits are service
specific and will be quoted on a case by case basis.
<PAGE> 11
[LOGO] HERTZ TECHNOLOGIES
===============================================================================
PLAN "A" LONG DISTANCE SERVICE
===============================================================================
INTERSTATE inbound and/or outbound long distance service offering switched or
dedicated access on a TWELVE (12), TWENTY-FOUR (24) OR THIRTY-SIX (36) MONTH
TERM basis. This service includes calls originating from any switched access
location utilizing Hertz Technologies, Inc. to any U.S., Puerto Rico, or U.S.
Virgin Islands location. Rates are determined by day and time-of-day calling
patterns.
TWELVE (12) MONTH TERM PLAN RATES
HERTZ TECHNOLOGIES, INC. PLAN A - SWITCHED LONG DISTANCE
<TABLE>
<CAPTION>
8AM-5PM 5PM-11PM 11PM-8AM 8AM-5PM
DAY EVE NIGHT
Mileage MON-FRI MON-FRI MON-FRI SAT-SUN
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-292
293-430
431-925
926-1910
1911-3000
3001-4250
4251-5750
===============================================================================
</TABLE>
HERTZ TECHNOLOGIES, INC. PLAN A - DEDICATED LONG DISTANCE
<TABLE>
<CAPTION>
8AM-5PM 5PM-11PM 11PM-8AM 8AM-5PM
DAY EVE NIGHT
Mileage MON-FRI MON-FRI MON-FRI SAT-SUN
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-292
293-430
431-925
926-1910
1911-3000
3001-4250
4251-5750
===============================================================================
</TABLE>
HERTZ TECHNOLOGIES, INC. PLAN A - DEDICATED TO DEDICATED
<TABLE>
<CAPTION>
8AM-5PM 5PM-11PM 11PM-8AM 8AM-5PM
DAY EVE NIGHT
Mileage MON-FRI MON-FRI MON-FRI SAT-SUN
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-292
293-430
431-925
926-1910
1911-3000
3001-4250
4251-5750
===============================================================================
</TABLE>
HERTZ TECHNOLOGIES, INC. PLAN A - SWITCHED 800 SERVICES
<TABLE>
<CAPTION>
8AM-5PM 5PM-11PM 11PM-8AM 8AM-5PM
DAY EVE NIGHT
Mileage MON-FRI MON-FRI MON-FRI SAT-SUN
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-292
293-430
431-925
926-1910
1911-3000
3001-4250
4251-5750
===============================================================================
</TABLE>
HERTZ TECHNOLOGIES, INC. PLAN A - DEDICATED 800 SERVICES
<TABLE>
<CAPTION>
8AM-5PM 5PM-11PM 11PM-8AM 8AM-5PM
DAY EVE NIGHT
Mileage MON-FRI MON-FRI MON-FRI SAT-SUN
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-292
293-430
431-925
926-1910
1911-3000
3001-4250
4251-5750
===============================================================================
</TABLE>
HERTZ TECHNOLOGIES, INC. - ADVANCED 800 FEATURES
<TABLE>
<CAPTION>
ROUTING FEATURES: ANNOUNCEMENT FEATURES:
- -------------------------------------------------------------------------------
<S> <C>
Country Code Call Prompter
Area Code Speech Recognition
Exchange Courtesy Response
Time Manager Enroute Announcements
Day Manager
Quick Call Allocator
Command Routing
===============================================================================
</TABLE>
Rates are subject to change without notice.
<PAGE> 12
NON-RECURRING CHARGES One time service connection fees
Dedicated Services per location
(Including 800 and regardless of the number of lines)
Inbound 800* per line
(Non dedicated LEC line)
Adding or Converting Ports (channels, lines) on: per port
Existing AT&T T-1
Single Dedicated Outbound Line**
????n be assigned and 800 number)
Group 1
Group 2
Group 3
Group 4
Group 5
Adding New T-1 (per Access Component)
Group 1
Group 2
Group 3
Group 4
Group 5
RECURRING CHARGES Monthly charges in addition to per minute usage charges
<TABLE>
<S> <C>
Switched Service per month, per location, regardless of the number of lines
(Including 800 and regardless of the number of lines.) (Telephone Numbers). Additional lines added at no charge.
Special Inbound 800* per month, per line.
(with dedicated LEC line)
Adding or Converting Ports (channels, lines) on: per month, per line.
Existing AT&T T-1
Single Dedicated Outbound Line**
(basic charges increase/decrease monthly) Zero Access Miles Greater than Zero Access Miles
-------------------------------------------------
Group 1 plus /mile
Group 2 plus /mile
Group 3 plus /mile
Group 4 plus /mile
Group 5 plus /mile
Adding New T-1 (per Access Component)
Zero Access Miles Greater than Zero Access Miles
-------------------------------------------------
Group 1 plus /mile
Group 2 plus /mile
Group 3 plus /mile
Group 4 plus /mile
Group 5 plus /mile
</TABLE>
NOTE: All T-1 and Dedicated access charges must be confirmed in writing from
Hertz Technologies, Inc.
Rates Subject To Change Without Notice.
Group 1 - AZ, CO, IA, ID, MN, MT, ND, NE, NM, OR, SD, UT, WA, WY
Group 2 - AR, DC, DE, KS, MD, MO, NJ, NV, OK, PA, TX, VA, WV
Group 3 - AL, CA, FL, GA, KY, LA, MS, NC, PR***, SC, TN
Group 4 - CT, HI, MA, ME, NH, NY, RI, VT
Group 5 - IL, IN, MI, OH, USVI***, WI
* Rate Option 2 Measured Remote Port with Port Access Telephone Number (PATN)
** Rate Option 1 Measured Remote Port
*** Not Yet Available
ADDITIONAL TERM PLAN ARRANGEMENTS
<TABLE>
<CAPTION>
Monthly Commitment $500 $1,000 $2,000 $3,000 $4,000 $5,000
<S> <C> <C> <C> <C> <C> <C>
24 Month Commitment Discounts
36 Month Commitment Discounts
Discounts off current 12 month term rates as detailed in the appropriate tariff.
- -------------------------------------------------------------------------------------------------------------------------------
Early termination charges apply to all term plan arrangements. See tariff for details. Rev. 94/09/19
</TABLE>
<PAGE> 13
AT&T INTRA
Rev 950201
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Dedicated Outbound Dedicated Inbound Switched Inbound
(SDN Sch B)
------------------------------------------------------------------------------------------------------------
Day Evening Night/Wknd Day Evening Night/Wknd Day Evening Night/Wknd
State Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama
Arizona (292)
Arizona (430)
Arkansas (55)
Arkansas (999)
California (55)
California (929)
Colorado
Connecticut (0 - 55 miles)
Connecticut (56 + miles)
Delaware
Florida
Georgia
Idaho (292)
Idaho (430)
Illinois
Indiana
Iowa (292)
Iowa (999)
Kansas
Kentucky (292)
Kentucky (430)
Louisiana
Maine
Maryland
Massachusetts
Michigan (292)
Michigan (430)
Michigan (925)
Minnesota (292)
Minnesota (430)
Minnesota (925)
Mississippi
Missouri (292)
Missouri (430)
Missouri (999)
Montana (292)
Montana (430)
Nebraska (292)
Nebraska (430)
Nebraska (999)
Nevada
New Hampshire
New Jersey
New Mexico (292)
New Mexico (430)
New York (292)
New York (430)
New York (999)
North Carolina (292)
North Carolina (430)
North Carolina (925)
North Dakota (292)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* We are not authorized to do business in this state as of revision date.
Informational Data Only - Subject to change without notice.
<PAGE> 14
AT&T INTRA
Rev 950201
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Dedicated Outbound Dedicated Inbound Switched Inbound
(SDN Sch B)
------------------------------------------------------------------------------------------------------------
Day Evening Night/Wknd Day Evening Night/Wknd Day Evening Night/Wknd
State Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute Per Minute
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North Dakota (999)
Ohio
Oklahoma
Oregon (55)
Oregon (292)
Oregon (430)
Pennsylvania (292)
Pennsylvania (999)
Rhode Island
South Carolina (292)
South Carolina (430)
South Dakota (292)
South Dakota (430)
South Dakota (999)
Tennessee
Texas
Utah
Vermont
Virginia
Washington (55)
Washington (292)
Washington (999)
West Virginia
Wisconsin
Wyoming
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* We are not authorized to do business in this state as of revision date.
Informational Data Only - Subject to change without notice.
<PAGE> 15
AT&T INTRA
Rev 950201
- -------------------------------------------------------------------------------
Switched Outbound
-----------------------------------------------
Day Evening Night/Wknd
-----------------------------------------------
State Per Minute Per Minute Per Minute
- -------------------------------------------------------------------------------
Alabama
Arizona (292)
Arizona (430)
Arkansas (55)
Arkansas (999)
California (55)
California (929)
Colorado
Connecticut (0-55 miles)
Connecticut (56+ miles)
Delaware
Florida
Georgia
Idaho (292)
Idaho (430)
Illinois
Indiana
Iowa (292)
Iowa (999)
Kansas
Kentucky (292)
Kentucky (430)
Louisiana
Maine
Maryland
Massachusetts
Michigan (292)
Michigan (430)
Michigan (925)
Minnesota (292)
Minnesota (430)
Minnesota (925)
Mississippi
Missouri (292)
Missouri (430)
Missouri (999)
Montana (292)
Montana (430)
Nebraska (292)
Nebraska (430)
Nebraska (999)
Nevada
New Hampshire
New Jersey
New Mexico (292)
New Mexico (430)
New York (292)
New York (430)
New York (999)
North Carolina (292)
North Carolina (430)
North Carolina (999)
North Dakota (292)
- -------------------------------------------------------------------------------
* We are not authorized to do business in this state as of revision date.
Informational Data Only - Subject to change without notice.
<PAGE> 16
AT&T INTRA
Rev 950201
- -------------------------------------------------------------------------------
Switched Outbound
-----------------------------------------------
Day Evening Night/Wknd
-----------------------------------------------
State Per Minute Per Minute Per Minute
- -------------------------------------------------------------------------------
North Dakota (999)
Ohio
Oklahoma
Oregon (55)
Oregon (292)
Oregon (430)
Pennsylvania (292)
Pennsylvania (999)
Rhode Island
South Carolina (292)
South Carolina (430)
South Dakota (292)
South Dakota (430)
South Dakota (999)
Tennessee
Texas
Utah
Vermont
Virginia
Washington (55)
Washington (292)
Washington (999)
West Virginia
Wisconsin
Wyoming
- -------------------------------------------------------------------------------
* We are not authorized to do business in this state as of revision date.
Informational Data Only - Subject to change without notice.
<PAGE> 17
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-1
5601 Northwest Expressway Cancels First Revised Sheet A-1
Oklahoma City, OK 73132
Issued: August 24, 1995 Effective: August 27, 1994
Attachment A - Plan A International Rates
-----------------------------------------
(The following rates on Attachment A are based on dedicated access, add .004 per
six-second increments for switched access)
Dedicated
<TABLE>
<CAPTION>
Standard Rates Discount Rates Economy Rates
------------------ -------------------- ------------------
Initial Addtl Initial Addtl Initial Addtl
30 Secs 6 Secs 30 Secs 6 Secs 30 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Algeria 6am-12n 2.0698 0.1430 12n-5pm 1.5614 0.1070 5pm-6am 1.5614 0.1070
Amer Samoa 5pm-11pm 2.9829 0.1372 10am-5pm 2.2405 0.1040 11pm-10am 2.2405 0.1040
Andorra 7am-1pm 0.5636 0.0652 1pm-6pm 0.5568 0.0626 6pm-7am 0.5256 0.0598
Antigua 4pm-10pm 0.9162 0.0927 7am-4pm 0.6807 0.0700 10pm-7am 0.6807 0.0700
Argentina 8am-6pm 1.0068 0.0762 6pm-12m 1.0004 0.0714 12m-8am 0.97 0.067
Aruba 4pm-10pm 0.9304 0.0938 7am-4pm 0.6847 0.0710 10pm-7am 0.6847 0.0710
Australia 2pm-8pm 1.2328 0.0766 8pm-3am 1.2327 0.0760 3am-2pm 0.9809 0.0759
Austria 7am-1pm 0.6688 0.0708 1pm-6pm 0.6247 0.0638 6pm-7am 0.06145 0.0613
Bahamas 8am-5pm 0.4306 0.0651 5pm-11pm 0.3511 0.0544 11pm-8am 0.3395 0.051
Bahrain 8am-3pm 2.3420 0.1034 9pm-8am 1.7513 0.0777 3pm-9pm 1.7513 0.0777
Bangladesh 6am-6pm 3.5319 0.2104 6pm-6am 2.3995 0.1258
Barbados 4pm-10pm 1.0778 0.1090 7am-4pm 0.8007 0.0823 10pm-7am 0.8007 0.823
Belgium 7am-1pm 0.6662 0.0708 1pm-6pm 0.6562 0.0697 6pm-7am 0.6145 0.065
Bermuda 8am-5pm 0.6055 0.0622 5pm-11pm 0.4440 0.0468 11pm-8am 0.4440 0.0468
Bolivia 4pm-12m 2.1328 0.1159 7am-4pm 1.5956 0.0877 12m-4pm 1.5956 0.0877
Bosnia 1pm-12m 1.6814 0.1312 7am-1pm 1.2695 0.0996 12m-7am 1.2695 0.0996
Brazil 8am-6pm 1.035 0.0676 6pm-12m 1.0225 0.0672 12m-8am 0.9795 0.067
Bulgaria 1pm-2am 1.7219 0.1343 7am-1pm 1.3004 0.1021 2am-7am 1.3004 0.1021
Cambodia 5pm-2am 2.2445 0.2793 2am-11am 2.0392 0.2587 11am-5pm 2.0392 0.2587
Can Tor 8am-6pm 0.155 0.0235 6pm-12m n/a n/a 12m-8am 0.11 0.0165
Cayman Isl 8am-5pm 0.8428 0.0852 5pm-11pm 0.6262 0.0644 11am-8am 0.6262 0.0644
Chile 8am-6pm 1.3093 0.0889 6pm-12m 1.2102 0.0832 12m-8am 0.9697 0.0663
China 5pm-2am 4.4956 0.1516 2am-11am 3.3622 0.1147 11am-5pm 3.3622 0.1147
Columbia 4pm-12m 1.1845 0.0896 7am-4pm 1.177 0.084 12m-7am 0.097 0.067
Costa Rica 5pm-11pm 0.9091 0.0707 8am-5pm 0.9078 0.0663 11pm-8am 0.907 0.064
Croatia 1pm-12m 1.6814 0.1312 7am-1pm 1.2695 0.0996 12m-7am 1.2695 0.0996
Cyprus 7am-1pm 1.6484 0.1286 1pm-6pm 1.2325 0.0967 6pm-7am 1.2325 0.0967
Czech Repub 7am-1pm 1.5165 0.1183 1pm-12m 1.0864 0.0851 12m-7am 1.0864 0.0851
Denmark 7am-1pm 0.5558 0.0747 1pm-6pm 0.5575 0.0697 6pm-7am 0.5552 0.065
Dom Repub 4pm-10pm 0.502 0.0854 7am-4pm 0.4897 0.08 10pm-7am 0.413 0.064
Ecuador 4pm-12m 1.2424 0.0945 7am-4pm 1.1845 0.084 12m-7am 0.97 0.067
Egypt 1pm-2am 1.0553 0.0956 2am-1pm 0.9843 0.0884 2am-7am 0.909 0.084
El Salvador 5pm-11pm 1.7670 0.1090 8am-5pm 1.4385 0.0823 11pm-8am 1.4385 0.0823
Ethiopia 1pm-2am 2.6586 0.1836 7am-1pm 2.0719 0.1423 2am-7am 2.0719 0.1423
Faeroe Isl 7am-1pm 0.5588 0.0747 1pm-6pm 0.5575 0.0697 6pm-7am 0.5552 0.065
Finland 7am-1pm 0.6409 0.0836 1pm-6pm 0.6305 0.0782 6pm-7am 0.6287 0.073
France 7am-1pm 0.5636 0.0652 1pm-6pm 0.5568 0.0626 6pm-7am 0.5256 0.0598
Gabon Repub 6am-12n 1.1892 0.1259 12n-5pm 1.3752 0.0938 5pm-6am 1.3752 0.0938
Gambia 6am-12n 2.0218 0.1397 12n-5pm 1.5251 0.1045 5pm-6am 1.5251 0.1045
Germany 7am-1pm 0.6231 0.0724 1pm-6pm 0.6090 0.0696 6pm-7am 0.6043 0.0649
Greece 7am-1pm 0.8748 0.0932 1pm-6pm 0.7297 0.0782 6pm-7am 0.6875 0.073
Guam 5pm-11pm 1.5515 0.096 10am-5pm 1.5512 0.0893 11pm-10am 1.5242 0.087
Guatemala 5pm-11pm 1.5585 0.0991 8am-5pm 1.2942 0.0748 11pm-8am 1.2942 0.0748
Haiti 4pm-10pm 1.1975 0.1272 7am-4pm 0.9189 0.0992 10pm-7am 0.9189 0.992
Honduras 5pm-11pm 1.5029 0.0722 8am-5pm 0.9821 0.0672 11pm-8am 0.907 0.064
Hong Kong 5pm-11pm 1.5248 0.0851 10am-5pm 1.4930 0.0849 11pm-10am 1.4099 0.0785
Hungary 7am-1pm 1.5165 0.1183 1pm-6pm 1.1338 0.0890 6pm-7am 1.1338 0.0890
Iceland 1pm-8pm 1.5165 0.1183 1pm-6pm 1.1338 0.0890 6pm-7am 1.1338 0.0890
India 6am-6pm 1.6156 0.1417 n/a n/a 6pm-6am 1.529 0.1262
Indonesia 5pm-2am 2.9833 0.1384 2am-11am 2.2421 0.1048 11am-5pm 2.2421 0.1048
Iran 1pm-2am 3.0592 0.1419 7am-1pm 2.3856 0.1111 2am-7am 2.3856 0.1111
Iraq 1pm-2am 2.5830 0.1944 7am-1pm 1.8377 0.1645 2am-7am 1.8377 0.1645
Ireland 7am-1pm 0.5618 0.0697 1pm-6pm 0.5559 0.068 6pm-7am 0.5283 0.065
Israel 8am-5pm 1.6037 0.0826 12m-8am 1.4726 0.0782 5pm-12m 1.4135 0.075
Italy 7am-1pm 0.77 0.0794 1pm-6pm 0.6395 0.0655 6pm-7am 0.6145 0.065
Jamaica 4pm-10pm 0.5901 0.0891 7am-4pm 0.4825 0.075 10pm-7am 0.3955 0.06
Japan 2pm-8pm 1.2780 0.0742 8pm-3am 1.2490 0.0708 3am-2pm 1.2414 0.0707
Jordan 8am-5pm 2.4765 0.1093 12m-8am 1.8519 0.0822 5pm-12m 1.8519 0.0822
Kenya 7am-5pm 2.0698 0.1430 5pm-1am 1.5614 0.1070 1am-7am 1.5614 0.1070
Korea 2pm-8pm 1.8937 0.1011 8pm-3am 1.5479 0.0860 3am-2pm 1.5392 0.0815
Kuwait 7am-5pm 1.4913 0.0791 5pm-1am 1.3817 0.0731 1am-7am 1.3065 0.069
</TABLE>
<PAGE> 18
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-2
5601 Northwest Expressway Cancels First Revised Sheet A-2
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
Dedicated
<TABLE>
<CAPTION>
Standard Rates Discount Rates Economy Rates
---------------- ---------------- ----------------
Initial Addl Initial Addl Initial Addl
20 Secs 6 Secs 30 Secs 6 Secs 30 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lebanon 8am-3pm 2.1891 0.2165 9pm-8am 1.8811 0.1856 3pm-9pm 1.8811 0.1856
Liberia 6am-12n 1.9489 0.1348 12n-5pm 1.4732 0.1004 5pm-6am 1.4732 0.1004
Liechtenstein 7am-1pm 0.6591 0.0701 1pm-6pm 0.6495 0.0690 6pm-7am 0.6082 0.0643
Luxembourg 7am-1pm 1.1195 0.0886 1pm-6pm 0.8424 0.0658 6pm-7am 0.8424 0.0658
Macedonia 1pm-12M 1.6814 0.1312 7am-1pm 1.2695 0.0996 12M-7am 1.2695 0.0996
Malawi 6am-12n 1.9043 0.1316 12n-5pm 1.4364 0.0984 5pm-6am 1.4364 0.0984
Malaysia 5pm-2am 1.8223 0.1018 2am-11am 1.6924 0.0952 11am-5pm 1.5935 0.089
Monaco 7am-1pm 0.5636 0.0652 1pm-6pm 0.5568 0.0626 0.0598 0.065
Morocco 6am-12n 2.2439 0.1631 12n-5pm 1.6959 0.1213 5pm-6am 1.6959 0.1213
Netherlands 7am-1pm 0.5747 0.0668 1pm-6pm 0.5689 0.0667 6pm-7am 0.5363 0.0637
No. Antilles 8am-5pm 0.8595 0.0866 5pm-11pm 0.6326 0.0656 11pm-8am 0.6326 0.0656
New Zealand 5pm-11pm 1.7849 0.0998 10am-5pm 1.6567 0.0935 11pm-10am 1.561 0.087
Nicaragua 5pm-11pm 2.1138 0.1162 8am-5pm 1.6488 0.0911 11pm-8am 1.6488 0.0911
Nigeria 7am-5pm 1.6180 0.1122 5pm-1am 1.2277 0.0834 1am-7am 1.2277 0.0834
Norway 7am-1pm 0.5674 0.0747 1pm-6pm 0.5575 0.0697 6pm-7am 0.5571 0.065
Pakistan 6am-6pm 1.9972 0.1474 n/a n/a 6pm-6am 1.878 0.122
Panama 5pm-11pm 1.0301 0.08 8am-5pm 0.9336 0.0672 11pm-8am 0.8975 0.064
Paraguay 8am-6pm 2.1011 0.1141 6pm-12m 1.5720 0.0864 12m-8am 1.5720 0.0864
Peru 1pm-12m 1.1845 0.0896 7am-4pm 1.177 0.084 12m-7am 0.97 0.067
Philippines 5pm-2am 1.5781 0.1066 2am-11am 1.5475 0.0935 11am-6pm 1.5241 0.085
Poland 7am-1pm 1.4540 0.1150 1pm-12m 1.1043 0.0878 12m-7am 1.1043 0.0878
Portugal 1pm-8pm 0.9011 0.0956 7am-1pm 0.7493 0.0799 8pm-7am 0.701 0.075
Qatar 7am-5pm 2.6804 0.1183 5pm-1am 2.0045 0.0890 1am-7am 2.0045 0.0890
Romania 1pm-2am 2.1407 0.1666 7am-1pm 1.6136 0.1272 2am-7am 1.6136 0.1272
Russia 1pm-2am 1.1909 0.1915 7am-1pm 0.8812 0.1476 2am-7am 0.8812 0.1476
Saipan 5pm-11pm 2.9829 0.1372 10am-5pm 2.2405 0.1040 11pm-10am 2.2405 0.1040
San Marino 7am-1pm 0.77 0.0794 1pm-6pm 0.6395 0.0655 6pm-7am 0.6145 0.065
Saudi Arabia 7am-5pm 1.4084 0.0747 5pm-1am 1.3817 0.0731 1am-7am 1.3065 0.069
Senegal 6am-12n 2.2688 0.1567 12n-5pm 1.7113 0.1172 5pm-6am 1.7113 0.1172
Sierra Leone 6am-12n 2.1508 0.2109 12n-5pm 1.5909 0.1645 5pm-6am 1.5909 0.1645
Singapore 5pm-11p 1.4413 0.0846 10am-5pm 1.3961 0.0843 11pm-10am 1.3549 0.0783
Slovakia 7am-1pm 1.5165 0.1183 1pm-12m 1.0864 0.0851 12m-7am 1.0864 0.0851
Slovenia 1pm-12m 1.6814 0.1312 7am-1pm 1.2695 0.0996 12m-7am 1.2695 0.0996
South Africa 6am-12n 1.3588 0.0954 12n-5pm 1.0313 0.0709 5pm-6am 1.0313 0.0709
St. Helena 6am-12n 2.1470 0.2721 12n-5pm 1.5308 0.2165 5pm-6am 1.5308 0.2165
Spain 7am-1pm 0.7445 0.0792 1pm-6pm 0.6562 0.0697 6pm-7am 0.6145 0.065
Suriname 8am-6pm 2.4147 0.1317 6pm-12m 1.8033 0.0998 12m-8am 1.8033 0.0998
Sweden 7am-1pm 0.5422 0.0665 1pm-6pm 0.5329 0.0649 6pm-7am 0.5189 0.0617
Switzerland 7am-1pm 1.6594 0.0701 1pm-6pm 0.6495 0.0690 6pm-7am 0.6082 0.0643
Syria 1pm-2am 1.9762 0.2305 7am-1pm 1.6956 0.1973 2am-7am 1.6956 0.1976
Taiwan 5pm-11pm 1.5233 0.0942 10am-5pm 1.5159 0.0884 11pm-10am 1.5097 0.0848
Thailand 5pm-2am 2.0248 0.1131 2am-11am 1.6924 0.0952 11am-5pm 1.5935 0.089
Trinidad 4pm-10pm 0.9852 0.1067 7am-4pm 0.7318 0.0806 10pm-7am 0.7318 0.0806
Tunisian 6am-12n 2.0698 0.1430 12n-5pm 1.5614 0.1070 5pm-6am 1.5614 0.1070
Turkey 7am-1pm 1.4441 0.1201 1pm-6pm 1.0799 0.0904 6pm-7am 1.0799 0.0904
United A 8am-3pm 1.4913 0.0791 9pm-8am 1.3817 0.0731 3pm-9pm 1.3065 0.069
United K 7am-1pm 0.4446 0.0590 1pm-6pm 0.4303 0.0577 6pm-7am 0.4149 0.0563
Uruguay 4pm-12m 2.0653 0.1111 7am-4pm 1.5308 0.0843 12m -7am 1.5308 0.0843
Vatican 7am-1pm 0.77 0.0794 1pm-6pm 0.6395 0.0655 6pm-7am 0.6145 0.065
Venezuela 8am-6pm 0.8377 0.0626 6pm-12m 0.8342 0.0595 12m-8am 0.8055 0.056
Vietnam 5pm-2am 1.8497 0.2186 2am-11am 1.7473 0.1980 11am-5pm 1.7473 0.1980
Yemen 8am-3pm 2.9136 0.1286 9pm-8am 2.1787 0.0967 3pm-9pm 2.1787 0.0967
Yugoslavia 1pm-12m 1.6814 0.1312 7am-1pm 1.2695 0.0996 12m-7am 1.2695 0.0996
Zambia 6am-12n 1.9773 0.1368 12n-5pm 1.4947 0.1019 5pm-6am 1.4947 0.1019
</TABLE>
<TABLE>
<CAPTION>
Standard Rates Discount Rates Economy Rates
---------------- ---------------- ----------------
Initial Addl Initial Addl Initial Addl
18 Secs 6 Secs 18 Secs 6 Secs 18 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Albania* 7am-1pm 2.4817 0.2281 1pm-7am 2.0131 0.2208 n/a n/a n/a
Angola* 6am-12n 1.7569 0.3398 12n-6am 1.6582 0.3034 n/a n/a n/a
</TABLE>
<PAGE> 19
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-3
5601 Northwest Expressway Cancels First Revised Sheet A-3
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
<TABLE>
<CAPTION>
Standard Rates Discount Rates Economy Rates
------------------ ------------------ -----------------
Initial Addtl Initial Addtl Initial Addtl
18 Secs 6 Secs 18 Secs 6 Secs 18 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Anguall* 4pm-10p 0.8834 0.1142 10pm-4p 0.6494 0.0877 n/a n/a n/a
Antaru* 5pm-11p 2.7928 0.3491 11pm-5p 2.4936 0.3117 n/a n/a n/a
Antaru* 5pm-11p 2.1351 0.2338 11pm-3p 1.7923 0.2026 n/a n/a n/a
Armecus* 1pm-2am 1.4385 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Asocost* 6am-12n 2.1303 0.1735 12n-6pm 1.6272 0.1329 n/a n/a n/a
Azerbar* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Bolarus* 1pm-2pm 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Belize* 5pm-11p 1.9686 0.1253 11pm-5p 1.4817 0.0957 n/a n/a n/a
Benin* 6am-12n 1.8188 0.1491 12n-6am 1.3772 0.1127 n/a n/a n/a
Bhutma* 6pm-6am 2.3455 0.3662 6am-6pm 1.7741 0.3143 n/a n/a n/a
Botswana* 6am-12n 1.8188 0.1491 12n-6am 1.3772 0.1127 n/a n/a n/a
British* 8am-5pm 0.8317 0.1075 5pm-8am 0.6115 0.0826 n/a n/a n/a
Bruson* 5pm-11p 3.0521 0.1584 11pm-5p 2.2957 0.1210 n/a n/a n/a
Burkina* 6am-12n 1.5590 0.2634 12n-6am 1.1528 0.2146 n/a n/a n/a
Burma* 5pm-11p 4.5591 0.3491 11pm-5p 4.2599 0.3317 n/a n/a n/a
Burundi* 6am-12n 1.6894 0.3346 12n-6am 1.5907 0.2982 n/a n/a n/a
Camesco* 6am-12n 1.7377 0.1429 12n-6am 1.3200 0.1075 n/a n/a n/a
Cape Vo* 6am-12n 1.2297 0.2333 12n-6am 0.9408 0.1751 n/a n/a n/a
Central* 6am-12n 1.6219 0.3294 12n-6am 1.5232 0.2930 n/a n/a n/a
Chad* 6am-12n 1.7569 0.3398 12n-6am 1.6582 0.3034 n/a n/a n/a
Christin* 5pm-11p 2.7928 0.3491 6pm-11p 2.0936 0.3117 n/a n/a n/a
Comoros* 6am-12n 1.7569 0.3398 12n-6am 1.6582 0.3034 n/a n/a n/a
Congo* 6am-12n 1.5694 0.2842 12n-6am 1.4551 0.2426 n/a n/a n/a
Cook Is* 6pm-11p 2.7092 0.3455 11pm-5p 2.2313 0.3247 n/a n/a n/a
Diego G* 6am-6pm 2.1351 0.2338 6pm-6am 1.6281 0.1756 n/a n/a n/a
Djiocut* 6am-12n 1.4665 0.2603 12n-6am 1.0229 0.2094 n/a n/a n/a
Equator* 6am-12n 1.6219 0.3294 12n-6am 1.5232 0.2930 n/a n/a n/a
Estona* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Falkland* 8am-6pm 1.6389 0.2795 6pm-8am 1.1273 0.2234 n/a n/a n/a
Fiji Is* 5pm-2am 3.2343 0.1677 2am-5pm 2.3414 0.1233 n/a n/a n/a
Fr Anai* 8am-5pm 0.8847 0.1148 5pm-8am 0.6582 0.0878 n/a n/a n/a
Fr Guin* 8am-6pm 1.9081 0.1200 6pm-8am 1.4291 0.0290 n/a n/a n/a
Fr Poly* 5pm-11p 2.9908 0.1553 11pm-5p 2.2479 0.1190 n/a n/a n/a
Georgia* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Gharna* 6am-12n 1.6806 0.1688 12n-6am 1.3099 0.1336 n/a n/a n/a
Gibralt* 7am-1pm 1.3814 0.1314 1pm-7am 1.0385 0.1003 n/a n/a n/a
Greenland* 7am-1pm 1.4219 0.1346 1pm-7am 1.0655 0.1023 n/a n/a n/a
Grenada* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
Guadelo* 8am-5pm 0.8847 0.1148 5pm-8am 0.6582 0.0878 n/a n/a n/a
Guardian* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
Guin Re* 6am-12n 1.2297 0.2333 12n-6am 0.9408 0.1751 n/a n/a n/a
Guin Bi* 6am-12n 1.7569 0.3398 12n-6am 1.6582 0.3034 n/a n/a n/a
Guyana* 8am-6pm 2.1897 0.1377 6pm-8am 1.6359 0.1055 n/a n/a n/a
</TABLE>
Printed in the U.S.A.
<PAGE> 20
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-4
5601 Northwest Expressway Cancels First Revised Sheet A-4
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
<TABLE>
<CAPTION>
Standard Rates Discount Rates Economy Rates
------------------ ------------------ -----------------
Initial Addtl Initial Addtl Initial Addtl
18 Secs 6 Secs 18 Secs 6 Secs 18 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ivory C.* 6am-12n 2.1015 0.1819 12n-6am 1.5909 0.1375 n/a n/a n/a
Karakha* 1pm-2am 0.9788 0.2334 8am-1pm 0.7491 0.2003 n/a n/a n/a
Kiribat* 5pm-11p 2.7175 0.2062 11pm-5p 1.9538 0.1699 n/a n/a n/a
Kyrgyan* 1pm-2am 0.9788 0.2334 8am-1pm 0.7491 0.2003 n/a n/a n/a
Laos* 5pm-11p 3.0630 0.3491 11pm-5p 2.8780 0.3117 n/a n/a n/a
Latvia* 1pm-2am 0.9788 0.2334 8am-1pm 0.7491 0.2003 n/a n/a n/a
Losotho* 7am-5pm 1.7377 0.1429 5pm-7am 1.3200 0.1075 n/a n/a n/a
Libyan* 6am-12n 2.0369 0.1768 12n-6am 1.5471 0.1330 n/a n/a n/a
Lithuan* 1pm-2am 0.9788 0.2334 8am-1pm 0.7491 0.2003 n/a n/a n/a
Macro* 5pm-2am 3.3520 0.1731 8am-5pm 2.5152 0.1330 n/a n/a n/a
Madagna* 6am-12n 1.9431 0.3376 12n-6am 1.8252 0.3018 n/a n/a n/a
Maldive* 6pm-1am 2.6697 0.2925 1am-6pm 2.2416 0.2208 n/a n/a n/a
Mali Re* 6am-12n 1.1621 0.2488 12n-6am 0.9855 0.2073 n/a n/a n/a
Malta* 7am-1pm 1.4224 0.1427 1pm-7am 1.1073 0.1126 n/a n/a n/a
Marshal* 5pm-11p 3.0521 0.1584 11pm-5p 2.2957 0.1210 n/a n/a n/a
Maurita* 6am-12n 1.8988 0.2520 12n-6am 1.1793 0.2104 n/a n/a n/a
Mauriti* 6am-12n 1.6525 0.2842 12n-6am 1.1413 0.2281 n/a n/a n/a
Mayouts* 6am-12n 1.6110 0.2946 12n-6am 1.5175 0.2364 n/a n/a n/a
Microos* 5pm-11p 2.0521 0.1584 11p-5p 2.2957 0.1210 n/a n/a n/a
Moldovia* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Mongoli* 5pm-11p 2.7928 0.3491 11pm-5p 2.4936 0.3117 n/a n/a n/a
Montsor* 4pm-10p 0.8847 0.1148 10pm-4p 0.455 0.091 n/a n/a n/a
Morambi* 6am-12n 1.6525 0.2842 12n-6am 1.2785 0.2530 n/a n/a n/a
Namibia* 6am-12n 1.5449 0.1352 12n-6am 1.1795 0.1017 n/a n/a n/a
Nauru* 5pm-11p 2.5222 0.2312 11pm-5p 1.8489 0.2146 n/a n/a n/a
Nepal* 6am-6pm 3.1539 0.2166 6pm-6am 2.1814 0.1314 n/a n/a n/a
Nevia* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
New Cal* 5pm-11p 3.0521 0.1584 11pm-5p 2.2957 0.1210 n/a n/a n/a
Nicarag* 5pm-11p 1.9172 0.1222 11pm-5p 1.4975 0.0967 n/a n/a n/a
Nigor R* 6am-12n 1.2297 0.2333 12n-6am 0.9408 0.1751 n/a n/a n/a
Nius* 5pm-11p 2.7430 0.3429 11pm-5p 2.4437 0.3055 n/a n/a n/a
Norfolk* 5pm-11p 2.7430 0.3429 11pm-5p 2.4437 0.3055 n/a n/a n/a
Oman* 8am-3pm 2.6998 0.1346 3pm-6am 2.0214 0.1023 n/a n/a n/a
Palms* 5pm-11p 1.8712 0.2462 11pm-5p 1.8567 0.2068 n/a n/a n/a
Papua N* 5pm-11p 2.9908 0.1553 11pm-5p 2.2479 0.1190 n/a n/a n/a
Reumon* 6am-12n 1.4665 0.2603 12n-6am 1.0229 0.2094 n/a n/a n/a
Romania* 1pm-2am 1.8431 0.1730 8am-1pm 1.3896 0.1332 n/a n/a n/a
Rwanda* 6am-12n 1.6525 0.2842 12a-6am 1.1413 0.2281 n/a n/a n/a
Sao Tom* 6am-12n 1.6219 0.3294 12n-6am 1.5232 0.2930 n/a n/a n/a
Seychel* 6am-12n 3.0905 0.2925 12n-6am 2.2126 0.2353 n/a n/a n/a
Solomon* 5pm-11p 2.4359 0.2509 11pm-5p 2.5061 0.2146 n/a n/a n/a
Sri Lanka* 6am-6pm 3.1539 0.2166 6pm-6am 2.1814 0.1314 n/a n/a n/a
St. Kit* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
St. Luc* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
St. Poi* 4pm-10p 0.8317 0.1075 10pm-4p 0.6115 0.0826 n/a n/a n/a
St. Vin* 4pm-10p 0.8847 0.1148 10pm-4p 0.6582 0.0878 n/a n/a n/a
Swazili* 6am-12n 1.7377 0.1429 12n-6am 1.3200 0.1075 n/a n/a n/a
</TABLE>
Printed in the U.S.A.
<PAGE> 21
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-4.1
5601 Northwest Expressway Cancels Original Sheet A-4.1
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
<TABLE>
<CAPTION>
Dedicated
Standard Rates Discount Rates Economy Rates
------------------ ------------------ -----------------
Initial Addtl Initial Addtl Initial Addtl
18 Secs 6 Secs 18 Secs 6 Secs 18 Secs 6 Secs
Country Time or Frac or Frac Time or Frac or Frac Time or Frac or Frac
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tajikia* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.3003 n/a n/a n/a
Ta______* 1pm-2am 1.8101 0.1483 2am-1pm 1.3570 0.1120 n/a n/a n/a
Togo * 6am-12n 1.8548 0.1520 12n-6am 1.3416 0.1171 n/a n/a n/a
Tonga i* 5pm-2am 2.7102 0.2073 2am-5pm 1.9466 0.1709 n/a n/a n/a
Turkmen* 1pm-2am 0.9783 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Turks &* 8am-5pm 0.8317 0.1075 5pm-1am 0.6115 0.0826 n/a n/a n/a
Tuvalu * 5pm-11pm 2.7928 0.3491 11pm-5p 2.4936 0.3117 n/a n/a n/a
Uganda* 1pm-2am 1.7377 0.1429 2am-1pm 1.3200 0.1075 n/a n/a n/a
Ukrains* 1pm-2am 0.9783 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Uzbekis* 1pm-2am 0.9788 0.2334 2am-1pm 0.7491 0.2003 n/a n/a n/a
Vanazu* 5pm-11p 2.7430 0.3429 11pm-5p 2.4437 0.3055 n/a n/a n/a
Wallis* 5pm-11p 2.6339 0.2961 11pm-5p 2.3346 0.2857 n/a n/a n/a
Western* 5pm-11p 2.6739 0.2125 11pm-5p 1.8229 0.1886 n/a n/a n/a
Zaire* 5am-12n 1.8188 0.1491 12n-6am 1.3772 0.1127 n/a n/a n/a
Zimbabu* 6am-12n 1.7377 0.1429 12n-6am 1.3200 0.1075 n/a n/a n/a
</TABLE>
Printed in the U.S.A.
<PAGE> 22
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-5
5601 Northwest Expressway Cancels Original Sheet A-5
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
All information on this sheet has been deleted.
Printed in the U.S.A.
<PAGE> 23
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-6
5601 Northwest Expressway Cancels Original Sheet A-6
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
All information on this sheet has been deleted.
Printed in the U.S.A.
<PAGE> 24
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-7
5601 Northwest Expressway Cancels Original Sheet A-7
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
All information on this sheet has been deleted.
Printed in the U.S.A.
<PAGE> 25
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-8
5601 Northwest Expressway Cancels Original Sheet A-8
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
All information on this sheet has been deleted.
Printed in the U.S.A.
<PAGE> 26
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-9
5601 Northwest Expressway Cancels First Revised Sheet A-9
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
Attachment A - Plan A Canada Rate Schedules
Dedicated Outbound & Switched Outbound*
Standard Discount Economy
Initial Each Addl Initial Each Addl Initial Each Addl
30 secs 6 secs 30 secs 6 secs 30 secs 6 secs
Mileage or Fract or Fract or Fract or Fract or Fract or Fract
0-18 0.1343 0.0109 0.0929 .0073 0.0902 0.0067
19-80 0.1621 0.0187 0.1252 .0138 0.1093 0.0124
81-140 0.1732 0.0229 0.1373 .0178 0.1282 0.0162
141-220 0.1895 0.0235 0.1493 .0186 0.133 0.0171
221-345 0.2008 0.0294 0.1608 .0235 0.1412 0.0209
346-630 0.2091 0.0327 0.1611 .0245 0.1473 0.0238
631-1200 0.2221 0.0379 0.165 .0284 0.1568 0.0276
1201-1610 0.232 0.0407 0.1764 .0307 0.1663 0.0295
1611-4000 0.253 0.0412 0.2071 .0322 0.1948 0.0314
4001-4300 0.2882 0.0472 0.2358 .0346 0.2079 0.0344
4301 + 0.295 0.0503 0.2517 .0380 0.221 0.0374
*In addition to the Switched Outbound rates for Canada, a charge of $.004 per 6
second inconvenience applies.
Canada
Dedicated Inbound
Standard Discount Economy
Initial Each Addl Initial Each Addl Initial Each Addl
30 secs 6 secs 30 secs 6 secs 30 secs 6 secs
Mileage or Fract or Fract or Fract or Fract or Fract or Fract
0-250 0.1875 0.0375 0.1596 .0319 0.1221 0.0244
251-500 0.2559 0.0512 0.2229 .0446 0.1708 0.0342
501-1100 0.2789 0.0558 0.2438 .0488 0.1875 0.0375
1101-9999 0.2945 0.0589 0.2561 .0513 0.1958 0.0392
Canada
Switched Inbound*
Standard Discount Economy
Initial Each Addl Initial Each Addl Initial Each Addl
30 secs 6 secs 30 secs 6 secs 30 secs 6 secs
Mileage or Fract or Fract or Fract or Fract or Fract or Fract
0-250 0.1873 0.0375 0.143 .0286 0.1176 0.0235
251-500 0.2675 0.0535 0.1979 .0396 0.165 0.033
501-1100 0.2996 0.0599 0.2247 .0449 0.1815 0.0363
1101-9999 0.2996 0.0599 0.2247 .0449 0.1815 0.0363
*In addition to the Switched Outbound rates for Canada, a charge of $.004 per 6
second inconvenience applies.
Printed in the U.S.A.
<PAGE> 27
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-10
5601 Northwest Expressway Cancels First Revised Sheet A-10
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
Attachment A - Plan A Mexico Rate Schedules
------------------------------------------
Dedicated inbound and outbound Access
Standard Economy
Mon-Fri Sunday Mon-Fri
Sunday Sat All/
------- ------------------- --------
7A-7p 5P-Mid 7P-7A Mid-5P
Initial Each Add Initial Each Add
30 Secs 6 Secs 30 Secs 6 Secs
Mileage Or Frac or Fract or Fract or Fract
- ------- ------- -------- -------- --------
0-10 0.1138 0.0062 0.0993 .0054
11-22 0.1241 0.0083 0.1083 .0072
23-55 0.1862 0.0098 0.1624 .0085
56-124 0.2156 0.0118 0.1881 .0103
125-292 0.2842 0.0138 0.248 .0120
293-430 0.3136 0.0157 0.2736 .0137
431-925 0.3234 0.0177 0.2822 .0154
926-1910 0.3332 0.0196 0.2907 .0171
1911-3000 0.343 0.0216 0.2993 .0188
3001 + 0.3572 0.0306 0.3105 .0205
These calls are to a point of connection at the U.S.-Mexico international
boundary from a U.S. location or from a point of connection at the U.S.-Mexico
international boundary to a U.S. location.
Dedicated outbound & Switched outbound Access*
Standard Economy
Rate Table First Min Addl Min First Min Addl Min
- ---------- --------- -------- -------- --------
1 0.16 0.16 0.1 .1
2 0.21 0.21 0.14 .14
3 0.38 0.38 0.25 .25
4 0.45 0.45 0.3 .3
5 0.64 0.64 0.42 .42
6 0.83 0.83 0.55 .55
7 1.11 1.11 0.75 .75
8 1.18 1.18 0.8 .8
*The portion of the Mexico call from the boundary to a city in Mexico. Check
list of the city and its corresponding rate table.
*In addition to the charges above, a charge of $.004 per 6 sec increment applies
Printed in the U.S.A.
<PAGE> 28
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst Second Revised Sheet A-11
5601 Northwest Expressway Cancels First Revised Sheet A-11
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
Switched inbound and outbound Access*
Standard Economy
Mon-Fri Sunday Mon-Fri Sat All/
Sunday
7A-7p 5P-Mid 7p-7A Mid-5P
Initial Each Add Initial Each Add
30 Secs 6 Secs 30 Secs 6 Secs
Mileage or Frac or Fract or Fract or Fract
- ------- ------- -------- -------- --------
0-10 .1138 0.0062 0.0993 0.0054
11-22 .1241 0.0083 0.1083 0.0072
23-55 .1862 0.0098 0.1624 0.0085
56-124 .2156 0.0118 0.1881 0.0103
125-292 .2842 0.0138 0.248 0.012
293-430 .3136 0.0157 0.2736 0.0137
431-925 .3234 0.0177 0.2822 0.0154
926-1910 .3332 0.0196 0.2907 0.0171
1911-3000 .3430 0.0216 0.2993 0.0188
3001 + .3572 0.0306 0.3105 0.0205
These calls are to a point of connection at the U.S.-Mexico international
boundary from a U.S. location or from a point of connection at the U.S.-Mexico
international boundary to a U.S. location.
*In addition to the charges above, a charge of $.004 per 6 sec increment applies
Printed in the U.S.A.
<PAGE> 29
HERTZ TECHNOLOGIES, INC. FCC TARIFF NO. 2
Rebecca L. Reed, Tariff Analyst First Revised Sheet A-12
5601 Northwest Expressway Cancels Original Sheet A-12
Oklahoma City, OK 73132
Issued: August 24, 1994 Effective: August 27, 1994
Dedicated Inbound and Switched Inbound Mexico Portion
The standard period is 7:00 am to, but not including, 7:00 pm on Monday
through Friday and 5:00 pm Sunday to, but not including, 12:00 am Monday. The
economy period is 7:00 pm to, but not including, 7:00 am on Monday through
Friday, 7:00 pm Friday to, but not including, 5:00 pm Sunday, and 12:00 am
Monday to, but not including, 7:00 am Monday.
<TABLE>
<CAPTION>
Standard Economy
---------------------------------------------------------------------------------------
Initial 30 Seconds Each Addl 6 Initial 30 Seconds Each Addl 6
Rate Area A or Fraction Seconds or Fraction or Fraction Seconds or Fraction
- ---------------- ------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
M1 .2833 .0567 .2250 .0450
M2 .3000 .0600 .2333 .0467
M3 .5500 .1100 .4333 .0867
M4 .7667 .1533 .6083 .1217
Rate Area B
M1 .2917 .0583 .2333 .0467
M2 .2167 .0433 .1667 .0333
M3 .6083 .1217 .4833 .0967
M4 .7917 .1583 .6250 .1250
Rate Area C
M1 .3000 .0600 .2333 .0467
M2 .3083 .0617 .2417 .0483
M3 .6250 .1250 .4917 .0983
M4 .8167 .1633 .6500 .1300
Rate Area D
M1 .3083 .0617 .2417 .0483
M2 .3167 .0633 .2500 .0500
M3 .6333 .1267 .5000 .1000
M4 .8250 .1650 .6500 .1300
Rate Area E
M1 .4333 .0867 .3417 .0683
M2 .4333 .0867 .3417 .0683
M3 .6333 .1267 .5000 .1000
M4 .8250 .1650 .6500 .1300
</TABLE>
Printed in the U.S.A.
<PAGE> 30
AMENDMENT NO. 1 TO
HERTZ TECHNOLOGIES, INC.
MARKETING AGREEMENT
This Amendment No. 1 dated July 7, 1995, to the Marketing Agreement
dated July 7, 1995 ("the Marketing Agreement") is entered into between Hertz
Technologies, ("Hertz") and Consortium 2000 ("Consultant").
WHEREAS, under the Marketing Agreement, Hertz appointed Consultant a
nonexclusive representative to promote and market Hertz telecommunications
services;
WHEREAS, Hertz agreed to pay Consultant a commission for customer orders
accepted by Hertz in accordance with Schedule B of the Marketing Agreement;
WHEREAS, Hertz is offering a new service, the Hertz Travel Card, as a
presubscribed service of the Hertz Technologies Network;
WHEREAS, the Hertz Travel Card offers long distance calling and access
to enhanced services; and
WHEREAS, Consultant wishes to be appointed as a nonexclusive
representative of Hertz to market and promote the Hertz Travel Card.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows;
1. Hertz hereby appoints Consultant as a nonexclusive representative
to promote and market the Hertz Travel Card.
2. (a) Consultant may market the Hertz Travel Card for long distance
calling at the rates specified in Hertz' Tariff(s) on file with the Federal
Communications Commission and in applicable state tariffs. Rates are subject
to change in the applicable Hertz Technologies, Inc. Tariff(s). Consultant may
also market enhanced services for the Hertz Travel Card (e.g., voice mail and
facsimile transmissions) at the rates currently in effect for those services.
Consultant is responsible that rates quoted are accurate and current.
(b) Hertz shall pay Consultant a commission for customer orders for
the Hertz Travel Card which Hertz, in its sole discretion, accepts in writing.
Commissions will be paid on minutes of use (international, interstate,
intrastate) of the Hertz Travel Card and the rate of eight percent (8%) of the
dollar billed to the Customer. Commissions will not be paid on charges for
enhanced services.
<PAGE> 31
-2-
(c) Commissions to Consultant shall be paid within thirty (30) days
of Hertz' invoice to Customer. With each commission, Hertz will provide
Consultant a statement summarizing the computation of the commissions. All
commission payments will be final and binding upon the Consultant unless
written objection thereto is delivered to Hertz within sixty (60) days of
Consultant's receipt of payment.
3. the Hertz Travel Card will be provided only in jurisdictions in
which Hertz has obtained the necessary certification from the appropriate
governmental authority to offer such service.
4. Except as herein above provided, the Marketing Agreement is, in all
respects, ratified and confirmed, and all of the terms, provisions and
conditions thereof shall remain in full force and effect.
5. The signatories below warrant and represent that they are
authorized to sign on behalf of the parties to the Marketing Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to
Marketing Agreement as of the date first above written.
HERTZ TECHNOLOGIES, INC.
By: /s/ LARRY W. JORDAN
------------------------------
Larry W. Jordan
Title: Director
Date: 8-3-95
---------------------------
CONSORTIUM 2000
By: /s/ JERRY DACKERMAN
------------------------------
Jerry Dackerman
Title: Pres/CEO
---------------------------
Date: July 18, 1995
---------------------------
<PAGE> 32
AMENDMENT NO. 2 TO
HERTZ TECHNOLOGIES, INC.
MARKETING AGREEMENT
This Amendment No. 2 dated July 7, 1995, to Marketing Agreement dated
July 7, 1995, ("the Marketing Agreement") is entered into between Hertz
Technologies, Inc. ("Hertz") and Consortium 2000 ("Consultant").
WHEREAS, under the Marketing Agreement, Hertz appointed Consultant a
nonexclusive representative to promote and market Hertz telecommunications
services;
WHEREAS, Hertz agreed to pay Consultant a commission for customer orders
accepted by Hertz in accordance with Schedule B of the Marketing Agreement;
WHEREAS, Hertz is offering new products, Option "O", Option "P" and
Option "S47", as presubscribed services of the Hertz Technologies Network;
WHEREAS, Option "O", Option "P" and Option "S47" offer long distance
calling; and
WHEREAS, Consultant wishes to be appointed as a nonexclusive
representative of Hertz to market and promote Option "O", Option "P" and Option
"S47".
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows;
1. Hertz hereby appoints Consultant as a nonexclusive
representative to promote and market Option "O", Option "P" and Option "S47".
2. (a) Consultant may market Option "O", Option "P" and Option
"S47" for long distance calling at the rates specified in Hertz' tariff(s) on
file with the Federal Communications Commission and in applicable state tariffs.
Rates are subject to change in the applicable Hertz Technologies, Inc.
tariff(s). Consultant is responsible that rates quoted are accurate and current,
and shall indemnify and hold Hertz harmless from any claims, actions, or damages
arising from incorrect rate quotes.
(b) Hertz shall pay Consultant a commission for customer
orders for Option "O", Option "P" and Option "S47" which Hertz, in its sole
discretion, accepts in writing. Commissions will be based on minutes of use and
will be determined as set forth in Exhibit A to this Amendment. The Commission
rate will be based only in accordance with Exhibit A. No other commissions or
compensation will be paid for Option "O", Option "P" or Option "S47". The
commissions set forth in Schedule B of the Marketing Agreement are not
applicable to Option "O", Option "P" or Option "S47".
<PAGE> 33
-2-
(c) Commissions to Consultant shall be paid within thirty
(30) days of Hertz' invoice to Customer. If an invoice remains unpaid for 90
days, Hertz may terminate commission to Consultant until customer pays all
outstanding balances. With each commission payment, Hertz will provide
Consultant a statement summarizing the computation of the commissions. All
commission payments will be final and binding upon the Consultant unless written
objection thereto is delivered to Hertz within thirty (30) days of Consultant's
receipt of payment.
3. Option "O", Option "P" and Option "S47" will be provided only in
jurisdictions in which Hertz has obtained the necessary certification from the
appropriate governmental authority to offer such services.
4. Except as herein above provided, the Marketing Agreement is, in
all respects, ratified and confirmed, and all of the terms, provisions and
conditions thereof shall remain in full force and effect.
5. The signatories below warrant and represent that they are
authorized to sign on behalf of the parties to the Marketing Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to
Marketing Agreement as of the date first above written.
HERTZ TECHNOLOGIES, INC.
By: /s/ LARRY W. JORDAN
----------------------------------
Larry W. Jordan
Title: Director - Business Development
Date: 8-3-95
---------------------------------
CONSORTIUM 2000
By: /s/ JERRY DACKERMAN
----------------------------------
Jerry Dackerman
Title: Pres/CEO
-------------------------------
Date: July 18, 1995
--------------------------------
<PAGE> 34
EXHIBIT A TO
AMENDMENT NO. 4 TO
HERTZ TECHNOLOGIES, INC.
MARKETING AGREEMENT
Option "O"
- ----------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Month-to-Month 12 Month Term 12 Month Term 12 Month Term
/Mo Min /Mo Min /Mo Min /Mo Min
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Switched Interstate
Dedicated Interstate
Intrastate - Level I
Intrastate - Level II
International
- ----------------------------------------------------------------------------------------------
</TABLE>
Option "P"
- ----------
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Month-to-Month 12 Month Term
/Mo Min /Mo Min
- ----------------------------------------------------------
<S> <C> <C>
Switched Interstate
Dedicated Interstate
Intrastate
International
- ----------------------------------------------------------
</TABLE>
Option "S47"
- ------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
12 Month Term 24 Month Term 36 Month Term
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interstate Level I
Interstate Level II
Interstate Level III
Intrastate
International
- ----------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.55
DISTRIBUTOR PROGRAM AGREEMENT
It is agreed on this _________________ day of __________, 19______ by
and between LCI International Telecom Corp. herein after ("LCI"), a Delaware
Corporation with its principal place of business at 4650 Lakehurst Court,
Dublin, Ohio 43017 and Consortium 2000, Inc. ________ hereinafter
(Representative") whose address is 6167 Bristol Parkway, Suite 300 Culver City,
California 90230
1. Services LCI appoints Representative as a non-exclusive representative
in the territory set forth in Exhibit A to promote the sale of and
solicit orders for the services defined in Exhibit A ("Services"), all
subject to the terms and conditions of this Agreement. LCI reserves
the right to add to or delete from the Services as may be required
from time to time. Such additions or deletions will be specified in
writing by LCI. Tariffs relating to the Services may be changed by
LCI at its sole discretion.
2. Commission - During the term of this Agreement Representative shall
receive a commission, as defined in Exhibit's B and C (attached), on
"Collected Revenue" for new accounts referred to LCI (excluding
existing LCI account conversions). "Collected Revenue" is defined as
interexchange toll and line charges actually collected by LCI relating
to the Services sold by Representative (excluding taxes, installation
charges and local loops). Commissions set forth in Exhibit's B and C
under "Level J Commissions" shall be payable only during the term of
this Agreement provided that if this Agreement is terminated by LCI
pursuant to Section 11.A., Representative shall receive commissions
set forth in Exhibit B under "Level II Commissions" for any customer
sold by Representative for each month such customer remains with LCI
up to a maximum of twenty-four (24) months following termination of
this Agreement. LCI, at its sole option, may pay commissions based on
billed revenue, however in such event, LCI reserves the right to
compare Collected Revenue to billed revenue and chargeback
Representative the difference in commissions. The last month's
payment of commissions may be withheld by LCI for up to three (3)
months so that a final "true up" may be performed by LCI. LCI
reserves the right to set off from commissions any amount due to LCI
by Representative.
<PAGE> 2
3. Relationship - The parties agree and understand that Representative is
an independent contractor and there is no employer-employee
relationship, joint venture or agency created hereby. During the term
of this Agreement and for twenty-four (24) months following the
termination of this Agreement, Representative shall not, directly or
indirectly, convert any LCI account to any other interlata
telecommunications carrier. Representative has no authority to act
for, or on behalf of, LCI. Representative is not authorized to incur
any obligation on behalf of LCI or to bind LCI in any manner
whatsoever. Representative will not make any representations of
rates, terms or conditions of the Services that conflict with the
applicable tariffs or information provided by LCI. LCI shall incur no
obligation to employees, contractors or other parties utilized by
Representative in selling services to customers for LCI. Such
individuals shall at all times remain employees, agents or contractors
of Representative. Representative is responsible for all expenses and
obligations incurred it as a result of its efforts to solicit
customers for LCI. Representative shall be responsible for payment of
all taxes due as a result of payments made to Representative by LCI
4. Customer Service - Representative shall not provide customer service
to any customers solicited by Representative, including billing,
collections or repair service. Representative agrees to assist LCI
when, from time to time, LCI requests assistance with collections.
Customers attracted by Representative are customers of LCI and shall
remain customers of LCI after termination of this Agreement.
5. Product Literature and Marketing - LCI shall provide Representative
with quantities of LCI product literature required by Representative
to meet Representative's responsibilities under this Agreement, as
reasonably determined by LCI Representative shall not develop or use
in any other product literature other than that provided by LCI
without the written consent of LCI. LCI shall provide product training
for Representative and employees of Representative as mutually agreed
upon between Representative and LCI.
6. Order Processing, Billing and Collection - LCI shall have the sole
right to accept or reject all orders, to fix the prices of the
Services, the terms and conditions of the Service or other adjustments
and to discontinue offering or selling any service, without liability
to Representative.
7. Confidentiality All information disclosed by either party to the
other pursuant to this
-2-
<PAGE> 3
Agreement. other than such information as may be generally available
to the public or the industry, is and will be disclosed to it in
confidence solely for its use in the conduct of its business. Each
party agrees to keep such information secret and confidential
indefinitely and not to disclose it to any other person or use it
during the term of this Agreement or after its termination except in
carrying out its obligations hereunder or in response to obligations
imposed by tariff or order of a court or regulatory body.
Representative shall not disclose the terms and conditions of this
Agreement to any person or entity without the prior written consent of
LCI.
8. Representations, Warranties and Covenants Representative represents,
warrants and covenants to LCI that as of the date of this Agreement
and continuing for the term of this Agreement that:
A. Representative is a (check one):
(X) Corporation
( ) Partnership
( ) Sole Proprietorship
duly organized, validly existing and in good standing
under the laws of California with a Federal EIN of
95-4217361 and is qualified to do business in the
state of California and has full and unrestricted
power and authority to execute and perform under this
Agreement.
B. Representative has obtained all licenses, permits and
other authorizations necessary to perform its
obligations under this Agreement and shall maintain
same, as required, in full force and effect during
the term of this Agreement. Representative shall
comply with all applicable tariffs and orders of
judicial and regulatory bodies and all local, state
and federal laws.
C. Representative shall not participate in any pyramid
or multilevel marketing system in conjunction with
any person who has an agreement with LCI.
Representative shall 1) prepare and submit any sales
reports reasonably requested by LCI, 2) appoint a
single point or contact for LCI regarding all matters
pertaining to this Agreement, 3) commit no act which
would reflect unfavorably upon LCI and 4) not package
any other business activity in such
-3-
<PAGE> 4
a manner to cause customers to pay fees in excess of
tariff rates to obtain LCI services.
D. Representative shall not solicit any existing LCI
account not originally sold by Representative for
the purposes of selling, upgrading or converting such
account to LCI service. Representative shall not
solicit any existing LCI account for the purposes of
converting such LCI account to a competitor of LCI.
9. Insurance - Representative shall secure and maintain Worker's
Compensation, Comprehensive General Liability and Automobile Insurance
in sufficient amounts to comply with law and to cover its respective
obligations under this Agreement. Upon request, each party shall
furnish insurance certificates as evidence of such coverage.
10. Trademarks and Trade Names - Representative shall sell the services
under the trademarks and trade names only as approved in writing in
advance by LCI. Representative agrees to comply with any standards
for usage of such trademarks and trade names issued or to be issued by
LCI from time to time. Representative shall not use in its business
or trade or corporate name the name "LCI" or any name of a service
provided by LCI, or the LCI symbol, nor shall it use any trademark or
service mark of LCI or symbol related to LCI without the prior,
express written consent of LCI, unless advance provision to do so is
made in separate agreement between the parties.
11. Term of Agreement and Termination
A. The initial term of this agreement shall be (3) years, and the
Agreement shall be renewed thereafter automatically on a year-
to-year basis unless sooner terminated as hereinafter
provided, subject to and upon the terms and conditions herein
specified. LCI may terminate this Agreement at any time
during a renewal term upon giving the Representative 30 days
prior written notice.
B. LCI may cancel this Agreement upon written notice to
Representative in the event of:
1. Representative's failure to attain the
monthly Revenue volume commitment level
specified in Exhibit B or C.
2. Breach of any provision of this Agreement by
Representative, or if
-4-
<PAGE> 5
Representative defaults, fails to perform its
obligations or participates or engages in any
activity relating to fraud against LCI
3. Insolvency, bankruptcy, receivership or
dissolution of Representative.
4. Representative's assignment of the Agreement
without LCI's prior written consent.
5. Representative receives, directly or
indirectly, from any person or entity
associated with LCI (including but not
limited to employees of LCI or its
affiliates, but excluding LCI assigned
distributor support personnel) sales leads or
information relating to potential customers
of LCI, and actively pursues these
prospective customers.
No commission shall be payable following any termination
pursuant to this Section 11.B.
12. Indemnification - Representative shall indemnify, defend and hold LCI
(and all officers, directors, employees, agents and affiliates
thereof) harmless from and against any and all claims, demands,
actions, losses, damages, assessments, charges, liabilities, costs and
expenses (including without limitation interest, penalties, and
attorney's fees and disbursements) which may at any time be suffered
or incurred by, or be asserted against, any or all of them, directly
or indirectly, on account of or in connection with:
A) Representative's default under any provision herein, breach of
any warranty or representation herein, or failure in any way
to perform any obligation hereunder; or
B) Bodily injury of damage to property (including death) to any
person (including without limitation any employee of either
party and any third person), and any damage to or loss of use
of any property, arising our of or in any way relating to the
services or pursuant, directly or indirectly, to this
Agreement.
Representative shall hold harmless and indemnify LCI from and against
any claim, cause of action, judgment, liability or expense relating to
or arising out of the acts or omissions of Representative's employees,
contractors and agents.
-5-
<PAGE> 6
13. Cure - Either party may terminate this Agreement and preserve all
available remedies if the other party fails to perform any term,
condition or covenant of this Agreement and such failure continues for
a period of thirty (30) days after receipt of written notice of said
failure; provided however, the foregoing cure right shall not apply to
any term, condition or covenant that specifically excludes a cure
right hereunder.
14. Liability - In no event shall either party be liable for special,
indirect, incidental or consequential damages, including loss of
profits, arising from the relationship or the conduct of business
contemplated herein. Without limiting the previous sentence, in no
event shall LCI's liability in connection with this Agreement exceed
one month's average commission paid to Representative.
15. Miscellaneous - Representative shall not assign this Agreement or any
interest therein without LCI's prior written consent. The terms of
this Agreement shall be governed by and construed in accordance with
the laws of Ohio. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and assigns. Provisions of this Agreement identified by
the context to survive the termination or expiration of this Agreement
shall so survive. This Agreement (including any Exhibits hereto)
constitutes the entire Agreement between the parties hereto with
respect to the subject matter hereof, and it supersedes all prior oral
or written agreements, commitments or understandings, with respect to
the matters provided for herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LCI International Telecom Corp. Consortium 2000, Inc,
By: /s/ MARSHALL HANNO By: /s/ ILLEGIBLE
------------------------- ----------------------------
Marshall Hanno
Title: Sr. Vice President, Sales Title: EVP
-------------------------
Date:11-3-94 Date: 01-09-95
6
<PAGE> 7
EXHIBIT A
I. Representative Non-Exclusive territory shall be Continental U.S.
II. Services: America Plus. America WATS, Audio Teleconferencing, Campus
Talk, Dedicated Nationwide 800. Easyline, Integrity, Macroline,
Nationwide 800, Operator Services. Point-To-Point Products, WAL,
WorldCard, & Simply Business.
EXHIBIT B
I. Commission Schedule/Payments
A. Level I Commissions - Commissions for all Services except
Operator Services and Campus Talk shall be paid to
Representative based upon total monthly Collected Revenue as
follows:
1. of monthly Collected Revenue for a
period of twelve (12) months from the date of the
Agreement or the percentage shown in 2.2 below based
on monthly Collected Revenue, whichever is higher.
2. In the event Representative fails to meet the Monthly
Collected Revenue Thresholds in II. below anytime
during the first twelve (12) months from the date of
the Agreement, commissions will be pay at
of Monthly Collected Revenue instead of
and LCI shall have the right to charge Representative
the difference in commissions between and
from the original date of this Agreement.
2.1 In the event Representative meets all of the Monthly
Collected Revenue Thresholds in II. below, the
following commissions shall be paid to Representative
beginning the thirteenth (13th) month from the date
of this Agreement and throughout the remaining term
of this Agreement and any subsequent renewal periods,
except in the event of termination, in which event
commission in C. below shall apply.
<TABLE>
<CAPTION>
Monthly Collected Revenue Category Percentage
---------------------------------- ----------
<S> <C>
$ 0 - 199,999
200,000 - 499,999
500,000 +
</TABLE>
7
<PAGE> 8
*Note: These percentages are applied incrementally, that is
only to the Collected Revenue in the applicable
category.
2.2 In the event Representative fails to meet any one of
the Monthly Collected Revenue Thresholds in II.
below, the following commissions shall be paid to
Representative beginning the thirteenth (13th) month
from the date of this Agreement and throughout the
remaining term of this Agreement and any subsequent
renewal periods, except in the event of termination
in which event commission in C. below shall apply.
<TABLE>
<CAPTION>
Monthly Collected Revenue Category Percentage
---------------------------------- ----------
<S> <C>
0 - 49,999
50,000 - 149,999
150,000 - 249,999
250,000 - 499,999
500,000 +
</TABLE>
*Note: These percentages are applied incrementally, that is
only to the Collected Revenue in the applicable
category.
B. Commissions for Operator Services and Campus Talk shall
be of Collected Revenue and shall be allowed
at Level I commissions only.
C. Level II Commission - Commissions for all Services except
Operator Services and Campus Talk shall be paid to
Representative based upon total monthly Collected Revenue
after termination of this Agreement pursuant to Section 11.A.
of for twenty-four (24) months.
D. Commission payments for each customer bill will be paid by LCI
approximately forty-five (45) days from the end of the month
in which such bill cycle ends.
II. Revenue Volume Commitment - Representative shall generate the
following monthly Collected Revenue within the time frames indicated:
<TABLE>
<CAPTION>
Monthly Collected Revenue Thresholds Time Period from Date of Agreement
------------------------------------ ----------------------------------
<S> <C>
$ 4 Months
8 Months
12 Months
24 Months
36 Months
</TABLE>
and monthly increases of per month for each renewal term.
8
<PAGE> 9
III. Major and Commercial Accounts Restrictions: Representative shall not
sell LCI services or the services of any other provider of long
distance services offering services similar to LCI services, to LCI
Major Accounts, as designated by LCI within sixty (60) days from the
date of this Agreement and subsequently, within thirty (30) days
notice that an account has been designated a Major Account by LCI.
LCI International Telecom Corp. ("LCI") Consortium 200, Inc.
------------------------
Representative
By: /s/ MARSHALL HANNO By: /s/ ILLEGIBLE
------------------------ ------------------------
Marshall Hanno
Title: Sr. Vice President, Sales Title: EVP
Date:12-23-94 Date:12/31/94
9
<PAGE> 10
AMENDMENT NO. 1
To the Distributor Program Agreement dated January 9,1995
It is agreed on this 31st day of January, 1996, by and between LiTel
Telecommunications Corporation d/b/a LCI International, hereinafter ("LCI") and
Consortium 2000, hereinafter ("Representative") that the following changes be
made to the above referenced Distributor Program Agreement.
1. Exhibit B.II. is modified to read as follows:
Revenue volume commitment - Representative shall generate the
following monthly collected revenue within the time frames indicated:
<TABLE>
<CAPTION>
Monthly Collected Revenue Thresholds Time Period From Date of Agreement
------------------------------------ ---------------------------------
<S> <C> <C>
12 months (12/95)
18 months (6/96)
24 months (12/96)
30 months (6/97)
36 months (12/97)
</TABLE>
It is expressly understood by LCI and Representative that all terms of the
Distributor Program Agreement shall remain binding upon the parties hereto and
that no terms of this Distributor Program Agreement, except those set forth
above, are changed by this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date written below.
LCI International Telecom Corp. Consortium 2000
By: /s/ MARSHALL HANNO By: /s/ ILLEGIBLE
------------------------ -------------------------
Marshall Hanno
Title: Senior Vice President, Sales Title: EVP
Date: 1-31-96 Date:1/7/96
<PAGE> 11
AMENDMENT NO. 2
To the Distributor Program Agreement dated January 9, 1995
It is agreed on this 21st day of March, 1996, by and between LiTel
Telecommunications Corporation d/b/a LCI International, hereinafter ("LCI") and
Consortium 2000, hereinafter ("Representative") that the following changes be
made to the above referenced Distributor Program Agreement.
1. Exhibit B.II. is modified to read as follows:
Revenue volume commitment - Representative shall generate the
following monthly collected revenue within the time frames indicated:
<TABLE>
<CAPTION>
Monthly Collected Revenue Thresholds Time period From Date of Agreement
------------------------------------ ----------------------------------
<S> <C> <C>
14 months (3/96)
18 months (7/96)
24 months (1/97)
30 months (7/97)
36 months (1/98)
</TABLE>
It is expressly understood by LCI and Representative that all terms of the
Distributor Program Agreement shall remain binding upon the parties hereto and
that no terms of this Distributor Program Agreement, except those set forth
above, are changed by this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date written below.
LCI International Telecom Corp. Consortium 2000
By: /s/ MARSHALL HANNO BY: /s/ ILLEGIBLE
----------------------------- ----------------------------
Marshall Hanno
Title: Senior Vice President, Sales Title: Executive Vice President
Date: 3-26-96 Date: 3/13/96
<PAGE> 1
EXHIBIT 10.56
MARKETING SERVICES AGREEMENT
THIS MARKETING SERVICES AGREEMENT (the "Agreement") is made as of the
15th day of August, 1994, between New Enterprise Wholesale Telephone Services,
Limited Partnership, a Delaware limited partnership ("NEWTS") and Consortium
2000, Inc., a California corporation ("Contractor").
W I T N E S S E T H:
WHEREAS, NEWTS is engaged in the business of marketing certain
telecommunications services and products provided by GE Capital Communication
Services Corporation, a Georgia corporation ("GECCS") through its GE Exchange
Program (the "Program") and desires to develop and increase its residential
customer base through mass marketing promotional techniques;
WHEREAS, Contractor is engaged in the business of developing and
conducting mass marketing promotions for the acquisition of residential long
distance subscribers through point of sale contest displays and has a national
network of independent dealer/contractors to place and properly service point
of sale displays through its Millennium Telecom program; and
WHEREAS, NEWTS desires to engage Contractor to develop and conduct a
mass marketing promotion for the acquisition of residential long distance
subscribers through point of sale contest displays utilizing its Millennium
Telecom program in connection with the Program, and Contractor is willing to
undertake to perform such services for NEWTS in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other valuable consideration, the adequacy and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Services, Term and Termination
a. During the term of this Agreement, Contractor agrees to
develop and conduct a mass marketing promotion for the acquisition of
residential long distance customers through point of sale contest displays and
perform other associated services as may be agreed between the parties (the
"Services") for NEWTS in accordance with the terms and conditions contained
herein and in Exhibit A attached hereto.
<PAGE> 2
b. This Agreement shall commence on the date hereof and, unless
sooner terminated as otherwise provided herein, shall continue for a period of
one (1) year (the "Initial Term"). Following the expiration of the Initial
Term, NEWTS shall have the option to renew this Agreement for additional
successive terms of one (1) year each. NEWTS shall exercise such option by
giving written notice thereof to Contractor at least sixty (60) days before the
expiration of the then current term.
c. NEWTS shall have the right to terminate this Agreement with or
without cause at any time upon ninety (90) days' written notice to Contractor,
except that notice is not required and this Agreement shall terminate
immediately upon the occurrence of one of the following:
i. the institution of any proceeding, voluntary or
involuntary, in bankruptcy, insolvency, dissolution or liquidation by
or against Contractor, other than an involuntary proceeding which is
dismissed within sixty (60) days of filing;
ii. any assignment of Contractor's assets for the benefit
of creditors;
iii. placement of the assets of Contractor in the hands of
a trustee or receiver, unless the receivership or trust is
dissolved within sixty (60) days thereafter;
iv. any transfer of substantially all of Contractor's
business or assets to a third party; or
v. a breach by Contractor of any material provision of
this Agreement or failure by Contractor to comply with all applicable
laws and regulations in connection with the performance of the
Services, subject to Contractor's right to cure under Section 3.d.
During such ninety (90) day period, NEWTS and Contractor will continue
to fulfill their obligations hereunder, except that Contractor will not
commence new promotions for GECCS service without NEWTS' express written
authorization.
d. Upon expiration or termination of this Agreement without
cause, NEWTS' sole obligation shall be to pay commissions to Contractor on the
sales made by Contractor prior to the date of expiration or termination in
accordance with paragraph (c) of Exhibit B attached hereto; provided, however,
that in the event of termination as a result of causes listed in subparagraphs
(i) through (v) of Section 1.c. above or for other material breach of this
Agreement by Contractor (including, without limitation, Contractor's failure to
comply with any of its duties and obligations under Section 2 below), NEWTS
shall have the right to set-off against future commission payments the amount
of any damages or losses incurred by NEWTS as a result of such breach; and
provided further, however, that such future commissions shall be subject to
NEWTS' right to receive repayment of Advances (as defined in Section 4(a)
below) pursuant to Section 4(c) below. In the event that Contractor has not
repaid any such Advances
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<PAGE> 3
following the expiration of Contractor's right to receive commissions
hereunder, NEWTS shall send Contractor an invoice for the amount of such
unrepaid Advances, which Contractor shall pay to NEWTS within seven (7) days of
the date of such invoice.
e. Upon the termination of this Agreement, Contractor immediately
shall deliver to NEWTS (or, with NEWTS' permission, destroy) all reports,
memoranda and other materials provided to Contractor by NEWTS and all reports,
memoranda and other materials developed or prepared by Contractor pursuant to
the terms of this Agreement, including all LOAs and other documentation
obtained pursuant to Section 4.e. hereof, and all copies thereof.
2. Contractor's Duties and Obligations.
a. Contractor shall diligently, in a professional manner and in
good faith, perform the Services and other obligations hereunder.
Notwithstanding the foregoing, Contractor shall perform the Services to NEWTS'
reasonable satisfaction in accordance with GECCS' standards of ethics,
professionalism and integrity with respect to customer service and quality
assurance, as set forth in the guide to GE policies. Integrity: The Spirit &
Letter of Our Commitment, which may be modified by GECCS from time to time and
which NEWTS shall provide to Contractor from time to time.
b. Contractor shall not, directly or indirectly, misrepresent in
any manner the relationship between GECCS and its telecommunications carriers,
and agrees to take appropriate disciplinary action with respect to any employee
or agent of Contractor who does misrepresent such relationship.
c. Contractor will designate a Contractor representative
(currently Bruce Robin) to serve as a liaison between Contractor and NEWTS'
liaison (currently Timothy Leddy), and to whom Contractor's personnel may
address questions regarding the Services and the Program.
d. Contractor will receive and screen Letters of Agency ("LOAs"),
arrange for keypunching to electronic media and provide data processing
services to screen LOAs for duals, duplicates, invalid NPA/NXX combinations,
address errors and other readily discernible defects. Contractor will transmit
completed data files to NEWTS each week and ship physical LOA documents,
together with all accompanying order information required under Section 4(e)
below to NEWTS weekly. Upon receipt of the data file, NEWTS will check the
data file containing the orders for technical integrity and proper processing
to arrive at the count for which the Advances will be paid. In addition, at
such times during the term of this Agreement as NEWTS and Contractor mutually
agree, Contractor shall provide NEWTS with written status reports containing
information about sales status, process improvement, actions and plans, issues
requiring resolution by NEWTS and any other information related to the status
of Contractor's performance of the Services that NEWTS requests.
-3-
<PAGE> 4
e. Contractor shall provide NEWTS and its associates with
reasonable access to Contractor's management and employees and facilities
during normal business hours so that NEWTS can conduct reviews of Contractor's
operations for the purpose of monitoring Contractor's performance of the
Services hereunder and identifying areas for enhancement and/or improvement.
f. Contractor represents that it is familiar with and is
currently in compliance with all laws and regulations applicable to its
performance of the Services for NEWTS hereunder, and covenants that it will
comply with all applicable laws and regulations, including without limitation
laws and regulations governing sweepstakes, in the performance of the Services
throughout the term of this Agreement. Contractor shall indemnify and hold
NEWTS, GECCS, their respective officers, directors, agents, employees and their
successors and assigns harmless from and against all liability, loss or damages
(including attorneys' fees) arising from Contractor's failure to comply with
all applicable laws and regulations in connection with its performance of the
Services hereunder.
g. Immediately following the execution of this Agreement by both
parties, Contractor shall produce marketing materials and present them to NEWTS
for approval. NEWTS will respond to a request for approval within ten (10)
business days. Following receipt of NEWTS' approval, Contractor shall promptly
distribute the NEWTS approved marketing materials in sufficient quantities to
service its point of sale display pieces. Contractor will ensure that its
personnel at all times use current promotional and instructional materials
relating to the Program, and will not use and, in a timely manner, will dispose
of such materials which are obsolete.
h. Contractor hereby acknowledges that this Agreement and the
terms and conditions contained herein are Confidential Information (as defined
in Section 7(a) below) subject to the provisions contained in Section 7 below.
Contractor hereby agrees that it will not disclose, directly or indirectly, any
terms of this Agreement, including, without limitation, the financial terms
contained herein, to any third party (including other NEWTS agents or
representatives) without the prior written consent of NEWTS. Contractor
further agrees that it shall take appropriate disciplinary action with respect
to any of its employees or agents who makes a disclosure in violation of this
Section 2(i), which in no event shall be less than the disciplinary action that
Contractor would take for any such disclosure of its own confidential and
proprietary information.
i. Contractor shall not disseminate, by any means or media, any
materials (including, but not limited to, materials bearing the GE Exchange
name, marks or logos) in connection with the rendition of the Services that
have not been furnished or previously approved by NEWTS and GECCS. All uses by
Contractor of the GE Exchange name, marks or logos, whether on tangible
materials or in communications in connection with the rendition of the Services
hereunder, must conform to the terms of this Agreement and, where applicable,
to GE's
-4-
<PAGE> 5
Trademark & Graphic System Practices for Sales & Service Businesses, which may
be modified by General Electric Company from time to time and which NEWTS or
GECCS shall furnish to Contractor.
j. Subject to Section 2(k) hereof, NEWTS will assume full
responsibility for all billing costs, direct and indirect, for services
provided to end users by reason of orders submitted by Contractor.
k. Contractor commissions will be reduced to the extent that
billing costs exceed $0.013 times the number of minutes of billed usage in any
month. Contractor commissions will also be reduced to the extent of any end
user charges that become more than 120 days past due during the period for
which such commissions are paid, provided that Contractor will be reimbursed to
the extent such sums are subsequently paid by the end user.
l. Contractor will provide the Services described herein to NEWTS
on a nonexclusive basis until and including September 30, 1994. Beginning
October 1, 1994, Contractor will not provide residential services substantially
similar to those described herein to any other telecommunications service
provider, provided that (i) Contractor may continue to provide such services to
such service provider(s) under agreements existing as of the date of this
Agreement; (ii) Contractor may provide such services to any such service
provider in any state in which GECCS ceases to provide telecommunication
service; or (iii) Contractor may provide such services to one or more other
such service provider(s) if, during any ninety (90) day period, the average
provisioning time for orders (defined as the interval between Contractor's
submission of a clean order for service for an ANI and the cutover of that ANI
to GECCS) exceeds thirty (30) days.
m. It is understood and agreed between the parties that GECCS may
be obligated to file changes to certain of its federal and/or state tariffs,
and such changes may be required to take effect, prior to offering residential
service in the affected jurisdictions. In the event that GECCS has not
obtained the effectiveness of such changes in one or more jurisdiction(s) within
one hundred and eighty (180) days after the execution of this Agreement,
Contractor will be released from its obligation of exclusivity in such
jurisdiction(s), as described in Section 2.m hereof. NEWTS will provide
Contractor with a list of the jurisdictions within which GECCS is authorized to
provide residential service, and will update such list from time to time.
Contractor will not at any time conduct any promotion within any jurisdiction
in which GECCS is not then authorized to provide residential service, and
Contractor will not submit to GECCS any order for service to a telephone number
within such jurisdiction.
n. Contractor shall be responsible for, and bear the cost of,
duplication of all materials described in Section 3(b) hereof in quantities
sufficient to enable it to perform the Services.
-5-
<PAGE> 6
3. NEWTS' Duties and Obligations.
a. NEWTS will provide the sales Program to Contractor for sale by
Contractor through its point of sale display mass marketing promotion;
provided, however, that NEWTS hereby reserves the right to change the pricing,
offerings and terms and conditions of sale for the Program in accordance with
law, provided that NEWTS will cause GECCS not to modify its Federal
Communications Commission ("FCC") tariff for one (1) year from the date of this
Agreement without Contractor's consent in a manner that prevents customers from
being solicited by Contractor at the interstate rates set forth in Exhibit C
hereto. At any time, Contractor may recommend a change in such rates to NEWTS
or GECCS. NEWTS will provide intrastate service (subject to Section 2.a.
hereof) and international service at its regular tariffed rates.
b. During the term of this Agreement, NEWTS will provide
Contractor with faxables, including, without limitation, letters of agency
("LOAs"), rates and special promotional materials, and current promotional and
instructional materials relating to the Program. All faxables will be subject
to GECCS approval. Upon such approval, Contractor will produce such faxables
in print runs of up to one million (1,000,000). Contractor will notify GECCS
at least thirty (30) days prior to each new print run, and GECCS will make any
changes it desires to such faxables within fifteen (15) days of such
notification. GECCS may also make changes to faxables at other times for
substantial regulatory or legal reasons, and Contractor will arrange for the
prompt production of such changed faxables. In such event, Contractor will
destroy all faxables not conforming to such changes at the time such changes
are made.
c. NEWTS shall be responsible for order fulfillment with respect
to properly completed orders submitted by Contractor.
d. If NEWTS determines that Contractor has failed to perform any
of its duties or obligations under this Agreement, NEWTS shall notify
Contractor of such deficiency and provide Contractor with the opportunity to
cure such deficiency within thirty (30) days before terminating this Agreement
for cause under this Section 1(c) above.
e. NEWTS will provide Contractor with all revenue and
provisioning status reports within a reasonable time after receiving them from
the underlying carrier.
f. NEWTS represents that is familiar with and is currently in
compliance with all laws and regulations applicable to its performance of its
obligations hereunder, and covenants that it will comply with all applicable
laws and regulations in the performance of its obligations throughout the term
of this Agreement. NEWTS shall indemnify and hold Contractor, its officers,
directors, agents. employees and their successors and assigns harmless from and
against all liability, loss or damages (including attorneys' fees) arising from
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<PAGE> 7
NEWTS' failure to comply with all applicable laws and regulations in connection
with its performance of its obligations hereunder.
g. NEWTS hereby acknowledges that this Agreement and the terms
and conditions contained herein are Confidential Information (as defined in
Section 7(a) below) subject to the provisions contained in Section 7 below.
NEWTS hereby agrees that it will not disclose, directly or indirectly, any
terms of this Agreement, including, without limitation, the financial terms
contained herein, to any third party without the prior written consent of
Contractor. NEWTS further agrees that it shall take appropriate disciplinary
action with respect to any of its employees or agents who makes a disclosure in
violation of this Section 2(I), which in no event shall be less than the
disciplinary action that NEWTS would take for any such disclosure of its own
confidential and proprietary information.
4. Payments and Commissions
a. During the term of this Agreement, NEWTS shall pay Contractor
an advance (an "Advance") against commissions earned under Section 4(c) on each
sale satisfying the criteria set forth in Section 4(e) below. Each such
Advance shall equal the amount set forth in paragraph (a) of Exhibit B;
provided, however, that any Advance payable hereunder shall be subject to
Contractor's satisfaction of mutually agreed upon performance-based criteria.
Each Advance shall bear interest at a rate of two percent (2%) over the prime
rate published daily in The Wall Street Journal from the date the Advance is
paid by NEWTS until the amount of the Advance plus interest thereon has been
repaid by Contractor. NEWTS hereby reserves the right to adjust the Advance
amount set forth in paragraph (a) of Exhibit B upon thirty (30) days' written
notice to Contractor (i) in the event of customer attrition that is determined
by NEWTS to be excessive in comparison with typical residential service
attrition in the industry; provided that NEWTS will provide reasonable
substantiation for such determination upon request, or (ii) for other reasons
related to Contractor's performance of this Agreement that would have a
material adverse impact on the financial position of NEWTS, provided that NEWTS
provides evidence of such adverse impact to Contractor, or (iii) in the event
that fifteen percent (15 %) or more of the orders submitted to NEWTS hereunder
in any month are incomplete, or (iv) for other substantial reasons.
b. Contractor shall send to NEWTS a statement of the sales made
each week, in a form reasonably acceptable to NEWTS. NEWTS shall pay Advances
on each such statement in accordance with Section 4(a) above for all sales
satisfying the criteria specified in Section 4(e) below by wire transfer to
Contractor's designated bank account by 2:00 p.m. on the fifth (5th) business
day after the date on which NEWTS receives such statement.
C. For each sale to a customer for which NEWTS paid Contractor an
Advance under Section 4(a) above, Contractor shall earn a commission (the
"Actual Commission") each month that such Customer continues to be a customer
of the Program. Each such Actual Commission
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<PAGE> 8
shall equal the rate set forth in paragraph (b) of Exhibit B multiplied by the
actual monthly long distance charges billed to such customer and collected
during such month (for purposes of this Agreement "long distance charges" shall
mean the net charge to the customer for interstate, intrastate and
international calls only). NEWTS hereby reserves the right to adjust the
Actual Commission rate prospectively upon thirty (30) days' written notice to
Contractor (i) for reasons related to Contractor's performance of this
Agreement that would have a material adverse impact on the financial position
of NEWTS, provided that NEWTS provides evidence of such adverse impact to
Contractor, or (ii) for other substantial reasons.
d. The aggregate amount of all Actual Commissions earned by
Contractor in any week under Section 4(c) above shall be paid on a monthly
basis thirty (30) days after GECCS, or NEWTS on GECC's behalf, receives payment
of customers' bills for long distance charges; provided, however, that NEWTS
shall deduct from each such monthly payment, from and after the third (3rd)
complete month of this Agreement, as a repayment of Advances plus interest
thereon an amount equal to the lesser of (i) the aggregate amount of all
Advances made to such date and not theretofore repaid, or (ii) the aggregate
amount of the Actual Commissions earned during such month.
e. For purposes of this Section 4, and notwithstanding anything
contained herein to the contrary, Contractor shall be entitled to receive
Advances under Section 4(a) and Actual Commissions only on sales for which it
has obtained the following information, properly completed: enrollment form
(LOA), order form and, if applicable, the following (which Contractor shall
obtain from each customer within forty-eight (48) hours after receipt of such
customer's LOA): RESPORG form, coordinated order form, term contract, federal
excise tax exemption form, state tax exemption form and such other forms as may
be required by the FCC, the long distance carrier and federal or state law.
Contractor will submit such orders to NEWTS in such electronic or other form as
the parties mutually agree. NEWTS may, in its discretion, adjust the foregoing
order provisioning requirements to facilitate new technology and procedures,
including a distributed order entry process and third party verification, and
shall provide Contractor with advance written notice of any such adjustments.
In the event NEWTS implements a distributed order entry process which requires
Contractor to perform additional administrative duties with respect to orders
received from customers, NEWTS shall pay Contractor an additional two dollars
and fifty cents ($2.50) for each sale for which Contractor receives an Advance
processed by Contractor during the initial eight month period commencing on the
date NEWTS implements such process with Contractor. Each LOA received by
Contractor hereunder for each new customer shall be recorded as a sale. LOAs
and associated order information that are rejected by NEWTS for lack of
creditworthiness before being provisioned by the long distance carrier will not
be credited for sale or commission. In the event that NEWTS rejects any LOA
and associated order information as incomplete, Contractor shall correct such
order within seventy-two (72) hours of its receipt of notice thereof from NEWTS
and such order will not be credited for sale or commission until properly
completed. Further, Contractor shall correct any errors or omissions
identified by
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<PAGE> 9
the applicable local exchange carrier within seventy-two (72) hours of
Contractor's receipt of notice thereof.
f. At any time during the term of this Agreement, Contractor may,
upon thirty (30) days' written notice to NEWTS, elect to cease receiving
Advances under Section 4(a) hereof. Contractor's compensation for orders
submitted following the expiration of the thirty (30) day notice period will be
limited to Actual Commissions as set forth in Section 4(c) above, subject to
the deduction described in Section 4(d) until all outstanding Advances have
been repaid.
g. The fees and other amounts described in Sections 4(a), 4(c)
and 4(e) above shall be the sole and exclusive payment to Contractor for its
Services hereunder, and Contractor shall not be entitled to any separate or
additional payment or reimbursement for any expenses incurred in connection
with performing the Services, nor shall Contractor be entitled to any payment
or reimbursement whatsoever in the event NEWTS terminates Contractor's services
for any reason, except as provided in Section 1.d. hereof.
h. Contractor shall maintain complete and accurate records, in a
form acceptable to NEWTS, of Contractor's activities relating to the
performance of the Services and other obligations hereunder and of all data
necessary to calculate the Advances and Actual Commissions due under this
Section 4. Such records shall include, but shall not be limited to, sales order
forms and LOAs for all sales under the Program. Contractor shall retain such
records during the term of this Agreement, and turn them over to NEWTS pursuant
to section 1.e. upon termination or expiration. Upon request by NEWTS,
Contractor will produce one or more signed LOA(s) and/or other applicable
documentation as described in Section 4(e) above, (in electronic or physical
form) within two (2) business days of such request.
5. Personnel
a. Contractor shall be solely responsible for hiring or
subcontracting all personnel necessary to perform the Services hereunder.
Such personnel shall be deemed to be the responsibility of Contractor only, and
shall not for any purposes be considered employees or agents of NEWTS or GECCS.
Contractor assumes full responsibility for the actions of such personnel while
performing the Services hereunder, and shall be solely and exclusively
responsible for their supervision, daily direction and control, payment of
salary (including withholding of income taxes and social security), workers'
compensation, disability benefits and other benefits to the extent that
such supervision, direction, control and payments are required by law.
Contractor's supervisors and management shall resolve all performance and
personnel matters of such personnel.
b. Contractor shall make reasonable inquiries of its employees,
agents and subcontractors regarding any past employment with NEWTS, GECCS or
any associated GE
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<PAGE> 10
entity, and shall notify NEWTS of any such former NEWTS, GECCS or associated GE
entity employee prior to assigning such employee. agent or subcontractor to
perform Services under this Agreement. In its discretion, NEWTS may request
that Contractor not make any such assignment.
c. Without limiting the generality of Section 5(a) above,
Contractor agrees to take appropriate preventative steps to ensure that its
personnel shall not engage in inappropriate conduct while performing the
Services.
d. Notwithstanding the provisions of Section 5(a) above, NEWTS
may, in its sole discretion, request Contractor to reassign any employee or
agent of Contractor performing Services under this Agreement and Contractor
shall implement such request to the extent permissible under applicable local
laws. Any such request by NEWTS shall be in writing and accompanied by a
statement of reasons for such request for reassignment.
e. Contractor promptly shall notify NEWTS of any impending work
stoppage, strike or other similar personnel-related interference with
Contractor's performance of the Services hereunder. In the event of such a
work stoppage, NEWTS may, at its sole discretion and without incurring any
liability to Contractor, acquire Services from third parties for the duration
of the interference.
f. NEWTS may, in its sole discretion, require written
documentation of completion of specific training for Contractor's personnel to
ensure that GECCS' standards of professionalism, integrity and ethics are
maintained in accordance with Section 2(a) above.
6. Ownership of Information and Materials
a. All information and materials provided by NEWTS or GECCS to
Contractor pursuant to the terms of the Agreement shall remain the sole and
exclusive property of NEWTS or GECCS, as the case may be.
b. All reports, memoranda or other materials in written or
tangible form, including machine readable form, prepared by Contractor or its
employees or agents pursuant to this Agreement and furnished to NEWTS by
Contractor hereunder, including, without limitation, LOAs and sales records of
interfaces with NEWTS customers, shall become the sole and exclusive property
of NEWTS. NEWTS shall have the right, in its discretion, to seek and obtain in
its own name copyrights, registrations and other protection which may be
available with respect to such materials, and Contractor shall provide such
assistance as may be required to obtain such protection.
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<PAGE> 11
7 Confidentiality
a. Contractor and NEWTS acknowledge that, in connection with the
performance of their respective obligations hereunder, each of them will
receive and have access to certain confidential and proprietary information of
one another and GECCS (the "Confidential Information"). Accordingly, during
the term of this Agreement and for a period of two (2) years after the
expiration or termination of this Agreement, Contractor and NEWTS shall each
take the same measures to maintain the Confidential Information of each other
and GECCS in strict confidence and secrecy as each party takes with respect to
its own confidential and proprietary information, and shall not disclose the
Confidential Information, or any portion thereof, to any third party without
the prior written consent of the other party (and, in the case of GECCS
Confidential Information, the written consent of GECCS).
b. Contractor and NEWTS shall disclose Confidential Information
only to their personnel who have a need to know such information in connection
with the performance of their respective obligations hereunder and who have
obligated themselves by written agreement in a form satisfactory to the other
party to hold the Confidential Information in trust and confidence and
otherwise comply with the terms of this Section 7. Neither party shall make any
use of the Confidential Information of the other party or GECCS except in the
performance of its obligations to such party hereunder.
c. The provisions of Section 7(a) shall not apply or shall cease
to apply to Confidential Information which:
i. is lawfully known to the receiving party prior to its
disclosure by the disclosing party;
ii. is or becomes generally available to the public
through no fault of the receiving party or its employees or agents
and without breach of this Agreement;
iii. is received by the receiving party from a third party
who is rightfully in possession of such information without the
obligation to maintain its confidentiality;
iv. is independently developed by an employee or agent of
the receiving party who did not have direct or indirect access to the
information; or
v. is required to be released by judicial order or
government law.
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8. Relationship of the Parties
a. Contractor's relationship to NEWTS shall be that of an
independent contractor only; nothing in this Agreement shall be construed to
create the relationship of employment, agency, partnership, joint venture or
otherwise.
b. Nothing in this Agreement shall be construed to constitute
Contractor and NEWTS as joint employers or NEWTS as a special employer of any
employee or agent of Contractor.
9. Indemnification
a. Contractor shall indemnify and hold NEWTS and GECCS, their
successors and assigns harmless from and against all liability, loss, damages
or injury and reasonable costs and expenses (including reasonable attorneys'
fees and costs of any suit related thereto), suffered or incurred by NEWTS or
GECCS, or either of their successors or assigns, arising out of any error,
omission, misconduct or actual negligence of Contractor, its agents,
subcontractors or employees, including without limitation all costs of
defending against, and fines, forfeitures, or damage claims paid by NEWTS or
GECCS as a result of, claims that a customer has been switched to GECCS service
without proper authorization.
b. NEWTS shall indemnify and hold Contractor, its successors and
assigns harmless from and against all liability, loss, damages or injury and
reasonable costs and expenses (including reasonable attorneys' fees and costs
of any suit related thereto), suffered or incurred by Contractor, its
successors or assigns, arising out of any error, omission, misconduct or actual
negligence of NEWTS, its agents, subcontractors or employees; provided that in
no event shall NEWTS be liable to Contractor for any act or omission of an
underlying common carrier or any other circumstance beyond NEWTS' control.
c. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, NEITHER PARTY
SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, ARISING FORM
THE RELATIONSHIP OR THE CONDUCT OF BUSINESS CONTEMPLATED HEREIN.
-12-
<PAGE> 13
10. Dispute Resolution
a. The parties recognize that during the term of this Agreement,
various conflicts or disputes (a "Dispute") may arise between the parties
relating to the terms and conditions of this Agreement or from an alleged tort.
In the event that such a Dispute arises, the parties, through their appropriate
personnel, shall attempt amicably to resolve the Dispute in an expeditious
manner, utilizing the escalation procedure described in Section 10(b) below or
any other method of alternate dispute resolution mutually agreeable to the
parties.
b. In the event the parties' personnel shall be unable to resolve
any Dispute within thirty (30) days, then the Officer of each party identified
below shall designate a representative for such party (collectively, the
"Representatives"), who promptly shall be notified of the Dispute by their
respective personnel. The Representatives shall then attempt to resolve the
Dispute. If the Representatives are unable to resolve the Dispute within
fifteen (15) days, either party may (but is not required to) refer the Dispute
to its respective Officer hereinafter identified: Contractor's President -
Jerry Dackerman and NEWTS' President - Patrick A. Bello, who shall have fifteen
(15) days from the date of the referral in which to attempt to resolve the
Dispute.
C. In the event any Dispute shall not be resolved between the
parties by use of the procedures and within the timetable described in Section
10(b) above, the Dispute shall be resolved through binding arbitration in
accordance with Sections 10(d) and (e) below.
d. Any arbitration of a Dispute shall be conducted in accordance
with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding
any choice of law provision in this Agreement, and under the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The
arbitration shall be conducted in the City of Atlanta, Georgia. The arbitrator
shall give effect to statutes of limitations in determining any Dispute. Any
Dispute concerning whether an issue is arbitrable shall be determined by the
arbitrator. The decision of the arbitrator shall be final and binding upon the
parties. Judgment upon the arbitration award may be entered in any court
having jurisdiction. In rendering any decision or making findings of fact the
arbitrator shall apply the express intentions of the parties set forth in this
Agreement and the laws of the State of Georgia, including, without limitation,
any applicable statutes, regulations and binding judicial decisions, as such
would be applied by the courts of the State of Georgia and the United States
District Court for the Northern District of Georgia.
e. In connection with any arbitration having an amount in
controversy of less than $1,000,000.00, such arbitration shall be conducted by
a single arbitrator, chosen by the AAA. The AAA shall be guided by any
applicable rules with respect to the choosing of an arbitrator for arbitration
conducted pursuant to the Commercial Arbitration Rules of the AAA, and, in
addition thereto, (i) the AAA shall attempt to appoint an arbitrator having a
technical background, where available, consistent with the technical issues and
procedures which are the subject matter of this Agreement, and (ii) the AAA
shall prefer an arbitrator who is an attorney in good standing and
-13-
<PAGE> 14
licensed to practice law in the State of Georgia. In connection with any
arbitration where the amount in controversy is equal to or exceeds
$1,000,000.00, the arbitration shall be conducted by a panel of three (3) or
more arbitrators chosen by the AAA. giving preference to those factors
identified in subsections (i) and (ii) in the foregoing sentence.
f. Both parties hereby agree to waive their right to a trial by
jury in any Dispute arising out of this Agreement.
11. Compliance with Laws
Each party shall, at its own expense, comply with all federal, state
and local laws and regulations relating to its duties, obligations and
performance under this Agreement and shall procure all licenses and pay all
fees and other charges required thereby.
12. Miscellaneous
a. This Agreement constitutes the entire agreement among of the
parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provisions hereof may be
changed, waived, discharged, or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
b. Any failure on the part of any party hereto to comply with any
of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. A waiver under this Section 12(b)
must be in writing signed by the party to whom compliance is owed, as specified
in Section 12(a) above. No waiver of any provision of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
c. No remedy referred to in this Agreement is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available at law or in equity.
d. In the event that any provision of this Agreement or any word,
phrase, clause, sentence or other portion thereof should be held to be
unenforceable or invalid for any reason, such provision or portion thereof
shall be modified or deleted in such a manner so as to make this Agreement, as
modified, legal and enforceable to the fullest extent permitted under
applicable laws.
-14-
<PAGE> 15
e. This Agreement shall be binding on the parties hereto and
their respective successors and assigns, except that neither party shall assign
its rights or delegate or subcontract its duties or obligations under this
Agreement without the other party's prior written consent.
f. This Agreement shall be governed by, construed under and
interpreted in accordance with the laws of the State of Georgia.
g. All notices, requests, demands or other communications
required or permitted to be given or made hereunder shall be in writing and
delivered personally or sent by pre-paid, first class, certified or registered
mail, return receipt requested, or by facsimile transmission, to the intended
recipient thereof at its address or facsimile number set out below. Any such
notice, demand or communication shall be deemed to have been duly given
immediately (if given or made by confirmed facsimile), or five (5) days after
mailing, and in proving same it shall be sufficient to show that the envelope
containing the same was duly addressed, stamped and posted, or that receipt of
a facsimile was confirmed by the recipient. The addresses and facsimile
numbers of the parties for purposes of this Agreement are:
NEWTS: 484 Norristown Road
Blue Bell, PA 19422
Facsimile: (610) 940-1160
With a Copy To: Patrick J. Whittle
GE Exchange
6540 Powers Ferry Road
Atlanta, GA 30339
Facsimile: (404) 644-7752
Contractor: Consortium 2000
6167 Bristol Parkway
Suite 300
Culver City, CA 90230
Facsimile: (310) 645-5546
Any party may change the address or facsimile number to which notices,
requests, demands or other communications to such party shall be delivered or
mailed by giving notice thereof to the other parties hereto in the manner
provided herein.
h. Nothing in this Agreement grants either party any rights to
use any trademarks, service marks or trade names of the other party, directly
or indirectly, in connection with any product, service, promotion or
publication without prior written approval of such other party.
-15-
<PAGE> 16
i. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized the day and year first
written above.
NEW ENTERPRISE WHOLESALE TELEPHONE
SERVICES, LIMITED PARTNERSHIP
By: GE Capital Communication Services
Wholesale Corporation
Its sole general partner
By:
------------------------------
Title:
---------------------------
CONSORTIUM 2000, INC.
By:
------------------------------
Title:
---------------------------
-16-
<PAGE> 17
EXHIBIT A
STANDARDS FOR PERFORMING THE SERVICES
1. Contractor shall ensure that its employees and agents:
(a) promote and sell GECCS' telecommunications services and
products in conformity with NEWTS' and GECCS' policies,
practices and procedures;
(b) maintain an extremely professional approach at all times when
communicating with prospects or customers;
(c) verify, maintain, and expand (through data entry) the existing
data base of customers or prospects based on contact with each
customer or prospect; and
(d) maintain the data base for the production of weekly and
monthly sales reports, as well as for various follow-up cover
letters.
2. Contractor shall ensure ongoing communication and documentation of all
the results of Contractor's efforts to ensure proper control,
direction and measurement.
3. Contractor shall develop and implement training and quality assurance
programs for all employees and agents to ensure that they adhere to
the terms and conditions of the Agreement and to NEWTS' and GECCS'
standards of ethics, professionalism and integrity with respect to
customer service and quality assurance.
A-1
<PAGE> 18
EXHIBIT B
COMMISSIONS
Subject to the conditions set forth in the Agreement, NEWTS will pay
Advances and Actual Commissions to Contractor as follows:
(a) Advances. The Advance payable under Section 4(a) of the
Agreement for each qualifying sale shall equal _____________
(b) Actual Commissions. Actual Commissions under Section 4(c) of
the Agreement shall be calculated at a rate of _______________
(c) Commissions Upon Expiration or Termination. In the event of
expiration or termination of the Agreement, NEWTS will continue to pay Actual
Commissions to Contractor under Section 4(c) of the Agreement so long as
customers generated by Contractor continue to generate long distance charges
under the Program for which NEWTS receives payment in excess of __________ per
month.
B-1
<PAGE> 19
EXHIBIT C
RETAIL RATES
INITIAL INTERSTATE RETAIL RATE TO C-2000'S END-USER
(OR SUBSCRIBER/CUSTOMER)
<TABLE>
<CAPTION>
================================================================================
DAY EVENING NIGHT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
0-55
- --------------------------------------------------------------------------------
56-292
- --------------------------------------------------------------------------------
293-430
- --------------------------------------------------------------------------------
431-925
- --------------------------------------------------------------------------------
926-1910
- --------------------------------------------------------------------------------
1911-3000
- --------------------------------------------------------------------------------
3001-4250
- --------------------------------------------------------------------------------
4251-5750
================================================================================
</TABLE>
All calls will be billed in full one-minute increments to the end-users.
C-1
<PAGE> 1
EXHIBIT 10.57
CONSORTIUM 2000
and CALL POINTS, INC.
AGREEMENT
Date: September 07, 1995
CONSORTIUM 2000 and CALL POINTS agree that:
(1) CONSORTIUM 2000 will act as an agent and refer
teleconferencing clients to CALL POINTS as needed for conferencing services.
(2) These clients will communicate directly with CALL POINTS via
phone or fax to arrange for service, make reservations, etc. for conference
calls.
(3) CONSORTIUM 2000 will provide CALL POINTS with a list of
clients that are eligible for the rates specified in this agreement.
(4) CALL POINTS will assign each CONSORTIUM 2000 client with a
unique account number, specified at your request.
(5) CALL POINTS will assume all responsibility involved in mailing
invoices directly to each customer.
(6) CONSORTIUM 2000 will not be eligible to contact any customer
off CALL POINTS.
(7) The following rates are fixed for a one (1) year period.
Agency commission will be paid on overall total dollars collected and paid on
a monthly basis.
<TABLE>
<CAPTION>
DOMESTIC 800 MEET ME DOMESTIC AND INTERNATIONAL COMMISSION
AND OPERATOR ASSISTED RATES MEET ME RATES
<S> <C> <C>
Standard rate per minute- Standard rate per minute- of net billed revenue
Average rate per minute- Average rate per minute- of net billed revenue
Recommended rate- Recommended rate- of net billed revenue
Lowest possible rate- Lowest possible rate- of net billed revenue
</TABLE>
*Fax broadcast services-____ commission-_____ per page
*Options for Commissions: A higher commission percentage will be negotiated on
all customers exceeding 40,000 minutes per month at a rate of ______ for
Domestic 800 Meet Me and Operated Assisted services. In addition, Call Points
will allow a rate of _______ for Meet Me services based on projected volume
minutes exceeding 25,000 minutes per month.
CALL POINTS, INC. PROPRIETARY INFORMATION, DO NOT DISCLOSE
<PAGE> 2
Agreed and Accepted: Agreed and Accepted:
Initial Initial
-------------------- --------------------
CONSORTIUM 2000 CALL POINTS, INC.
Date Signed: 10/16/95 Date Signed: 9/12/95
BY: [SIG] /s/ Wouter Van Biene BY [SIG]
------------------------------ ------------------------------
Printed Name: Wouter Van Biene Printed Name:
TITLE: EVP TITLE: Director of Global Sales
CALL POINTS, Inc. Proprietary Information, Do Not Disclose
<PAGE> 3
CLIENT CONTRACT
VERIFICATIONS PLUS
700 Locust Street, Suite 300
Dubuque, Iowa 52001-6804
1-800-582-9501
FAX: (319) 582-2003
with
CONSORTIUM 2000, INC.
EFFECTIVE DATE: January 24, 1996
PARTIES:
Client Name: Consortium 2000
Client Address: 6167 Bristol Parkway
Suite 300
Culver City, CA 90230-6611
Client Telephone Number: (310) 645-4200
Client Fax Number: (310) 645-5546
Client Contact Person(s): Mr. Wouter Van Biene
ADC Contact Person(s): Tim Duggan
Senior Account Executive
RECITALS: This Agreement is entered this 24th day of
January 1996, between Consortium 2000, Inc. hereinafter
referred to as C 2000 and Verifications Plus, hereinafter
referred to as VP. Advanced Data-Comm, Inc., is an Iowa
corporation with its principal place of business at the above
address.
AGREEMENT: WHEREAS, C 2000 seeks Telesales services from
VP and whereas VP is ready, willing and able to provide such
services and C 2000 agrees to accept and pay for such
services, the parties hereby agree as follows:
<PAGE> 4
CLIENT CONTRACT - Consortium 2000, Inc.
January 16, 1996
Page 2
1. TERM: This Agreement will be for a period of 90 days,
commencing on the 24th day of January 1996, and extending until the
24th day of April 1996, ("Original Term"), unless otherwise terminated
by mutual agreement through proper notice or rescission in writing.
Following the Original Term, the agreement will be automatically
renewed for two (2) successive terms of one year ("Renewal Term")
unless either party gives written notice of termination to the other
party through proper notice or recision in writing. The Renewal Term
will allow the provision to negotiate pricing and provide acceptance
of new pricing and other conditions under a separate written addendum.
2. SCOPE OF WORK:
A: Obligations Defined:
1. C 2000 agrees to utilize the services of VP
and will be responsible for:
a) Providing VP with the required data
and background Information, as
requested by VP, to operate the
verification services as defined
herein.
b) Assisting in the planning and
designing of the program, including
scripting.
c) Assisting with the training of VP
personnel as requested and agreed to.
d) Approving all materials to be used
by VP.
2. VP will be responsible for:
a) Assisting in the planning and
designing of the program, including
scripting.
b) Conducting the training of VP
verifications staff.
c) Monitoring and managing the
verification's activity.
d) Maintaining a call detail on each
record received and providing C 2000
with a daily report of calling
activity.
<PAGE> 5
CLIENT CONTRACT - Consortium 2000, Inc.
January 16, 1995
Page 3
e) Providing C 2000 agents an 800
number to call and report sales. VP
will, using the attached script,
capture the required information.
f) Providing C 2000 with all sales, on
a daily basis. VP will create one
file containing all verified sales
for retrieval by C 2000. Sales
vendor(s) agents will retrieve a
file listing all records appended
with a final disposition, in
electronic format.
g) Informing C 2000 of any record which
requires immediate attention.
3. FEES AND PAYMENTS
A: Set-up and Verification
1. Program Development /ONE TIME
The program development fee shall be recoverable by C
2000. Beginning the month following a month where C
2000 reaches a minimum call volume of 3,000 calls, VP
will apply a credit of per month for each month
that call volume equals or exceeds a minimum call
volume of 3,000 calls.
CLIENT INITIATED CHANGES (AFTER APPROVAL OF ORIGINAL
PROGRAM)
The following charges shall apply to material changes
requested by C 2000 (such as material changes to the
script which would require re-programming of
automated system and/or retraining of verification
agents. Any material changes must submitted in
writing and VP would provide an estimate of
implementation date and associated costs.
A. Information Systems /hour
VP will provide an estimate prior to
programming.
B. Training /hour VP
will provide an estimate prior to training.
<PAGE> 6
CLIENT CONTRACT - Consortium 2000, Inc.
January 16, 1996
Page 4
2. Project Management /MONTH
For Call Back Verification System
VP will assess the Project Management Fee for each month
that the call back verification system is in place.
Project Management fee only applies to Call Back
Verification System.
3. Verification Calls
a) Call Back Verification:
2,000 to 10,000 calls per month $ ___call
10,001 to 30,000 calls per month $ ___call
30,001 to 60,000 calls per month $ ___call
Over 60,000 calls per month $ ___call
b) Live Transfer/Direct Connect
Verification:
2,000 to 10,000 calls per month $ ___call
10,001 to 30,000 calls per month $ ___call
30,001 to 60,000 calls per month $ ___call
Over 60,000 calls per month $ ___call
4 . Processing of Information $ ___file
For Live Transfer Method processed/day ___
VP will conduct overnight processing of
information required by C 2000 and Sales
Agents, (Verified and Voided sales).
Information will be retrieved, via modem,
from VP's Bulletin Board System. The
Processing of Information Fee will not exceed
_____ per month, unless approved in advance
by C 2000.
C: Incidentals: For services not previously
addressed
1. Clerical ___/hr.
(if required and approved in writing)
2. Copies ___/page
3. Postage/Overnight Shipping AT COST
<PAGE> 7
CLIENT CONTRACT - Consortium 2000, Inc.
August 30, 1995
Page 5
D. Billing: Charges will be billed bi-weekly (26 times
per year), plus any incidental costs incurred.
Verification charges will be based on the quantity
and method by which the sale was verified. The
actual charge for verification calls will be
determined by the call volume of the verification
method used for the previous month. All other
charges will be based on work actually performed or
expenses incurred on behalf of C 2000. Terms are net
15 days from date of billing, with late charges of
1.5% per month on the unpaid balance beginning 31
days from final billing date.
4. CONFIDENTIALITY: Both parties acknowledge that the intention
in the negotiation of or performance of this Contract is confidential
and information of each has been and will be made available to the
other. The parties agree to use reasonable efforts to maintain the
confidentiality of such material and agree not to make any use of such
material not required under this Contract. VP agrees that any data
provided by C 2000 will be used solely and only for the purpose of
providing the verifications services outlined in this Contract. VP
agrees not to use such data for any other purposes.
5. FCC REGULATIONS: It is C 2000's responsibility to notify VP if
there any individuals on the list provided that do not wish to be
called under the "Do Not Call" provisions of FCC Regulations. VP will
notify C 2000 of any additional names that are added to the list
during our calling. VP warrants that verification practices as
outlined herein comply with the rules and regulations of the Federal
Communications Commission concerning the Policies and Rules Concerning
Changing Long Distance Carriers, (FCC 91-398, CC Docket No. 91-64).
6. DEFAULT: Should either party default in the performance of any
terms and conditions of this Contract, the other party, may at its
option terminate the same by providing written notification. Not
withstanding the above, C 2000 may terminate this agreement at any
time by providing written notification five (5) days prior to
termination. C 2000 will owe for any and all charges up to and
including the date of termination. VP has the option of retaining all
information until receipt of final payment for all charges incurred by
C 2000 up to and including the date of termination.
A. FEES: In the event of a default, C 2000 will be
responsible for full payment of all fees, both real and
incidental, accrued to the point of termination. Any deposit
made by C 2000 to VP will be retained by VP and considered as
liquidation damages to be applied toward total damages.
<PAGE> 8
CLIENT CONTRACT - Consortium 2000, Inc.
August 30, 1995
Page 6
B. Arbitration: Any controversy or claim between C 2000
and VP arising out of, or resulting from this Agreement, or
breach of it, which is not resolved by the parties within
thirty (30) days, will, upon written notice by either party to
the other, be resolved by binding arbitration in the
metropolitan Dubuque area, in accordance with the rules and
regulations of the American Arbitration Association and the
laws of Iowa will be applied, and judgement upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction. The prevailing party will be entitled to
receive its legal fees as part of any such award or judgement.
7. DAMAGES: VP will not be liable for any special or
consequential damages. VP's liability for breach of this
Agreement or associated claim will be limited to the return of
the amount paid by C 2000, as liquidated damages.
8. MISCELLANEOUS:
A. Notices: All legal Notices hereunder shall be in
writing and will be given in person or deposited in the United
States Mail for delivery by prepaid certified mail to the
recipient at the respective address shown above for VP or C
2000.
B. Binding Effect: This Agreement will inure to the
benefit of and be binding upon the parties hereto, as well as
respective successors and assigns.
C. Entire Agreement: This Agreement constitutes the
entire agreement of the parties relating to the subject matter
hereof and supersedes all previous Agreements between the
parties relating to the same subject. The parties hereunto
have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not
set forth herein. No modification of this Agreement will be
valid unless made in writing and signed by the parties hereto.
D. Governing Law and Jurisdiction: This Agreement has
been made under the laws of the State of Iowa and any action
brought to enforce its terms and conditions will be brought in
the Iowa District Court for Dubuque County.
E. Severability: Any provision of this Agreement deemed
invalid or unenforceable by a Court of proper jurisdiction or
other government action will not invalidate the remaining
provisions of this Agreement, which will remain in full force
and effect to the extent permitted by law.
<PAGE> 9
CLIENT CONTRACT - Consortium 2000, Inc.
August 30, 1995
Page 7
IN WITNESS WHEREOF, we subscribe our names below with the assertion that we
have the authority to bind our respective entities this 5th day of February,
1996.
ADVANCED DATA-COMM, INC. By: Consortium 2000, Inc., By:
/s/ MICHAEL J. BUDDE /s/ WOUTER VAN BIENE
- ------------------------------ ------------------------------
Michael J. Budde Wouter Van Biene
President/CEO
EVP
------------------------------
Title
<PAGE> 1
EXHIBIT 10.58
CLIENT CONTRACT
VERIFICATIONS PLUS
700 Locust Street, Suite 300
Dubuque, Iowa 52001-6804
1-800-582-9501
FAX: (319) 582-2003
with
CONSORTIUM 2000, INC.
EFFECTIVE DATE: January 24, 1996
PARTIES:
- --------
Client Name: Consortium 2000
Client Address: 6167 Bristol Parkway
Suite 300
Culver City, CA 90230-6611
Client Telephone Number: (310) 645-4200
Client Fax Number: (310) 645-5546
Client Contact Person(s): Mr. Wouter Van Biene
ADC Contact Person(s): Tim Duggan
Senior Account Executive
RECITALS: This Agreement is entered this 24th day of January 1996,
between Consortium 2000, Inc. hereinafter referred to as C 2000 and
Verifications Plus, hereinafter referred to as VP. Advanced Data-Comm, Inc., is
an Iowa corporation with its principal place of business at the above address.
AGREEMENT: WHEREAS, C 2000 seeks Telesales services from VP and whereas VP
is ready, willing and able to provide such services and C 2000 agrees to accept
and pay for such services, the parties hereby agree as follows:
<PAGE> 2
CLIENT CONTRACT - Consortium 2000, Inc.
January 16, 1996
Page 2
1. TERM: This Agreement will be for a period of 90 days, commencing on
the 24th day of January 1996, and extending until the 24th day of April
1996, ("Original Term"), unless otherwise terminated by mutual agreement
through proper notice or rescission in writing. Following the Original
Term, the agreement will be automatically renewed for two (2) successive
terms of one year ("Renewal Term") unless either party gives written
notice of termination to the other party through proper notice or
recision in writing. The Renewal Term will allow the provision to
negotiate pricing and provide acceptance of new pricing and other
conditions under a separate written addendum.
2. SCOPE OF WORK:
A: Obligations Defined:
1. C 2000 agrees to utilize the services of VP and will be
responsible for:
a) Providing VP with the required data and background
Information, as requested by VP, to operate the
verification services as defined herein.
b) Assisting in the planning and designing of the program,
including scripting.
c) Assisting with the training of VP personnel as requested
and agreed to.
d) Approving all materials to be used by VP.
2. VP will be responsible for:
a) Assisting in the planning and designing of the program,
including scripting.
b) Conducting the training of VP verifications staff.
c) Monitoring and managing the verification's activity.
d) Maintaining a call detail on each record received and
providing C 2000 with a daily report of calling
activity.
<PAGE> 3
CLIENT CONTRACT -- Consortium 2000, Inc.
January 16, 1995
Page 3
e) Providing C 2000 agents an 800 number to call and report
sales. VP will, using the attached script, capture the
required information.
f) Providing C 2000 with all sales, on a daily basis. VP will
create one file containing all verified sales for retrieval
by C 2000. Sales vendor(s) agents will retrieve a file
listing all records appended with a final disposition, in
electronic format.
g) Informing C 2000 of any record which requires immediate
attention.
3. FEES AND PAYMENTS
A: Set-up and Verification
1. Program Development ONE TIME
The program development fee shall be recoverable by C 2000. Beginning
the month following a month where C 2000 reaches a minimum call volume
of 3,000 calls, VP will apply a credit of $______ per month for each
month that call volume equals or exceeds a minimum call volume of
3,000 calls.
CLIENT INITIATED CHANGES (AFTER APPROVAL OF ORIGINAL PROGRAM)
The following charges shall apply to material changes requested by
C 2000 (such as material changes to the script which would require
re-programming of automated system and/or retraining of verification
agents. Any material changes must be submitted in writing and VP
would provide an estimate of implementation date and associated costs.
A. Information Systems ______/hour
VP will provide an estimate prior to programming.
B. Training ______/rep/hour
VP will provide an estimate prior to training.
<PAGE> 4
CLIENT CONTRACT -- Consortium 2000, Inc.
January 16, 1995
Page 4
2. Project Management ______/MONTH
For Call Bank Verification System
VP will assess the Project Management Fee for each month that the
call back verification system is in place. Project Management
fee only applies to Call Back Verification System.
3. Verification Calls
a) Call Back Verification:
2,000 to 10,000 calls per month $______/call
10,001 to 30,000 calls per month $______/call
30,001 to 60,000 calls per month $______/call
Over 60,000 calls per month $______/call
b) Live Transfer/Direct Connect Verification:
2,000 to 10,000 calls per month $______/call
10,001 to 30,000 calls per month $______/call
30,001 to 60,000 calls per month $______/call
Over 60,000 calls per month $______/call
4. Processing of Information $______/file
For Live Transfer Method processed/day
VP will conduct overnight processing of information required by C 2000
and Sales Agents, (Verified and Voided sales). Information will be
retrieved, via modem, from VP's Bulletin Board System. The Processing
of Information Fee will not exceed ______ per month, unless approved
in advance by C 2000.
C: Incidentals: For services not previously addressed
1. Clerical ______/hr.
(if required and approved in writing)
2. Copies ______/page
3. Postage/Overnight Shipping AT COST
<PAGE> 5
CLIENT CONTRACT - Consortium 2000, Inc.
August 30, 1995
Page 5
D. Billing: Charges will be billed bi-weekly (26 times per year),
plus any incidental costs incurred. Verification charges will be
based on the quantity and method by which the sale was verified. The
actual charge for verification calls will be determined by the call
volume of the verification method used for the previous month. All
other charges will be based on work actually performed or expenses
incurred on behalf of C 2000. Terms are net 15 days from date of
billing, with late charges of 1.5% per month on the unpaid balance
beginning 31 days from final billing date.
4. CONFIDENTIALITY: Both parties acknowledge that the intention in the
negotiation of or performance of this Contract is confidential and
information of each has been and will be made available to the other.
The parties agree to use reasonable efforts to maintain the
confidentiality of such material and agree not to make any use of such
material not required under this Contract. VP agrees that any data
provided by C 2000 will be used solely and only for the purpose of
providing the verifications services outlined in this Contract. VP
agrees not to use such data for any other purposes.
5. FCC REGULATIONS: It is C 2000's responsibility to notify VP if
there are any individuals on the list provided that do not wish to be
called under the "Do Not Call" provisions of FCC Regulations. VP will
notify C 2000 of any additional names that are added to the list during
our calling. VP will notify C 2000 of any additional names that are
added to the list during our calling. VP warrants that verification
practices as outlined herein comply with the rules and regulations of
the Federal Communications Commission concerning the Policies and Rules
Concerning Changing Long Distance Carriers, (FCC 91-398, CC Docket No.
91-64).
6. DEFAULT: Should either party default in the performance of any
terms and conditions of this Contract, the other party, may at its
option terminate the same by providing written notification. Not
withstanding the above, C 2000 may terminate this agreement at any time
by providing written notification five (5) days prior to termination.
C 2000 will owe for any and all charges up to and including the date of
termination. VP has the option of retaining all information until
receipt of final payment for all charges incurred by C 2000 up to and
including the date of termination.
A. Fees: In the event of a default, C 2000 will be responsible for
full payment of all fees, both real and incidental, accrued to the
point of termination. Any deposit made by C 2000 to VP will be
retained by VP and considered as liquidation damages to be applied
toward total damages.
<PAGE> 6
CLIENT CONTRACT - Consortium 2000, Inc.
August 30, 1995
Page 6
B. Arbitration: Any controversy or claim between C 2000 and VP
arising out of, or resulting from this Agreement, or breach of it,
which is not resolved by the parties within thirty (30) days, will,
upon written notice by either party to the other, be resolved by
binding arbitration in the metropolitan Dubuque area, in accordance
with the rules and regulations of the American Arbitration
Association and the laws of Iowa will be applied, and judgement upon
the award rendered by the arbitrator may be entered in any court
having jurisdiction. The prevailing party will be entitled to
receive its legal fees as part of any such award or judgement.
7. DAMAGES: VP will not be liable for any special or consequential
damages. VP's liability for breach of this Agreement or associated
claim will be limited to the return of the amount paid by C 2000, as
liquidated damages.
8. MISCELLANEOUS:
A. Notices: All legal Notices hereunder shall be in writing and
will be given in person or deposited in the United States Mail for
delivery by prepaid certified mail to the recipient at the
respective address shown above for VP or C 2000.
B. Binding Effect: This Agreement will inure to the benefit of and
be binding upon the parties hereto, as well as respective successors
and assigns.
C. Entire Agreement: This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof and
supersedes all previous Agreements between the parties relating to
the same subject. The parties hereunto have made no agreements,
representations or warranties relating to the subject matter of this
Agreement which are not set forth herein. No modification of this
Agreement will be valid unless made in writing and signed by the
parties hereto.
D. Governing Law and Jurisdiction: This Agreement has been made
under the laws of the State of Iowa and any action brought to
enforce its terms and conditions will be brought in the Iowa
District Court for Dubuque County.
E. Severability: Any provision of this Agreement deemed invalid
or unenforceable by a Court of proper jurisdiction or other
government action will not invalidate the remaining provisions of
this Agreement, which will remain in full force and effect to the
extent permitted by law.
<PAGE> 7
CLIENT CONTRACT -Consortium 2000, Inc.
August 30, 1995
Page 7
IN WITNESS WHEREOF, we subscribe our names below with the assertion that we
have the authority to bind our respective entities this 5th day of February,
1996.
ADVANCED DATA-COMM, INC. By: Consortium 2000, Inc., By:
/s/ MICHAEL J. BUDDE /s/ WOUTER VAN BIENE
- --------------------------- ----------------------------
Michael J. Budde Wouter Van Biene
President/CEO
Executive Vice President
----------------------------
Title
<PAGE> 1
EXHIBIT 10.59
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$200,000.00 05-28-1996 03-01-1997 25502 03653811 SDS
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: CONSORTIUM 2000, INC., LENDER: CITY NATIONAL BANK, A
A CALIFORNIA CORPORATION NATIONAL BANKING
6167 BRISTOL PKWY, #300 ASSOCIATION
CULVER CITY, CA 90230 ENTERTAINMENT
DEPARTMENT #066000
400 NORTH ROXBURY
DRIVE, SUITE 400
BEVERLY HILLS, CA 90210
================================================================================
PRINCIPAL AMOUNT: $200,000.00 INITIAL RATE: 9.250% DATE OF NOTE: MAY 28, 1996
PROMISE TO PAY. CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION ("BORROWER")
PROMISES TO PAY TO CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND & 00/100 DOLLARS ($200,000.00) OR SO
MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING
PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE
OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MARCH 1, 1997. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
JULY 1, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the City National Bank
Prime Rate (the "Index"). Prime Rate shall mean the rate most recently
announced by Lender at its principal office in Beverly Hills, California, as
its "Prime Rate." Any change in the Prime Rate shall become effective on the
same business day on which the Prime Rate shall change, without prior notice to
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates
as well. The interest rate change will not occur more often than each day.
THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO
THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE
POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.250% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a MINIMUM INTEREST CHARGE OF $100.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments of accrued unpaid interest. Rather,
they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any of the events
described in this default section occurs with respect to any guarantor of this
Note. (g) A material adverse change occurs in Borrower's financial condition,
or Lender believes the prospect of payment or performance of the Indebtedness
is impaired. (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay
upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law. THIS
NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF
CALIFORNIA THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested either orally or in writing by Borrower or by
an authorized person. Lender may, but need not, require that all oral requests
be confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: JERRY DACKERMAN,
PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; (d) Borrower has applied funds provided pursuant to this Note
for purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this
<PAGE> 2
05-28-1996 PROMISSORY NOTE PAGE 2
LOAN NO 25502 (CONTINUED)
Note or any other agreement between Lender and Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral, and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION
By: JERRY DACKERMAN
--------------------------------------------
JERRY DACKERMAN, PRESIDENT
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.20b (c) 1996 CFI ProServices, Inc. All rights reserved. (CA-D20 E3.20 P3.20
CONSORTI.LN C3.OVLI
<PAGE> 3
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$200,000.00 05-28-1996 03-01-1997 25502 036538118 SDS
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: CONSORTIUM 2000, INC., LENDER: CITY NATIONAL BANK, A
A CALIFORNIA CORPORATION NATIONAL BANKING
6167 BRISTOL PKWY, #300 ASSOCIATION
CULVER CITY, CA 90230 ENTERTAINMENT
DEPARTMENT #066000
400 NORTH ROXBURY
DRIVE, SUITE 400
BEVERLY HILLS, CA 90210
===============================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN CONSORTIUM 2000,
INC., A CALIFORNIA CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND CITY
NATIONAL BANK, A NATIONAL BANKING ASSOCIATION (REFERRED TO BELOW AS "LENDER").
FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO
ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all
replacements of and substitutions for any property described
above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of
the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
GRANTOR. The word "Grantor" means CONSORTIUM 2000, INC., A
CALIFORNIA CORPORATION, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and accommodation
parties in connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest, together
with all other indebtedness and costs and expenses for which Grantor
is responsible under this Agreement or under any of the Related
Documents. In addition, the word "Indebtedness" includes all other
obligations, debts and liabilities, plus interest thereon, of Grantor,
or any one or more of them, to Lender, as well as all claims by Lender
against Grantor, or any one or more of them, whether existing now or
later; whether they are voluntary or involuntary, due or not due,
direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly
with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may
become otherwise unenforceable.
LENDER. The word "Lender" means City National Bank, a National Banking
Association, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated May
28, 1996, in the principal amount of $200,000.00 from Grantor to
Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the note
or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
DEPOSIT ACCOUNTS. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding however all IRA, Keogh, and trust accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duty organized,
validly existing, and in good standing under the laws of the State of
California. Grantor has its chief executive office at 6167 BRISTOL
PKWY, #300, CULVER CITY, CA 90230. Grantor will notify Lender of any
change in the location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental regulation,
court decree, or order applicable to Grantor.
<PAGE> 4
05-28-1996 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No 25502 (Continued)
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may
at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement
or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL
AND EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO
LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine,
and complies with applicable laws concerning form, content and manner
of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract
and are in fact obligated as they appear to be on the Collateral. At
the time any account becomes subject to a security interest in favor
of Lender, the account shall be a good and valid account representing
an undisputed, bona fide indebtedness incurred by the account debtor,
for merchandise held subject to delivery instructions or theretofore
shipped or delivered pursuant to a contract of sale, or for services
theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account;
and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those
disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender,
will deliver to Lender in form satisfactory to Lender a schedule of
real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all real
property owned or being purchased by Grantor; (b) all real property
being rented or leased by Grantor; (c) all storage facilities owned,
rented, leased, or being used by Grantor; and (d) all other properties
where Collateral is or may be located. Except in the ordinary course
of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to
any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require,
including without limitation names and addresses of account debtors
and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall deliver
to Lender, as often as Lender shall require, such lists, descriptions,
and designations of such Collateral as Lender may require to identify
the nature, extent, and location of such Collateral. Such information
shall be submitted for Grantor and each of its subsidiaries or related
companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral, and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender
as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall
comply promptly with all laws, ordinances, rules and regulations of
all governmental authorities, now or hereafter in effect, applicable
to the ownership, production, disposition, or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral,
in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened
<PAGE> 5
05-28-1996 COMMERCIAL SECURITY AGREEMENT Page 3
Loan No 25502 (Continued)
release of any hazardous waste or substance, as those terms are
defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence
in investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees
to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least seven (7) days' prior written notice to Lender and
not including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not
be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will
cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make proof
of loss if Grantor fails to do so within fifteen (15) days of the
casualty. All proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof
of expenditure, pay or reimburse Grantor from the proceeds for the
reasonable cost of repair or restoration. If Lender does not consent
to repair or replacement of the Collateral, Lender shall retain a
sufficient amount of the proceeds to pay all of the Indebtedness, and
shall pay the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which Grantor
has not committed to the repair or restoration of the Collateral shall
be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated
by Lender to be sufficient to produce, at least fifteen (15) days
before the premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is due, the
reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account
which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the
reserve funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid by
Grantor. The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest
in such Collateral. Until otherwise notified by Lender, Grantor may collect
any of the Collateral consisting of accounts. At any time and even though no
Event of Default exists, Lender may exercise its rights to collect the accounts
and to notify account debtors to make payments directly to Lender for
application to the Indebtedness. If Lender at any time has possession of any
Collateral, whether before or after an Event of Default, Lender shall be deemed
to have exercised reasonable care in the custody and preservation of the
Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any instalment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence
as a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
<PAGE> 6
05-28-1996 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No 25502 (Continued)
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs
with respect to any Guarantor of any of the Indebtedness or such
Guarantor dies or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the California Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following rights
and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to
Lender all or any portion of the Collateral and any and all
certificates of title and other documents relating to the Collateral.
Lender may require Grantor to assemble the Collateral and make it
available to Lender at a place to be designated by Lender. Lender
also shall have full power to enter upon the property of Grantor to
take possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to
Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date
of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change
any address to which mail and payments are to be sent; and endorse
notes, checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and
remedies it may have available at law, in equity, or otherwise,
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of Los Angeles County, State of California. This Agreement
shall be governed by and construed in accordance with the laws of the
State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement.
Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimilie, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice
<PAGE> 7
05-28-1996 COMMERCIAL SECURITY AGREEMENT Page 5
Loan No 25502 (Continued)
is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor agrees to keep Lender informed at all times of Grantor's
current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated
for the Indebtedness, Borrower irrevocably waives, disclaims and
relinquishs all claims against such other person which Borrower has or
would otherwise have by virtue of payment of the Indebtedness or any
part thereof, specifically including but not limited to all rights of
indemnity, contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY
28, 1996.
GRANTOR:
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION
BY: /s/ JERRY DACKERMAN
-------------------------------------
JERRY DACKERMAN, PRESIDENT
<PAGE> 8
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective,
with certain exceptions, for five years from the date of filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
- -------------------------------------------------------------------------------
1. DEBTOR | 1A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
|
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION | 95-4217361
- -------------------------------------------------------------------------------
1B. MAILING ADDRESS | 1C. CITY, STATE | 1D. ZIP CODE
| |
6167 BRISTOL PKWY. #300 | CULVER CITY, CA | 90230
- -------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR | 2A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
- -------------------------------------------------------------------------------
2B. MAILING ADDRESS | 2C. CITY, STATE | 2D. ZIP CODE
| |
- -------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES | 3A. FEDERAL TAX NUMBER
|
_______________________________________________________________________________
4. SECURED PARTY | 4A. FEDERAL TAX NO.
|
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION |
ENTERTAINMENT DEPARTMENT #066000 |
400 NORTH ROXBURY DRIVE, SUITE 400 |
|
BEVERLY HILLS, CA 90210 |
- -------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY | 5A. FEDERAL TAX NO.
|
|
- -------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES; WHETHER
ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL SUCCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING;
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING
TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER
ACCOUNTS PROCEEDS).
- -------------------------------------------------------------------------------
[x] PRODUCTS OF COLLATERAL | 7B. DEBTOR(S) SIGNATURE NOT REQUIRED
ARE ALSO COVERED | IN ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
| [ ](1) [ ](2) [ ](3) [ ](4)
- -------------------------------------------------------------------------------
[ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH
UCC SECTION 9105 (1) (n)
- -------------------------------------------------------------------------------
DATE: 05-28-1996 || C | 10. THIS SPACE FOR USE
/s/ Jerry Dackerman || O | OF FILING OFFICER
|| D | (DATE, TIME, FILE NUM-
SIGNATURES(S) OF DEBTOR(S) || E | BER AND FILING OFFICER)
- --------------------------------------------------------
JERRY DACKERMAN, PRESIDENT || 1 |
|| |
- --------------------------------------------------|| 2 |
|| |
SIGNATURE(S) OF SECURED PARTY(IES) || 3 |
- --------------------------------------------------|| |
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION|| 4 |
==================================================|| |
1. Return copy to: || 5 |
|| |
CITY NATIONAL BANK || 6 |
LOAN SUPPORT || |
831 S. DOUGLAS ST., #107 || 7 |
EL SEGUNDO, CA 90245 || |
|| 8 |
==================================================|| |
|| 9 |
1) FILING OFFICER COPY FORM UCC-1 || |
|| 0 |
===============================================================================
<PAGE> 9
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective,
with certain exceptions, for five years from the date of filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
- -------------------------------------------------------------------------------
1. DEBTOR | 1A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
|
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION | 95-4217361
- -------------------------------------------------------------------------------
1B. MAILING ADDRESS | 1C. CITY, STATE | 1D. ZIP CODE
| |
6167 BRISTOL PKWY. #300 | CULVER CITY, CA | 90230
- -------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR | 2A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
- -------------------------------------------------------------------------------
2B. MAILING ADDRESS | 2C. CITY, STATE | 2D. ZIP CODE
| |
- -------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES | 3A. FEDERAL TAX NUMBER
|
_______________________________________________________________________________
4. SECURED PARTY | 4A. FEDERAL TAX NO.
|
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION |
ENTERTAINMENT DEPARTMENT #066000 |
400 NORTH ROXBURY DRIVE, SUITE 400 |
|
BEVERLY HILLS, CA 90210 |
- -------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY | 5A. FEDERAL TAX NO.
|
|
- -------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES; WHETHER
ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL SUCCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING;
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING
TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER
ACCOUNTS PROCEEDS).
- -------------------------------------------------------------------------------
[x] PRODUCTS OF COLLATERAL | 7B. DEBTOR(S) SIGNATURE NOT REQUIRED
ARE ALSO COVERED | IN ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
| [ ](1) [ ](2) [ ](3) [ ](4)
- -------------------------------------------------------------------------------
[ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH
UCC SECTION 9105 (1) (n)
- -------------------------------------------------------------------------------
DATE: 05-28-1996 || C | 10. THIS SPACE FOR USE
/s/ Jerry Dackerman || O | OF FILING OFFICER
|| D | (DATE, TIME, FILE NUM-
SIGNATURES(S) OF DEBTOR(S) || E | BER AND FILING OFFICER)
- --------------------------------------------------------
JERRY DACKERMAN, PRESIDENT || 1 |
|| |
- --------------------------------------------------|| 2 |
|| |
SIGNATURE(S) OF SECURED PARTY(IES) || 3 |
- --------------------------------------------------|| |
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION|| 4 |
==================================================|| |
1. Return copy to: || 5 |
|| |
CITY NATIONAL BANK || 6 |
LOAN SUPPORT || |
831 S. DOUGLAS ST., #107 || 7 |
EL SEGUNDO, CA 90245 || |
|| 8 |
==================================================|| |
Filing Officer is requested to note file number, || 9 |
date and hour of filing of this copy, and return || |
to the above party. || 0 |
2) ACKNOWLEDGEMENT COPY FORM UCC-1 || |
===============================================================================
<PAGE> 10
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective,
with certain exceptions, for five years from the date of filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
- -------------------------------------------------------------------------------
1. DEBTOR | 1A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
|
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION | 95-4217361
- -------------------------------------------------------------------------------
1B. MAILING ADDRESS | 1C. CITY, STATE | 1D. ZIP CODE
| |
6167 BRISTOL PKWY. #300 | CULVER CITY, CA | 90230
- -------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR | 2A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
- -------------------------------------------------------------------------------
2B. MAILING ADDRESS | 2C. CITY, STATE | 2D. ZIP CODE
| |
- -------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES | 3A. FEDERAL TAX NUMBER
|
_______________________________________________________________________________
4. SECURED PARTY | 4A. FEDERAL TAX NO.
|
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION |
ENTERTAINMENT DEPARTMENT #066000 |
400 NORTH ROXBURY DRIVE, SUITE 400 |
|
BEVERLY HILLS, CA 90210 |
- -------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY | 5A. FEDERAL TAX NO.
|
|
- -------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES; WHETHER
ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL SUCCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING;
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING
TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER
ACCOUNTS PROCEEDS).
- -------------------------------------------------------------------------------
[x] PRODUCTS OF COLLATERAL | 7B. DEBTOR(S) SIGNATURE NOT REQUIRED
ARE ALSO COVERED | IN ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
| [ ](1) [ ](2) [ ](3) [ ](4)
- -------------------------------------------------------------------------------
[ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH
UCC SECTION 9105 (1) (n)
- -------------------------------------------------------------------------------
DATE: 05-28-1996 || C | 10. THIS SPACE FOR USE
/s/ Jerry Dackerman || O | OF FILING OFFICER
|| D | (DATE, TIME, FILE NUM-
SIGNATURES(S) OF DEBTOR(S) || E | BER AND FILING OFFICER)
- --------------------------------------------------------
JERRY DACKERMAN, PRESIDENT || 1 |
|| |
- --------------------------------------------------|| 2 |
|| |
SIGNATURE(S) OF SECURED PARTY(IES) || 3 |
- --------------------------------------------------|| |
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION|| 4 |
==================================================|| |
1. Return copy to: || 5 |
|| |
CITY NATIONAL BANK || 6 |
LOAN SUPPORT || |
831 S. DOUGLAS ST., #107 || 7 |
EL SEGUNDO, CA 90245 || |
|| 8 |
==================================================|| |
|| 9 |
3) FILE COPY - SECURED PARTY FORM UCC-1 || |
|| 0 |
===============================================================================
<PAGE> 11
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective,
with certain exceptions, for five years from the date of filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
- -------------------------------------------------------------------------------
1. DEBTOR | 1A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
|
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION | 95-4217361
- -------------------------------------------------------------------------------
1B. MAILING ADDRESS | 1C. CITY, STATE | 1D. ZIP CODE
| |
6167 BRISTOL PKWY. #300 | CULVER CITY, CA | 90230
- -------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR | 2A. SOCIAL SECURITY OR
| FEDERAL TAX NO.
- -------------------------------------------------------------------------------
2B. MAILING ADDRESS | 2C. CITY, STATE | 2D. ZIP CODE
| |
- -------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES | 3A. FEDERAL TAX NUMBER
|
_______________________________________________________________________________
4. SECURED PARTY | 4A. FEDERAL TAX NO.
|
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION |
ENTERTAINMENT DEPARTMENT #066000 |
400 NORTH ROXBURY DRIVE, SUITE 400 |
|
BEVERLY HILLS, CA 90210 |
- -------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY | 5A. FEDERAL TAX NO.
|
|
- -------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES; WHETHER
ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL SUCCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING;
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING
TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER
ACCOUNTS PROCEEDS).
- -------------------------------------------------------------------------------
[x] PRODUCTS OF COLLATERAL | 7B. DEBTOR(S) SIGNATURE NOT REQUIRED
ARE ALSO COVERED | IN ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
| [ ](1) [ ](2) [ ](3) [ ](4)
- -------------------------------------------------------------------------------
[ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH
UCC SECTION 9105 (1) (n)
- -------------------------------------------------------------------------------
DATE: 05-28-1996 || C | 10. THIS SPACE FOR USE
/s/ Jerry Dackerman || O | OF FILING OFFICER
|| D | (DATE, TIME, FILE NUM-
SIGNATURES(S) OF DEBTOR(S) || E | BER AND FILING OFFICER)
- --------------------------------------------------------
JERRY DACKERMAN, PRESIDENT || 1 |
|| |
- --------------------------------------------------|| 2 |
|| |
SIGNATURE(S) OF SECURED PARTY(IES) || 3 |
- --------------------------------------------------|| |
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION|| 4 |
==================================================|| |
1. Return copy to: || 5 |
|| |
CITY NATIONAL BANK || 6 |
LOAN SUPPORT || |
831 S. DOUGLAS ST., #107 || 7 |
EL SEGUNDO, CA 90245 || |
|| 8 |
==================================================|| |
|| 9 |
4) FILE COPY - DEBTOR FORM UCC-1 || |
|| 0 |
===============================================================================
<PAGE> 12
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$200,000.00 05-28-1996 03-01-1997 25502 036538118 SDS
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: CONSORTIUM 2000, INC., A CALIFORNIA
CORPORATION
6167 BRISTOL PKWY, #300
CULVER CITY, CA 90230
Lender: CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
ENTERTAINMENT DEPARTMENT #066000
400 NORTH ROXBURY
DRIVE, SUITE 400
BEVERLY HILLS, CA 90210
================================================================================
LOAN TYPE. This is a Variable Rate (1.000% over City National Bank Prime
Rate, making an initial rate of 9.250%), Revolving Line of Credit Loan To a
Corporation for $200,000.00 due on March 1, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: WORKING CAPITAL.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds
will be disbursed until all of Lender's conditions for making the loan have
been satisfied. Please disburse the loan proceeds of $200,000.00 as follows:
UNDISBURSED FUNDS: $200,000.00
-------------
NOTE PRINCIPAL $200,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $1,000.00
$1,000.00 Documentation Fees
-------------
TOTAL CHARGES PAID IN CASH: $1,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED MAY 28,1996.
BORROWER:
CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION
By: /s/ JERRY DACKERMAN
-----------------------------------
JERRY DACKERMAN, PRESIDENT
<PAGE> 13
[CITY NATIONAL BANK LETTERHEAD]
ENTERTAINMENT BANKING DIVISION
May 30,1996
Mr. Jerry Dackerman
c/o Consortium 2000, Inc.
6167 Bristol Parkway #300
Culver City, CA 90230
RE: PROMISSORY NOTE DATED MAY 28, 1996, IN THE ORIGINAL PRINCIPAL SUM OF
$200,000 ("NOTE") EXECUTED BY CONSORTIUM 2000, INC., A CALIFORNIA
CORPORATION ("BORROWER") IN FAVOR OF CITY NATIONAL BANK ("CNB")
Dear Jerry,
This is to confirm that CNB will extend the credit facility more completely
described in the enclosed Note, subject to the additional terms and conditions
set forth herein. Capitalized terms not defined in this letter have the
meanings given them in the Note. This letter is hereby incorporated into the
Note (this letter and the Note, collectively, the "Note").
A. ADDITIONAL EVENTS OF DEFAULT.
The following shall constitute additional Events of Default under the
Note:
1. Failure of Borrower to furnish CNB, within the times specified, the
following statements:
1.1 Within seventy five (75) days after the end of each quarterly
accounting period of each fiscal year, financial statement
consisting of not less than a balance sheet, and income
statement, with notes thereto, prepared in accordance with
generally accepted accounting principles consistently applied,
which financial statement may be internally prepared;
1.2 Within one hundred twenty (120) days after the close of each
fiscal year, a copy of the annual review report for such year
for Borrower and the Subsidiaries including therein a balance
sheet, income statement, reconciliation of net worth and
statement of cash flows, with notes thereto, the balance
sheet, income statement and statement of cash flows to be
reviewed by a certified public accountant acceptable to CNB,
and certified
MEMBER FDIC
<PAGE> 14
Mr. Jerry Dackerman
Consortium 2000, Inc.
May 30,1996
Page 2
by such accountants to have been prepared in accordance with
generally accepted accounting principles consistently applied
and accompanied by Borrower's certification as to whether any
event has occurred which constitutes an Event of Default, and
if so, stating the facts with respect thereto;
1.3 Monthly reports of agings of Borrower's accounts receivable,
together with a current list of names and addresses of all
account debtors, as soon as available, but in no event lather
than sixty (60) days after the end of each month.
1.4 The Federal Income Tax Return for Borrower and each guarantor
of this Note, within ten (10) days after its filing of each
Return, respectively; and
1.5 Such additional information, reports and/or statements as CNB
may, from time to time, reasonably request.
2. Failure of Borrower to maintain the following:
2.1 Tangible Net Worth plus Subordinated Debt of not less than
$950,000 at all times;
2.2 A ratio of Total Senior Liabilities to Tangible Net Worth plus
Subordinated Debt of not more than .8 to 1 at all times;
2.3 A ratio of Current Assets to Current Liabilities of not less
than 2.5 to 1 at all times.
3. The incurrance of outside debt (other than trade payables incurred in
the normal course of business) without the prior written consent of
City National Bank.
B. DEFINITIONS
For purposes of the Note, the following terms have the following
meanings:
"CURRENT ASSETS" shall be determined on a consolidated basis for Borrower and
the Subsidiaries in accordance with generally accepted accounting principles
consistently applied, excluding, however, from the determination of Current
Assets, loans to shareholders, management or employees, amounts due from
Subsidiaries or affiliates, deferred costs, and other intangible assets.
MEMBER FDIC
<PAGE> 15
Mr. Jerry Dackerman
Consortium 2000, Inc.
May 30, 1996
Page 3
"CURRENT LIABILITIES" shall be determined on a consolidated basis for Borrower
and the Subsidiaries in accordance with generally accepted accounting
principles consistently applied, and shall include without limitation (a) all
payments on Subordinated Debt required to be made within one (1) year after the
date on which the determination is made; and (b) all indebtedness payable to
stockholders, affiliates, Subsidiaries or officers regardless of maturity,
unless such indebtedness shall have subordinated to CNB, on terms satisfactory
to CNB.
"SUBSIDIARY" shall mean any corporation, majority of whose voting shares are at
any time owned, directly or indirectly by Borrower and/or by one or more
Subsidiaries.
"TANGIBLE NET WORTH" shall mean the total of all assets appearing on a balance
sheet prepared in accordance with generally accepted accounting principles
consistently applied for Borrower and the Subsidiaries on a consolidated basis,
minus (a) all intangible assets, including, without limitation, unamortized
debt discount, affiliate, employee and officer receivables or advances,
goodwill, research and development costs, patents, trademarks, the excess of
purchase price over underlying values of acquired companies, any covenants not
to compete, deferred charges, copyrights, franchises and appraisal surplus;
minus (b) all obligations which are required by generally accepted accounting
principles consistently applied to be reflected as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus, (c) the
amount, if any, at which shares of the stock of a non-wholly owned Subsidiary
appear on the asset side of Borrower's consolidated balance sheet, as
determined in accordance with generally accepted accounting principles
consistently applied; minus (d) minority interests; and minus (e) deferred
income and reserves not otherwise reflected as a liability on the consolidated
balance sheet of Borrower and the Subsidiaries.
"TOTAL SENIOR LIABILITIES" shall mean, as of any date of determination, the
amount of all obligations that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with generally accepted accounting principles consistently applied,
less Subordinated Debt.
"WORKING CAPITAL" shall mean Current Assets minus Current Liabilities.
C. ADDITIONAL TERMS AND CONDITIONS,
The following additional terms and conditions shall also apply to the
Note:
1. FEES. Borrower shall pay to CNB a non-refundable fee equal to
$1,000.00, due and payable in full upon execution of this letter and the
Note, and upon any subsequent renewal.
MEMBER FDIC
<PAGE> 16
Mr. Jerry Dackerman
Consortium 2000, Inc.
May 30,1996
Page 4
2. THIRTY DAY OUT-OF-DEBT REQUIREMENT. Borrower agrees that during the
twelve month period commencing with the date of the Note, Borrower will have a
period of not less than thirty (30) consecutive days during which there shall
be no outstanding principal balance under the Note.
Except for documents and instruments specifically referenced herein or in the
Note, this letter and the Note constitute the entire agreement of the parties
hereto and supersedes any prior or contemporaneous oral or written agreements,
understandings, representations, warranties and negotiations, if any, which are
merged into this letter and the Note. If you agree to accept the terms of this
letter and the Note, please sign the enclosed acknowledgment copy of this
letter, as well as the enclosed Note, and return them to me on or before June
30, 1996.
Sincerely,
CITY NATIONAL BANK, a national
banking association
By: /s/ MARGARET WASSERSTEIN
--------------------------------
Margaret Wasserstein, VP/TL
Accepted and Agreed this ______ day of
____________________1996.
Consortium 2000, Inc.
By: /s/ JERRY DACKERMAN
---------------------------------
Jerry Dackerman, President
MEMBER FDIC
<PAGE> 17
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$200,000.00 05-28-1996 03-01-1997 25502 036538118 SDS
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: CONSORTIUM 2000, INC., A CALIFORNIA CORPORATION
6167 BRISTOL PKWY, #300
CULVER CITY, CA 90230
Lender: CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
ENTERTAINMENT DEPARTMENT #066000
400 NORTH ROXBURY DRIVE, SUITE 400
BEVERLY HILLIS, CA 90210
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF CONSORTIUM 2000, INC., A
CALIFORNIA CORPORATION (THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation
is organized and existing under and by virtue of the laws of the State of
California as a corporation for profit, with its principal office at 6167
BRISTOL PKWY, #300, CULVER CITY, CA 90230, and is duly authorized to transact
business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held on MAY 28, 1996, at which a quorum was present and voting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
JERRY DACKERMAN PRESIDENT x [SIG]
---------------
acting for and on behalf of this Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
BORROW MONEY. To borrow from time to time from City National Bank, a
National Banking Association ("Lender"), on such terms as may be
agreed upon between the officer, employee, or agent and Lender, such
sum or sums of money as in his or her judgment should be borrowed,
without limitation.
EXECUTE NOTES. To execute and deliver to Lender the promissory note
or notes, or other evidence of credit accomodations of the
Corporation, on Lender's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed
or any indebtedness of the Corporation to Lender, and also to execute
and deliver to Lender one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
notes, any portion of the notes, or any other evidence of credit
accomodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate,
or otherwise encumber and deliver to Lender, as security for the
payment of any loans or credit accomodations so obtained, any
promissory notes so executed (including any amendments to or
modifications, renewals, and extensions of such promissory notes), or
any other or further indebtedness of the Corporation to Lender at any
time owing, however the same may be evidenced, any property now or
hereafter belonging to the Corporation or in which the Corporation now
or hereafter may have an interest, including without limitation all
real property and all personal property (tangible or intangible) of
the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such
loans are obtained or such indebtedness is incurred, or at any other
time or times, and may be either in addition to or in lieu of any
property theretofore mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the
forms of mortgage, deed of trust, pledge agreement, hypothecation
agreement, and other security agreements and financing statements
which may be submitted by Lender, and which shall evidence the terms
and conditions under and pursuant to which such liens and
encumbrances, or any of them, are given; and also to execute and
deliver to Lender any other written instruments, any chattel paper, or
any other collateral, of any kind or nature, which he or she may in
his or her discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and
encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation or in which
the Corporation may have an interest, and either to receive cash for
the same or to cause such proceeds to be credited to the account of
the Corporation with Lender, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements as he or she may in his or her
discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions. The following person or
persons are authorized to request advances and authorize payments
under the line of credit until Lender receives written notice of
revocation of their authority: JERRY DACKERMAN, PRESIDENT.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing Resolutions
now stand of record on the books of the Corporation; and that the Resolutions
are in full force and effect and have not been modified or revoked in any
manner whatsoever. The Corporation has no corporate seal, and therefore, no
seal is affixed to this certificate.
<PAGE> 18
CORPORATE RESOLUTION TO BORROW
(CONTINUED)
05-28-1996 Page 2
Loan No 25502
IN TESTIMONY WHEREOF, I have hereunto set my hand on May 28, 1996 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
x /s/ ILLEGIBLE
-----------------------------------
Secretary of Assistant Secretary
x
-----------------------------------
*NOTE: In Case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20b (c) 1996 CFI ProServices, Inc.
All rights reserved. (CA-C10 E3.20 F3.20 P3.20 CONSORTI.LN C3.0VL)
<PAGE> 1
EXHIBIT 10.60(a)
JEFLOR, INC.
56 Ludgate House
170-111 Fleet Street
London, England EC4A2AB
June 10, 1996
UStel, Inc.
2775 South Rainbow Boulevard
Suite 102-A
Las Vegas, NV 89102
Re: $1,200,000.00 Loan With Warrants
Gentlemen:
This letter, when countersigned by you below, shall constitute a Loan
Agreement by and between Jeflor, Inc., a Panamanian corporation ("Lender") and
UStel, Inc., a Minnesota corporation (the "Borrower" or the "Company").
Provided that certain contingencies are met as outlined below, Lender will loan
$1,200,000.00 to Borrower. The terms of this loan agreement are, as follows:
1. Subject to the conditions set forth below, Lender will make a
loan of $1,200,000.00 to Borrower (the "Loan").
2. The Loan will be for a term of one year and will bear interest
at the rate of twelve (12%) percent per annum. Borrower will have the right to
prepay the Loan at any time without penalty. Repayment of the Loan will be
subject to the following additional restrictions to ensure Borrower's compliance
with existing loan covenants in favor of its senior lender:
2.1 The Loan cannot be repaid from Borrower's cash flow
should such repayment cause Borrower's cash flow coverage to be less than 1:00
to 1:00;
2.2 The Loan, or any part thereof, may be repaid at any
time from new equity invested in Company;
2.3 The Loan, or any part thereof, may be repaid from the
proceeds of new debt borrowed by the Company;
2.4 The Loan, or any part thereof, may be repaid by
conversion of the Debenture to equity, as further detailed in Paragraph 7
below;
<PAGE> 2
UStel, Inc.
June 10, 1996
Page 2
2.5 In the event the foregoing restrictions preclude repayment
of the Loan on the Maturity Date, and so long as Borrower is not then in default
of any term or condition hereof, the Loan shall be extended for additional terms
of ninety (90) days each, provided all accrued interest is paid to Lender prior
to any such extension. In no event shall the Loan be extended beyond June 30,
1998.
3. The loan will be evidenced by a "Subordinated Convertible
Debenture" in the form of Exhibit "A" attached hereto (the "Debenture").
4. Borrower will pay Lender a deferred loan fee or $48,000.00 (the
"Fee"). The Fee shall be payable concurrently with Borrower's repayment of the
Loan, and in any event, no later than the maturity date of the Debenture.
5. Issuance of Warrant(s).
5.1 In consideration of the making of the Loan, Borrower will
issue Lender a warrant or warrants in the form of Exhibit "B" attached hereto
(hereinafter, the "Warrant"), whereby Lender shall be entitled to purchase,
depending upon the date on which the Debenture is repaid, up to 300,000 shares
of the common stock of Borrower at a purchase price of $5.00 per share, all as
more specifically provided for in the Warrant.
5.2 Concurrently with delivery of the Debenture, Borrower will
deliver to Lender a Warrant whereby Lender shall be entitled to purchase as
many as 120,000 shares only of the common stock of Borrower upon the terms
provided for therein. If the Debenture is not repaid within 90 days after the
date thereof, Borrower shall deliver to Lender on the ninety-first (91st) day
after the date of the Debenture a second Warrant whereby Lender shall be
entitled to purchase as many as 60,000 additional shares of the common stock of
Borrower upon the terms provided for therein.
5.3 If the Debenture is not repaid within 180 days after the
date thereof, Borrower shall deliver to Lender on the one hundred eighty-first
(181st) day after the date of the Debenture a third Warrant whereby Lender
shall be entitled to purchase as many as 60,000 additional shares of the common
stock of Borrower upon the terms provided for therein. If the Debenture is not
repaid within 270 days after the date thereof, Borrower shall deliver to Lender
on the two hundred seventy-first (271st) day after the date of the Debenture a
fourth Warrant whereby Lender shall be entitled to purchase as many as 60,000
additional shares of the common stock
<PAGE> 3
Ustel, Inc.
June 10, 1996
Page 3
of Borrower upon the terms provided for therein. Thus, if the Debenture is not
repaid until the Maturity Date, Borrower will have delivered to Lender a total
of four (4) Warrants whereby Lender shall be entitled to purchase,
cumulatively, as many as 300,000 shares of common stock of Borrower, at $5.00
per share.
5.4 If the Loan is not repaid on the Maturity Date because of
the restrictions set forth in paragraph 2 above, for each ninety (90) day
extension of the Loan provided for in paragraph 2.5 above, Borrower shall
deliver to Lender a Warrant to purchase an additional 60,000 additional shares
of Borrower's common stock, at $5.00 per share. Thus, if the Loan is extended
for four (4) additional ninety (90) day periods beyond the original Maturity
Date, Borrower must deliver to Lender four (4) Warrants providing Lender with
the cumulative right to purchase as many as 240,000 additional shares of
Borrower's stock at $5.00 per share.
6. As a condition precedent to Lender disbursing loan proceeds
hereunder, Borrower shall execute, or cause to be executed, and shall deliver
to Lender the following:
6.1 This Loan Agreement;
6.2 The Debenture; and
6.3 The Warrant.
7. Conversion/Payment Rights on Exercise of Warrant(s).
7.1 At any time prior to payment in full of the principal
balance of and accrued interest under the Debenture, sums owed by Borrower to
Lender under the Debenture may be utilized by Lender in whole, or in part, at
the option of the Lender, as consideration to effect the purchase of shares of
the Company's common stock in conjunction with Lender's proper exercise of the
Warrant(s), up to the outstanding principal balance of the Debenture and
accrued interest thereunder.
7.2 The privilege provided for under this Section 7 shall be
exercisable by the Lender by written notice to the Company or its successor
contemporaneously with the surrender of the Debenture and Warrant(s) in
exchange for the number of shares of common stock Lender is acquiring under
said Warrant(s). Any use of the Debenture in conjunction with the exercise of
a Warrant(s) shall be deemed to have been made immediately prior to the close
of business on the date of such surrender, and the person entitled to receive
the shares of common stock issuable upon the surrender of the Warrant(s)
shall be treated for all purposes as the record
<PAGE> 4
UStel, Inc.
June 10, 1996
Page 4
holder or holders of such shares of common stock as of such date. All rights
to utilize the Debenture in conjunction with the Warrant(s) will expire at the
close of business on the business day immediately prior to the maturity date of
the Debenture. Upon the use of the Debenture in the manner specified herein,
the Company shall be forever released from all its obligations and liabilities
under the Debenture to the extent of the amount paid to Borrower thereunder to
purchase the shares subject to the Warrant(s). The Company shall be
obligated however to (a) pay the Lender any cash amounts resulting from
fractional shares as described in the Warrant(s), and/or (b) deliver a new
debenture representing the portion of the Debenture not expended by Lender in
purchasing shares under the Warrant(s). Except for the adjusted principal
balance, said new debenture shall have the same terms and conditions, and due
date, as the Debenture.
7.3 The rights set forth herein shall not entitle the
Lender to any voting rights or other rights as a stockholder of the Company,
and no dividends shall be payable or accrue with respect to the rights set
forth herein or the securities issuable upon the surrender of the Warrant(s),
unless and until the Warrant(s) shall be surrendered and converted into shares
of common stock.
8. Borrower agrees to be bound by each of the provisions of this
Loan Agreement, the Debenture, and each of the other related documents which
Lender may require Borrower to execute hereunder, the terms of which are hereby
incorporated by this reference, and that all of these documents taken together
shall constitute the loan documents between the parties hereto.
9. Lender warrants and represents to Borrower that (a) it is an
"Accredited Investor" as defined in Regulation D ("Reg. D") promulgated by the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933
(the "Act"), (b) that it has had an opportunity to review all of Borrower's
filings with the SEC, including but not limited to Borrower's quarterly and
annual reports, (c) it has had ample opportunity to meet with Borrower's
officers and management to make such inquiries concerning Borrower and its
financial condition as Lender deems necessary, and (d) that it is acquiring
the Warrants, and the shares to be issued thereunder, for investment purposes
and not for resale. In the event securities counsel for the Company requires
that Borrower execute and deliver a suitability questionnaire confirming that
Lender is an "Accredited Investor", Lender will do so promptly.
10. The parties acknowledge that the Warrants, and the shares to be
issued thereunder, are and will be issued pursuant to Reg. D to an Accredited
Investor and pursuant to Regulation S promulgated
<PAGE> 5
UStel, Inc.
June 10, 1996
Page 5
by the SEC under the Act. Lender warrants that it is a non-U.S.
citizen/resident, and further acknowledges that the subject securities cannot
be resold in the United States unless registered with the SEC or otherwise
pursuant to an applicable exemption.
11. In the event Lender cannot sell the shares to be issued under
the Warrants within forty-one (41) days of their issuance pursuant to a
Regulation S or other applicable exemption, Borrower agrees to expeditiously
register said shares with the SEC to make them freely tradeable.
12. All notices, requests, demands, or other communications
required or permitted under the loan documents, or any of them, shall be in
writing and shall be deemed to have been duly given, made and received when
delivered against receipt or when deposited in the United States mails, first
class postage prepaid, certified or registered, return receipt requested,
addressed as set forth below:
If to the Borrower:
USTEL, INC.
2775 South Rainbow Boulevard
Suite 102-A
Las Vegas, NV 89102
If to Lender:
JEFLOR, INC.
c/o Kalmak London, Ltd.
56 Ludgate House
170-111 Fleet Street
London, England EC4A2AB
Either party may change the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with
the provisions of this paragraph for the giving of notice.
13. The rights granted hereunder to each of Borrower and Lender are
personal to each such party and may not be assigned or transferred, except as
may be otherwise expressly provided for herein.
14. This Loan Agreement may be executed in counterparts, all of
which when taken together shall constitute one document.
<PAGE> 6
UStel, Inc.
June 10, 1996
Page 6
15. This transaction shall be at no cost to Lender; Borrower shall
pay all costs and expenses incurred with respect hereto, including all
reasonable legal and filing fees and costs.
16. In the event of a dispute arising hereunder, the prevailing
party shall be entitled to its reasonable attorneys' fees and costs. This
Agreement shall be construed in accordance with the laws of the State of
Nevada. Any actions brought hereunder shall be subject to the jurisdiction of
the Superior Court of the State of California, for the County of Los Angeles.
If the foregoing accurately reflects our agreement, please sign and
return the enclosed copy of this letter signifying our acceptance of these
terms and conditions.
Very truly yours,
JEFLOR, INC.,
A Panamanian Corporation
By:
-------------------------------
Its:
--------------------------------
ACKNOWLEDGED, CONFIRMED, AND AGREED TO THIS 19TH DAY OF JUNE, 1996.
USTEL, INC. A Minnesota Corporation
By: /s/ NOAM SCHWARTZ
---------------------------
NOAM SCHWARTZ, President
<PAGE> 7
FIRST AMENDMENT TO SUBORDINATED
CONVERTIBLE DEBENTURE
That certain Subordinated Convertible Debenture, dated June 19, 1996,
in the principal sum of $1,200,000.00 (the "Debenture"), and executed by UStel,
Inc., a Minnesota Corporation, in favor of JEFLOR, INC., a Panamanian
Corporation, is amended as set forth below. All words appearing in this First
Amendment with initial capital letters shall have the same meaning as set forth
in the Debenture.
1. Paragraph 1 of the Debenture is superseded and restated to read, as
follows:
"1. Subject to the provisions of Paragraph 2 below, the outstanding
principal balance of this Debenture, together with any accrued and unpaid
interest thereon, and such additional sums as may be specified herein, shall be
due and payable in full on June 19, 1997 (the "Maturity Date"). Commencing on
September 19, 1996, and continuing on each December 19, March 19, June 19, and
September 19 thereafter until the Maturity Date, Borrower shall make interest
only payments to Lender in the sum of Thirty-six Thousand Dollars
($36,000.00). On the Maturity Date, in addition to the outstanding principal
balance of this Debenture, and any accrued and unpaid interest, Borrower shall
pay to holder the sum of Forty-eight Thousand Dollars ($48,000.00) as deferred
loan fees payable to holder in connection with the making of this Debenture.
Borrower may pre-pay all or any part of this Debenture at any time without
penalty or charge."
2. Except as set forth herein, all of the terms and conditions of the
Debenture remain in full and effect and unchanged.
IN WITNESS WHEREOF, this First Amendment is executed effective as of
this 19th day of June, 1996.
USTEL, INC.,
A Minnesota Corporation
By:
-------------------------------
NOAM SCHWARTZ,
President
<PAGE> 1
EXHIBIT 10.60(b)
SUBORDINATED CONVERTIBLE DEBENTURE
$1,200,000.00 Las Vegas, Nevada June 19th, 1996
FOR VALUE RECEIVED, the undersigned, USTEL, INC., a Minnesota
corporation ("Borrower"), promises to pay to JEFLOR, INC., a Panamanian
Corporation ("Lender" or "holder"), or order, at Las Vegas, Nevada, or such
other place as the holder hereof may designate, in lawful money of the United
States of America, the principal sum of One Million Two Hundred Thousand
Dollars ($1,200,000.00), with interest thereon from the date hereof at the rate
of 12% per annum (the "Loan"), and payable as set forth herein.
1. Subject to the provisions of Paragraph 2 below, the outstanding
principal balance of this Debenture, together with all accrued and unpaid
interest thereon, and such additional sums as may be specified herein, shall be
due and payable in full on June __, 1997 (the "Maturity Date"). On the Maturity
Date, in addition to the outstanding principal balance of this Debenture, and
all accrued and unpaid interest, Borrower shall pay to holder the sum of
Forty-Eight Thousand Dollars ($48,000.00) as deferred loan fees payable to
holder in connection with the making of this Debenture. Borrower may pre-pay
all or any part of this Debenture at any time without penalty or charge.
2. Prepayment of the principal obligation of this Debenture shall
be subject to the following restrictions to ensure Borrower's compliance with
existing loan covenants in favor of its senior lender:
2.1 The Loan cannot be repaid from Borrower's cash flow should
such repayment cause Borrower's cash flow coverage to be less than 1:00 to 1:00;
2.2 The Loan, or any part thereof, may be repaid at any time
from new equity invested in Company;
2.3 The Loan, or any part thereof, may be repaid from the
proceeds of new debt borrowed by the Company;
2.4 The Loan, or any part thereof, may be repaid by conversion
of the Debenture to equity, as further detailed in Paragraph 4 below;
2.5 In the event the foregoing restrictions preclude repayment
of the Loan on the Maturity Date, the Loan shall be extended for additional
terms of ninety (90) days each, provided all accrued interest is paid to Lender
prior to any such extension. In no event shall the Loan be extended beyond
June 30, 1998.
1
<PAGE> 2
3. Upon the Borrower's failure to make any payment called for
hereunder, or upon the commencement of any bankruptcy or insolvency proceeding
against Borrower which is not dismissed within sixty (60) days thereafter, the
holder of this Debenture, at holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by Borrower.
4. The holder of this Debenture may at any time prior to the
Maturity Date utilize some or all of the principal balance and accrued interest
owing hereunder in connection with holder's exercise of one or more Warrants
issued to holder concurrently herewith, upon the terms set forth in the Loan
Agreement between the parties of even date herewith.
5. Borrower agrees to pay all reasonable costs and expenses,
including reasonable attorneys' fees, expended or incurred by the holder in
connection with the enforcement of this Debenture, the collection of any sums
due hereunder, any actions for declaratory relief in any way related to this
Debenture, or the protection or preservation of any rights of the holder
hereunder. This Debenture shall be construed in accordance with the laws of
the State of Nevada. Actions brought under this Debenture shall be subject to
the jurisdiction of the Superior Court of the State of California for the
County of Los Angeles.
USTEL, Inc.
A Minnesota Corporation
By: [ILLEGIBLE]
------------------------------
Title: President/CEO
<PAGE> 3
EXHIBIT 10.60(c)
USTEL, INC.
WARRANT
USTEL, INC., a Minnesota corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, JEFLOR, INC., a Panamanian Corporation (the "Holder"),
is entitled, subject to the terms set forth below, at any time and from time to
time, but no earlier than sixty (60) days from June 21, 1996 (the "Issue
Date"), and no later than five (5) years from the Issue Date, to purchase from
the Company One Hundred Twenty Thousand (120,000) shares of Common Stock (the
"Shares") of the Company at the purchase price of Five Dollars ($5.00) per
share (the "Purchase Price"). This Warrant is issued to Holder pursuant to
that certain Loan Agreement between the Company and Holder, dated June 10, 1996
(the "Loan Agreement").
This Warrant, and all rights hereunder, to the extent such rights shall
not have been exercised, shall terminate and become null and void to the extent
the Holder fails to exercise any portion of this Warrant prior to 5:00 p.m.,
Pacific Daylight Savings Time, on June 29, 2001.
1. EXERCISE OF WARRANTS.
1.1 All or any part of this Warrant may be exercised by the Holder
by surrendering it, with the form of subscription at the end hereof duly
executed by such Holder, to the Company's transfer agent accompanied by payment
in full of the Purchase Price in respect of all or part of this Warrant being
exercised. The Purchase Price shall be payable in cash or by certified or
official bank check, or by cancellation of all or a portion of the sums due
Holder by the Company under that certain Subordinated Convertible Debenture
dated June 19, 1996, as provided for in the Loan Agreement. If less than the
entire Warrant is exercised, the Company shall, upon such exercise, execute and
deliver to the Holder thereof a new warrant in the same form as this Warrant
evidencing the Warrant to the extent not exercised.
1.2 The Company shall, at the time of any exercise of all or part
of this Warrant, upon the request of the Holder hereof, acknowledge in writing
its continuing obligation to afford to such Holder any rights to which such
Holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the Holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligations of the Company to afford to such Holder any such rights.
1.3 Any other provision of this Warrant to the contrary
notwithstanding, Holder may immediately exercise all or any part of this
Warrant in the event (a) the Company merges with or into any
1
<PAGE> 4
other corporation (other than a merger or consolidation with or into a wholly
owned subsidiary in which the Company is the surviving entity), or (b) there is
a "change of control" with respect to the Company, which shall hereinafter be
defined as any sale, disposition, or transfer of more than fifty percent (50%)
of the outstanding voting power of the Company as of the Issue Date.
2. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANTS. This Warrant may
not be sold, transferred, assigned or hypothecated by Holder, and is expressly
restricted from any sale, transfer, assignment, or hypothecation, except to a
trust, corporation, or other entity owned or controlled by Holder, or by
operation of law, provided that Holder first deliver to the Company the written
opinion of Holder's counsel, in form and substance acceptable to the Company in
its sole discretion, to the effect that such sale, transfer, or assignment is
exempt from registration under the Act, and that Holder secure the prior
written consent of the Company thereto, which consent shall not be unreasonably
withheld. Any such consented to assignment shall be made by surrender of this
Warrant to American Securities Transfer, Inc. (the "Transfer Agent") with such
form of assignment as may be requested by the Transfer Agent and funds
sufficient to pay any transfer tax; whereupon the Transfer Agent shall, without
charge, cause to be executed and delivered a new Warrant in the name of the
assignee named in such instrument or assignment and this Warrant shall promptly
be cancelled. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof to the office of the Transfer
Agent together with a written notice specifying the names and denomination in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrants" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification
including a surety bond, and upon surrender and cancellation of this Warrant,
if mutilated, the Transfer Agent will cause to be executed and delivered a new
Warrant of like tenor and date. Any such new Warrants executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
3. FRACTIONAL SHARES. No fractional securities shall be issued
upon the exercise of this Warrant. With respect to any fraction of a share
otherwise resulting from any such exercise hereof, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional securities, determined by the last reported
sale price of the security on the last business day prior to the date of
exercise of this Warrant, or if no such sale is made on such day, the average
closing bid and asked prices for such day.
2
<PAGE> 5
4. RIGHTS OF THE HOLDER. The Holder of this Warrant shall not,
by virtue hereof, be entitled to any rights of a stockholder in the Company,
either at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant.
5. ADJUSTMENTS.
(a) The number of securities purchasable on exercise of this
Warrant and the purchase price therefor shall be subject to adjustment from
time to time in the event that the Company shall: (1) pay a dividend in, or
make a distribution of, shares of Common Stock, (2) subdivide its outstanding
shares of Common Stock into a greater number of shares, (3) combine its
outstanding shares of Common Stock into a smaller number of shares, or (4)
spin-off a subsidiary by distributing, as a dividend or otherwise, shares of
the subsidiary to its stockholders. In any case, the total number of shares
and the number of shares or other units of such total securities purchasable on
exercise of this Warrant immediately prior thereto shall be adjusted so that
the Holder shall be entitled to receive, at the same aggregate purchase price,
the number of shares of Common Stock and the number of shares of other units of
such other securities that the Holder would have owned or would have been
entitled to receive immediately following the occurrence of any of the events
described above had this Warrant been exercised in full immediately prior to
the occurrence (or applicable record date) of such event. An adjustment made
pursuant to this Section 6(a) shall, in the case of a stock dividend or
distribution, be made as of the record date and, in the case of a subdivision
or combination, be made as of the effective date thereof. If, as a result of
any adjustment pursuant to this Section 6(a), the Holder shall become entitled
to receive shares of two or more classes of series of securities of the
Company, the Board of Directors of the Company shall equitably determine the
allocation of the adjusted Purchase Price between or among shares or other units
of such classes or series and shall notify the Holder of such allocation. No
adjustments will be made until the cumulative adjustments in the exercise price
per share amount to Five Cents ($0.05) or more. No adjustment to the exercise
price of the shares subject to the Warrants will be made for dividends (other
than stock dividends), if any, paid on the Common Stock or for securities
issued pursuant to the Company's Stock Option Plan or other employee benefit
plans of the Company. For example, if the Company declares a 2-for-1 stock
dividend or stock split, then the number of Shares then subject to this
Warrant shall be doubled, the per Share exercise price of this Warrant shall be
reduced by 50 percent, the number of shares of Common Stock then subject to
the Warrants shall likewise be doubled, and the per share exercise price of the
Warrants shall likewise be reduced by 50 percent. Such adjustments shall be
made successively whenever any event described by this Section shall occur.
(b) In the event of any reorganization or recapitalization of
the Company or in the event the Company consolidates with or merges into
another entity or transfers all or
3
<PAGE> 6
substantially all of its assets to another entity, then and in each such event,
the Holder, on exercise of this Warrant as provided herein, at any time after
the consummation of such reorganization, recapitalization, consolidation,
merger or transfer, shall be entitled, and the documents executed to effectuate
such event shall so provide, to receive the stock or other securities or
property to which the Holder would have been entitled upon such consummation if
the Holder had exercised this Warrant immediately prior thereto. In such case,
the terms of this Warrant shall survive the consummation of any such
reorganization, recapitalization, consolidation, merger or transfer and shall
be applicable to the shares of stock or other securities or property receivable
on the exercise of this Warrant after consummation.
(c) Whenever a reference is made in this Section 6 to the
issue or sale of shares of Common Stock, the term "Common Stock" shall mean
the Common Stock of the Company of the class authorized as of the date hereof
and any other class stock ranking on a parity with such Common Stock.
(d) Whenever the number of securities purchasable upon
exercise of this Warrant or the Purchase Prices thereof shall be adjusted as
required herein, the Company shall forthwith file in the custody of its
secretary at its principal office, and with its Transfer Agent, an officer's
certificate showing the adjusted number or price determined as herein provided
and setting forth in detail the facts requiring such adjustment. Each such
office's certificate shall be made available at all reasonable times for
inspection by the Holder, and the Company shall, forthwith after such
adjustment, deliver a copy of such certificate to the Holder.
(e) The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action avoid or seek to avoid the performance of any of the
terms of this Warrant, but will at all times, in good faith take all necessary
action to carry out the intent of all such terms. Without limiting the
generality of the foregoing, the Company (1) will not create any par value, or
increase the par value, of any securities receivable on exercise of this Warrant
above the amount payable therefor on such exercise, (2) will take all action as
may be necessary or appropriate so that the Company may validly and legally
issue fully paid and non assessable shares (or other securities or property
deliverable hereunder) upon the exercise of this Warrant, and (3) will not
transfer all or substantially all of its assets to any other person (corporate
or otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall be bound by all the terms
of this Warrant. If any event occurs as to which the other provisions of this
Warrant are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of this Warrant in accordance with the
4
<PAGE> 7
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, in order to protect such purchase
rights. This Warrant shall bind the successors and assigns of the Company.
6. STATUS UNDER SECURITIES LAWS.
(a) This Warrant constitutes, and the shares which may be
purchased hereunder will be, "restricted securities" within the meaning of Rule
144 ("Rule 144") under the Securities Act of 1933, as amended (the "1933 Act").
The rights to purchase set forth herein have not been, and the shares which may
be purchased hereunder will not be, registered under the 1933 Act, the Arizona
Securities Act (the "Arizona Act"), or the securities laws of any other
jurisdiction, and must be held indefinitely without any transfer, sale or other
disposition unless they are subsequently registered under the 1933 Act, the
Arizona Act, or the securities laws of any applicable jurisdiction or, in the
written opinion of counsel retained by Holder and acceptable to the Company, in
its sole discretion, registration is not required under such Acts as the result
of an available exemption.
(b) Holder acknowledges that the Warrants, and the shares to be
issued thereunder, are and will be issued pursuant to Regulation D promulgated
under the 1933 Act to an Accredited Investor as defined therein, and pursuant to
Regulation S promulgated by the Securities and Exchange Commission under the
1933 Act. Holder acknowledges that it is a non-U.S. citizen/resident, and
further acknowledges that neither the Warrants nor the shares issued thereunder
can be resold in the United States unless registered with the Securities and
Exchange Commission or otherwise pursuant to an applicable exemption.
(c) Holder shall not sell, transfer, assign, or hypothecate any
shares of the Company's common stock acquired pursuant to the rights hereby
conferred; provided, however, that nothing contained shall restrict the right of
the Holder (i) to transfer in any way any shares of common stock acquired
hereunder to his or her spouse or children or to a trust for the benefit of his
or her spouse or children or both or (ii) to sell shares of common stock
acquired pursuant to conversion in an "ordinary broker's transaction" in
accordance with Rule 144 if Holder first provides the Company with a written
opinion of counsel, satisfactory to the Company, that any such sale or transfer
is either exempt from registration under the 1933 Act, or qualifies as an
ordinary broker's transaction in accordance with Rule 144.
(d) There shall be endorsed on the certificates evidencing any
shares issued upon the conversion rights set forth herein a legend stating
substantially, as follows:
5
<PAGE> 8
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH SHARES
ARE RESTRICTED SECURITIES AS DEFINED BY RULE 144 UNDER THAT ACT. THESE
SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT REGISTERING THE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR, IN LIEU THEREOF, AN OPINION OF
COUNSEL ACCEPTABLE TO THIS COMPANY TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THAT ACT. WITHOUT LIMITING THE FOREGOING, THE SHARES
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF WITHOUT AN
OPINION OF COUNSEL ACCEPTABLE TO THIS COMPANY THAT SUCH TRANSFER, SALE
OR OTHER DISPOSITION DOES NOT VIOLATE THE ARIZONA SECURITIES ACT OR THE
SECURITIES LAWS OF ANY JURISDICTION, OR THE RULES AND REGULATIONS
THEREUNDER."
Except upon certain limited circumstances, the restrictions on
the transfer of any shares issued upon the purchase rights herein will also
apply to any and all shares of capital stock or other securities issued or
otherwise acquired with respect thereto including, without limitation, shares
and securities issued or acquired as a result of any stock dividend, stock split
or exchange or any distribution of shares or securities pursuant to any
corporate reorganization, reclassification or similar event. The Company may
refuse to effect a transfer, sale or other disposition of the shares issuable
upon conversion hereof by the Holder or its successors or assigns.
7. NOTICES OF RECORD DATES, ETC. If the Company shall fix a record
date of the holders of Common Stock (or other securities at the time deliverable
on exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividends or other distribution, or to receive any right to
subscribe for or purchase any shares of any class of any securities; or (b) In
the event of any reorganization or recapitalization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation or any transfer of all or
substantially all of the assets of the Company to another entity; or (c) In the
event of the voluntary or involuntary dissolution, liquidation or winding up of
the Company, then, in any such event, the Company shall mail or cause to be
mailed to the Holder of this Warrant a notice specifying, as the case may be,
(1) the date on which a record is to be taken for the purpose of such dividend,
distribution or right and stating the amount and character of such dividend,
distribution or right, or (2) the date on which a record is to be taken for the
purpose of voting on or approving such reorganization, recapitalization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up and the date on which such event is to take place and the time, if
any is to be fixed, as of which the holder of record of Common Stock (or any
other securities at the time deliverable on exercise of this Warrant or the
Warrants) shall be entitled to exchange its shares
6
<PAGE> 9
of Common Stock (or such other securities) for securities or other property
deliverable on such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up. Such
notice shall be mailed at the same date as the Company shall inform its
stockholders.
8. RESERVATION OF SHARES. The Company shall at all times reserve,
for the purpose of issuance on exercise of this Warrant such number of shares
of Common Stock or such class or classes of capital stock or other securities
as shall from time to time be sufficient to comply with this Warrant and the
Warrants, and the Company shall take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized and unissued
shares of Common Stock or such other class or classes of capital stock or other
securities to such number as shall be sufficient for that purpose.
9. SURVIVAL. All agreements, covenants, representations and
warranties herein shall survive the execution and delivery of this Warrant.
10. REMEDIES. The Company agrees that the remedies at law of the
Holder, in the event of any default or threatened default by the Company in the
performance or compliance with any of the terms of this Warrant, may not be
adequate and such terms may, in addition to and not in lieu of any other remedy,
be specifically enforced by a decree of specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. NOTICES. All demands, notices, consents and other
communications to be given hereunder shall be in writing and shall be deemed
duly given when delivered personally or five (5) days after being mailed by
first class mail, postage prepaid, properly addressed, if to the Company at 2775
South Rainbow Boulevard, Suite 102-A, Las Vegas, Nevada 89102, or if to the
Holder c/o Kalmak London, Ltd., 56 Ludgate House, 170111 Fleet Street, London,
England EC4A2AB. The Company and each Holder may change such address at any time
or times by notice hereunder to the other.
12. AMENDMENTS; WAIVERS; TERMINATIONS; GOVERNING LAW; HEADINGS. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be governed
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by and construed and interpreted in accordance with the laws of the State of
Nevada. The headings in this Warrant are for convenience of reference only and
are not part of this Warrant.
DATED: June 21, 1996. USTEL, INC.,
a Minnesota corporation
By: /s/ NOAM SCHWARTZ
-----------------------
NOAM SCHWARTZ,
Chief Executive Officer
ATTEST:
By: [SIG]
-------------
Its Secretary
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EXHIBIT 10.60(d)
GUARANTY OF LOAN
Each of the undersigned (individually called a "Guarantor" and
collectively the "Guarantors") is executing this Guaranty to induce JEFLOR,
INC., a Panamanian Corporation ("Lender"), to make a loan in the amount of
$1,200,000.00 (the "Loan") to USTEL, INC., A Minnesota Corporation (the
"Borrower"). The Loan will be evidenced by a Subordinated Convertible Debenture
of the Borrower (the "Note") dated June 19, 1996.
1. LOAN GUARANTY.
Each Guarantor unconditionally, jointly and severally,
guarantees to Lender the full payment and performance of all of the Borrower's
present and future indebtedness and obligations under the Note and under all
modifications, renewals and extensions of those instruments, whether such
indebtedness and obligations be voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether the Borrower may be liable individually
or jointly with others or whether recovery upon such indebtedness or
obligations may be or hereafter become barred by any statute of limitations, or
whether such indebtedness may be or hereafter become otherwise unenforceable.
All such indebtedness and obligations are referred to in this Guaranty as the
"Indebtedness," and will be payable by each Guarantor to Lender immediately on
demand in the event of any default of the Borrower with respect to the
Indebtedness or any part thereof. Without limiting the foregoing, full payment
of the Indebtedness of the Borrower to Lender shall, whether or not then
otherwise due or payable in full by the Borrower, be due and owing in full by
the Guarantors to Lender upon (a) the death, dissolution, liquidation,
insolvency or business failure of, or any assignment for the benefit of
creditors by, or commencement of any bankruptcy, reorganization, receivership,
moratorium or other debtor relief proceedings by or against the Borrower or any
Guarantor, or (b) the appointment of a receiver for, or the attachment,
sequestration, restraint of or making or levying of any order of court or legal
process affecting any real or personal property of the Borrower or any
Guarantor; and in any such event each Guarantor unconditionally promises to pay
such Indebtedness to Lender or order, on demand, in lawful money of the United
States.
2. RIGHTS OF LENDER. Each Guarantor authorizes Lender at any time
in its discretion to renew, extend, accelerate or otherwise alter any of the
terms of the Indebtedness, to take and hold any security for the Indebtedness
or this Guaranty, and to accept additional or substituted security, to
subordinate, compromise, waive or release any security, to apply such security
and direct the order or manner of sale thereof, to release the Borrower of its
liability for all or any part of the Indebtedness, to release, substitute or
add any one or more guarantors or
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endorsers, and to assign this Guaranty in whole or in part. Lender may take
any of the foregoing actions upon any terms and conditions as Lender may elect,
without giving notice to any Guarantor or obtaining the consent of any
Guarantor and without affecting the liability of any Guarantor to Lender.
3. INDEPENDENT OBLIGATIONS. Each Guarantor's obligations under this
Guaranty are independent of those of the Borrower. Lender may bring a separate
action against any one or more of the Guarantors without first proceeding
against the Borrower or any other person or any security held by Lender and
without pursuing any other remedy. Lender's rights under this Guaranty will not
be exhausted by any action by Lender until all of the Indebtedness and all other
obligations of the Borrower under the Note have been fully paid and performed.
4. WAIVERS OF DEFENSES. Each Guarantor waives: (a) all statutes of
limitations as a defense to any action brought against such Guarantor by Lender
to the fullest extent permitted by law, and any right to require Lender to
proceed against the Borrower or to proceed against or exhaust any security held
from the Borrower or to proceed against any other Guarantor or any other person
liable on the Indebtedness, or to pursue any other remedy in Lender's power
whatsoever; (b) any defense based upon any legal disability of the Borrower or
any discharge or limitation of the liability of the Borrower to Lender, whether
consensual or arising by operation of law or any bankruptcy, reorganization,
receivership, insolvency, or debtor-relief proceeding, or from any other cause;
(c) any benefit of and any right to participate in collateral held for the
Indebtedness, any right to have the property of the Borrower first applied to
the discharge of the Indebtedness, and all presentments, demands, protests and
notices of any kind whatsoever, (d) any defense based upon or arising out of
any disability or other defense which the Borrower may have to the payment or
performance of any part of the Indebtedness, or by reason of the cessation from
any cause whatsoever of the liability, either in whole or in part, of the
Borrower to Lender for the Indebtedness and any defense arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of the Guarantor against the
Borrower or any security, whether resulting from election by Lender or
otherwise; (e) any defense arising out of the absence, impairment or loss of
any right of reimbursement, contribution or subrogation, or any other rights or
defenses available to a surety, including without limitation those set forth in
Sections 2787 to 2855, inclusive, of the California Civil Code; (f) any
defense, right or remedy of the Guarantor against the Borrower or any security,
whether resulting from the election by Lender or otherwise, including but not
limited to the complete defense Guarantor would otherwise have in any action
brought on this Guaranty which results from Guarantor's loss of subrogation
rights against Borrower should Lender proceed against real property collateral
given by Borrower to Lender in a manner which, pursuant to Sections 580a, 580b,
580d and/or 726 of the California Code of Civil Procedure, eliminates
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the ability of Lender and/or Guarantor to secure a deficiency judgment against
Borrower; (g) the benefits of the provisions of Section 2787 through 2855,
inclusive of the California Civil Code, and the provisions of Sections 580a,
580b, 580d and 726 of the California Code of Civil Procedure; (h) any defenses
the Guarantor may have by reason of an election of remedies by Lender; (i)
notwithstanding any payments made by any Guarantor to Lender made pursuant to
this Guaranty, all rights of subrogation, all rights to enforce any remedy that
Lender may have against the Borrower, and all rights to participate in any
security (whether real or personal property) held by Lender for the
Indebtedness; (j) all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the Borrower by the operation of Section 580d of the Code of Civil Procedure or
otherwise; each such waiver to remain in effect until the Indebtedness has been
paid and performed in full.
5. BORROWER'S FINANCIAL CONDITION. Each Guarantor assumes full
responsibility for keeping fully informed of the financial condition of the
Borrower and each other Guarantor and all other circumstances affecting the
Borrower's ability to perform its obligations to Lender and agrees that Lender
will have no duty to report to any Guarantor any information which Lender
receives about the Borrower's or any Guarantor's financial condition or any
circumstances bearing on its ability to perform.
6. VALIDITY OF LOAN DOCUMENTS. Each Guarantor hereby warrants to
Lender that the Note is the valid, binding and enforceable obligations of
Borrower in accordance with its terms and conditions. Each Guarantor further
warrants that there are no defenses or rights of setoff of Borrower or any
party to the Note, and that the Indebtedness is and shall be due and payable in
accordance with the Note. It is not necessary for Lender to inquire into the
powers of the Borrower or the officers, directors, partners, trustees or agents
acting or purporting to act on the Borrower's behalf.
7. DEFAULT. Lender may declare all of the Guarantors in default under
this Guaranty if any one or more Guarantors fails to perform any of its
obligations under this Guaranty or becomes the subject of any bankruptcy,
insolvency, arrangement, reorganization, or other debtor-relief proceeding under
any federal or state law, whether now existing or hereafter enacted.
8. COSTS AND EXPENSES. Each Guarantor agrees to pay Lender's
reasonable out-of-pocket costs and expenses, including but not limited to legal
fees and disbursements, incurred in any effort to collect or enforce any of the
Indebtedness or this Guaranty, whether or not any lawsuit is filed.
9. NOTICES. Any notice, demand or request by Lender to any Guarantor
shall be in writing and shall be deemed to have been duly
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given or made if mailed by certified or registered mail addressed to such
Guarantor at its address set forth opposite its signature.
10. DELAY; CUMULATIVE REMEDIES. No delay or failure by Lender to
exercise any rights or remedy against the Borrower or any Guarantor will be
construed as a waiver of that right or remedy. All remedies of Lender against
the Borrower and each Guarantor are cumulative. The liability of each Guarantor
hereunder will in no way be affected or impaired by any failure on the part of
Lender to realize upon or protect any of the Indebtedness or any collateral or
security therefor, or to execute any lien upon or right of appropriation of any
monies, credits, or Property of Guarantor possessed by Lender toward the
liquidation of such Indebtedness or by any application of payments or credits
thereon or by any extensions or renewals given by Lender.
11. MISCELLANEOUS. The invalidity or unenforceability of any one
or more provisions of this Guaranty will not affect any other provision. This
Guaranty will be governed by California law, and may be amended only by a
written instrument executed by the Guarantors and Lender. The obligations of
each Guarantor under this Guaranty will be joint and several. The provisions of
this Guaranty will bind and benefit the heirs, executors, administrators, legal
representatives, successor and assigns of each Guarantor and Lender. Whenever
the context requires, all terms used in the singular will be construed in the
plural and vice versa, and each gender will include each other gender. Headings
of the sections of this Guaranty are inserted for convenience only and are not a
part hereof. The term "Borrower" will mean both the named Borrower and any other
person or entity at any time assuming or otherwise becoming primarily liable on
all or any part of the Indebtedness.
Dated: June 17, 1996.
Address for Notices: /s/ Noam Schwartz
----------------------------------
3160 South Valley View Noam Schwartz
-----------------------
Suite 205 /s/ Ronnie Schwartz
----------------------- ----------------------------------
Las Vegas, NV 89102 Ronnie Schwartz
-----------------------
/s/ Haskel Iny
----------------------------------
Haskel Iny
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<PAGE> 1
EXHIBIT 10.60(c)
USTEL, INC.
WARRANT
USTEL, INC., a Minnesota corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, JEFLOR, INC., a Panamanian Corporation (the "Holder"),
is entitled, subject to the terms set forth below, at any time and from time to
time, but no earlier than sixty (60) days from June 21, 1996 (the "Issue
Date"), and no later than five (5) years from the Issue Date, to purchase from
the Company One Hundred Twenty Thousand (120,000) shares of Common Stock (the
"Shares") of the Company at the purchase price of Five Dollars ($5.00) per
share (the "Purchase Price"). This Warrant is issued to Holder pursuant to
that certain Loan Agreement between the Company and Holder, dated June 10, 1996
(the "Loan Agreement").
This Warrant, and all rights hereunder, to the extent such rights shall
not have been exercised, shall terminate and become null and void to the extent
the Holder fails to exercise any portion of this Warrant prior to 5:00 p.m.,
Pacific Daylight Savings Time, on June 29, 2001.
1. EXERCISE OF WARRANTS.
1.1 All or any part of this Warrant may be exercised by the Holder
by surrendering it, with the form of subscription at the end hereof duly
executed by such Holder, to the Company's transfer agent accompanied by payment
in full of the Purchase Price in respect of all or part of this Warrant being
exercised. The Purchase Price shall be payable in cash or by certified or
official bank check, or by cancellation of all or a portion of the sums due
Holder by the Company under that certain Subordinated Convertible Debenture
dated June 19, 1996, as provided for in the Loan Agreement. If less than the
entire Warrant is exercised, the Company shall, upon such exercise, execute and
deliver to the Holder thereof a new warrant in the same form as this Warrant
evidencing the Warrant to the extent not exercised.
1.2 The Company shall, at the time of any exercise of all or part
of this Warrant, upon the request of the Holder hereof, acknowledge in writing
its continuing obligation to afford to such Holder any rights to which such
Holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the Holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligations of the Company to afford to such Holder any such rights.
1.3 Any other provision of this Warrant to the contrary
notwithstanding, Holder may immediately exercise all or any part of this
Warrant in the event (a) the Company merges with or into any
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other corporation (other than a merger or consolidation with or into a wholly
owned subsidiary in which the Company is the surviving entity), or (b) there is
a "change of control" with respect to the Company, which shall hereinafter be
defined as any sale, disposition, or transfer of more than fifty percent (50%)
of the outstanding voting power of the Company as of the Issue Date.
2. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANTS. This Warrant may
not be sold, transferred, assigned or hypothecated by Holder, and is expressly
restricted from any sale, transfer, assignment, or hypothecation, except to a
trust, corporation, or other entity owned or controlled by Holder, or by
operation of law, provided that Holder first deliver to the Company the written
opinion of Holder's counsel, in form and substance acceptable to the Company in
its sole discretion, to the effect that such sale, transfer, or assignment is
exempt from registration under the Act, and that Holder secure the prior
written consent of the Company thereto, which consent shall not be unreasonably
withheld. Any such consented to assignment shall be made by surrender of this
Warrant to American Securities Transfer, Inc. (the "Transfer Agent") with such
form of assignment as may be requested by the Transfer Agent and funds
sufficient to pay any transfer tax; whereupon the Transfer Agent shall, without
charge, cause to be executed and delivered a new Warrant in the name of the
assignee named in such instrument or assignment and this Warrant shall promptly
be cancelled. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof to the office of the Transfer
Agent together with a written notice specifying the names and denomination in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrants" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification
including a surety bond, and upon surrender and cancellation of this Warrant,
if mutilated, the Transfer Agent will cause to be executed and delivered a new
Warrant of like tenor and date. Any such new Warrants executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
3. FRACTIONAL SHARES. No fractional securities shall be issued
upon the exercise of this Warrant. With respect to any fraction of a share
otherwise resulting from any such exercise hereof, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional securities, determined by the last reported
sale price of the security on the last business day prior to the date of
exercise of this Warrant, or if no such sale is made on such day, the average
closing bid and asked prices for such day.
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<PAGE> 3
4. RIGHTS OF THE HOLDER. The Holder of this Warrant shall not,
by virtue hereof, be entitled to any rights of a stockholder in the Company,
either at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant.
5. ADJUSTMENTS.
(a) The number of securities purchasable on exercise of this
Warrant and the purchase price therefor shall be subject to adjustment from
time to time in the event that the Company shall: (1) pay a dividend in, or
make a distribution of, shares of Common Stock, (2) subdivide its outstanding
shares of Common Stock into a greater number of shares, (3) combine its
outstanding shares of Common Stock into a smaller number of shares, or (4)
spin-off a subsidiary by distributing, as a dividend or otherwise, shares of
the subsidiary to its stockholders. In any case, the total number of shares
and the number of shares or other units of such total securities purchasable on
exercise of this Warrant immediately prior thereto shall be adjusted so that
the Holder shall be entitled to receive, at the same aggregate purchase price,
the number of shares of Common Stock and the number of shares of other units of
such other securities that the Holder would have owned or would have been
entitled to receive immediately following the occurrence of any of the events
described above had this Warrant been exercised in full immediately prior to
the occurrence (or applicable record date) of such event. An adjustment made
pursuant to this Section 6(a) shall, in the case of a stock dividend or
distribution, be made as of the record date and, in the case of a subdivision
or combination, be made as of the effective date thereof. If, as a result of
any adjustment pursuant to this Section 6(a), the Holder shall become entitled
to receive shares of two or more classes of series of securities of the
Company, the Board of Directors of the Company shall equitably determine the
allocation of the adjusted Purchase Price between or among shares or other units
of such classes or series and shall notify the Holder of such allocation. No
adjustments will be made until the cumulative adjustments in the exercise price
per share amount to Five Cents ($0.05) or more. No adjustment to the exercise
price of the shares subject to the Warrants will be made for dividends (other
than stock dividends), if any, paid on the Common Stock or for securities
issued pursuant to the Company's Stock Option Plan or other employee benefit
plans of the Company. For example, if the Company declares a 2-for-1 stock
dividend or stock split, then the number of Shares then subject to this
Warrant shall be doubled, the per Share exercise price of this Warrant shall be
reduced by 50 percent, the number of shares of Common Stock then subject to
the Warrants shall likewise be doubled, and the per share exercise price of the
Warrants shall likewise be reduced by 50 percent. Such adjustments shall be
made successively whenever any event described by this Section shall occur.
(b) In the event of any reorganization or recapitalization of
the Company or in the event the Company consolidates with or merges into
another entity or transfers all or
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substantially all of its assets to another entity, then and in each such event,
the Holder, on exercise of this Warrant as provided herein, at any time after
the consummation of such reorganization, recapitalization, consolidation,
merger or transfer, shall be entitled, and the documents executed to effectuate
such event shall so provide, to receive the stock or other securities or
property to which the Holder would have been entitled upon such consummation if
the Holder had exercised this Warrant immediately prior thereto. In such case,
the terms of this Warrant shall survive the consummation of any such
reorganization, recapitalization, consolidation, merger or transfer and shall
be applicable to the shares of stock or other securities or property receivable
on the exercise of this Warrant after consummation.
(c) Whenever a reference is made in this Section 6 to the
issue or sale of shares of Common Stock, the term "Common Stock" shall mean
the Common Stock of the Company of the class authorized as of the date hereof
and any other class stock ranking on a parity with such Common Stock.
(d) Whenever the number of securities purchasable upon
exercise of this Warrant or the Purchase Prices thereof shall be adjusted as
required herein, the Company shall forthwith file in the custody of its
secretary at its principal office, and with its Transfer Agent, an officer's
certificate showing the adjusted number or price determined as herein provided
and setting forth in detail the facts requiring such adjustment. Each such
office's certificate shall be made available at all reasonable times for
inspection by the Holder, and the Company shall, forthwith after such
adjustment, deliver a copy of such certificate to the Holder.
(e) The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action avoid or seek to avoid the performance of any of the
terms of this Warrant, but will at all times, in good faith take all necessary
action to carry out the intent of all such terms. Without limiting the
generality of the foregoing, the Company (1) will not create any par value, or
increase the par value, of any securities receivable on exercise of this Warrant
above the amount payable therefor on such exercise, (2) will take all action as
may be necessary or appropriate so that the Company may validly and legally
issue fully paid and non assessable shares (or other securities or property
deliverable hereunder) upon the exercise of this Warrant, and (3) will not
transfer all or substantially all of its assets to any other person (corporate
or otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall be bound by all the terms
of this Warrant. If any event occurs as to which the other provisions of this
Warrant are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of this Warrant in accordance with the
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<PAGE> 5
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, in order to protect such purchase
rights. This Warrant shall bind the successors and assigns of the Company.
6. STATUS UNDER SECURITIES LAWS.
(a) This Warrant constitutes, and the shares which may be
purchased hereunder will be, "restricted securities" within the meaning of Rule
144 ("Rule 144") under the Securities Act of 1933, as amended (the "1933 Act").
The rights to purchase set forth herein have not been, and the shares which may
be purchased hereunder will not be, registered under the 1933 Act, the Arizona
Securities Act (the "Arizona Act"), or the securities laws of any other
jurisdiction, and must be held indefinitely without any transfer, sale or other
disposition unless they are subsequently registered under the 1933 Act, the
Arizona Act, or the securities laws of any applicable jurisdiction or, in the
written opinion of counsel retained by Holder and acceptable to the Company, in
its sole discretion, registration is not required under such Acts as the result
of an available exemption.
(b) Holder acknowledges that the Warrants, and the shares to be
issued thereunder, are and will be issued pursuant to Regulation D promulgated
under the 1933 Act to an Accredited Investor as defined therein, and pursuant to
Regulation S promulgated by the Securities and Exchange Commission under the
1933 Act. Holder acknowledges that it is a non-U.S. citizen/resident, and
further acknowledges that neither the Warrants nor the shares issued thereunder
can be resold in the United States unless registered with the Securities and
Exchange Commission or otherwise pursuant to an applicable exemption.
(c) Holder shall not sell, transfer, assign, or hypothecate any
shares of the Company's common stock acquired pursuant to the rights hereby
conferred; provided, however, that nothing contained shall restrict the right of
the Holder (i) to transfer in any way any shares of common stock acquired
hereunder to his or her spouse or children or to a trust for the benefit of his
or her spouse or children or both or (ii) to sell shares of common stock
acquired pursuant to conversion in an "ordinary broker's transaction" in
accordance with Rule 144 if Holder first provides the Company with a written
opinion of counsel, satisfactory to the Company, that any such sale or transfer
is either exempt from registration under the 1933 Act, or qualifies as an
ordinary broker's transaction in accordance with Rule 144.
(d) There shall be endorsed on the certificates evidencing any
shares issued upon the conversion rights set forth herein a legend stating
substantially, as follows:
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"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH SHARES
ARE RESTRICTED SECURITIES AS DEFINED BY RULE 144 UNDER THAT ACT. THESE
SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT REGISTERING THE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR, IN LIEU THEREOF, AN OPINION OF
COUNSEL ACCEPTABLE TO THIS COMPANY TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THAT ACT. WITHOUT LIMITING THE FOREGOING, THE SHARES
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF WITHOUT AN
OPINION OF COUNSEL ACCEPTABLE TO THIS COMPANY THAT SUCH TRANSFER, SALE
OR OTHER DISPOSITION DOES NOT VIOLATE THE ARIZONA SECURITIES ACT OR THE
SECURITIES LAWS OF ANY JURISDICTION, OR THE RULES AND REGULATIONS
THEREUNDER."
Except upon certain limited circumstances, the restrictions on
the transfer of any shares issued upon the purchase rights herein will also
apply to any and all shares of capital stock or other securities issued or
otherwise acquired with respect thereto including, without limitation, shares
and securities issued or acquired as a result of any stock dividend, stock split
or exchange or any distribution of shares or securities pursuant to any
corporate reorganization, reclassification or similar event. The Company may
refuse to effect a transfer, sale or other disposition of the shares issuable
upon conversion hereof by the Holder or its successors or assigns.
7. NOTICES OF RECORD DATES, ETC. If the Company shall fix a record
date of the holders of Common Stock (or other securities at the time deliverable
on exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividends or other distribution, or to receive any right to
subscribe for or purchase any shares of any class of any securities; or (b) In
the event of any reorganization or recapitalization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation or any transfer of all or
substantially all of the assets of the Company to another entity; or (c) In the
event of the voluntary or involuntary dissolution, liquidation or winding up of
the Company, then, in any such event, the Company shall mail or cause to be
mailed to the Holder of this Warrant a notice specifying, as the case may be,
(1) the date on which a record is to be taken for the purpose of such dividend,
distribution or right and stating the amount and character of such dividend,
distribution or right, or (2) the date on which a record is to be taken for the
purpose of voting on or approving such reorganization, recapitalization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up and the date on which such event is to take place and the time, if
any is to be fixed, as of which the holder of record of Common Stock (or any
other securities at the time deliverable on exercise of this Warrant or the
Warrants) shall be entitled to exchange its shares
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of Common Stock (or such other securities) for securities or other property
deliverable on such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up. Such
notice shall be mailed at the same date as the Company shall inform its
stockholders.
8. RESERVATION OF SHARES. The Company shall at all times reserve,
for the purpose of issuance on exercise of this Warrant such number of shares
of Common Stock or such class or classes of capital stock or other securities
as shall from time to time be sufficient to comply with this Warrant and the
Warrants, and the Company shall take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized and unissued
shares of Common Stock or such other class or classes of capital stock or other
securities to such number as shall be sufficient for that purpose.
9. SURVIVAL. All agreements, covenants, representations and
warranties herein shall survive the execution and delivery of this Warrant.
10. REMEDIES. The Company agrees that the remedies at law of the
Holder, in the event of any default or threatened default by the Company in the
performance or compliance with any of the terms of this Warrant, may not be
adequate and such terms may, in addition to and not in lieu of any other remedy,
be specifically enforced by a decree of specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. NOTICES. All demands, notices, consents and other
communications to be given hereunder shall be in writing and shall be deemed
duly given when delivered personally or five (5) days after being mailed by
first class mail, postage prepaid, properly addressed, if to the Company at 2775
South Rainbow Boulevard, Suite 102-A, Las Vegas, Nevada 89102, or if to the
Holder c/o Kalmak London, Ltd., 56 Ludgate House, 170111 Fleet Street, London,
England EC4A2AB. The Company and each Holder may change such address at any time
or times by notice hereunder to the other.
12. AMENDMENTS; WAIVERS; TERMINATIONS; GOVERNING LAW; HEADINGS. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be governed
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by and construed and interpreted in accordance with the laws of the State of
Nevada. The headings in this Warrant are for convenience of reference only and
are not part of this Warrant.
DATED: June 21, 1996. USTEL, INC.,
a Minnesota corporation
By: /s/ NOAM SCHWARTZ
-----------------------
NOAM SCHWARTZ,
Chief Executive Officer
ATTEST:
By: [SIG]
-------------
Its Secretary
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EXHIBIT 10.60(d)
GUARANTY OF LOAN
Each of the undersigned (individually called a "Guarantor" and
collectively the "Guarantors") is executing this Guaranty to induce JEFLOR,
INC., a Panamanian Corporation ("Lender"), to make a loan in the amount of
$1,200,000.00 (the "Loan") to USTEL, INC., A Minnesota Corporation (the
"Borrower"). The Loan will be evidenced by a Subordinated Convertible Debenture
of the Borrower (the "Note") dated June 19, 1996.
1. LOAN GUARANTY.
Each Guarantor unconditionally, jointly and severally,
guarantees to Lender the full payment and performance of all of the Borrower's
present and future indebtedness and obligations under the Note and under all
modifications, renewals and extensions of those instruments, whether such
indebtedness and obligations be voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether the Borrower may be liable individually
or jointly with others or whether recovery upon such indebtedness or
obligations may be or hereafter become barred by any statute of limitations, or
whether such indebtedness may be or hereafter become otherwise unenforceable.
All such indebtedness and obligations are referred to in this Guaranty as the
"Indebtedness," and will be payable by each Guarantor to Lender immediately on
demand in the event of any default of the Borrower with respect to the
Indebtedness or any part thereof. Without limiting the foregoing, full payment
of the Indebtedness of the Borrower to Lender shall, whether or not then
otherwise due or payable in full by the Borrower, be due and owing in full by
the Guarantors to Lender upon (a) the death, dissolution, liquidation,
insolvency or business failure of, or any assignment for the benefit of
creditors by, or commencement of any bankruptcy, reorganization, receivership,
moratorium or other debtor relief proceedings by or against the Borrower or any
Guarantor, or (b) the appointment of a receiver for, or the attachment,
sequestration, restraint of or making or levying of any order of court or legal
process affecting any real or personal property of the Borrower or any
Guarantor; and in any such event each Guarantor unconditionally promises to pay
such Indebtedness to Lender or order, on demand, in lawful money of the United
States.
2. RIGHTS OF LENDER. Each Guarantor authorizes Lender at any time
in its discretion to renew, extend, accelerate or otherwise alter any of the
terms of the Indebtedness, to take and hold any security for the Indebtedness
or this Guaranty, and to accept additional or substituted security, to
subordinate, compromise, waive or release any security, to apply such security
and direct the order or manner of sale thereof, to release the Borrower of its
liability for all or any part of the Indebtedness, to release, substitute or
add any one or more guarantors or
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endorsers, and to assign this Guaranty in whole or in part. Lender may take
any of the foregoing actions upon any terms and conditions as Lender may elect,
without giving notice to any Guarantor or obtaining the consent of any
Guarantor and without affecting the liability of any Guarantor to Lender.
3. INDEPENDENT OBLIGATIONS. Each Guarantor's obligations under this
Guaranty are independent of those of the Borrower. Lender may bring a separate
action against any one or more of the Guarantors without first proceeding
against the Borrower or any other person or any security held by Lender and
without pursuing any other remedy. Lender's rights under this Guaranty will not
be exhausted by any action by Lender until all of the Indebtedness and all other
obligations of the Borrower under the Note have been fully paid and performed.
4. WAIVERS OF DEFENSES. Each Guarantor waives: (a) all statutes of
limitations as a defense to any action brought against such Guarantor by Lender
to the fullest extent permitted by law, and any right to require Lender to
proceed against the Borrower or to proceed against or exhaust any security held
from the Borrower or to proceed against any other Guarantor or any other person
liable on the Indebtedness, or to pursue any other remedy in Lender's power
whatsoever; (b) any defense based upon any legal disability of the Borrower or
any discharge or limitation of the liability of the Borrower to Lender, whether
consensual or arising by operation of law or any bankruptcy, reorganization,
receivership, insolvency, or debtor-relief proceeding, or from any other cause;
(c) any benefit of and any right to participate in collateral held for the
Indebtedness, any right to have the property of the Borrower first applied to
the discharge of the Indebtedness, and all presentments, demands, protests and
notices of any kind whatsoever, (d) any defense based upon or arising out of
any disability or other defense which the Borrower may have to the payment or
performance of any part of the Indebtedness, or by reason of the cessation from
any cause whatsoever of the liability, either in whole or in part, of the
Borrower to Lender for the Indebtedness and any defense arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of the Guarantor against the
Borrower or any security, whether resulting from election by Lender or
otherwise; (e) any defense arising out of the absence, impairment or loss of
any right of reimbursement, contribution or subrogation, or any other rights or
defenses available to a surety, including without limitation those set forth in
Sections 2787 to 2855, inclusive, of the California Civil Code; (f) any
defense, right or remedy of the Guarantor against the Borrower or any security,
whether resulting from the election by Lender or otherwise, including but not
limited to the complete defense Guarantor would otherwise have in any action
brought on this Guaranty which results from Guarantor's loss of subrogation
rights against Borrower should Lender proceed against real property collateral
given by Borrower to Lender in a manner which, pursuant to Sections 580a, 580b,
580d and/or 726 of the California Code of Civil Procedure, eliminates
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<PAGE> 3
the ability of Lender and/or Guarantor to secure a deficiency judgment against
Borrower; (g) the benefits of the provisions of Section 2787 through 2855,
inclusive of the California Civil Code, and the provisions of Sections 580a,
580b, 580d and 726 of the California Code of Civil Procedure; (h) any defenses
the Guarantor may have by reason of an election of remedies by Lender; (i)
notwithstanding any payments made by any Guarantor to Lender made pursuant to
this Guaranty, all rights of subrogation, all rights to enforce any remedy that
Lender may have against the Borrower, and all rights to participate in any
security (whether real or personal property) held by Lender for the
Indebtedness; (j) all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the Borrower by the operation of Section 580d of the Code of Civil Procedure or
otherwise; each such waiver to remain in effect until the Indebtedness has been
paid and performed in full.
5. BORROWER'S FINANCIAL CONDITION. Each Guarantor assumes full
responsibility for keeping fully informed of the financial condition of the
Borrower and each other Guarantor and all other circumstances affecting the
Borrower's ability to perform its obligations to Lender and agrees that Lender
will have no duty to report to any Guarantor any information which Lender
receives about the Borrower's or any Guarantor's financial condition or any
circumstances bearing on its ability to perform.
6. VALIDITY OF LOAN DOCUMENTS. Each Guarantor hereby warrants to
Lender that the Note is the valid, binding and enforceable obligations of
Borrower in accordance with its terms and conditions. Each Guarantor further
warrants that there are no defenses or rights of setoff of Borrower or any
party to the Note, and that the Indebtedness is and shall be due and payable in
accordance with the Note. It is not necessary for Lender to inquire into the
powers of the Borrower or the officers, directors, partners, trustees or agents
acting or purporting to act on the Borrower's behalf.
7. DEFAULT. Lender may declare all of the Guarantors in default under
this Guaranty if any one or more Guarantors fails to perform any of its
obligations under this Guaranty or becomes the subject of any bankruptcy,
insolvency, arrangement, reorganization, or other debtor-relief proceeding under
any federal or state law, whether now existing or hereafter enacted.
8. COSTS AND EXPENSES. Each Guarantor agrees to pay Lender's
reasonable out-of-pocket costs and expenses, including but not limited to legal
fees and disbursements, incurred in any effort to collect or enforce any of the
Indebtedness or this Guaranty, whether or not any lawsuit is filed.
9. NOTICES. Any notice, demand or request by Lender to any Guarantor
shall be in writing and shall be deemed to have been duly
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given or made if mailed by certified or registered mail addressed to such
Guarantor at its address set forth opposite its signature.
10. DELAY; CUMULATIVE REMEDIES. No delay or failure by Lender to
exercise any rights or remedy against the Borrower or any Guarantor will be
construed as a waiver of that right or remedy. All remedies of Lender against
the Borrower and each Guarantor are cumulative. The liability of each Guarantor
hereunder will in no way be affected or impaired by any failure on the part of
Lender to realize upon or protect any of the Indebtedness or any collateral or
security therefor, or to execute any lien upon or right of appropriation of any
monies, credits, or Property of Guarantor possessed by Lender toward the
liquidation of such Indebtedness or by any application of payments or credits
thereon or by any extensions or renewals given by Lender.
11. MISCELLANEOUS. The invalidity or unenforceability of any one
or more provisions of this Guaranty will not affect any other provision. This
Guaranty will be governed by California law, and may be amended only by a
written instrument executed by the Guarantors and Lender. The obligations of
each Guarantor under this Guaranty will be joint and several. The provisions of
this Guaranty will bind and benefit the heirs, executors, administrators, legal
representatives, successor and assigns of each Guarantor and Lender. Whenever
the context requires, all terms used in the singular will be construed in the
plural and vice versa, and each gender will include each other gender. Headings
of the sections of this Guaranty are inserted for convenience only and are not a
part hereof. The term "Borrower" will mean both the named Borrower and any other
person or entity at any time assuming or otherwise becoming primarily liable on
all or any part of the Indebtedness.
Dated: June 17, 1996.
Address for Notices: /s/ Noam Schwartz
----------------------------------
3160 South Valley View Noam Schwartz
-----------------------
Suite 205 /s/ Ronnie Schwartz
----------------------- ----------------------------------
Las Vegas, NV 89102 Ronnie Schwartz
-----------------------
/s/ Haskel Iny
----------------------------------
Haskel Iny
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EXHIBIT 11
USTEL, INC.
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended
June 30, 1996
----------------
PRIMARY EARNINGS PER SHARE:
Common stock equivalents
Options and warrants granted and unexercised 1,366,000
Assumed buyback of options and warrants(1) (1,150,100)
------------
Total common stock equivalents 215,900
Total weighted average shares issued 2,519,295
------------
Weighted average shares outstanding 2,735,195
------------
Net income reported $ 71,964
============
Primary earnings per share:(3)
Net income $ 0.03
============
FULLY DILUTED EARNINGS PER SHARE:
Common stock equivalents
Options and warrants granted and unexercised 1,366,000
Assumed buyback of options and warrants(1) (1,150,100)
------------
Total common stock equivalents 215,900
Convertible debentures assumed converted(2) 71,429
Total weighted average shares issued 2,519,295
------------
Weighted average shares outstanding 2,806,624
------------
Net income reported $ 71,964
============
Fully diluted earnings per share:(3)
Net income $ 0.03
============
- ----------
(1) Assumed buyback of stock options and warrants:
Primary and fully diluted common stock equivalents are assumed to be
repurchased at ending market price.
(2) Convertible debentures are not common stock equivalents because they were
issued to yield 12% which was more than 67% of the average Aa corporate
bond yield.
(3) Earnings per share are computing using the treasury method, by which the
number of shares outstanding reflects an assumed use of proceeds from the
assumed exercise of stock options, to repurchase shares of the Company's
common stock.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Shareholders of
UStel, Inc.
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement on Form SB-2 of our report dated April 4, 1996,
relating to the financial statements of UStel, Inc. and to our report dated
September 20, 1996, relating to the financial statements of Consortium 2000,
Inc. which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
September 26, 1996
