<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
For the transition period from , 19_to , 19_.
Commission File Number: 0-25482
EQUALNET HOLDING CORP.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 76-0457803
(State of Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
1250 WOOD BRANCH PARK DRIVE
HOUSTON, TEXAS 77079
Address of Principal Executive Offices, Including Zip Code
(713) 510-4600
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
There were 6,020,182 shares of the Registrant's $.01 par value common stock
outstanding as of May 13, 1996.
1
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PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
EQUALNET HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
------------ ------------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 3,526,543 $ 137,312
Accounts receivable, net of allowance
for doubtful accounts of $1,219,154 at
June 30, 1995 and $3,506,525 at 20,866,661 18,081,429
March 31, 1996
Receivable from officers 37,071 37,071
Due from agents -- 762,265
Prepaid expenses and other 62,250 836,059
Deferred tax assets 395,516 2,047,054
------------ ------------
Total current assets 24,888,041 21,901,190
Property and equipment
Computer equipment 3,084,648 2,992,207
Office furniture and fixtures 1,001,450 1,182,438
Leasehold improvements 715,685 1,167,378
------------ ------------
4,801,783 5,342,023
Accumulated depreciation and
amortization (886,205) (1,519,868)
------------ ------------
3,915,578 3,822,155
Customer acquisition costs, net of
accumulated amortization of $814,080
at June 30, 1995 and $4,261,737 at
March 31, 1996 10,231,560 11,301,777
Deferred tax assets -- 1,046,910
Other assets 280,390 609,553
------------ ------------
Total assets $ 39,315,569 $ 38,681,585
============ ============
</TABLE>
Note: The balance sheet at June 30, 1995, has been derived from the audited
financial statements at that date.
2
<PAGE> 3
EQUALNET HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
------------ ------------
(NOTE) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,899,460 $ 2,799,551
Accrued expenses 698,818 1,325,830
Accrued sales taxes 3,075,073 1,901,400
Brokerage commissions payable 71,613 --
Payable to providers of long distance
services 9,689,249 9,751,262
Income taxes payable 528,462 --
Current maturities of capital lease obligations 153,000 153,000
------------ ------------
Total current liabilities 17,115,675 15,931,043
Revolving line of credit 1,052,640 9,482,205
Long term obligations under capital leases 90,000 9,000
Deferred income taxes 351,530 --
Shareholders' equity
Preferred stock (non-voting), $.01 par value
1,000,000 shares authorized and 0 shares
issued and outstanding
Common stock, $.01 par value, 20,000,000
shares authorized and 6,023,750 shares
issued and outstanding 60,237 60,237
Additional paid in capital 20,065,199 20,065,199
Deferred compensation (659,175) (554,175)
Retained earnings (deficit) 1,239,463 (6,311,924)
------------ ------------
Total shareholders' equity 20,705,724 13,259,337
------------ ------------
Total liabilities and shareholders' equity $ 39,315,569 $ 38,681,585
============ ============
</TABLE>
Note: The balance sheet at June 30, 1995, has been derived from the audited
financial statements at that date.
3
<PAGE> 4
EQUALNET HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 21,621,137 $ 19,212,135 $ 46,320,334 $ 62,179,037
Cost of Revenues 17,873,498 18,424,661 38,078,895 50,235,498
------------ ------------ ------------ ------------
3,747,639 787,474 8,241,439 11,943,539
Selling, general and administrative
expenses 2,439,662 3,515,197 5,943,723 10,327,098
Depreciation and amortization 252,398 1,606,498 474,725 3,849,812
Write down of long term assets -- 3,182,661 -- 6,882,661
------------ ------------ ------------ ------------
Operating income (loss) 1,055,579 (7,516,882) 1,822,991 (9,116,032)
Other income (expense)
Interest income 34,920 11 43,841 55,488
Interest expense (103,472) (196,128) (223,945) (439,629)
Miscellaneous (9,157) (264,830) (29,154) (309,777)
------------ ------------ ------------ ------------
(77,709) (460,947) (209,258) (693,918)
Income (loss) before federal income
taxes 977,870 (7,977,829) 1,613,733 (9,809,950)
Provision (benefit) for federal
income taxes 170,404 (1,547,699) 170,404 (2,258,563)
------------ ------------ ------------ ------------
Net income (loss) $ 807,466 $ (6,430,130) $ 1,443,329 $ (7,551,387)
============ ============ ============ ============
Net loss per share $ (1.07) $ (1.25)
============ ============
Pro forma adjustment for taxes (1) 201,187 442,815
Pro forma net income $ 606,279 $ 1,000,514
============ ============
Pro forma net income per share $ 0.14 $ 0.24
============ ============
Weighted average number of
shares 4,462,556 6,023,750 4,151,934 6,023,750
============ ============ ============ ============
</TABLE>
(1) From July 1, 1992, through March 7, 1995, the Company reported for federal
income tax purposes as an S corporation. Accordingly, all taxable
earnings of the Company during that period were taxed directly to the
shareholders of the Company at their individual tax rates. A pro forma
adjustment to reflect the federal and state income taxes as if the Company
were a C corporation is presented for the three and nine months ended
March 31, 1995, at the Company's effective tax rate of 38%.
4
<PAGE> 5
EQUALNET HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,443,329 $ (7,551,387)
Adjustments to reconcile net income (loss) to
cash provided by operating activities
Depreciation and amortization 474,725 3,849,812
Provision for uncollectible receivables 674,094 4,463,939
Deferred gain on sale leaseback transaction -- (99,935)
Provision for deferred income taxes (105,000) (3,049,978)
Compensation expense recognized
for common stock issue -- 105,000
Write down of long term assets -- 6,882,661
Change in operating assets and
liabilities:
Accounts receivable (11,095,470) (1,638,304)
Due from agents -- (802,668)
Prepaid expenses and other (92,699) (1,077,551)
Other assets (20,595) 320,844
Accounts payable and accrued
liabilities 9,843,853 (1,184,632)
------------ ------------
Net cash provided by operating activities 1,122,237 217,801
INVESTING ACTIVITIES
Purchase of property and equipment (2,237,097) (4,213,645)
Proceeds from certificates of deposit 300,000 --
Proceeds from notes receivable 67,086 --
Commission rate buydown -- (710,347)
Purchase of customer accounts (1,418,379) (8,217,874)
------------ ------------
Net cash used in investing activities (3,288,390) (13,141,866)
FINANCING ACTIVITIES
Repayments on long term debt (84,379) --
Proceeds from revolving line of credit 45,307,798 68,228,536
Repayments on revolving line of credit (44,085,862) (59,798,971)
Proceeds from sale leaseback transaction -- 1,186,269
Repayments on capital lease obligations -- (81,000)
Proceeds from issuance of stock 17,899,134 --
Shareholder distributions (2,435,481) --
------------ ------------
Net cash provided by financing activities 16,601,210 9,534,834
------------ ------------
Net increase (decrease) in cash and equivalents 14,435,057 (3,389,231)
Cash and equivalents, beginning of period 194,571 3,526,543
------------ ------------
Cash and equivalents, end of period $ 14,629,628 $ 137,312
============ ============
</TABLE>
5
<PAGE> 6
EQUALNET HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated financial statements included herein have been
prepared by the management of EqualNet Holding Corp. (the Company)
without audit. Certain information and note disclosures normally
included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted. In
the opinion of the management of the Company, all adjustments
considered necessary for fair presentation of the consolidated
financial statements have been included and the accompanying
consolidated financial statements present fairly the financial
position as of March 31, 1996, and the results of operations for the
three and nine months ended March 31, 1995 and 1996, and cash flows
for the nine months ended March 31, 1995 and 1996. The Company
recorded non-routine adjustments in the quarter ended March 31,
1996, which reduced earnings by $7.5 million. Refer to note 5 and
Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion.
It is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and the
notes thereto for the three years ended June 30, 1995, included in
the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 28, 1995. The interim results
are not necessarily indicative of the results for a full year.
NOTE 2 - PRO FORMA EARNINGS PER SHARE
Pro forma net income per common share was computed by dividing pro
forma net income by the weighted average number of shares
outstanding during the period.
NOTE 3 - CREDIT AGREEMENT
The Company maintains a $25 million revolving line of credit,
subject to certain restrictions, which expires December 1, 1997 and
has an effective interest rate equal to the bank's prime rate.
Borrowings under the agreement are limited to a borrowing base
formula tied to eligible accounts receivable, which at March 31,
1996 supported borrowings of up to $13.3 million.
NOTE 4 - INCOME TAXES AND PRO FORMA INCOME TAXES
Effective July 1, 1992, the Company elected S corporation status. As
a result, all federal income tax liabilities related to income
generated by the Company after June 30, 1992 and prior to March 7,
1995, had been borne by the individual stockholders and no provision
for federal income taxes had been recorded by the Company. As a
result of the Company's reorganization into a holding company
6
<PAGE> 7
structure concurrent with its initial public offering, the Company
terminated its status as an S corporation effective March 7, 1995,
and has recorded an income tax provision in accordance with
Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes", since the change in tax status. At the date of
the change in the tax status, the net deferred tax liabilities of
the Company were zero. The pro forma tax provision has been
calculated as if the Company's taxable results were taxable as a C
corporation under the Internal Revenue Code at the Company's
effective tax rate of 38%.
Because of the limited tax carryback available resulting from the
recent change in the Company to C corporation status and from the
uncertainty regarding the generation of future operating income
sufficient to fully utilize these assets, the current deferred tax
assets at March 31, 1996, are net of an $870,000 valuation allowance
while the noncurrent deferred tax assets at March 31, 1996, are net
of a $677,000 valuation allowance. Based upon the Company's history
of taxable income (as an S and a C corporation) and its expectations
for the future, management has determined that operating income will
more likely than not be sufficient to recognize fully all other
deferred tax assets.
NOTE 5- SPECIAL CHARGES
The results of operations for the quarter ended March 31, 1996,
include additional charges that total $7.5 million. These charges
include a provision for uncollectible receivables of $3.6 million, a
$2.2 million write-off of capitalized software costs related to a
customer service information system which was abandoned, a $1.0 million
write down of the carrying value of acquired customer accounts and
other charges totaling $700,000 which includes accruals for estimated
settlements related to disputed carrier charges, long-distance
commitment shortfalls, and consumer complaints filed with state
regulatory agencies.
NOTE 6- CARRIER COMMITMENTS
The Company has significant commitments to its two primary carriers to
resell long-distance services. Under the Company's contracts with its
carriers, the Company is penalized should the Company fail to meet its
commitment levels. The Company is currently in a shortfall position
under the AT&T and Sprint contracts. However, the Company has
historically been able to negotiate settlements with its carriers that
resulted in no such penalty being incurred by the Company.
The Company has agreed to guarantee the existing long-distance
commitments under AT&T Contract Tariff No. 1, Plan N agreement, for
Unified Network Services LLC ("UNS"), a limited liability
corporation in which the Company is a fifty percent owner.
NOTE 7- COMMITMENTS AND CONTINGENCIES
Occasionally, the Company is required by various regulatory and
consumer protection authorities to respond to customer complaints and
allegations against the Company concerning end-user subscription
procedures. The public utility commissions of North Carolina and
California and the offices of the attorneys general of Kansas,
Illinois, Arkansas and Idaho have requested that the Company formally
respond to some such claims. The attorneys general for the states of
Arkansas, Idaho and Illinois have commenced lawsuits against the
Company with regard to such claims in their respective states. The
Company does not believe the outcome of any current proceeding will
have a material adverse effect on the Company's results of operations
or financial condition.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended March 31, 1996, decreased 11.1% to $19.2
million compared with revenues of $21.6 million for the same period of the prior
year. Gross margin, which in the three month period ended March 31, 1996,
includes special charges of $3.6 million for uncollectible receivables and
$350,000 for certain contingent liabilities, decreased 79.0% to $787,000
compared to $3.7 million for the same period of the prior year. Net loss for the
three months ended March 31, 1996, included a $7.5 million additional pre-tax
charge related to the write down of capitalized costs associated with a customer
service information system that was abandoned, an increase in allowance for
doubtful accounts related to revised estimates of uncollectible receivables,
additional write-offs of acquired customer traffic and recognition of allowances
for certain contingent liabilities, decreased to an after-tax loss of $6.4
million compared with net income of $807,000 for the same period in the prior
year. Earnings before interest, taxes, depreciation, amortization and additional
charges were $1.3 million for the each of the three month periods ended March
31, 1996 and 1995 and were $5.6 million for the nine month period ended March
31, 1996, as compared to $2.3 million for the same period in the previous year.
Additional charges affecting earnings before interest, taxes, depreciation,
amortization and additional charges for the three and nine month periods ended
March 31, 1996, were $3.6 million for uncollectible receivables and $700,000 for
certain contingent liabilities.
The following table sets forth for the fiscal periods indicated the percentages
of total sales represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
3/31/95 3/31/96 3/31/95 3/31/96
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 82.7% 95.9% 82.2% 80.8%
------- ------- ------- -------
Gross margin 17.3% 4.1% 17.8% 19.2%
Selling, general and administrative 11.3% 18.3% 12.8% 16.6%
expenses
Depreciation and amortization 1.2% 8.4% 1.0% 6.2%
Write down of long term assets 0.0% 16.6% 0.0% 11.1%
------- ------- ------- -------
Operating income (loss) 4.8% (39.2%) 4.0% (14.7%)
Other income (expense)
Interest income 0.2% 0.0% 0.1% 0.1%
Interest expense (0.5%) (1.0%) (0.5%) (0.7%)
Miscellaneous 0.0% (1.4%) (0.1%) (0.5%)
------- ------- ------- -------
0.3% (2.4%) (0.5%) (1.1%)
Income (loss) before federal income
taxes 4.5% (41.6%) 3.5% (15.8%)
Provision (benefit) for federal
income taxes 0.8% (8.1%) 0.4% (3.6%)
------- ------- ------- -------
Net income (loss) 3.7% (33.5%) 3.1% (12.2%)
======= ======= ======= =======
Pro forma adjustment for taxes 0.9% 1.0%
Pro forma net income 2.8% 2.1%
======= =======
</TABLE>
8
<PAGE> 9
Revenues
The Company experienced a decrease in revenues in the three months ended March
31, 1996, of 11.1% to $19.2 million compared to $21.6 million for the comparable
period of the prior year and an increase in revenues for the nine months ended
March 31, 1996, of 34.2% to $62.2 million compared to $46.3 million for the
comparable period of the previous year. The decrease for the quarter ended March
31, 1996, as compared to the same quarter of the previous year was primarily the
result of increased customer attrition attributable to provisioning delays at
the Company's primary carrier and from internal difficulties resulting from the
implementation of the NetBase Plus operating system, both of which led to a
decline in billable minutes. Billable minutes decreased 9.0% to 66.5 million
minutes for the quarter ended March 31, 1996, from 73.1 million minutes for the
quarter ended March 31, 1995. Total billable minutes for the nine months
ended March 31, 1996, increased 37.6% to 211.2 million minutes compared to 153.5
million minutes for the same period of the prior year. The increase for the nine
month period was due primarily to an increase in customer accounts purchased
from third parties and marketing agents and a corresponding increase in billable
minutes.
The lower than anticipated revenues for the three months ended March 31, 1996,
were attributable to a number of factors. Specifically, as discussed in the
previous quarter, delayed provisioning time -- the time it takes the Company's
primary underlying long-distance carrier to activate new customers -- while
improving, has continued to depress revenues. Additionally, the conversion to
NetBase Plus, the Company's second generation customer management system, did
not perform as anticipated, leading to delays in providing the Company's
customers with bills on a timely basis and negatively affecting customer
service by delaying the processing of customer credits and refunds. These
conditions kept customer attrition rates at substantially higher than normal
levels. The Company has taken a number of actions to address the problems,
including continuing to work with the carrier to improve provisioning times and
reverting to a modified version of the previously utilized and tested NetBase
operating system to improve accuracy. The Company also finalized the previously
announced joint venture with MetroLink, Inc., Unified Network Services LLC
("UNS"), which is expected to allow the Company to reduce provisioning time
and, by utilizing the UNS network for a portion of the Company's traffic, to
lower the cost of long-distance to the Company.
Cost of Revenues
The cost of revenues for the three months ended March 31, 1996, increased 3.1%
to $18.4 million compared to $17.9 million for the comparable period of the
prior year. This increase was primarily attributable to additional charges of
$3.6 million for uncollectible receivables, and $350,000 for estimated
settlements on disputed carrier charges and long-distance commitment
shortfalls. As a result of the additional charges, cost of revenues as a
percent of revenue was 95.9% for the quarter ended March 31, 1996, as compared
to 82.7% for the quarter ended March 31, 1995.
The Company's cost of long-distance (which is a component of cost of revenues)
as a percentage of revenues increased to 65.8% for the quarter ended March 31,
1996, as compared to 62.6% for the quarter ended March 31, 1995, and increased
to 64.3% for the nine months ended March 31, 1996, as compared to 63.7% for the
same period of the previous year. The increase in the cost of long-distance as
a percentage of revenues for the three and nine months ended March 31, 1996, as
compared to the same periods in 1995 is primarily due to carrier charges and
long-distance commitment shortfalls.
9
<PAGE> 10
Commission expense prior to the charge for the agent advance allowance
decreased as a percent of revenue to 4.7% from 14.6% for the three months ended
March 31, 1996 and 1995, respectively, and to 5.4% from 13.1% for the nine
months ended March 31, 1996 and 1995, respectively. The decrease is primarily
the result of the Company making a payment to a principle agent to reduce the
agent's commission rate in November 1995, acquisition of customer accounts on
which commissions are not paid and a decrease in the commission percentage
payable to agents.
Bad debt expense increased to $3.1 million from $384,000 for the three months
ended March 31, 1996 and 1995, respectively, and to $3.5 million from $674,000
for the nine months ended March 31, 1996 and 1995, respectively. During the
third quarter of fiscal 1996, the Company recorded an additional charge to
uncollectible receivables of $2.6 million related to customer accounts
receivable. A primary contributing factor to the increase in bad debt incurred
by the Company was the result of the shift to more purchased orders on which the
Company had full exposure to uncollectible accounts as compared to the
commissioned orders whereby the agents shared in a substantial portion of the
risk on uncollectible accounts. In addition, the Company's collection efforts
were hindered by the failure of NetBase Plus to produce some of the necessary
information to allow for the most effective method of collection.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, including depreciation and
amortization and the write down of deferred acquisition costs and the NetBase
Plus assets, increased 209% to $8.3 million for the three months ended March
31, 1996, from $2.7 million for the same period of the prior year and increased
228% to $21.1 million for the nine months ended March 31, 1996, from $6.4
million for the same period of the previous year. The write down of deferred
acquisition costs was necessitated by continued greater than expected turnover
of acquired customer bases which resulted from difficulties in billing and
servicing the customer accounts. The Company wrote deferred acquisition costs
down an additional $1.0 million in the third quarter of fiscal 1996. As was
previously reported, the Company also took a write down during the quarter
ended December 31, 1995, which consisted of a $3.7 million non-cash charge to
reduce the carrying value of an acquired customer base to the present value of
the expected future cash flows associated with the underlying customer
accounts.
Amortization has also continued to increase substantially when comparing the
three and six month periods ended March 31, 1996 and 1995, because of the
significant increase in purchased accounts and customer base acquisitions.
Depreciation expense has risen over the same periods discussed above as a
result of purchases of
10
<PAGE> 11
furniture, leasehold improvements and computers needed to support the increase
in staff required to manage the Company's growth and as a result of the
significant investment in NetBase Plus. During the quarter ended March 31, 1996,
the Company began reverting from the NetBase Plus operating system which was
implemented in November 1995, to the NetBase operating system, the Company's
previously utilized operating system. As a result, the Company wrote off
approximately $2.2 million in capitalized software development costs
associated with the NetBase Plus system. The Company fully reverted to
utilizing the NetBase operating system in April 1996. The Company expects the
reversion to reduce cash outlays that were required to service, maintain and
modify the NetBase Plus system as well as decrease depreciation expense in the
future by approximately $50,000 per month.
Selling, general and administrative expenses other than depreciation also
increased as a percentage of revenue for the three and nine month periods ended
March 31, 1995 and 1996, from 11.3% to 18.3% and from 12.8% to 16.6%,
respectively. This increase was primarily due to the increased staff necessary
to handle the increased provisioning and customer service activities required
by the growth in sales volume over the comparable nine month periods. However,
the Company reduced staffing in late December 1995 in reaction to declining
order activity. As a result, salary expense was approximately $450,000 less in
the third quarter of fiscal 1996 as compared to the second quarter of fiscal
1996; however, salary expense in total and as a percent of revenue were
substantially higher for the three and nine months ended March 31, 1996, as
compared to the same periods of the preceding fiscal year. Lease expense has
increased as a result of the addition of several substantial leases relating to
computer and office equipment and a new phone system. The new phone system,
acquired in late December 1995, has significantly reduced customer hold times
resulting in a reduction to the Company's long-distance expense of
approximately $20,000 per month.
Liquidity and Capital Resources
The Company generated $218,000 in cash flow from operations for the nine months
ended March 31, 1996, compared to $1.1 million generated for the prior year's
comparable period. The Company's substantial revenue growth resulted in an
increase to $4.6 million from $2.5 million in cash provided by net income
adjusted for non-cash expenses for the first nine months of fiscal year 1996 as
compared to the same period in fiscal year 1995. Cash flow from operations was
negatively effected by a change in the Company's policy related to the timing of
payment of commissions. Beginning in fiscal year 1996, the Company began paying
commissions based upon revenue billed while prior to that time, commissions were
paid on revenues collected. In addition, during fiscal 1996, the Company has
settled and paid the majority of the sales taxes due to various states resulting
from an error in the calculation and remittance of taxes in previous years. A
further use of cash was required to satisfy the Company's federal tax liability
paid in the third quarter of fiscal 1996 for the stub tax period March 7, 1995
through June 30, 1995. These uses of cash were partially offset by an increase
in accrued expenses related to the timing of payments.
Cash used in investing activities totaled $13.1 million for the nine months
ended March 31, 1996, compared to $3.3 million for the same period of the
previous year. The increase was due primarily to the acquisition of $8.2 million
of customer accounts compared with acquisitions of $1.4 million of customer
accounts for the same period in the previous year, the payment of $710,000 to
one of the Company's largest agents in December 1995 to reduce such agent's
commission rate, costs associated with leasehold improvements related to the
Company's relocation to expanded facilities and costs of creating and
implementing NetBase Plus. Costs associated with the leasehold improvements and
expanded facilities, and the improvements to NetBase totaled $4.2 million
compared to $2.2 million for the comparable period of the previous year.
11
<PAGE> 12
Cash provided by financing activities was $9.5 million for the nine months
ended March 31, 1996, generated almost entirely by borrowings under the
Company's line of credit and the sale and leaseback of $1.2 million in assets.
The Telecommunications Act of 1996 (the "Act") signed into law on February 8,
puts mechanisms in place to remove the barriers that previously kept the
Regional Bell Operating Companies ("RBOCs") from providing interexchange long
distance services. The Act effectively replaces the 1984 consent decree that
related to the AT&T divestiture and the restrictions placed upon the RBOCs in
that decree. The Act contains certain restrictions designed to prevent the
RBOCs from using their local exchange position to an unfair competitive
advantage, and opens the door for Interexchange Carriers ("IXCs") to provide
local services. This legislation is the most comprehensive amendment to the
area of communications law since the passage of the Communications Act of
1934; however, there are still numerous areas of the Act that require the
promulgation of regulations by the Federal Communications Commission before
better interpretation and analysis may be made of the full impact of this
legislation on the Company's business and prospects. The RBOCs have the
potential to be very large, well funded and aggressive competitors in the long
distance industry, and will no doubt actively compete for the Company's long
distance customers. It is impossible to predict at this time with any degree of
accuracy the extent to which the Company may lose market share as a result of
this increased competition. It is also uncertain at this time as to when and
under what circumstances the Company will be able to effectively market local
services as permitted under the Act.
The Company has significant commitments to its two primary carriers to resell
long distance services. The Company's contracts with its carriers contain
penalty clauses that could materially and adversely impact the Company should
the Company fail to meet its commitments. The Company has from time to time
failed to meet its commitment levels under particular contracts and is currently
in a shortfall situation under the AT&T and Sprint contracts. However, the
Company has historically been also to negotiate settlements with its carriers
that resulted in no penalty being incurred by the Company. Should the Company
continue to fail to meet its carrier commitments and be unable to negotiate
settlements with the carriers, the penalties incurred as a result of such
shortfalls could have a material adverse impact upon the Company's liquidity.
The Company maintains a credit agreement with its principal commercial lender
for a revolving line of credit of up to $25 million. Borrowings under the
agreement are subject to a borrowing base formula tied to eligible accounts
receivable, which at March 31, 1996, supported borrowings of up to $13.3
million. In the Company's monthly cash cycle, cash receipts fluctuate in
relation to the applicable billing dates while cash disbursements experience a
more dramatic increase when the payments to underlying carriers are due. During
this increase in the cash disbursements cycle, the Company approaches the limits
of its borrowing capacity under the line of credit.
On October 12, 1995, the Company entered into an agreement to acquire ALD
Communications, Inc., a California based long-distance company ("ALD"), for
$2.25 million payable in shares of the Company's common stock. Consummation of
the acquisition was subject to certain conditions precedent, including approvals
by regulatory authorities. The agreement provided that any party could terminate
the agreement at any time after March 31, 1996, if the conditions had not been
satisfied and the closing of the transaction had not occurred. On May 10, 1996,
ALD notified EqualNet of its intent to terminate the agreement and to cease
negotiations with EqualNet with respect to the proposed agreement.
The Company has signed a letter of intent that sets forth a proposed agreement
for the Company to, among other things, purchase the existing customer base of
American Teletronics Long Distance, Inc. ("ATLD") for a purchase price based
upon a multiple of monthly revenue. The purchase price is expected to
approximate $7.7 million. The Company is currently considering alternatives to
financing the ATLD acquisition including, but not limited to, financing through
term debt obtained from outside lenders, a financing arrangement with a vendor
of ATLD for the acquisition of the ATLD accounts, through an increase in the
borrowing base under the Company's existing credit agreement due to increased
receivables when the acquisitions are consolidated, or through a combination of
the above. There can be no assurances the Company will be able to obtain such
financing nor any assurances regarding the viability of the acquisitions should
the Company be unable to obtain additional financing.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Occasionally, the Company is required by various regulatory and
consumer protection authorities to respond to customer complaints
and allegations against the Company concerning end user subscription
procedures. The public utility commissions of North Carolina and
California and the offices of the attorneys general of Kansas,
Illinois, Arkansas, and Idaho requested that the Company formally
respond to some such claims. The attorneys general for the states of
Arkansas, Idaho and Illinois have commenced lawsuits against the
Company with regard to such claims in their respective states.
Public service or utility commissions have the authority to assess
penalties or sanctions up to and including revocation of a carrier's
certificate of public convenience and necessity. All actions are
pending and the Company is cooperating with the respective
authorities to demonstrate that such complaints are not indicative
of a pattern or ongoing means of conducting business. While the
Company is unable to determine the amount, if any, of penalties or
sanctions that might be assessed by these authorities, it does not
believe the outcome of any current proceedings will have a material
adverse effect on the Company's results of operations or financial
condition.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
CAUTIONARY STATEMENTS:
The Company's expectations with respect to future results of
operations embodied in oral and written forward looking statements
are subject to the following risks and uncertainties that must be
considered when evaluating the likelihood of the Company's
realization of such expectations:
ATTRITION RATES - In the event that the Company's attrition rates
continue at the current rate either as a result of increased
provisioning times by its underlying carrier, the purchase of poor
performing traffic, or the inability to properly manage the existing
customer base due to transitional difficulties to the NetBase system
from the NetBase Plus system, additional charges that affect
earnings may be incurred.
DEPENDENCE ON INDEPENDENT MARKETING AGENTS - The Company has a small
internal sales force and obtains a significant majority of its new
customers from the Company's network of Independent
13
<PAGE> 14
Marketing Agents ("Agents"). EqualNet's near-term ability to expand
its business depends upon whether it can continue to maintain
favorable relationships with existing Agents and recruit and
establish new relationships with additional Agents. Should the
return to the original NetBase system not improve the exchange of
information between the Company and its Agents, no assurances can be
made as to the willingness of the existing Agents to continue to
provide new orders to the Company or as to the Company's ability to
attract and establish relationships with new Agents.
INABILITY TO COLLECT ACCOUNTS RECEIVABLE - In the event that the
Company's bad debt experience continues at the current rate either
as a result of the purchase of poor performing traffic or the
inability of the Company to properly manage existing customer
receivables due to transitional difficulties from the NetBase Plus
system to the NetBase system, additional charges that affect
earnings may be incurred. In addition, the inability to collect past
due receivables could have a material adverse impact upon the
Company's liquidity and cash flow.
DEPENDENCE ON AT&T AND OTHER FACILITIES-BASED CARRIERS - The Company
does not own transmission facilities and currently depends primarily
upon AT&T and to a lesser extent upon Sprint to provide it with the
telecommunications services that it resells to its customers and the
detailed information upon which it bases its customer billings.
EqualNet's near-term ability to expand its business depends upon
whether it can continue to maintain favorable relationships with
AT&T and Sprint. Although the Company believes that its relations
with AT&T and Sprint are good and should remain so with continued
contract compliance, the termination of the Company's current
contracts with either AT&T or Sprint or the loss of the
telecommunications services that the Company receives from AT&T or
Sprint could have a material adverse effect on the Company's results
of operations and financial condition.
This dependence on the Company's primary carrier further manifested
itself during the quarter ended March 31, 1996, as continued delays
in provisioning (activating new customers) by the carrier continued
to result in a backlog of customers who would otherwise have been on
the Company's service and billing. The carrier has taken certain
steps to decrease the provisioning time; however, no assurances can
be made as to how quickly the remaining backlog will be reduced or
that similar delays will not occur in the future.
CARRIER COMMITMENTS - The Company has significant commitments with
its two primary carriers to resell long distance services. The
Company's contracts with its carriers contain penalty clauses that
could materially and adversely impact the Company should the Company
fail to meet its commitments. The Company has, from time to time
failed to meet its commitment levels under particular contracts and
is currently in a shortfall situation with the AT&T and Sprint
contracts, however, the Company has historically been able to
negotiate a settlement with the carrier which resulted in no penalty
being incurred by the Company. No assurances can be made that the
Company will be able to reach similar favorable settlements with its
carriers should it continue to fail to meet its commitments.
In recent years, AT&T, MCI Communications Corporation ("MCI") and
Sprint have consistently followed one another in pricing their long
distance products. If MCI and Sprint were to lower their rates for
long distance service and AT&T did not adopt a similar price
reduction, adverse
14
<PAGE> 15
customer reaction could affect the Company's ability to meet its
commitments under the AT&T contract which could materially adversely
affect the Company.
INABILITY TO TRANSITION CUSTOMER BASES OBTAINED THROUGH ACQUISITION
- As the Company expands its customer base through acquisitions, it
may experience increased attrition as a result of underlying
deficiencies in the acquired customer base and difficulties incurred
in connection with the transition of such customer bases onto the
EqualNet operating system.
DEVELOPMENTAL AND TRANSITIONAL PROBLEMS WITH NETBASE - NetBase Plus,
the Company's second generation customer management system, was not
able to meet the operating requirements of the Company. As a result,
the Company began reverting to the original NetBase operating system
late in the fiscal third quarter. To the extent that the Company
experiences significant growth, the existing NetBase operating
system may reach technical limitations and hinder reporting
visibility to management as well as cause a decline in customer
service, thereby impacting attrition levels and therefore results of
operations.
RELATIONSHIPS WITH STATE REGULATORY AGENCIES - EqualNet's intrastate
long distance telecommunications operations are subject to various
state laws and regulations, including prior certification,
notification or registration requirements. The Company must
generally obtain and maintain certificates of public convenience and
necessity from regulatory authorities in most states in which it
offers service. The Company is presently responding to consumer
protection inquiries from seven states. Management believes these
inquiries will be resolved satisfactorily, although settlement offers
may be made or accepted in instances in which it is determined to be
cost effective. During the quarter ended March 31, 1996, the Company
recorded an accrual of $250,000 for such estimated settlements. No
assurances can be made however, that additional states will not begin
inquiries or that the current accrual will be sufficient to provide
for existing or future settlements. Failure to resolve inquiries
satisfactorily or reach a settlement with the regulatory agencies
could, in the extreme, result in the inability of the Company to
provide long distance service in the jurisdiction requiring
regulatory certification. Any failure to maintain proper
certification could have a material adverse effect on the Company's
business.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Carrier Agreement between MCI Telecommunications
Corporation and EqualNet Communications, Inc.,
dated January 16, 1996
10.2 Corporate Guarantee given to AT&T Corp. by
EqualNet Corporation and MetroLink, Inc. on
behalf of Universal Network Services LLC
27.1 Financial Data Schedule
15
<PAGE> 16
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EQUALNET HOLDING CORP.
Date May 15, 1996 /s/ Michael L. Hlinak
----------------------
Michael L. Hlinak
Senior Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
Exhibit
Number Description
- - ------- -----------
10.1 Carrier Agreement between MCI Telecommunications Corporation and
EqualNet Communications, Inc., dated January 16, 1996
10.2 Corporate Guarantee given to AT&T Corp. by EqualNet Corporation and
MetroLink, Inc. on behalf of Universal Network Services LLC
27.1 Financial Data Schedule
<PAGE> 1
Certain portions of this Exhibit denoted by *** have been omitted pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
MCI Telecommunications
Corporation
[MCI LOGO] 205 N. Michigan Avenue
Chicago, IL 60601
312 856 2121
EXHIBIT 10.1
CARRIER AGREEMENT
TERMS AND CONDITIONS
This Carrier Agreement (the "Agreement") is between MCI
TELECOMMUNICATIONS CORPORATION ("MCI") and EQUALNET COMMUNICATIONS, INC.
("Customer"), a resale common carrier subject to the Communications Act of
1934.
1. Scope of Agreement.
(a) MCI shall provide to Customer certain specified domestic
interstate service(s), international services, and intrastate common carriage
service(s). For domestic interstate and international services, this Agreement
incorporates by reference the terms of MCI Tariff FCC No. 1 ("Tariff"), which
is on file with the Federal Communications Commission and which may be modified
from time to time by MCI in accordance with law and thereby affect the
service(s) furnished Customer, except that the following terms and conditions
shall supplement or, to the extent inconsistent, supersede Tariff terms and
conditions and shall remain in effect throughout the Service Term. For
intrastate services, this Agreement incorporates by reference each applicable
state tariff filed by MCI, which may be modified by MCI from time to time, and
thereby affect the service(s) furnished Customer. This Agreement is entered
pursuant to Section 211(a) of the Communications Act of 1934.
(b) Capitalized terms not otherwise defined in this, Agreement shall
have the meanings assigned to them in the Tariff.
2. Monthly Commitment.
(a) The first twelve months of the Service Term shall constitute a
ramp-up period ("Ramp Period"). During each monthly billing period of the
Service Term Customer's "Monthly Usage" (as defined in this Paragraph shall
equal or exceed the amount per month indicated for the respective month of the
Service Term ("Monthly Commitment") as follows:
<TABLE>
<CAPTION>
Months Monthly Commitment
------ ------------------
<S> <C>
1- 9 ***
10-12 ***
12-48 ***
</TABLE>
Monthly Usage shall mean Customer's domestic interstate and international usage
of the MCI services in Attachment 1 (hereinafter "Interstate Services" and
"International Services") at the *** Total Monthly Usage level rates set forth
in Attachment 1 where Total Monthly Usage levels are provided, or at the rates
otherwise set forth
MCI CONFIDENTIAL
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<PAGE> 2
in in Paragraphs 4 and 7 below, but not including access and access related
charges, any applicable taxes (and gross receipts taxes) and tax-related
surcharges on Interstate Services and International Services. Monthly Usage
also includes intrastate usage on the MCI services in Paragraphs 4 and 7, at
standard tariffed rates, after application of any applicable tarriffed
discounts (hereinafter "Intrastate Services") but not including access and
access related charges, any applicable taxes (and gross receipts taxes) and
tax-related surcharges on MCI Intrastate Services. In addition, Monthly Usage
shall be calculated after application of the MCI Prism I Service Credit in
Paragraph 7(a)(2). Interstate Services, International Services and Intrastate
Services are collectively hereinafter "MCI Services". The rates for all other
MCI products and services not explicitly contained within this Agreement shall
be governed by the applicable MCI Tariff.
(b) After the Ramp Period, if Customer's Monthly Usage is less than
the Monthly Commitment in a month, for that month Customer will pay the lesser
of: (A) the Customer's actual combined monthly recurring and usage charges for
MCI services at standard MCI tariffed rates, and an underutilization charge
(which Customer agrees is reasonable) equal to *** percent (***%) of the
difference between the Monthly Commitment and Customer's Monthly Usage; or (B)
the Monthly Commitment amount
(c) MCI agrees that Customer shall be entitled to renegotiate, in good
faith, the terms of this Agreement once the Customer's total dedicated minutes
usage is equal or greater than *** percent (***%) of the Customer's total
minutes.
3. Carrier Network Service.
(a) In order to be eligible to purchase MCI Carrier Network Service:
(1) Except in areas where service origination is not
available from access providers via a Carrier Identification Code ("CIC"),
Customers must originate all traffic via Customer's own CIC. Customer shall pay
all charges associated with the installation of Customer's CIC in all Local
Exchange Carrier ("LEC") end offices. MCI requires at least sixty (60) days
prior written notice to deactivate or change the translation for sub CIC
routing at any end office and/or tandem. MCI must handle all Authorized Service
Requests (ASRs) submitted to the appropriate LEC(s) for MCI's CNS. In
addition, Customer shall be financially responsible for payment of all fees
charged by the local exchange carrier related to the ASRs submitted to modify
the sub-CIC routing and migrate traffic to or from MCI's network..
(2) Customer shall comply with Section 64.1100 of the
FCC's Rules and Regulations, as well as other applicable law or regulation
pertaining to the sale and delivery of telecommunications service(s) to
Customer's enduser. MCI shall not be liable to Customer's enduser for any
claim, liability or expense asserted by those customers in connection with
Customer's sale or delivery of such service(s), including the unauthorized
conversion of a customer's Primary Interexchange Carrier ("PIC") designation to
Customer's CIC. In addition, Customers shall indemnify and hold MCI harmless
from any actions, claims, suits or damages arising out of Customer's violation
or alleged violation of any FCC or other applicable law or state regulation,
and Customer shall pay all reasonable attorney fees and costs incurred by MCI
in connection with such actions, claims, suits or damages.
MCI CONFIDENTIAL
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<PAGE> 3
(3) Customer agrees that it or its Customers will obtain
and maintain any and all approvals to resell MCI Carrier Network Service
hereunder from the FCC including requirements imposed by Section 214 of the
Communications Act of 1934, as amended, and state regulatory bodies.
(4) Customer or its Customers agree to sell and bill MCI
Carrier Network Service under its own name, identity or mark, and Customer
further agrees not to reference MCI's name or marks in any context involving
its furnishing of service(s) to the public except as provided herein. Customer
agrees to abide by the "Use of Name Guidelines" contained in Exhibit 2 hereto.
In reselling MCI Services under this agreement, Customer will observe the
highest standard of integrity and fair dealing with Customers of the public.
Furthermore, Customer agrees to indemnify MCI for any actions, claims, suits
or damages arising out of any allegation that if proved would cause Customer to
be in breach of this provision and Customer shall also pay all reasonable
attorneys' fees and costs incurred by MCI due to any actions, claims, suits or
damages arising out of such allegation.
(5) Except as set forth in Paragraph 12(c) herein,
Customer shall have sole responsibility for interacting with its endusers in
all matters pertaining to service, including the placing and handling of
service orders, service installation, operation and termination, dispute
handling and resolution, and billing and collection matters. MCI shall incur no
obligation, nor shall it be deemed to have any obligation, to interact with
Customer's endusers for any reason or purpose. Customer shall cooperate with
MCI as necessary to address and resolve service-related issues and problems
and shall impose upon its endusers an obligation to cooperate, with Customer in
addressing and resolving service-related issues and problems.
(b) Without limitation, if Customer fails to abide by the
requirements in Paragraphs 3(a)(1), (a)(3), (a)(4), or any requirement in 3(a)2
excluding the unauthorized conversion of customer's PIC, MCI shall provide
Customer written notice specifically identifying any alleged default, and if
Customer fails to cure the default in fifteen (15) days after receipt of
written notice, MCI shall have the right to terminate this Agreement as more
specifically set forth below, provided that hover, if Customer can demonstrate
that it is impossible to cure such default within fifteen (15) day period but
continues to make a good faith and commercially reasonable effort to cure such
default, Customer shall have a total of sixty (60) days from receipt of notice
to cure such default.
If Customer fails to abide by the requirement in Paragraph 3(a)(2) as
it relates to the unauthorized conversion of a customer's PIC, the following
shall apply:
Upon the second (2nd) finding by a court, the FCC or state commission
of any unauthorized conversion of a Customer's enduser's PIC, such finding
shall be regarded as a material breach of the Carrier Network Services portion
of the Agreement, and MCI may terminate this Agreement, upon five (5) days'
written notice to Customer. In such case, MCI will provide Customer up to six
(6) months to convert such traffic to another vendor; provided that however,
during the six (6) month period, upon a third (3rd) finding by a court, the FCC
or state commission of any unauthorized conversion of a Customer's endusers
PIC, MCI may terminate the Carrier Network Services on five (5) business days
written notice for such Customer.
MCI CONFIDENTIAL
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<PAGE> 4
(c) Customer agrees that MCI may use the National Leads
Information System ("NLIS") or an appropriate internal MCI system to determine
Working Telephone Number ("WTN") historical data regarding MCI and non-MCI PICs
and Customer understands that such systems are not error free. MCI will not be
liable to Customer for errors made in determining WTN in reliance on
information contained in NLIS or internal MCI systems.
(d) Customer understands and accepts that, as part of MCI's normal
business policy and practices and its obligations under law, MCI will engage in
extensive marketing efforts in attempt to sell its services to the public and
that such efforts will result in active competition with Customer for the
business of users who are Customer's customers or prospects. Accordingly,
Customer further understands and accepts that such competition by MCI is in all
respects fair and proper and that Customer shall not complain, nor be heard to
complain, of business lost to MCI. Under no circumstance shall any inference be
derived that MCI's entry into this Agreement with Customer means that MCI will
restrict its efforts to compete against Customer in any way.
(e) Customer understands and accepts that no fiduciary
relationship arises by virtue of this Agreement and that, accordingly, MCI
incurs none of the obligations that arise in such relationship as an incident
of its fulfilling its obligations under this Agreement. Further, Customer
understands and accepts that MCI is not an insurer of profits for Customer, nor
does MCI guarantee the success of Customer's business as a result of Customer's
receipt of service(s) under this Agreement.
(f) Customer agrees that if its end-user makes a call using 1OXXX
or 1+ access (utilizing Customer's CIC), from an ANI which Customer did not
provide to MCI to enter into MCI's Billing and Order Entry systems, MCI will
bill the call through the LEC at MCI tariffed rates, and MCI's name will
appear as the service provider on the LEC invoice. Furthermore, Customer
agrees its sales and marketing channels will only market 1OXXX access as a
dialing option from ANIs that the end-user had PIC'd to the Customer's CIC, in
areas where the Customer's CIC is pointed to MCI for termination.
(g) Customer shall receive call traffic records pursuant to
Exhibit 5 of this Agreement.
4. Carrier Network Service Rates.
(a) INTERSTATE RATES. For Carrier Network Service, except for
international service for which Customer shall pay the rates contained herein
or tariff rates if rates are not contained herein, subject to the discounts
contained in Paragraphs 4(g) and (h), during the Ramp Period and for as long as
Customer achieves the Monthly Commitment, Customer will pay in addition to all
installation charges, access and access-related charges, applicable surcharges,
taxes and tax-related charges, the following non-distance sensitive
"postalized" rate per minute as determined by Customer's overall monthly usage:
Domestic Non-Dedicated
Interstate Outbound
MCI CONFIDENTIAL
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<TABLE>
<CAPTION>
Monthly Usage Day Rate Non-Day Rate
- - ------------- -------- ------------
<S> <C> <C>
$ 0 - $1,499,999 *** ***
$1,500,000 and above
</TABLE>
<TABLE>
<CAPTION>
Domestic Non-Dedicated
Interstate Inbound
Monthly Usage Day Rate Non-Day Rate
- - ------------- ---------------------- ------------
<S> <C> <C>
$ 0 - $1,499,999 *** ***
$1,500,000 and above
</TABLE>
"Standard MCI tariffed rates" for Carrier Network Services shall be deemed to
be tariffed Option G and Option F rates.
Customer is not eligible for any other tariffed discounts on
such services.
(b) INTERSTATE OUTBOUND - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO,
THE U.S. VIRGIN ISLANDS AND HAWAII. Customer will pay interstate rates at the
switched to switched or dedicated to switched base rates Option G, Section
C.3.0932 of the Tariff with associated maximizer discounts in Paragraphs 4(g)
and (h). Customer is not eligible for any other tariffed discounts on such
service.
(c) INTERSTATE 800 - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND (C) HAWAII. Customer will pay interstate rates at the
800 Business Line Termination or Dedicated Termination Rates Option F, Section
C.3.08213 of the Tariff with associated maximizer discounts in Paragraphs 4(g)
and (h). Customer is not eligible for any other tariffed discounts on such
service.
(d) INTRASTATE OUTBOUND RATES. For CNS intrastate outbound services
Customer shall pay standard tariff rates less applicable tariff discounts for
MCI Net Service (switched to switched, dedicated to switched or switched to
dedicated) in each applicable MCI state tariff. For the services identified
above, Customer shall receive a discount, which when combined with the rates
identified in the previous sentence, shall yield the postalized rates in
Exhibit 4 (exclusive of service option and feature charges specified in the
tariff). In addition, MCI shall apply the associated maximizer discounts in
Paragraphs 4(g) and (h) to the postalized rates. All discounts shall be applied
to Customer's domestic interstate usage only. Customer is not eligible for any
tariff discounts on such service.
If the total credits received in any month exceeds Customer's CNS domestic
interstate outbound monthly usage charges for such month (exclusive of taxes,
surcharges and pass-through access/egress (or related) charges), the credit
shall be applied to the extent of such interstate charges and the difference
shall be carried forward to the next successive month and applied as part of
the credit arising in such following month; provided, however, that if any
accumulated credit shall remain unapplied upon the termination of this
Agreement, whether at the end of the Service Term or otherwise, such credit
shall be lost, without further compensation or consideration to Customer.
MCI CONFIDENTIAL
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<PAGE> 6
(e) INTRASTATE 800 RATES. For CNS intrastate 800 services Customer shall
pay standard tariff rates less applicable tariff discounts for MCI 800 Business
Line Termination or Dedicated Termination in each applicable MCI state tariff.
For the services identified above, Customer shall receive a discount, which
when combined with the rates identified in the previous sentence, shall yield
the postalized rates in Exhibit 4 (exclusive of service option and feature
charges specified in the tariff). In addition, MCI shall apply the associated
maximizer discounts in Paragraphs 4(g) and (h) to the postalized rates. All
discounts shall be applied to Customer's domestic interstate usage only.
Customer is not eligible for any tariff discounts on such service.
If the total credits received in any month exceeds Customer's CNS
domestic interstate inbound monthly usage charges for such month (exclusive of
taxes, surcharges and pass-through access/egress (or related) charges), the
credit shall be applied to the extent of such interstate charges and the
difference shall be carried forward to the next successive month and applied as
part of the credit arising in such following month; provided, however, that if
any accumulated credit shall remain unapplied upon the termination of this
Agreement, whether at the end of the Service Term or otherwise, such credit
shall be lost, without further compensation or consideration to Customer.
(f) INTERNATIONAL 800. For inbound international, service (800), Customer
will pay international 800 rates at the Tariffed 800 Base Rates Option F,
Section C.3.07314 with associated maximizer discounts in Paragraphs 4(g) and
(h). Customer is not eligible for any other standard tariffed discounts on
such service.
(g) NON-DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of non-dedicated MCI Carrier Network Service
less taxes and tax-related surcharges based on the number of non-MCI ANIs or
WTNs (ANIs or Wtn's that have not been PICed to MCI for at least the previous
ninety (90) days) that Customer converts to MCI. Each month MCI will calculate
the overall cumulative total of non-MCI ANIs or WTN's converted to MCI and then
apply a discount to Customer's usage as follows:
<TABLE>
<CAPTION>
Percentage of MCI Percentage of Non-Dedicated
Customer Numbers Sold Usage Eligible for 20%
by Customer Maximizer Discount
- - --------------------- ----------------------------
<S> <C>
20% or less ***
20%-25% ***
25%-30% ***
30%-40% ***
40%-50% ***
50%-60% ***
</TABLE>
(h) DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of dedicated MCI Carrier Network Service less
taxes and tax-related surcharges based on the number of non-MCI DALs that
Customer converts to MCI. Each month MCI will calculate the overall cumulative
total of non-MCI DALs converted to MCI and then apply a discount to Customer's
usage as follows:
MCI CONFIDENTIAL
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<TABLE>
<CAPTION>
Percentage of MCI Percentage of Dedicated Usage
Customer DALs Sold Eligible for 20% Maximizer
by Customer Discount
- - ------------------ ------------------------------
<S> <C>
20% or less ***
20%-25% ***
25%-30% ***
30%-40% ***
40%-50% ***
50%-60% ***
</TABLE>
(i) INTRALATA OUTBOUND RATES. For CNS intralata outbound service, where
MCI provides intralata service, Customer shall pay the MCI Net intralata rates
in each applicable MCI state tariff.
(j) If Customer's dedicated Carrier Network Services usage exceeds twenty
percent (20%) of Customer's total Carrier Network Services usage, then the
dedicated Carrier Network Services usage in excess of such twenty percent (20%)
shall not receive the Maximizer Discount provided pursuant to Paragraph 4(h).
(k) During the Ramp Period of the Agreement MCI will not measure converted
MCI ANIs, WTNs or DALs for the purpose of applying the Maximizer Discount. All
ANI's, WTNs and DALs will receive the twenty percent (20%) Maximizer Discount
In the month following the end of the Ramp Period, MCI will begin to measure
and apply the above formula based on a monthly average of ANIs, WTN's or DALs
to be installed to date.
(l) HIGH TELCO COSTS. On a monthly basis, for CNS, MCI shall determine
Customer's minutes of use originating from or terminating to the specific local
exchange carriers identified in Schedule B below for the following traffic
types ("LEC Minutes"):
* CNS international interstate, intrastate and intralata
outbound switched to switched and switched to dedicated, and
* CNS interstate, intrastate and intralata inbound switched to
switched.
For the same CNS traffic types above, MCI shall determine the total
CNS minutes of use originating from or terminating to the United
States, Puerto Rico and the U.S. Virgin Islands regardless of the
originating and terminating local exchange carrier. These minutes of
use shall be referred to as "Total Minutes."
If LEC Minutes exceed twenty percent (20%) of Total Minutes ("20%
Cap") in any month, Customer shall pay the following per minute
surcharge in Schedule A in such month for each LEC Minute that exceeds
the 20% Cap based on the local exchange carrier territory in Schedule
B in which the call originates and/or terminates. The per minute
surcharges listed in Schedule A shall apply to each switched end of
the call originating or terminating in the
MCI CONFIDENTIAL
-7-
<PAGE> 8
LECs listed in Schedule B. For example, for a CNS outbound interstate
switched to switched minute originating in a Kansas area served by
Pioneer and terminating in a Wisconsin area served by Urbane Tel,
Customer shall pay a per minute surcharge of ***.
The per minute surcharge shall be calculated by multiplying the
applicable per minute surcharge in Schedule A by the percentage
exceeding the 20% Cap times the minutes of the phone call. For
example, assuming Customer has 1,000 Total Minutes with 300 LEC
Minutes (this equals 30% LEC Minutes with 10% or one-third (1/3) of
the LEC Minutes exceeding the 20% Cap), the per minute surcharge for a
10 minute CNS switched to switched call originating in the
Southwestern Bell Telco Region and terminating in the Ameritech Telco
Region would be calculated as follows:
*** x 1/3 x 10 minutes = *** surcharge for this call.
SCHEDULE A
<TABLE>
<CAPTION>
PER MINUTE SURCHARGE
Telco Region Originating Terminating
- - ------------ -------------------- -----------
<S> <C> <C>
Southwestern Bell Territory *** ***
Bell South Territory *** ***
Pac Bell Territory *** ***
US West Territory *** ***
Ameritech Territory *** ***
NYNEX Territory *** ***
Bell Atlantic Territory *** ***
</TABLE>
SCHEDULE B
TELCO REGIONS
Southwestern Bell Territory
<TABLE>
<CAPTION>
State Company
- - -------- -------------
<S> <C>
Arkansas Century
Arkansas Mountain Home
Kansas Pioneer
Missouri Fidelity
Missouri Lissouri Tel
Oklahoma Pioneer
Texas Sugarland
Texas San Marcos
Texas Eastex
Texas Etex
Texas Fort Bend
Texas Guadalupe
</TABLE>
MCI CONFIDENTIAL
-8-
<PAGE> 9
<TABLE>
<S> <C>
Texas Hill Country
Texas Kerrville
Texas Lufkin Conroe
Bell South Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
Alabama Gulf
Alabama Monroeville
Alabama Peoples
Alabama Southland
Alabama GTE South
Mississippi Home
N. Carolina Citizen
N. Carolina Concord
N. Carolina GTE South
N. Carolina Heins
N. Carolina Lexington
N. Carolina North State
N. Carolina Skyline
N. Carolina Star Tel
N. Carolina Surry
N. Carolina AllTel of KY
Florida StJoseph Tel
Florida Centel of FL
Florida United of FL
Florida GTE South
Georgia Coastal Utilities
Georgia Standard
Georgia AllTel of GA
Kentucky AllTel of KY
Kentucky Bandenburg
Kentucky Foothills Rural
Kentucky Mountain Rural
Kentucky South Central Rural
Kentucky West KY Rural
Kentucky GTE South
Louisiana Central LA
Louisiana Coastal Tel. & Elec.
Louisiana East Ascension
Louisiana Lafourche
Louisiana Evangeline
S. Carolina Chester Tel
S. Carolina Farmers tel
</TABLE>
MCI CONFIDENTIAL
-9-
<PAGE> 10
<TABLE>
<S> <C>
S. Carolina Fort Mill
S. Carolina Hargray Tel
S. Carolina Home
S. Carolina Lancaster Tel
S. Carolina Rock Hill
S. Carolina GTE South
Tennessee Ben Lomand Rural
Tennessee Concord Tel
Tennessee Dekalb
Tennessee Millington
Tennessee N. Central Rural
Tennessee Twin Lakes Tel
PacBell Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
California Citizens Telecom
California Sierra Tel
California Roseville Tel
Nevada Mid America
Nevada Great Plains Tel
US West Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
Iowa Northwest Iowa
Iowa Jefferson Tel
Iowa IowaNetwork
Iowa South Slope Tel
Minnesota Minn. Equal Access
Minnesota Mankato Citizens Tel
Minnesota East Otter TO
South Dakota Brookings Municipal
Washington Pacific Telecom
Washington Ellensburg Tel
Amentech Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
Illinois Harrisonville
Illinois Illinois Consolidated
Illinois Mt Pulaski
Indiana NW Indiana Tel
Michigan CC&S Telephone
Michigan Century of Michigan
Michigan Climax Tel
</TABLE>
MCI CONFIDENTIAL
-10-
<PAGE> 11
<TABLE>
<S> <C>
Ohio Champaign Tel
Ohio Chilicothe
Wisconsin Century of Wisconsin
Wisconsin Mid-Plaines Tel
Wisconsin Monroe County
Wisconsin Northwest Tel
Wisconsin Solon Springs
Wisconsin Urban Tel
Wisconsin Wood County Tel
NYNEX Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
Maine Island Tel
Maine Hampden Tel
Maine Hartland
Maine St Albanys Tel
Maine Somerset Tel
Maine Warren Tel
Maine West Penobscot
New Hampshire Chichester Tel
New Hampshire Keasarge Tel
New Hampshire Meriden Tel
Vermont Ludow Tel
Vermont Northfield Tel
Vermont Perkinsville Tel
New York Ausable Valley Tel
New York Edwards Tel
New York Citizens
New York Highland Tel, NY
New York Oriskany Falls Tel
New York Port Byron Tel
New York Rochester Tel
New York Seneca-Gorham Tel, NY
New York Sylvan Lake NY
Bell Atlantic Territory
<CAPTION>
State Company
- - -------- -------------
<S> <C>
New Jersey United Tel
Pennsylvania Breezewood Tel
Pennsylvania Brookville Tel
Pennsylvania Canton Telephone
Pennsylvania Enterprise Tel
Pennsylvania GTE of PA
Pennsylvania Contel of PA
</TABLE>
MCI CONFIDENTIAL
-11-
<PAGE> 12
<TABLE>
<S> <C>
Pennsylvania Alltel Penna Inc
Pennsylvania Lakewood Rural
Pennsylvania Murrysville Tel
Pennsylvania Oswayo River Tel
Pennsylvania Quaker State Tel
Pennsylvania Sugar Valley Tel
Pennsylvania United Tel of PA
Virginia Amellia. Tel Corp
Virginia Contel VA
Virginia Va Hot Springs
Virginia Central Tel of VA
West Virginia Mountain State Tel
West Virginia Inter Mountain Telco WV
Virginia GTE South
</TABLE>
5. ANI Management Responsibilities. On or before the thirtieth (30th) day
after the close of the billing cycle, MCI will provide Customer with a list of
ANIs, including traffic minutes and number of calls associated with ANIs
associated with Customer's Carrier Network Services Account ("MCI Active ANI
List"). Within thirty (60) days after Customer's receipt of the MCI Active ANI
List, Customer shall provide to MCI, in writing, with a report of all ANIs in
the billing cycle covered by the MCI Active ANI List that were either: (1)
ordered by Customer to be added by MCI to the Customer's account but which were
not added to Customer's Network Account; or (2) on the MCI Active ANI list but
which Customer had requested be deleted, or (3) experienced zero (0) or
significantly reduced usage, but winch were suspected to have no reductions in.
usage ("Customer ANI Report"). Customer shall provide MCI with documentation
establishing the ordering, deletion and actual usage of each ANI contained in
the Customer ANI report For any ANI not timely included by Customer in the
Customer ANI Report: (1) Customer shall be liable to MCI for charges associated
with said ANI; and (2) MCI shall not be liable to Customer for any costs,
claims or damages resulting from failure to implement Customer's. directions
with respect to said ANI.
6. Detention Facilities. Customer may not use MCI Carrier Network
Services in conjunction with the provision of communications services to any
detention facility, including, but not limited to, any local, state or federal
prison.
7. Additional Rates.
Subject to Paragraph 2 herein, Customer shall receive the following
rates during the Service Term for MCI services which terminate at a switch
owned and operated by Customer During the Ramp Period, Customer shall receive
the rates set forth below and where Monthly Usage levels are provided, Customer
shall receive the rates at the Monthly Commitment Level. If Customer's usage
falls into a higher Monthly Usage level in which case Customer shall receive
the rates for that level. For MCI services that require a subcommitment,
Customer shall receive the rates and discounts associated with Customer's
subcommitment level during the Ramp Period with no Monthly Commitment required.
MCI CONFIDENTIAL
-12-
<PAGE> 13
Rates set forth in this Paragraph 7 do not include charges for
installation, taxes, tax-related surcharges, any other applicable surcharges,
charges for access and access-related charges. Rates are in lieu of any
discounts, promotions and credits otherwise applicable pursuant to the Tariff.
As a promotional offering to Customer for executing this Agreement on
or before the final date this offer is capable of acceptance, as specified in
Paragraph 27 of this Agreement, Customer shall pay MCI a monthly recurring
Central Connection charge of One Hundred Dollars ($100) per circuit and a
monthly recurring Access Coordination charge of Fifty Dollars ($50) per
circuit for MCI T-I digital gateway access circuits installed prior to the
Effective Date of this Agreement and currently utilized by Customer, and for
MCI T-1 digital gateway access circuits installed pursuant to this Agreement
Such charges shall be in effect for the Term of this Agreement, after which
Customer shall pay standard tariffed rates for such circuits.
(a) Domestic Interstate MCI PRISM I Service.
(1) For domestic interstate switched outbound service
originating via dedicated access from a Customer-owned location to an MCI point
of presence, except for service terminating to Alaska, Hawaii, Puerto Rico and
the U.S. Virgin Islands for which Customer shall pay tariffed rates (less
applicable tariffed discounts), Customer will pay the following non-distance
sensitive ("postalized") rate per minute as determined by Customer's Monthly
Usage:
<TABLE>
<CAPTION>
Rate
Monthly Usage Per Minute
- - ------------- ----------
<S> <C>
$ 0 to $1,500,000 ***
$1,500,000 to $2,000,000 ***
$2,000,000 and above. ***
</TABLE>
(2) For each minute terminating in the following Number
Plan Area Codes (NPA's), Customer will pay the postalized rate per minute as
determined by Customer's Total Monthly Usage:
<TABLE>
<CAPTION>
NPA STATE MAJOR CITY
--- ----- ----------
<S> <C> <C>
714 California Irvine
909 California LA
310 California LA
213 California LA
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
408 California San Jose
818 California Sherman Oaks
202 DC All
</TABLE>
MCI CONFIDENTIAL
-13-
<PAGE> 14
<TABLE>
<S> <C> <C>
302 Delaware All
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
412 Pennsylvania Pittsburgh
703 Virginia Arlington
804 Virginia Richmond
304 West Virginia All
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
313 Michigan Detroit
517 Michigan Lansing
616 Michigan Grand Rapids
312 Illinois Chicago
708 Illinois Chicago
309 Illinois Peoria
414 Wisconsin Milwaukee
608 Wisconsin Madison
812 Indiana Evansville
219 Indiana South Bend
317 Indiana Indianapolis
</TABLE>
<TABLE>
<CAPTION>
Rate
Total Monthly Usage Per Minute
- - ------------------- ----------
<S> <C>
$0 to $1,500,000 ***
$1,500,000 to $2,000,000 ***
$2,000,000 and above. ***
</TABLE>
(3) MCI PRISM I Service Credit In addition to the
postalized. rates for domestic interstate MCI PRISM I Service provided in
Paragraph 7(a)(1), Customer shall receive a monthly credit in an amount equal
to the below specified percentage (based on time of day usage) of Customer's
domestic intrastate MCI PRISM I Service monthly usage charges within the
corresponding states specified below at standard tariffed rates after
application tariffed discounts. The credit percentages and states are as
follows:
<TABLE>
<CAPTION>
State Credit Percentage
- - ----- -----------------
DAY EVENING NIGHT/WEEKEND
--- ------- -------------
<S> <C> <C> <C>
Alabama *** *** ***
Arizona *** *** ***
Arkansas *** *** ***
California-Band I *** *** ***
</TABLE>
MCI CONFIDENTIAL
-14-
<PAGE> 15
Band 2 *** *** ***
Band 3 *** *** ***
Colorado *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Florida *** *** ***
Georgia *** *** ***
Idaho *** *** ***
Illinois *** *** ***
Indiana *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Louisiana *** *** ***
Maine *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Minnesota *** *** ***
Mississippi *** *** ***
Missouri *** *** ***
Montana *** *** ***
New Hampshire *** *** ***
New Jersey *** *** ***
New Mexico *** *** ***
North Carolina *** *** ***
North Dakota *** *** ***
Nebraska *** *** ***
Nevada *** *** ***
New York *** *** ***
Ohio *** *** ***
Oklahoma *** *** ***
Oregon *** *** ***
Pennsylvania *** *** ***
Rhode Island *** *** ***
South Carolina *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Texas *** *** ***
Utah *** *** ***
Vermont *** *** ***
Virginia *** *** ***
Washington *** *** ***
West Virginia *** *** ***
Wisconsin *** *** ***
Wyoming *** *** ***
MCI CONFIDENTIAL
-15-
<PAGE> 16
Such credit shall be applied to Customer's domestic interstate MCI
PRISM I Service monthly usage charges at the postalized rates specified in
Paragraph 7(a)(1). The credit in any month shall not exceed Customer's domestic
interstate MCI PRISM I Service monthly usage charges (exclusive of taxes,
surcharges and pass-through access/egress (or related) charges) and may not be
carried forward to any subsequent month.
(b) Domestic Interstate MCI 800 DAL Service.
1) For domestic interstate inbound services terminating via
dedicated access from an MCI point of presence to Customer owned location(s),
except for service originating from Alaska, Hawaii, Puerto Rico and the U.S.
Virgin Islands for which Customer shall pay standard tariffed rates (less
applicable tariffed discounts), Customer will pay the following applicable
postalized rate as determined by Customer's Monthly Usage:
<TABLE>
<CAPTION>
Rate
Monthly Usage Per Minute
------------- ----------
<S> <C>
$0 to 1,500,000 ***
$1,500,000 to $2,000,000 ***
$2,000,000 and above. ***
</TABLE>
2) The above rates for MCI 800 DAL Service do not
include any feature charges described in the Tariff, including, but not limited
to, any 800 Service Management System "SMS" charges or RESP ORG Charges, which
are additional.
3) For each minute terminating in the following NPA's,
Customer will pay the postalized rate per minute as determined by Customer's
Total Monthly Usage:
<TABLE>
<CAPTION>
NPA STATE MAJOR CITY
--- ----- ----------
<S> <C> <C>
714 California Irvine
909 California Los Angeles
310 California Los Angeles
213 California Los Angeles
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
408 California San Jose
818 California Sherman Oaks
202 DC ALL
302 Delaware ALL
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
</TABLE>
MCI CONFIDENTIAL
-16-
<PAGE> 17
<TABLE>
<S> <C> <C>
412 Pennsylvania Pittsburgh
703 Virginia Arlington
804 Virginia Richmond
304 West Virginia ALL
312 Illinois Chicago
708 Illinois Chicago
317 Indiana Indianapolis
313 Michigan Detroit
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
414 Wisconsin Milwaukee
205 Alabama All
305 Florida Miami
813 Florida Tampa
904 Florida Jacksonville
404 Georgia Atlanta
502 Kentucky Louisville
504 Louisiana New Orleans
601 Mississippi All
919 North Carolina Raleigh
704 North Carolina Charlotte
803 South Carolina All
615 Tennessee Nashville
</TABLE>
<TABLE>
<CAPTION>
Rate
Monthly Usage Per Minute
------------- ----------
<S> <C>
$0 to $1,500,000 ***
$1,500,000 to $2,000,000 ***
$2,000,000 and above. ***
</TABLE>
4) MCI 800 DAL Service Credit. In addition to the postalized,
rates for domestic interstate MCI 800 DAL Service provided in Paragraph
7(b)(1), Customer shall receive a monthly credit in an amount equal to the
below specified percentage (based on time of day usage) of Customer's domestic
intrastate MCI 800 DAL Service monthly usage charges within the corresponding
states specified below at standard tariffed rates after application tariffed
discounts. The credit percentages and states are as follows:
<TABLE>
<CAPTION>
State Day Eve Night
- - ----- --- --- -----
<S> <C> <C> <C>
California range 1 *** *** ***
range 2 *** *** ***
range 3 *** *** ***
Georgia *** *** ***
</TABLE>
MCI CONFIDENTIAL
-17-
<PAGE> 18
<TABLE>
<CAPTION>
State Day Eve Night
- - ----- --- --- -----
<S> <C> <C> <C>
Indiana *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Mississippi *** *** ***
New Jersey *** *** ***
Oregon *** *** ***
Virginia *** *** ***
Washington *** *** ***
Wisconsin *** *** ***
Alabama *** *** ***
Florida *** *** ***
Iowa *** *** ***
Louisiana *** *** ***
Nebraska *** *** ***
New York *** *** ***
North Carolina *** *** ***
Pennsylvania *** *** ***
Utah *** *** ***
West Virginia *** *** ***
Arizona *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Minnesota *** *** ***
New Hampshire *** *** ***
North Dakota *** *** ***
South Carolina *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Montana *** *** ***
Oklahoma *** *** ***
Idaho *** *** ***
New Mexico *** *** ***
Vermont *** *** ***
Arkansas *** *** ***
Colorado *** *** ***
Illinois *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Maine *** *** ***
Missouri *** *** ***
Nevada *** *** ***
Ohio *** *** ***
Rhode *** *** ***
Island *** *** ***
Texas *** *** ***
Wyoming *** *** ***
</TABLE>
MCI CONFIDENTIAL
-18-
<PAGE> 19
Such credit shall be applied to Customer's domestic interstate MCI 800
DAL Service monthly usage charges at the postalized rates specified in
Paragraph 7(b)(1). The credit in any month shall not exceed Customer's domestic
interstate MCI 800 DAL Service monthly usage charges (exclusive of taxes,
surcharges and pass-through access/egress (or related) charges) and may not be
carried forward to any subsequent month.
(c) DS-0 Service.
For domestic interstate DS-0 Service terminating at Customer switch
locations, Customer will pay in addition to all taxes and tax-related
surcharges, the following IOC monthly charges based on circuit mileage as
contained in the schedule below, subject to Paragraph 7(e)2). Customer shall
pay both the charges in Column A plus those in Column B.
SCHEDULE 1
<TABLE>
<CAPTION>
A B
Fixed Charge Charge Per
Circuit Mileage Per Circuit DS-0 Mile
- - --------------- ------------- ----------
<S> <C> <C>
0 - 99 *** ***
100 - 599 *** ***
600 - 999 *** ***
1,OO0+ *** ***
</TABLE>
*Rates for domestic interstate DS-0 Service are based on a
least mileage routing and the mileage between the two applicable MCI Dedicated
Leased Line cities in accordance with the calculation as set forth in Section
C-11, Table I, Part A of the Tariff. These rates shall apply only to circuits
that are wholly-owned and operated end-to-end by MCI.
2) The rates for domestic interstate DS-0 Service
provided herein are in lieu of any rates, charges and discounts available from
MCI for the IOC portion of such service including, without limitation, the
Network Pricing Plan(s) specified in the Tariff. Access Coordination and
Central Office Connection charges are included in the above postalized rates.
(d) Domestic Interstate TDS-1.5.
1) For domestic interstate TDS 1.5 Service terminating
at Customer switch locations, Customer will pay in addition to all taxes and
tax-related surcharges, the following IOC monthly charges based on circuit
mileage as contained in the schedule below, subject to Paragraph 7(e)2).
Customer shall pay both the charges in Column A plus those in Column B.
MCI CONFIDENTIAL
-19-
<PAGE> 20
SCHEDULE II
<TABLE>
<CAPTION>
A B
Fixed Charge Charge Per
Circuit Mileage Per Circuit DS-0 Mile
- - --------------- ------------ ----------
<S> <C> <C>
0-99 *** ***
100-109 *** ***
110-299 *** ***
300-499 *** ***
500+ *** ***
</TABLE>
*Rates for domestic interstate TDS 1.5 Service are based on a
least mileage routing and the mileage between the two applicable MCI Dedicated
Leased Line cities in accordance with the calculation as set forth in Section
C-11, Table I, Part A of the Tariff. These rates shall apply only to circuits
that are wholly-owned and operated end-to-end by MCI.
2) The rates for domestic interstate TDS 1.5 Service
provided herein are in lieu of any rates, charges and discounts available from
MCI for the IOC portion of such service including, without limitation, the
Network Pricing Plan(s) specified in the Tariff. Access Coordination and
Central Office Connection charges are included in the above postalized rates.
(e) Domestic Interstate TDS-45.
1) For domestic interstate TDS-45 Service terminating at
Customer switch locations, Customer will pay in addition to all taxes and
tax-related surcharges, the following IOC monthly charges based on circuit
mileage as contained in the schedule below. Customer shall pay both the charges
in Column A plus those in Column B.
SCHEDULE III
<TABLE>
<CAPTION>
A B
Fixed Charge Charge Per
Circuit Mileage Per Circuit DS-0 Mile
- - --------------- ----------- ----------
<S> <C> <C>
0-99 *** ***
100+ *** ***
</TABLE>
*Rates for domestic interstate TDS-45 Service are based on a
least mileage routing and the mileage per route is determined by using the
airline mileage between the two applicable MCI Dedicated Leased Line cities in
accordance with the calculation as set forth in Section C-11, Table I, Part A
of the Tariff. These rates shall apply only to circuits that are wholly-owned
and operated end-to-end by MCI.
2) The rates for domestic interstate TDS-45 Service
provided herein are in lieu of any rates, charges and discounts available from
MCI for the IOC portion of such service
MCI CONFIDENTIAL
-20-
<PAGE> 21
including, without limitation, the Network Pricing Plan(s) specified in the
Tariff. Access Coordination and Central Office Connection charges are included
in the above postalized rates.
3) The charges listed above in Subparagraphs 7(c)(1), 7(d)(1)
and 7(e)(1) shall not be applicable to circuits having less than ten percent
(10%) domestic interstate traffic. Such circuits shall receive Tariffed rates.
4) The rates for domestic interstate TDS 1.5 and TDS-45
Service provided herein are in lieu of any rates, charges and discounts
available from MCI for the IOC portion of such service including, without
limitation, the Network Pricing Plan(s) specified in the Tariff. The TDS 1.5
and TDS-45 IOC charges include Tariffed access coordination and central office
connection charges.
(f) Debit Card Units.
1) Customer may utilize MCI for the debit card platform and
transport of Customer's domestic interstate and international termination debit
card traffic. In order to qualify for the below rates, Customer must purchase
at least *** domestic interstate and/or international termination debit card
units, as defined in the Tariff ("Debit Card Units"). The below rates shall
include access to the MCI debit card platform, transport, order entry and debit
card activation. Customer will pay the following applicable postalized rate as
determined by the number of Debit Card Units purchased by Customer in each
individual purchase, and not determined by the aggregate number of Debit Card
Units purchased throughout the Service Term:
<TABLE>
<CAPTION>
Debit Card Units Rate Per
Purchased Unit
- - ---------------- --------
<S> <C>
50,000 - 149,999 ***
150,000 - 299,999 ***
300,000 - 449,999 ***
450,000 - 599,999 ***
600,000+ ***
</TABLE>
2) Customer's total available Debit Card Units will only be
reduced by the Debit Card Units utilized by completed calls (calls that are
answered at the ultimate destination).
3) For international termination, as set forth in the Tariff,
different numbers of standard units per minute will be assessed for
internationally terminated calls. For example, internationally terminated calls
will be assessed anywhere from three to five units per minute.
4) In addition to the above rates, Customer shall pay an
additional *** charge for each customized script identifying Customer to its
end-users.
5) Customer shall be solely responsible for all card fulfillment,
customer service and any operator services.
MCI CONFIDENTIAL
-21-
<PAGE> 22
6) Customer shall not include MCI's name or logo on any Customer
debit card.
(g) MCI Carrier Operator Services.
Customer will receive the rates, service terms and conditions for MCI
Carrier Operator Services as set forth in Attachment B.
(h) MCI Card Service and Associated Enhanced Services.
Customer will receive the discounts for MCI Card Service and
Associated Enhanced Services set forth in Exhibit 3.
8. Credits.
(a) Customer shall receive a credit of up to ***, which shall be
applied to the one-time installation (including CIC installation) and other
one-time non-recurring MCI-billed tariffed charges associated with the
implementation of Carrier Network Services (for example PIC changes).
(b) In addition to any other discounts provided in this Agreement,
during each month of the Service Term, Customer shall receive a credit as
identified below. The discount percentage shall be based on Customer's Monthly
Usage of MCI International PRISM I Service (including MCI International PRISM I
Service terminating in Canada and Mexico), Carrier Operator Services, MCI
Feature Card, International CNS Outbound, and networkMCI Conferencing (solely
for purposes of this Paragraph to be referred to as "Base Usage") and determined
pursuant to the following schedule:
<TABLE>
<CAPTION>
Base Usage Discount Percentage
---------- -------------------
<S> <C>
$ 25,000 - $ 49,999 ***
$ 50,000 - $ 99,999 ***
$100,000 - $199,999 ***
$200,000 and above. ***
</TABLE>
Credit is applied each month to total invoice usage, less all
international usage (including Mexico and Canada). An additional ***
discount shall be applied to intrastate and international usage of MCI
International PRISM I Service (including MCI International PRISM I Service
terminating in Canada and Mexico), Carrier Operator Services, MCI Feature Card,
International CNS Outbound, and networkMCI Conferencing, however, this
intrastate discount shall be applied towards the international usage. The
credit in any month shall not exceed Customer's international usage charges
(exclusive of taxes, surcharges and pass-through access/egress (or related)
charges), of the services stated above, and may not be carried forward to any
subsequent month.
9. Revenue Achievement Bonus Program.
MCI CONFIDENTIAL
-22-
<PAGE> 23
(a) If Customer's total Monthly Usage during the Ramp Period and
Service Term equals or exceeds *** ("Credit Minimum"), Customer shall receive
a one-time credit in an amount equal to ***.
(b) If the credit provided pursuant to the subparagraph above is
earned prior to the conclusion of the Service Term, each time Customer's total
aggregate Monthly Usage earned thereafter equals or exceeds ***, Customer will
receive a one-time credit equal to ***. Such credit will be based on the
invoice in which Customer's usage equals or exceeds such amount and will be
applied to Customer's next available invoice.
(c) Customer may only receive one credit pursuant to Paragraph
9(a) or (b) during any consecutive twelve (12) month period ("Annual Period").
Credits earned in one Annual Period may not be carried forward to the next
Annual Period. Each credit shall equal no more than ***. The credits set forth
in Paragraphs 9(a) and (b) above shall be applied to Customer's domestic
interstate and international usage charges (exclusive of applicable taxes,
surcharges, and pass-through access/egress (or related) charges) for MCI
Services hereunder.
10. Semi-Annual Averaging.
During any Six (6) monthly billing period of the Service Term in which
Customer's total aggregate Monthly Usage equals or exceeds an amount equal to
Six (6) times the Monthly Commitment, Customer shall receive a credit in an
amount equal to any underutilization charges paid by Customer during such six
month period. The credit shall be applied to Customer's domestic interstate
invoiced usage charges (excluding taxes, surcharges and pass-through
access/egress (or related) charges) appearing on Customer's monthly invoice
following such six month period.
11. Security.
Nothing contained herein shall limit or be interpreted to limit MCIs
night, as provided for in Section B-7.04 of MCI Tariff FCC No. 1, to require,
in MCI's sole discretion, security from Customer, and Customer's failure or
refusal to provide such security upon MCI's reasonable request thereof may
result in the termination of this Agreement and Customer's service for cause
pursuant to Section B-11.01 of the Tariff. The security arrangements
provided for hereunder shall survive the expiration of the service term, as
defined herein, and shall survive the expiration of the Service Term, as
defined herein, and shall remain in effect so long as Customer remains a user
of MCI service(s).
12. Payment.
MCI CONFIDENTIAL
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<PAGE> 24
(a) Customer shall pay MCI for all MCI service(s) provided during
the usage month before the first day of the usage month. Customer will pay MCI
an estimated amount to be billed for MCI Services providing during the prior
month ("Estimated Payment"). At the initiation of this Agreement, the estimated
Pre-Payment will be equal to Customer's reasonable estimate of the coming
month. For each month thereafter, the Estimated Pre-Payment will be equal to
the amount of the prior MCI invoice received by the Customer.
(b) Within ten (10) days of the date of MCI's invoice, MCI and
Customer will reconcile the Estimated Payment with the MCI invoice for such a
month. MCI shall credit any Estimated Payment amount in excess of the MCI
invoice amount for such month on the next available invoice. Immediately after
reconciliation, Customer shall pay MCI any amount the Estimated Payment was
less than MCI invoice amount for such month.
(c) Customer's failure to pay the invoiced amount in full prior to
said usage period may result in the exercise by MCI of its rights under the
security provisions contained in Paragraph 11. In the event Customer fails to
pay MCI invoiced amounts as required and MCI notifies Customer that Customer's
service will be terminated for non-payment, Customer agrees to notify, jointly
with MCI, the Customer's end-users of the potential disruption of service, by
the mailing of a letter, signed by Customer, to each end-user, containing the
following language:
Dear Customer End-user:
Customer's provision of long distance service to you and our other
customers will terminate within two (2) weeks of the date of this letter. This
letter is being sent to you as a courtesy so that you can make the necessary
arrangements so that you do not experience a disruption of your communications
services. You have a choice of long distance carriers. If you have any
questions, please contact Customer (representative and telephone number) or
your local telephone company.
Sincerely,
Customer
Notwithstanding notice of termination, the Customer further agrees
that it will remain responsible for all charges incurred during the period
following transmission of the above-referenced notification and prior to the
actual termination of the service by MCI.
(d) For each month that Customer pays the amount invoiced within
said usage period described above, Customer shall receive a discount equal to
*** of the amount invoiced (less charges for installation, taxes, tax-related
surcharges, any other applicable charges, charges for access and access
related charges, including, without limitation, access charges in the Tariff
in such a month WIC discount shall be applied to Customer's total monthly
domestic interstate usage for MCI services under this Agreement appearing on
the next invoice.
13. Dispute Resolution.
MCI CONFIDENTIAL
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(a) Except as otherwise provided herein, any claims arising
out of or related to this Agreement, shall be made within one hundred and
twenty (120) days of their occurrence. If such claims cannot be resolved by
negotiation, they shall be settled by binding arbitration in accordance with
the rules contained in MCI Tariff FCC No. 1 ("Arbitration Rules"). Neither
party may seek injunctive relief of any kind prior to the confirmation of an
arbitration award, except that MCI may seek injunctive relief against Customer
for violation of Paragraphs 3(a) 2), 3) and 4), herein. Any claims made after
one hundred and twenty (120) days of the occurrence giving rise to such claims
shall be barred.
(b) Either MCI or Customer may initiate arbitration by providing
written demand for arbitration, a copy of this Agreement and the administrative
fee required by the Arbitration Rules to the Endispute (or if Endispute is not
available to the American Arbitration Association) office located in
Washington, D.C. A copy of such notice shall also be provided to the other
party. The remaining cost of the arbitration, including the fees and expenses
of the arbitrator, shall be shared equally by the parties unless the
arbitration award provides otherwise. Each party shall bear the cost of
preparing and presenting its case.
(c) One (1) arbitrator shall be appointed in accordance with the
Arbitration Rules within sixty (60) days of the submission of the demand for
arbitration, unless both parties otherwise agree in writing. The Arbitrator
shall designate the time and place for the hearing within thirty (30) days of
his or her appointment. MCI and the Customer agree that the Arbitrator's
authority to grant relief shall be subject to the provisions of this Agreement,
the United States Arbitration Act, 9 U.S.C. I-16 et. seq. ("USAA"), the ABA-AAA
Code of Ethics for Arbitrators in Commercial Disputes, MCI Tariff FCC No. 1,
substantive law, and the Communications Act of 1934, 47 U.S.C.151 et. seq. The
Arbitrator's decision shall follow the plain meaning of the relevant documents,
and shall be final and binding.
(d) MCI and the Customer agree to undertake all reasonable steps
to expedite the arbitration process.
(e) Notwithstanding any other provision of this Agreement,
interpretation and construction of this Paragraph shall be governed by the
USAA. MCI and the Customer further agree that judgment may be entered upon the
award in any court having jurisdiction thereof, and that all post-award
proceedings shall be governed by the USAA.
14. Termination for Insolvency.
In the event Customer becomes or is declared insolvent or bankrupt,
is the subject of any proceedings related to its liquidation, insolvency or for
the appointment of a receiver or similar officer for it, makes an assignment
for the benefit of all or substantially all of its creditors, or enters into an
agreement for the composition, extension, or readjustment of all or
substantially all of its obligations, MCI may, by giving seven (7) business
days written notice thereof to Customer, terminate this Agreement without
liability or obligation, in whole or in part, as of a date specified in such
notice of termination.
15. Term.
MCI CONFIDENTIAL
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The Ramp Period shall begin on the first (1st) day of the first full
month following the execution of this Agreement ("Effective Date") and will
continue for a period of twelve (12) months therefrom. The Service Term shall
begin on the first (1st) day of the thirteenth (13th) full month following
execution of this Agreement and shall continue for thirty six (36) months
thereafter. The total Term of this Agreement, including the Ramp Period, shall
be equal to forty-eight months. Nothing contained herein, however, shall modify
or be deemed to modify MCI's right to terminate this Agreement either as
provided herein, or as authorized in Section B-11.01 of the Tariff,
immediately upon notice to Customer if Customer fails or refuses to provide
alternative or additional security requested pursuant to Section B-7.04 of the
Tariff, or to terminate provision of service for any other cause as provided
for in Section B-11.01 of the Tariff or as otherwise provided for in this
Agreement.
16. Termination at Will.
During the first six (6) months of the Service Term, either party may
terminate this Agreement without liability by giving the other party thirty
(30) days written notice. However, if the first six (6) months of the Service
Term expires without such notice being given, this Agreement shall remain in
full force and effect.
17. Expiration of Term.
Unless the Service Term has been extended in writing by the parties,
upon expiration of the Service Term or termination of this Agreement, Customer
shall be fully subject to all the terms and conditions, including standard
tariffed rates, set forth in the Tariff for MCI service(s) received by Customer
after such expiration.
18. Termination Liability.
If Customer terminates this Agreement during the Service Term or MCI
terminates this Agreement during the Service Term for Customer's breach,
Customer will pay MCI within thirty (30) days of the effective date of such
termination an amount equal to fifteen percent (15%), of the aggregate of
Customer's remaining Monthly Commitments, or a pro rata portion thereof for any
partial month, for each month remaining in the Service Term after termination.
In addition to the above liability for early termination, Customer shall pay
the termination liability for early termination of all tariffed discount plans
in which the Customer has enrolled. Customer shall also pay termination charges
associated with any applicable product subcommitments contained in this
Agreement. Customer shall also repay any installation credits or payments
received pursuant to Paragraph 8 herein.
19. Nondisclosure.
Customer shall not disclose to any third party during the Service
Term, or during the three (3) year period thereafter, any of the terms and
conditions set forth in this Agreement unless such disclosure is lawfully
required by any federal governmental agency or is otherwise required to be
disclosed by law or is necessary in any proceeding establishing rights and
obligations under this
MCI CONFIDENTIAL
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<PAGE> 27
Agreement. MCI reserves the right to terminate this Agreement immediately upon
delivering written notice to Customer of any unpermitted third party disclosure
hereunder.
20. Notices.
Notices to be given pursuant to this Agreement shall be in writing,
delivered personally or by facsimile, telex, telegram, MCI Mail, professional
courier or certified, registered or express mail, postage prepaid to the
respective addresses set forth herein (or at such other addresses as shall be
given in writing by either party to the other). All notices, requests, demands
or communications shall be deemed effective upon the earlier of: (a) the date
such notice has been received; or (b) the next calendar day if sent by
facsimile, telex, telegram or MCI Mail; or (c) the third calendar day after
delivery to a professional courier service; or (d) five (5) calendar days after
deposit with the United States Postal Service if sent by certified or
registered mail, return receipt requested.
If to MCI:
MCI Telecommunications Corporation
205 N. Michigan Ave, Ste 3000
---------------------------------------
Chicago, IL 60601
---------------------------------------
ATTN.: Business Markets Legal Affairs
---------------------------------
FACSIMILE NUMBER: (312) 819-6745
----------------------
If to Customer:
EqualNet Communications, Corp.
---------------------------------------
1250 Wood Branch Park Dr.
---------------------------------------
Houston, TX 77079
---------------------------------------
ATTN: Zane Russell
-----------------------------
FACSIMILE NUMBER: (713) 556-4650
--------------------
21. Letter of Agency:
Customer shall appoint MCI as its agent in the Letter of Agency
attached hereto and incorporated herein as Attachment A.
22. Surcharge Exemption.
MCI CONFIDENTIAL
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<PAGE> 28
When applicable, Customer shall certify that any special access lines
used in connection with services under this Agreement terminate in a device not
capable of interconnecting MCI's service with the local exchange network and
thus are surcharge exempt from the special access surcharge.
23. Tax Exemption.
When applicable, Customer shall certify that it is exempt from
federal, state, and/or local taxes.
24. Governing law.
This Agreement, including all matters relating to the validity,
construction, performance and enforcement thereof, shall be governed by the
laws of the State of New York without giving reference to its principles of
conflicts of law, except to the extent the Communications Act of 1934, as
amended, and as interpreted and applied by judicial and regulatory authorities
including the Federal Communications Commission, applies.
25. Assignment.
This Agreement shall be binding on Customer and its respective
successors and assigns. Customer may not assign this Agreement, whether by
operation of law or otherwise, without the prior written consent of MCI and any
unpermitted attempted assigned shall be void. MCI may terminate this Agreement
without liability on ten (10) business days written notice in the event that
Customer undergoes a merger involving a change of control, or divests itself of
all or a substantial portion of its telecommunications business or undergoes a
change of fifty one percent (51%) or more of its ownership or management or
leverage or sale occurs involving fifty one percent (51%) or more of
Customer's assets or Customer's base.
26. No Waiver.
No waiver of any of the provisions of this Agreement shall be binding
unless it is in writing and signed by both parties. The failure of either party
to insist on the strict enforcement of any provision of this Agreement shall
not constitute a waiver of any provision and all terms shall remain in full
force and effect.
27. Length of Offer; Entire Agreement; Amendments.
This offer shall remain open and be capable of being accepted by
Customer until DECEMBER 31, 1995. Any and all prior or contemporaneous offers,
agreements, representations and understandings made to Customer, whether
written or oral, shall be superseded by this offer. Exclusive of any tariff
modifications initiated by MCI, once this Agreement has been executed, any
amendments hereto must be made in writing and signed by both parties.
MCI CONFIDENTIAL
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement.
MCI COMMUNICATIONS CORPORATION
By: /s/ Illegible
---------------------------------
for Vice President,
Title: Business Markets
-------------------------------
Date: January 16, 1996
--------------------------------
EQUALNET COMMUNICATIONS, INC.
By: /s/ Illegible
---------------------------------
(Signature)
Title: Chairman & CEO
-------------------------------
Date: December 28, 1995
--------------------------------
MCI CONFIDENTIAL
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EXHIBIT I
MCI CONNECTION CARD FRAUD DETECTION PROCEDURES
----------------------------
All calling card calls will be validated by MCI to permit only those calls
authorized or facilitated by EQUALNET, INC. or legitimate card holders. MCI
will, at the direction of Customer, preclude all calls utilizing expired or
terminated calling card numbers compared against an authorized list provided by
Customer and will be responsible for all fraudulent use, unauthorized use,
misuse, or abuse of calling cards occurring after MCI receives actual notice of
the expiration or termination of a calling card or receives specifically
detailed written notification concerning any card which has been lost, stolen,
compromised or which Customer has reason to believe is or may be used
fraudulently. MCI will deactivate a calling card within four (4) hours of
receipt by MCI's Consumer Markets Fraud Detection of a request by Customer.
In addition, all calling card calls will be monitored by MCI for fraudulent
use, unauthorized use, misuse or abuse on a twenty four (24) hour a day, seven
(7) days a week basis. MCI shall establish fraud prevention, detection and
minimization procedures so that fraudulent use arising from lost or stolen
calling cards and potential disruption to authorized card holders will be
minimized. MCI will not hold the Customer responsible for "service fraud"
associated with the unauthorized use of an MCI calling card. "Service fraud"
can best be described as unauthorized use of an MCI calling card following the
involuntary theft or loss of a card which was not intentionally facilitated or
impliedly authorized by Customer or an authorized user. "Service fraud" often
follows the theft of a wallet, purse or briefcase, or sometimes is the result
of "shoulder surfing" (thieves observing/recording authorization codes) which
occurs at payphones located in airports, bus terminals, train stations and the
like. MCI shall not be responsible for losses caused by fraudulent information
submitted by a card holder in subscribing for calling card services or for
usage which was intentionally facilitated or impliedly authorized by an
authorized user.
In the event that MCI is unable to contact Customer of suspected abuse of the
calling card, in order to minimized potential abuse, MCI will deactivate any
calling card which has exceeded established fraud detection parameters or which
MCI has reason to believe is or may be used fraudulently.
MCI CONFIDENTIAL
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EXHIBIT 2
"MCI has developed the following guidelines to aid MCI Carrier Network Services
customers in determining the proper use of MCI's name, logo, trademarks and
service marks and the proper characterization of the MCI/Reseller relationship.
Resellers are not authorized to use MCI's name, its trademarks, servicemarks or
logo in any manner including use in advertising, promotional materials,
stationery, business cards, billing and signage. For example, Resellers MAY NOT
make in words or in substance the following statements:
"Network services provided by MCI"
"Authorized/Endorsed/Sponsored/Approved by MCI"
"Authorized Provider of MCI Services"
"Affiliate, or partner, or co-marketer with MCI"
If resellers wish to make any reference to MCI, they may ONLY make the
following declarative statement:
"Reseller's services utilize the MCI network"
However, the following conditions apply to this statement:
o This statement may not be used in ANY manner that is likely to
create confusion or to give the impression that MCI sponsors, endorses, or is
in any way affiliated with the Reseller.
o This statement may only be used as a declarative statement in any
printed or oral communication and may not be used as a headline or in any
advertising slogan or banner. In order to use this statement, the Reseller's
company name must appear or be verbalized prominently in the written or oral
communication
o The statement may only appear once in each written promotional or
advertising piece. The MCI name may not be used in the same type style that MCI
uses and must not otherwise resemble the MCI name and/or logo.
o In any event, whenever the statement above is used, the type size
for this verbiage as it appears in any printed material may not exceed 1/8 of
one (1) inch and cannot be larger, bolder, or a different color or type style
than the adjacent text.
In summary, this policy means no Reseller may state explicitly or
implicitly that it:
o Is an authorized agent, reseller, partner or co-marketer with MCI;
or
o Provides MCI services; or
o Is affiliated with, authorized, sponsored by, or endorsed by MCI; or
o Has a special relationship with MCI.
MCI is aggressive about protecting its trademark, service mark and
corporate name. In the past, we have not hesitated to bring appropriate legal
action to protect our rights and we shall continue to be vigilant to ensure
that these guidelines are followed."
MCI CONFIDENTIAL
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<PAGE> 32
EXHIBIT 3
MCI FEATURE CARD SERVICE AND ASSOCIATED
ENHANCED SERVICES DISCOUNTS
A. MCI Feature Card Service Discounts.
1) Customer shall receive the following effective
discounts on its usage of domestic interstate MCI Feature Card Service (only
accessed by dialing an MCI-provided 800 number other than (800) 950-1022 in
accordance with Section C-A.05, Footnote 2, of the Tariff or any successor
tariffed provision) as determined by Customer's Total Monthly Usage:
<TABLE>
<CAPTION>
Total
Monthly Usage Discount
------------- --------
<S> <C>
$500,000+ ***
</TABLE>
2) The following interstate MCI Feature Card surcharges shall
be charged on all direct dial MCI Feature Card calls.
<TABLE>
<CAPTION>
Direct
From To Dial
---- -- ------
<S> <C> <C>
United States U.S., Puerto Rico ***
("U.S.") and U.S. Virgin
Islands
Puerto Rico U.S. ***
U.S. Virgin U.S. ***
Islands
U.S., Puerto Rico Canada ***
and U.S. Virgin
Islands
U.S., Puerto Rico International Locations ***
and U.S. Virgin Other than Canada
Islands
Canada U.S., Puerto Rico and ***
U.S. Virgin Islands
Canada International Locations ***
</TABLE>
3) The above discounts shall apply only to Customer's usage
charges for domestic interstate MCI Feature Card Service provided pursuant to
the Tariff but not to charges for monthly recurring, MCI Feature Card
surcharges, installation, taxes or surcharges applicable to MCI Service(s),
Directory Assistance, MCI intrastate charges and charges for local
access/egress services or facilities associated with MCI Feature Card Service.
MCI CONFIDENTIAL
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<PAGE> 33
4) The above accounts for MCI Feature Card Service in lieu of any
tariffed discounts including, without limitation, the discounts for MCI Feature
Card Service available under MCI VIP, MCI VIP Plus, MCI MOD and MCI CAS
Service.
5) For MCI Feature Card Service (only accessed by dialing an
MCI-provided 800 number other than (800) 950-1022), Customer shall pay MCI for
the fulfillment costs associated with Customer's usage of MCI Feature Card
Service plus pay MCI an administrative charge for handling fulfillment in an
amount equal to *** of the fulfillment costs.
6) For MCI Feature Card Service (only accessed by dialing an
MCI-provided 800 number other than (800) 950-1022), MCI shall provide the fraud
detection procedures set forth in Exhibit 1, attached hereto and incorporated
herein by reference. Customer shall be responsible for all fraud associated
with its usage of MCI Feature Card Service, except as set forth in Exhibit 1.
B. Discounts on Associated Enhanced Services.
1) Customer will be entitled to the following applicable
incremental discounts on Customer's usage of Enhanced Services (MCI Messenger
Service, *3 Flexible Routing for Voice Mail, Voice News Network, Speed Dialing
and Conference Calling accessed by use of the MCI Feature Card) as determined
by Customers Enhanced Services Monthly Usage (as defined below):
<TABLE>
<CAPTION>
Enhanced Services
Monthly Usage Discount
----------------- ---------
<S> <C>
$ 0 - $ 1,999 ***
2,000 - 49,999 ***
50,000 - 149,999 ***
150,000 - 249,999 ***
250,000 - 499,999 ***
500,000 - 749,999 ***
750,000 + ***
</TABLE>
The above discounts shall apply only to Customer's usage of Enhanced
Services provided pursuant to MCIs standard terms and conditions for such
services, but not to charges for installation, taxes or surcharges, and charges
for local access/egress services or facilities-associated with Enhanced
Services.
2) Enhanced Services Monthly Usage shall mean Customer's
monthly combined recurring and usage charges for Enhanced Services at standard
pricing but not including taxes (and gross receipts taxes), surcharges, and any
charges for tariffed services.
MCI CONFIDENTIAL
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<PAGE> 34
EXHIBIT 4
CNS INTRASTATE EFFECTIVE RATES
INTRASTATE 800
Switched Termination
<TABLE>
<CAPTION>
DAY EVENING NIGHT & WEEKEND
STATE RATE/MIN RATE/MIN RATE/MIN
----- -------- -------- ----------------
<S> <C> <C> <C>
Alabama *** *** ***
Arizona *** *** ***
Arkansas *** *** ***
California *** *** ***
Colorado *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Florida *** *** ***
Georgia *** *** ***
Idaho *** *** ***
Illinois *** *** ***
Indiana *** *** ***
Iowa *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Louisiana *** *** ***
Maine *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Minnesota *** *** ***
Mississippi *** *** ***
Missouri *** *** ***
Montana *** *** ***
Nebraska *** *** ***
Nevada, *** *** ***
New Hampshire *** *** ***
New Jersey *** *** ***
New Mexico *** *** ***
New York *** *** ***
North Carolina *** *** ***
North Dakota *** *** ***
Oklahoma *** *** ***
Pennsylvania *** *** ***
Rhode Island *** *** ***
South Carolina *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Texas *** *** ***
Utah *** *** ***
Vermont *** *** ***
Virginia *** *** ***
Washington *** *** ***
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 35
West Virginia *** *** ***
Wisconsin *** *** ***
Wyoming *** *** ***
NOTE:
Interstate rates apply for Alaska and Hawaii. Please refer to tariff.
NOTE:
Maximizer column includes *** discount off tariffed rates, excluding tarriff
discounts.
MCI CONFIDENTIAL
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<PAGE> 36
INTRASTATE 800
Dedicated Termination
<TABLE>
<CAPTION>
DAY EVENING NIGHT & WEEKEND
STATE RATE/MIN RATE/MIN RATE/MIN
- - ----------- -------- -------- ---------------
<S> <C> <C> <C>
Alabama *** *** ***
Arizona *** *** ***
Arkansas *** *** ***
California *** *** ***
Colorado *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Florida *** *** ***
Georgia *** *** ***
Idaho *** *** ***
Illinois *** *** ***
Indiana *** *** ***
Iowa *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Louisiana *** *** ***
Maine *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Minnesota *** *** ***
Mississippi *** *** ***
Missouri *** *** ***
Montana *** *** ***
Nebraska *** *** ***
Nevada *** *** ***
New Hampshire *** *** ***
New Jersey *** *** ***
New Mexico *** *** ***
New York *** *** ***
North Carolina *** *** ***
North Dakota *** *** ***
Ohio *** *** ***
Oklahoma *** *** ***
Oregon *** *** ***
Pennsylvania *** *** ***
Rhode Island *** *** ***
South Carolina *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Texas *** *** ***
Utah *** *** ***
Vermont *** *** ***
Virginia *** *** ***
Washington *** *** ***
West Virginia *** *** ***
Wisconsin *** *** ***
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Wyoming *** *** ***
</TABLE>
NOTE:
Interstate rates apply for Alaska and Hawaii. Please refer to tariff.
NOTE:
Maximizer column includes *** discount off tariffed rates, excluding tariff
discounts.
MCI CONFIDENTIAL
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<PAGE> 38
CNS SWITCHED OUTBOUND
Intrastate Rates
<TABLE>
<CAPTION>
MILEAGE PEAK OFF-PEAK
STATE BAND RATE/MIN RATE/MIN
- - ----- ------- -------- --------
<S> <C> <C> <C>
Alabama *** *** ***
Arizona *** *** ***
Arizona *** *** ***
Arkansas *** *** ***
California *** *** ***
Colorado *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Florida *** *** ***
Georgia *** *** ***
Idaho *** *** ***
Illinois *** *** ***
Indiana *** *** ***
Iowa *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Louisiana *** *** ***
Maine *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Minnesota *** *** ***
Mississippi *** *** ***
Missouri *** *** ***
Missouri *** *** ***
Missouri *** *** ***
Montana *** *** ***
Montana *** *** ***
Nebraska *** *** ***
Nevada *** *** ***
New Hampshire *** *** ***
New Jersey *** *** ***
New Mexico *** *** ***
New Mexico *** *** ***
New York *** *** ***
North Carolina *** *** ***
North Dakota *** *** ***
Ohio *** *** ***
Oklahoma *** *** ***
Oklahoma *** *** ***
Oklahoma *** *** ***
Oregon *** *** ***
Oregon *** *** ***
Oregon *** *** ***
Pennsylvania *** *** ***
Rhode Island *** *** ***
South Carolina *** *** ***
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 39
<TABLE>
<S> <C> <C> <C>
South Dakota *** *** ***
South Dakota *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Texas *** *** ***
Utah *** *** ***
Vermont *** *** ***
Virginia *** *** ***
Washington *** *** ***
West Virginia *** *** ***
Wisconsin *** *** ***
Wyoming *** *** ***
</TABLE>
NOTE:
MCI's calls are priced at an 18-second minimum for first minute and 6 seconds
thereafter.
MCI's rates become increasingly attractive when using actual call lengths to
compare rates; specifically using an average 4-minute call, use the following
formula to arrive at the adjusted average rate per minute:
[(MCI's 18 sec. min. rate) + (6 sec. min. rate * 37)]
NOTE:
This rate is lower than the first minute rates listed in the table.
NOTE:
Interstate rates apply for Alaska & Hawaii. Please refer to tariff.
NOTE:
0+ indicates that the rates are the same for all mileage bands
MCI CONFIDENTIAL
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<PAGE> 40
CNS DEDICATED OUTBOUND
Intrastate Rates
<TABLE>
<CAPTION>
MILEAGE PEAK OFF-PEAK
STATE BAND RATE/MIN RATE/MIN
- - ------- ------- -------- --------
<S> <C> <C> <C>
Alabama *** *** ***
Arizona *** *** ***
Arizona *** *** ***
Arkansas *** *** ***
California *** *** ***
Colorado *** *** ***
Connecticut *** *** ***
Delaware *** *** ***
Florida *** *** ***
Georgia *** *** ***
Idaho *** *** ***
Illinois *** *** ***
Indiana *** *** ***
Indiana *** *** ***
Indiana *** *** ***
Iowa *** *** ***
Kansas *** *** ***
Kentucky *** *** ***
Louisiana *** *** ***
Maine *** *** ***
Maryland *** *** ***
Massachusetts *** *** ***
Michigan *** *** ***
Minnesota *** *** ***
Mississippi *** *** ***
Missouri *** *** ***
Missouri *** *** ***
Missouri *** *** ***
Montana *** *** ***
Montana *** *** ***
Nebraska *** *** ***
Nevada *** *** ***
New Hampshire *** *** ***
New Jersey *** *** ***
New Mexico *** *** ***
New Mexico *** *** ***
New York *** *** ***
North Carolina *** *** ***
North Dakota *** *** ***
Ohio *** *** ***
Oklahoma *** *** ***
Oklahoma *** *** ***
Oklahoma *** *** ***
Oregon *** *** ***
Oregon *** *** ***
Oregon *** *** ***
Pennsylvania *** *** ***
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 41
<TABLE>
<S> <C> <C> <C>
Rhode Island *** *** ***
South Carolina *** *** ***
South Carolina *** *** ***
South Dakota *** *** ***
South Dakota *** *** ***
Tennessee *** *** ***
Texas *** *** ***
Utah *** *** ***
Vermont *** *** ***
Virginia *** *** ***
Washington *** *** ***
West Virginia *** *** ***
Wyoming *** *** ***
</TABLE>
NOTE:
MCI's calls are priced at an 18-second minimum for first minute and 6 seconds
thereafter
MCI's rates become increasingly attractive when using actual call lengths to
compare rates; specifically using an average 4-minute call, use the following
formula to arrive at the adjusted average rate per minute:
[MCI's 18 sec. min. rate) + (6 sec. min. rate * 37)]
NOTE:
0+ indicates that the rates are the same for all mileage bands.
NOTE:
Interstate rates apply for Alaska & Hawaii. Please refer to tariff.
MCI CONFIDENTIAL
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<PAGE> 42
EXHIBIT 5
CALL TRAFFIC RECORDS
A. Call Detail Records
Customer may select between weekly magnetic tapes or daily files to receive
call detail record ("CDR(s)") information and may also choose to receive
monthly magnetic tapes. Customer may choose ONE of these options (weekly
magnetic tapes or daily files), but not both, by providing MCI written notice
thereof. Customer may change the selected option during the Service Term of the
Agreement by providing MCI with ninety (90) days prior written notice. Daily
CDRs are available only for Carrier Network Service Interstate, Intrastate and
International outbound usage. weekly and monthly magnetic tapes are available
for Carrier Network Services Interstate, Intrastate and International outbound
and inbound usage.
The above tapes shall be provided to Customer in MCI format and at applicable
Tariff and state tariff rates. MCI makes no guarantee that such tape is
compatible with any billing systems Customer may choose to use. Further, MCI
assumes no obligation to conform the magnetic tape format to become compatible
with any billing system of Customer or Customer's billing agent.
B. Weekly Magnetic Tapes
Customer may receive CDRs from MCI on a weekly basis via magnetic tape in the
same record layout format as the MCI monthly billing magnetic tape.
Weekly magnetic tapes consist of and feature the following:
1. Customer shall receive one magnetic tape for each of the
following products: Carrier Network Services Interstate,
Intrastate and International Outbound; Carrier Network Services
Interstate, Intrastate and International Inbound; and Operator
Services. MCI Will use reasonable efforts to provide this tape(s) to
Customer one (1) week after the usage occurs. The traffic period
contained in the magnetic tape varies in accordance to the type of
usage as stated in the table below:
<TABLE>
<CAPTION>
TYPE OF USAGE CALL TRAFFIC PERIOD
------------- -------------------
<S> <C>
Outbound Saturday through Friday
Inbound Friday through Thursday
Calling Card Wednesday through Tuesday
</TABLE>
Due to timing of the extract, the tape may not contain complete
data for the week. The remaining data for such days will, be contained
in the following week's tape.
2. Based on the nature of weekly magnetic tape processing,
traffic may be in "Error Suspense", defined as the failure
to process a record due to lack of current account information. Error
Suspense is due to (a) the timeliness of order entry reference file
extracts and (b) traffic rate table updates.
Normal Error Suspense accounts for approximately one percent (1%) of
total traffic for a given week and will appear on a later tape with
the original date of the call specified.
3. For invoicing cycles ending mid-week (i.e. the 31st day of
the month is a Wednesday), two (2) magnetic tapes will be generated
for that week; one for the traffic for the prior
MCI CONFIDENTIAL
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<PAGE> 43
month's invoicing cycle and one for traffic for the current invoicing
period. This will allow Customer to reconcile the weekly tapes
to its monthly invoice.
4. Each new ANI may incur up to a two (2) week delay prior to
appearing in the weekly magnetic tape process. MCI order entry file
updates occur on the first (1st) and fifteenth (15th) of each month
and produce extracts to weekly magnetic tape processes. For example,
ANIs installed May 20, will not appear on the weekly magnetic
tape until after May 30.
5. MCI will not research or track any discrepancies between
monthly magnetic tape and the weekly call detail records; Customer's
payment is derived by monthly invoicing, regardless of the data that
is provided on the weekly magnetic tapes.
6. MCI will use Customer's monthly invoice and the supporting
monthly magnetic tape to invoice Customer.
7. Customer is responsible for paying the monthly invoice in
full in accordance with the terms specified in this Agreement,
regardless of any discrepancies between the monthly invoice and
the weekly magnetic tapes.
C. Daily CDRs
Daily CDRs are only available for outbound usage. The daily CDR feature will be
unedited by MCI's billing system and unaudited by MCI's billing center to
ensure timeliness of delivery. MCI will not be liable to Customer for any
errors or inaccuracies contained in the daily CDRs.
1. Daily CDRs are prepared as follows:
(a) An extract is taken of calls from MCI's call
processing system prior to monthly invoice preparation and MCI will
use reasonable efforts to provide the tape to Customer two (2) days
after traffic is created (ie, calls that are placed Monday will be in
the file sent on Wednesday, although calls made early Monday may
appear in Tuesday's file).
(b) Files will be received seven (7) days per week at a
time to be mutually determined by the parties.
(c) Two (2) data delivery options will be available for
selection by Customer based on Customer's forecasted volume. Any and
all expenses incurred to set up any dedicated line, hardware, software
or other equipment that may be required for data delivery shall be
paid by the Customer.
2. MCI does not assume responsibility for failures in delivery of
CDR data which are caused by Customer's billing and customer premise
equipment. MCI will store files for up to fourteen (14) days in case a
retransmission is requested, after which all files will be purged.
3. Due to Error Suspense, as defined in paragraph B,2, not all
calls will necessarily appear on the file specific to their date;
calls may actually appear on a later file but the call
MCI CONFIDENTIAL
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<PAGE> 44
will retain the original date.
4. Customer understands that daily CDR delivery is subject to the
following:
(a) The record format will be identical to monthly
magnetic tape except that it will not contain the amount charged for
the call.
(b) Daily CDRs will not always correspond with the
monthly file for the following reasons:
(i) records do not complete the full billing process and
may get dropped as "unbillable" when the full billing process
is completed.
(ii) Error Suspense, as defined in paragraph B,2, could
result in calls from previous dates being delivered in daily
files. Normal Error Suspense accounts for approximately one
percent (1%) of total traffic.
(iii) calls can be recycled for ninety (90) days until they
are either invoiced or dropped in the invoice editing process.
(c) Call traffic can experience up to a two (2) week
delay prior to appearing in the daily file process. MCI mainframe
extracts occur on the first (1st) and fifteenth (15th) of each month
thus traffic for new ANIs installed between such dates may not be
captured until these dates.
(d) File creation is time driven (i.e., data is
distributed at approximately the same time each day regardless of
whether all files have been received from all data centers).
Therefore, some files on given days could be incomplete with the
remainder of data received on the following day's file. The file
header shall indicate if all data was obtained from each of the three
(3) MCI data centers.
(e) MCI will not research or track any discrepancies
between the daily and monthly files. Customer shall pay pursuant to
the monthly invoice, regardless of any discrepancies between the
monthly invoice and the daily files.
5. CDR's for Carrier operator Services are available to Customer
on a next day basis. Customer assumes responsibility for pulling the
CDR's from the Carrier Operator Services Bulletin Board. Records will
only be posted to the bulletin board for ten (10) days from the date
of the call.
MCI CONFIDENTIAL
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<PAGE> 45
ATTACHMENT A
LETTER OF AGENCY
ATTENTION: Concerned Local Operating Companies, AT&T and other Common Carriers
and All Equipment Vendors
The undersigned appoints MCI Telecommunications Corporation or any of its
affiliated companies ("MCI") as agent for the purpose of ordering, in
connection with MCI's provision of service to the undersigned, changes in
and/or maintenance on specific telecommunications service that you provide to
the undersigned including, without limitation, removing, adding to or
rearranging such telecommunications service.
You are hereby released from any and all liability for making pertinent
information available to MCI and for following MCI's instructions with respect
to any changes to or maintenance on the undersigned's telecommunications
service. You may deal directly with MCI on all matters pertaining to
telecommunications service and should follow instructions with respect thereto.
This authorization will remain in effect until modified or rescinded in writing
by the undersigned.
Signed this 28th day of December , 1995.
BY:
/s/ ILLEGIBLE
- - -----------------------------------
Authorized Customer Signature
Chairman & CEO
- - -----------------------------------
Title
EqualNet Communications, Corp.
- - -----------------------------------
Company Name
MCI CONFIDENTIAL
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<PAGE> 46
ATTACHMENT B
MCI CARRIER OPERATOR SERVICES
Customer is interested in buying MCI Carrier Operator Services for resale and
MCI is interested in providing such services to Customer. In order to
accomplish those purposes the parties hereby agree as follows:
1. Operator Services.
(a) "Operator Service Calls" mean long distance calls dialed with
the 0+, 01+ or 00- dialing pattern (and excluding calls dialed with the 950-XXXX
and 800 dialing patterns).
(b) Customer shall not use any service mark or trademark of MCI or
refer to MCI in connection with any service provided hereunder without the
prior written approval of MCI.
(c) Call Originating Identification Information, MCI must receive
electronic call origination identification ANI information for each call
carried hereunder If the Originating Site uses Feature Group D local access
service, the required call origination identification information is
automatically supplied by the local exchange company. If the Originating Site
uses a type of local access service other than Feature Group D local access
service, the Originating Site shall cause electronic call origination
identification information (in a form acceptable to MCI) to be supplied to MCI
at the initiation of each call.
(d) Emergency Calls.
(1) Each Originating Site shall configure its system so
that 911 emergency calls, where available, and similar emergency calls, will be
automatically routed to the appropriate party or clearing house without the
intervention of MCI. Emergency calls which do reach a MCI operator shall be
handled in accordance with MCI standard operating procedures.
(2) If Customer or MCI provides an emergency number
database, Customer agrees to indemnify and hold MCI harmless from any and all
claims, damages, fines, penalties and any other liabilities (including attorney
fees) arising out of the inaccuracy of any information or the inadequacy of any
procedure or personnel.
(e) Private Payphones.
(1) Private payphone lines must be classed as "07" COCOT.
(2) All payphones must have Billed Number Screening
("BNS"), if available. If BNS is not available, the Customer will be
responsible for calls billed to any lines without BNS.
(3) Unless otherwise permitted by law, all 0- calls must
be passed to the Local Exchange Carrier ("LEC").
(4) Payphones must not block 950-XXXX or 1-800-XXX-XXXX
calls.
MCI CONFIDENTIAL
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<PAGE> 47
(5) All phone must have "011" blocking at the central
office, if available. If international blocking is not available, or if
Customers choose not to block "011" calls, then Customer assumes responsibility
for any international fraud.
(6) For Premises Telephones located in condominiums,
Customer shall be liable for all charges attributable to the failure of
Customer to secure screening which prevents 1+10XXX domestic and international
dialing and which indicates to operators that the telephone is restricted to
prohibit billing to the original ANI.
(7) Customer shall be responsible for any fraud resulting
from its purchase and use of MCI Carrier Operator Services.
(f) Compliance. Customer will comply with applicable federal,
state and local laws and regulations, including without limitation, laws and
regulations relating to operator service during the term of this Agreement.
(g) Authority.
(1) Customer warrants that it is authorized to select the
operator services carrier for the telephones served by Customer pursuant to
this Agreement. Customer agrees that if any other party makes any claims against
MCI for commissions from such telephones, Customer will be responsible for any
such claim. Customer shall indemnify MCI and hold MCI harmless from any loss,
cost or expense resulting from such claim and will pay MCI's reasonable
attorney's fees resulting from any such claim.
(2) If Customer is an agent of the premises owner or
telephone owner for the Premises Telephones, Customer shall obtain the written
agreement of each premises owner and telephone owner for each Premises
Telephone authorizing Customer to select the operator service carrier for the
Premises Telephones and Customer will submit a copy of such authorization to
MCI upon request MCI may take steps to confirm compliance with this provision
including, without limitation, contacting premises owners and telephone owners
whose telephones are submitted by Customer.
(h) Liability.
Except in cases involving proved willful or wanton misconduct,
MCI's liability to Customer is limited to its obligation to provide service as
described herein. MCI SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE LOSS OR DAMAGE OF ANY KIND, INCLUDING
LOST PROFITS (WHETHER OR NOT MCI WAS AWARE OF THE POSSIBILITY OF SUCH LOSS OR
DAMAGE), BY REASON OF ANY ACT OR OMISSION IN ITS PERFORMANCE UNDER THIS
AGREEMENT. Customer shall indemnify and hold MCI harmless against any and all
claims, losses, liabilities, damages, costs or expenses arising out of or
related to this Agreement and shall pay MCI's reasonable attorney's fees
resulting from any such claim.
2. Rates. The rates in the following schedule shall be charged on
Customer's usage of MCI Carrier Operator Services. The automated rate will be
charged from the time a call reaches a node. until the call is terminated. The
live rate will be charged in addition to automated rates for the portion of
each call that is handled by a live operator.
MCI CONFIDENTIAL
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<PAGE> 48
<TABLE>
<CAPTION>
Automated Live
Monthly Attempts Rate/Sec. Rate/Sec.
- - ---------------- ---------- ---------
<S> <C> <C>
0 - 50,000 *** ***
50,001 - 100,000 *** ***
100,001 - 200,000 *** ***
200,001 - 500,000 *** ***
500,001 - 1,000,000 *** ***
1,000,001 - 1,500,000 *** ***
1,500,000+ *** ***
</TABLE>
For calls terminated by MCI, Customer shall pay MCI an additional
charge for call termination rated at Customer's domestic interstate
non-dedicated outbound rate specified in Paragraph 4(a) of the Agreement based
on an eighteen (18) second minimum and rounded to six (6) second increments.
3. Rate Quotes. If Customer has provided the appropriate rate
information, MCI will provide real-time rate quotes to callers. However,
Customer shall indemnify MCI and hold MCI harmless from any and all claims,
damages, fines, penalties or other liabilities (including attorney fees)
arising from the inaccuracy of any information or the inadequacy of any
procedures or personnel.
4. Customer Service. Customer agrees that all customer service calls
(i.e., billing disputes, troubles, general inquiries) shall be routed to
Customer's customer service via a Customer-provided 800 number.
5. Language Assistance, Customer agrees that it on a monthly basis, calls
utilizing MCI Carrier Operator Services language assistance exceed thirty
percent (30%), Customer shall pay two times the Tariff rate for all calls
exceeding thirty percent (30%).
6. Brand. Customer agrees that it will resell MCI Carrier Operator
Services in its own name only.
7. Service Delivery. Customer agrees that it will receive and deliver all
MCI Carrier Operator Services calls from/to one of the three (3) MCI automated
nodes via an MCI TDS-1.5 or TDS-45 circuit
8. Billing. Customer agrees to be responsible for all end-user billing
for operator services and further agrees that if MCI provides rating and/or
recording services for billing, Customer shall indemnify and hold MCI harmless
from any and all claims, damages, fines, penalties or other liabilities
(including attorney fees) arising from the inaccuracy of any information or the
inadequacy of any procedures or personnel.
9. Forecasting Customer agrees to provide a written monthly forecast for
automated and live MCI Carrier Operator Services to be received by MCI no later
than ten (10) days prior to the beginning of each month.
10. Force Majeure. If because of force majeure, MCI is unable wholly or in
part to carry out any of its obligations under this Agreement, such obligations
shall be suspended for the duration of the event of force majeure. During the
continuance of such force majeure, MCI shall incur no liability by reason of
its failure to perform the obligation so suspended, provided, however, that the
MCI CONFIDENTIAL
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<PAGE> 49
disabling effect of such force majeure shall be eliminated and as soon as to the
extent reasonably possible. The term "force majeure" as used herein shall
include switch, radio or cable failure, cable cut, acts of God, riots,
insurrection, war, labor dispute, fire, flood, explosion, orders or acts of
military or civil authority, and any other cause beyond MCI's reasonable
control.
11. Complete Agreement. This is the entire agreement of the parties with
respect to its subject matter and supersedes all prior agreements and
understandings, whether written or oral, concerning the subject matter. This
Agreement cannot be amended, or assigned by Customer, except by a written
agreement signed by both parties.
MCI CONFIDENTIAL
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<PAGE> 1
Exhibit 10.2
<PAGE> 2
CORPORATE GUARANTEE
In consideration of any financial accommodations given to UNIVERSAL NETWORK
SERVICES LLC (herein called the "Primary Corporation"), by AT&T Corp. (herein
called the "Service Provider"), and other good and valuable consideration,
receipt of which is hereby acknowledged, the undersigned, EQUALNET CORPORATION
(herein called "EqualNet" or "Co-Guarantor") and METROLINK, INC. (herein
"MetroLink" or "Co-Guarantor", and formerly know as GLOBALONE, INC.) jointly
and severally, unconditionally guarantee to the Service Provider the payment
when due, whether by acceleration or otherwise, of all liabilities, direct or
contingent, joint, several or independent, now or hereafter existing, due or to
become due to, or held or to be held by, the Service Provider whether created
directly or acquired by assignment or otherwise, of the Primary Corporation to
the Service Provider under AT&T Contract Tariff No. 1, Plan N agreement ("Plan
N") between AT&T Corp. and Primary Corporation as assignee of GLOBALONE, INC.,
and expenses incurred by the Service Provider in enforcing any of such
liabilities and/or the terms hereof. This guaranty was issued by Co-Guarantors
as a result of their and their affiliates' co-ownership of and in Primary
Corporation formed for the purpose of marketing services under the said Plan N.
In the event Primary Corporation falls behind in its payment obligations under
said Plan N, AT&T may demand of Co-Guarantors payment of any and all
obligations then due, and Co-Guarantors shall be obligated to make full payment
of such amount to AT&T within ten (10) days of receiving such request. No
demand for payment hereunder shall restrict AT&T's right to pursue collection
under any deposit, letter of credit or other security for the payment of the
obligations of Primary Corporation under said Plan N.
The Service Provider may, at any time and from time to time without the consent
of or notice to the undersigned, except such notice as may be required by
applicable statute and cannot be waived, without incurring responsibility to
the undersigned, without impairing or releasing the obligations of the
undersigned hereunder, upon or without any terms or conditions and in whole or
in part, (1) change the manner, place or terms of payment and/or change or
extend the time of payment of, or alter any liability of the Primary
Corporation hereby guaranteed, or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or thereof, and
the guaranty herein made shall apply to the liabilities of the Primary
Corporation, as changed, extended or altered in any manner other than to
increase the amount of the credit, (2) sell, exchange, release, surrender,
realize upon or otherwise deal with in any manner and in any order any property
by whomsoever at any time pledged or mortgaged to secure or howsoever securing
the liabilities hereby guaranteed or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof and/or
any offset there against, (3) exercise or refrain from exercising any rights
against the Primary Corporation or others (including the undersigned) or
otherwise act or refrain from acting, and (4) settle or compromise with the
Primary Corporation any liabilities hereby guaranteed and/or any liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof (except that any such settlement or compromise shall be
equally applicable to the undersigned), and may subordinate the payment of all
or any part thereof to the payment of any liabilities which may subordinate the
payment of all or any part thereof to the payment of any liabilities which may
be due to the Service Provider or others.
No invalidity, irregularity or unenforceability of the liabilities hereby
guaranteed shall affect, impair, or be a defense to this guaranty and this
guaranty is a primary obligation of the undersigned. Co-Guarantors shall not be
entitled to raise any defense not available to the customer or record under the
said Plan N.
This guaranty is a continuing one and all liabilities to which it applies or
may apply under the terms hereof shall be conclusively presumed to have been
created in reliance hereon. This guaranty is irrevocable, notwithstanding
<PAGE> 3
any revocation by, or complete or partial release for any cause of, the Primary
Corporation or any other guarantor of any liabilities of the Primary
Corporation.
In the case of any proceedings to collect any liability of the undersigned
hereunder, the undersigned shall pay all costs and expenses of every kind in
connection with such collection, including reasonable attorneys' fees.
This guaranty shall continue to be effective in accordance with its terms or be
reinstated, as the case may be, if at any time payment of any of the Primary
Corporation's obligations to the Service Provider guaranteed hereby are
rescinded or must be returned by the Service Provider to the Primary
Corporation upon the bankruptcy or insolvency of the Primary Corporation or the
appointment of a receiver, trustee or similar official of or for the Primary
Corporation or its property, all as though such payments had not been made,
provided, that this guaranty shall terminate on the date that all of the
Primary Corporation's obligations guaranteed hereby shall have been paid in
full and all applicable preference periods shall have expired.
To the extent the undersigned makes any payment to the Service Provider under
this guaranty, any claim the undersigned may have against the Primary
Corporation by reason thereof shall be subject and subordinate to the prior
payment in full of all of the Primary Corporation's obligations to the Service
Provider under the Contract Tariff No. 1 Plan N subscribed to by the Primary
Corporation.
All payments by the undersigned hereunder shall be made free and clear of, and
without deduction or withholding for or on account of, any and all taxes,
levies, duties, fees, withholdings or similar charges ("Taxes"). If any Taxes
shall be required by law to be deducted or withheld from any payment hereunder,
the undersigned shall increase the amount paid so that the Service Provider
receives the full amount of the payment provided for in this guaranty. However,
the undersigned shall not increase the amount of any payment hereunder for
Taxes to the extent the Service Provider's Federal tax liability in the United
States is reduced for tax credits given or allowed for the amount of the Taxes
withheld or deducted from the payment.
The undersigned waives the right of trial by jury in the event of any
litigation in respect of any matter arising under this guaranty and agrees that
should the Service Provider bring any judicial proceedings in relation to any
such matter, the undersigned will not interpose any counterclaim or set off of
any nature unless such counterclaim or set off shall become void or
unenforceable if not asserted therein.
This guaranty shall inure to the benefit of the Service Provider and its
successors and assigns. This guaranty is binding upon the undersigned and its
successors and assigns.
This guaranty and the rights and obligations of the Service Provider and of the
undersigned shall be governed by and construed in accordance with the law of
the State of New York.
MetroLink, Inc. EqualNet Corporation
By: By:
-------------------------------- ---------------------------------
Robert A. Bevilacqua Zane Russell, C.E.O.
70 W. Madison Street, 55th Floor 1250 Wood Branch Park Dr.
Chicago, Illinois 60602 Houston, Texas 77079
(312) 551-3444 (713) 556-4600
Fax (312) 372-7706 (713) 556-4650
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF EQUALNET HOLDING CORP. AS
OF AND FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH
31, 1996,
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 137,312
<SECURITIES> 0
<RECEIVABLES> 22,387,290
<ALLOWANCES> 3,506,525
<INVENTORY> 0
<CURRENT-ASSETS> 21,901,190
<PP&E> 5,342,023
<DEPRECIATION> 1,519,868
<TOTAL-ASSETS> 38,681,585
<CURRENT-LIABILITIES> 15,931,043
<BONDS> 0
<COMMON> 60,237
0
0
<OTHER-SE> 13,199,100
<TOTAL-LIABILITY-AND-EQUITY> 38,681,585
<SALES> 62,179,037
<TOTAL-REVENUES> 62,179,037
<CGS> 50,235,498
<TOTAL-COSTS> 50,235,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,463,939
<INTEREST-EXPENSE> 439,629
<INCOME-PRETAX> (9,809,950)
<INCOME-TAX> (2,258,563)
<INCOME-CONTINUING> (7,551,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,551,387)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
