-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BOQmpeiUqEdSFAeu/3xWA7pD6RlayKwGyAhwV7xTo2VyhsWf6R63ZMSgl2EMuJKA R2ctM2V3XCktTyMg+mRm4A== 0001005477-98-003246.txt : 19981118 0001005477-98-003246.hdr.sgml : 19981118 ACCESSION NUMBER: 0001005477-98-003246 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAXSAV INC CENTRAL INDEX KEY: 0001010677 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 113025769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28754 FILM NUMBER: 98751747 BUSINESS ADDRESS: STREET 1: 399 THORNALL ST CITY: EDISON STATE: NJ ZIP: 08837 BUSINESS PHONE: 9089062000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from_________________ to ________________ Commission file number 0-09613 ------- FAXSAV INCORPORATED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its character) Delaware 11-3025769 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 399 Thornall Street, Edison, New Jersey 08837 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (732) 906-2000 -------------- Former name, former address and former fiscal year, if changed since last report. Indicate by a check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 13,153,982 shares of the Company's Common Stock, $.01 par value, were outstanding as of November 6, 1998. FAXSAV INCORPORATED Index to September 30, 1998 Form 10-Q Page ---- Part I - Financial Information Item 1. Financial Statements Condensed Balance Sheets - September 30, 1998 and December 31, 1997.. 3 Condensed Statements of Operations - Three and Nine Months Ended September 30, 1998 and 1997.............. 4 Condensed Statements of Cash Flow - Nine Months Ended September 30, 1998 and 1997.......................................... 5 Notes to Condensed Financial Statements.............................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 7 Part II - Other Information Item 1. Legal Proceedings....................................................19 Item 2. Changes in Securities................................................19 Item 3. Defaults upon Senior Securities......................................19 Item 4. Submission of Matters to a Vote of Security Holders..................19 Item 5. Other Information....................................................19 Item 6. Exhibits and Reports on Form 8-K.....................................19 Signatures...........................................................21 2 FAXSAV INCORPORATED CONDENSED BALANCE SHEET (Unaudited)
September 30, December 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 4,733,241 $ 3,680,185 Accounts receivable, net of allowances of $194,844 and $330,724 for September 30, 1998 and and December 31, 1997 3,092,879 2,280,119 Prepaid expenses and other current assets 132,677 35,844 ------------ ------------ Total current assets 7,958,797 5,996,148 Property and equipment, net 4,642,455 4,175,264 Other assets, net 379,195 324,173 ------------ ------------ Total assets $ 12,980,447 $ 10,495,585 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,060,105 $ 658,703 Accrued expenses and other liabilities 3,110,651 3,219,846 Obligation under capital lease 151,485 315,370 Current portion of notes payable 752,309 469,217 ------------ ------------ Total current liabilities 5,074,550 4,663,136 Obligation under capital lease -- 85,551 Notes payable 1,169,177 1,083,190 ------------ ------------ Total liabilities 6,243,727 5,831,877 ------------ ------------ Stockholders' equity: Common stock, $0.01 par value;40,000,000 shares authorized; 13,170,371 and 10,827,855 shares issued and 13,148,982 and 10,806,466 shares outstanding as of September 30, 1998 and December 31, 1997, respectively 131,490 108,065 Additional paid-in capital 44,730,605 36,730,403 Accumulated deficit (38,125,360) (32,174,745) Treasury stock, at cost 21,389 common shares as of September 30, 1998 and December 31, 1997 (15) (15) ------------ ------------ Total stockholders' equity 6,736,720 4,663,708 ------------ ------------ Total liabilities and stockholders' equity $ 12,980,447 $ 10,495,585 ============ ============
The accompanying notes are an integral part of the condensed financial statements 3 FAXSAV INCORPORATED CONDENSED STATEMENT OF OPERATIONS (Unaudited)
Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues $ 5,307,019 $ 4,423,634 $ 15,507,389 $ 12,814,578 Cost of service 2,854,845 2,549,938 8,121,692 7,830,668 ------------ ------------ ------------ ------------ Gross margin 2,452,174 1,873,696 7,385,697 4,983,910 Operating expenses: Network operations and support 930,540 596,832 2,570,767 1,668,826 Research and development 456,111 482,795 1,582,447 1,415,871 Sales and marketing 1,755,210 1,211,031 4,708,289 3,995,562 General and administrative 766,200 822,466 2,368,961 2,428,232 Depreciation and amortization 394,379 426,408 1,080,669 1,272,343 Patent litigation settlement 1,025,000 -- 1,025,000 -- ------------ ------------ ------------ ------------ Total operating expenses 5,327,440 3,539,532 13,336,133 10,780,834 ------------ ------------ ------------ ------------ Operating loss (2,875,266) (1,665,836) (5,950,436) (5,796,924) Other income, net 15,738 21,814 (179) 166,705 ------------ ------------ ------------ ------------ Net loss ($ 2,859,528) ($ 1,644,022) ($ 5,950,615) ($ 5,630,219) ============ ============ ============ ============ Basic and diluted net loss per Common and equivalent share ($0.23) ($0.17) ($0.52) ($0.58) ============ ============ ============ ============ Shares used in computing net loss per common and equivalent share 12,483,884 9,795,654 11,377,178 9,793,064 ============ ============ ============ ============
The accompanying notes are an integral part of the condensed financial statements 4 FAXSAV INCORPORATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($5,950,615) ($5,630,219) Adjustments to reconcile net loss to net cash used In operating activities: Depreciation and amortization expense 1,080,669 1,297,343 Patent litigation settlement 1,000,000 -- Other adjustments 118,282 160,775 Changes in assets and liabilities: Accounts receivable (956,160) (465,981) Accounts payable 401,402 (24,769) Other, net (19,056) (178,806) ----------- ----------- Net cash used in operating activities (4,325,478) (4,841,657) ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Proceeds received from marketable securities -- 1,002,513 Purchase of property and equipment, net (1,764,737) (2,023,787) ----------- ----------- Net cash used in investing activities (1,764,737) (1,021,274) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of notes payable and capital lease obligation (569,053) (342,308) Borrowings under line of credit 688,697 808,734 Proceeds from issuance of common stock and exercise of stock options and warrants, net 7,023,627 23,311 ----------- ----------- Net cash provided by financing activities 7,143,271 489,737 ----------- ----------- NET (DECREASE) INCREASE IN CASH 1,053,056 (5,373,194) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,680,185 7,923,105 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,733,241 $ 2,549,911 =========== =========== NONCASH FINANCING ACTIVITIES: Issuance of common stock pursuant to patent litigation settlement $ 1,000,000 -- =========== ===========
The accompanying notes are an integral part of the condensed financial statements 5 FAXSAV INCORPORATED NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited condensed financial statements included herein have been prepared by the Company in accordance with the requirements of Form 10-Q, and consequently do not include disclosures normally made in the annual report on Form 10-K. The December 31, 1997 results included herein have been derived from the audited financial statements included in the Company's annual report on Form 10-K. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The unaudited condensed financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the three and nine month periods ended September 30, 1998. The results for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results expected for the full fiscal year. 2. Patent Litigation Settlement On September 22, 1998, the Company settled all outstanding litigation with AudioFAX to avoid the expense and disruption of protracted litigation. The terms of the settlement agreement require the Company to issue 275,000 shares of common stock to AudioFAX in exchange for a fully paid-up license to certain patents relating to store-and-forward technologies. The Company has escrowed an additional 100,000 shares of FaxSav Common Stock for the benefit of AudioFAX. Some or all of the 100,000 shares held in escrow (along with certain additional other shares or a certain amount of cash, at FaxSav's option) may be transferred as an additional license fee to AudioFAX. Such transfers depend on whether the market value of the 275,000 shares issued to AudioFAX is less than $1.0 million as of a specific date. The Company has undertaken to file a registration statement covering resale of its shares by AudioFAX. Upon effectiveness, AudioFAX has agreed not to sell on a weekly basis more than the greater of 40,000 shares or 10% of the prior week's trading volume. In the third quarter, the Company recorded $1,025,000 of charges representing all costs associated with this patent litigation settlement as the Company could not determine the future economic benefit, if any, to the Company of the patent licenses acquired. 3. Earnings Per Share The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". In accordance with SFAS 128, both basic and diluted net loss per share are presented in the financial statements. Stock options outstanding of approximately 1,971,000 and 1,544,000 as of September 30, 1998 and 1997, respectively, have been excluded from the calculation of diluted earnings per share, since their effect would be antidilutive. In addition, approximately 100,000 warrants outstanding have been excluded from diluted earnings per share, since their effect would be antidilutive. 4. Contingencies The Company is involved in various disputes, claims or legal proceedings and may be included in future actions including infringement on intellectual property rights, related to its normal course of business. In the opinion of management, all such matters are without merit or involve amounts, if disposed of unfavorably, which would not have a material adverse effect on the financial position or results of operations of the Company. 5. Impact of Recently Issued Accounting Standards In September 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes the standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains, and losses) as part of a full set of financial statements. This statement requires that all elements of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company adopted SFAS 130 during the first quarter of 1998, but presently the Company's Comprehensive Loss and Net Loss are equal. In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Among other provisions, it requires that entities recognize all derivatives as either assets or liabilities in the 6 statement of financial position and measure those instruments at fair value. Gains and losses resulting from changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. This standard is effective for fiscal years beginning after September 15, 1999, though earlier adoption is encouraged and retroactive application is prohibited. For FaxSav this means that the standard must be adopted no later than January 1, 2000. Management does not expect the adoption of this standard to have a material impact on FaxSav's results of operations, financial position or cash flows as the Company does not presently use derivative instruments or engage in hedging activities. 6. Reclassification Certain items in 1997 have been reclassified to conform to the 1998 presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview FaxSav Incorporated (the "Company") derives its revenues from the provision of a variety of facsimile services largely to businesses and professionals involved in international commerce. Through the end of 1995, the Company offered its services exclusively to customers located in the United States. In the first quarter of 1996, the Company began to focus on the broader worldwide market for facsimile services through the introduction of client software to enable faxing from the computer desktop using the Internet as the means to access the FaxSav network. In the fourth quarter of 1996, the Company began offering fax-to-fax services through local resellers in certain countries where an Internet node was installed. The Company's network in the United States includes interconnection with the existing worldwide telephony network, enabling delivery of facsimile transmissions to virtually any domestic or international destination. The Company plans to continue to install Internet nodes in key international telecommunications markets to enable the Company ultimately to route a majority of its customers' traffic through the Internet. This report contains certain statements of a forward-looking nature relating to future events of the future financial performance of the Company. Stockholders are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this report, including the matters set forth under the caption "Certain Factors That May Affect Future Results, Financial Condition and the Market Price of Securities," which could cause actual results to differ materially from those indicated by such forward-looking statements. Results of Operations The following table represents unaudited financial information expressed as a percentage of total revenues for the periods indicated. The Company believes that this information has been presented on a basis consistent with the Company's audited financial statements and includes all adjustments, consisting only of normal recurring adjustments, that management considers necessary for a fair presentation for the periods presented. 7
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Percentage of Revenues: Revenues 100.0% 100.0% 100.0% 100.0% Cost of service 53.8 57.6 52.4 61.1 ------ ------ ------ ------ Gross margin 46.2 42.4 47.6 38.9 ------ ------ ------ ------ Operating expenses: Net operations and support 17.5 13.5 16.6 13.0 Research and development 8.6 10.9 10.2 11.1 Sales and marketing 33.1 27.4 30.4 31.2 General and administrative 14.4 18.6 15.3 18.9 Depreciation and amortization 7.4 9.6 7.0 9.9 Patent litigation settlement 19.3 -- 6.6 -- ------ ------ ------ ------ Total operating expenses 100.3 80.0 86.1 84.1 ------ ------ ------ ------ Operating loss (54.1) (37.6) (38.5) (45.2) ------ ------ ------ ------ Other income, net 0.3 0.5 0.0 1.3 ------ ------ ------ ------ Loss before income taxes (53.8) (37.1) (38.5) (43.9) Provision for income taxes -- -- -- -- ------ ------ ------ ------ Net loss (53.8)% (37.1)% (38.5)% (43.9)% ====== ====== ====== ======
Three Months Ended September 30, 1998 and 1997 Revenues. Revenues, which consist primarily of customer usage charges, grew 20.0% to $5.3 million in the three months ended September 30, 1998 from $4.4 million in the three months ended September 30, 1997 primarily as a result of the continued expansion of the Company's customer base, particularly in international markets. The increased revenues result largely from the Company's Internet desktop-to-fax and faxSAV EZ-List broadcast services. Cost of service. Cost of service consists of local access charges, leased network backbone circuit costs and long distance domestic and international termination charges. These are primarily variable costs based on actual facsimile volume. Cost of service amounted to $2.9 million and $2.5 million, respectively for the three month periods ended September 30, 1998 and 1997 but decreased as a percentage of revenues in the three months ended September 30, 1998 to 53.8% from 57.6% in the three months ended September 30, 1997. The decreased percentage is a result of transmitting an increased level of customer faxes over the Company's Internet Fax Network and lower costs for international telephony termination fax charges. Network operations and support. Network operations and support costs consist primarily of the expenses of operating and expanding the network infrastructure, monitoring network traffic and quality of service and providing customer support in service installations, fax deliveries and message reporting and billing. Network operations and support costs increased to $0.9 million and 17.5% of revenues in the three months ended September 30, 1998 in comparison to $0.6 million and 13.5% of revenues in the three months ended September 30, 1997 as a result of hiring additional personnel to implement the Internet fax node deployment plan and to support the Company's expanding customer base on a 7 day per week/ 24 hour per day basis. Research and development. Research and development expenses consist primarily of salaries and consulting fees paid to software engineers and development personnel largely for the continuing development efforts for enhancements to the Company's Internet desktop-to-fax services and faxSAV EZ-List broadcast service. Research and development expenses amounted to $0.5 million for each of the three months ended September 30, 1998 and 1997. As a percentage of 8 revenues, these costs decreased to 8.6% in the 1998 period from 10.9% in the 1997 period as a result of higher revenues in 1998. Sales and marketing. Sales and marketing expenses consist primarily of salaries and commissions for sales and marketing staffs, promotional material preparation and mailing costs, agent and dealer commissions. Sales and marketing expenses increased to $1.8 million and 33.1% of revenues for the three months ended September 30, 1998 in comparison to $1.2 million and 27.4% of revenues in the three months ended September 30, 1997 due to increased marketing expenses to support the growth in international revenues, costs for the expansion of the Company's direct sales staff in the U.S. and increased spending for U.S. marketing programs in an effort to accelerate the Company's revenue growth. General and administrative. General and administrative expenses consist of expenses associated with the Company's management, accounting, finance, billing and administrative functions. General and administrative expenses amounted to $0.8 million in the three months ended September 30, 1998 and 1997. As a percentage of revenues, these expenses decreased to 14.4% in the three months ended September 30, 1998 from 18.6% in the three months ended September 30, 1997 as a result of increased revenues. Depreciation and amortization. Depreciation and amortization amounted to $0.4 million in the three months ended September 30, 1998 and 1997. As a percentage of revenues, depreciation and amortization expenses decreased to 7.4% in the three months ended September 30, 1998 in comparison to 9.6% in the three months ended September 30, 1997, as a result of increased revenues. Patent litigation settlement. During the quarter ended September 30, 1998 the Company agreed to the settlement of all outstanding patent litigation with AudioFAX. The charge in the current quarter represents the cost of the license fee paid by FaxSav for the license of certain AudioFAX patents. Other income, net. Other income amounted to $0.02 million in the three months ended September 30, 1998 and 1997. Due to increased revenues this amount represented a lower percentage of revenues in the 1998 period as compared to 1997. Provision for income taxes. The Company had losses for income tax purposes for the three months ended September 30, 1998 and 1997. Accordingly, there was no provision or credit for income taxes for those periods. Any income tax benefits at the Company's expected effective tax rate for these losses has been offset by a valuation allowance for deferred tax assets. Nine Months Ended September 30, 1998 and 1997 Revenues. Revenues grew 21.0% to $15.5 million in the nine months ended September 30, 1998 from $12.8 million in the nine months ended September 30, 1997 primarily as a result of the continued expansion of the Company's customer base, particularly in international markets. The increased revenues resulted largely from the Company's Internet desktop-to-fax and faxSAV EZ-List broadcast services. Cost of service. Cost of service increased to $8.1 million in the nine months ended September 30, 1998 from $7.8 million in the nine months ended September 30, 1997 but decreased as a percentage of revenues in 1998 to 52.4% from 61.1% in same period in 1997. The decreased percentage is a result of transmitting an increased level of customer faxes over the Company's Internet Fax Network and lower costs for international fax charges. Network operations and support. Network operations and support costs increased to $2.6 million and 16.6% of revenues in the nine months ended September 30, 1998 from $1.7 million and 13.0% of revenues in the nine months ended September 30, 1997 as a result of hiring additional personnel to implement the Internet fax node deployment plan and to support the Company's expanding customer base on a 7 day per week / 24 hour per day basis. Research and development. Research and development expenses increased to $1.6 million from $1.4 million in the nine months ended September 30, 1998 in comparison to the nine months ended September 30, 1997 due to the 9 continuing development efforts for enhancements to the Company's Internet desktop-to-fax services both in client software and network enhancements, and the continuing development of the Company's faxSAV EZ-List broadcast service. As a percentage of revenues, these expenses decreased to 10.2% in the nine months ended September 30, 1998 from 11.1% in the nine months ended September 30, 1997. Sales and marketing. Sales and marketing expenses increased to $4.7 million for the nine months ended September 30, 1998 in comparison to $4.0 million in the nine months ended September 30, 1997 but decreased as a percentage of revenues to 30.4% in the 1998 period from 31.2% in the 1997 period. The higher costs in 1998 relate to additional expenses to support the growth in international revenues, the expansion of the Company's direct sales staff in the U.S. and increased spending for U.S. marketing programs. General and administrative. General and administrative expenses amounted to $2.4 million in the nine months ended September 30, 1998 and 1997 but decreased as a percentage of revenues to 15.3% in 1998 from 18.9% in 1997 because of increased revenues. Depreciation and amortization. Depreciation and amortization decreased to $1.1 million and 7.0% of revenues in the nine months ended September 30, 1998 in comparison to $1.3 million and 9.9% of revenues in the nine months ended September 30, 1997, primarily reflecting reduced charges for faxSAV Connectors installed on fax machines at customer premises, resulting from the Company's shift in its business to desktop originated services. Patent litigation settlement. The charge for patent litigation settlement represents the total cost paid by the Company for the license of certain AudioFAX patents in connection with the settlement of all outstanding litigation. Other income, net. Other income, net decreased to $0.0 million in the nine months ended September 30, 1998 from $0.2 million and 1.3% of revenues in the nine months ended September 30, 1997. In the 1998 period, the Company incurred increased interest expense on higher outstanding debt balances and earned less interest income in comparison to the 1997 period when the Company had less outstanding debt and more funds available for temporary investment as a result of the proceeds on hand from its October 1996 initial public offering of securities. Provision for income taxes. The Company had losses for income tax purposes for the nine months ended September 30, 1998 and 1997. Accordingly, there was no provision or credit for income taxes for those periods. Any income tax benefits at the Company's expected effective tax rate for these losses has been offset by an expected increase in the valuation allowance for deferred tax assets. Liquidity and Capital Resources The Company has financed its cash requirements for operations and investments in equipment primarily through public and private sales of equity securities, bank borrowings and capital lease financing. During the nine months ended September 30, 1998, the Company sold 2 million shares of its Common Stock in a private transaction for net proceeds of $6.9 million. In addition, the Company entered into an agreement for a $0.5 million secured equipment line of credit with Silicon Valley Bank, all of which was outstanding as of September 30, 1998 and the Company agreed to a $0.5 million expansion of its equipment loan facility with Phoenix Growth Capital Corp. $0.2 million of which was outstanding as of September 30, 1998. As a result of operating losses, cash used in operating activities amounted to $4.3 million in the nine months ended September 30, 1998, as compared to $4.8 million for the comparable period in 1997. Cash used in investing activities largely consists of the purchase of network equipment. Such purchases amounted to $1.8 million for the nine months ended September 30, 1998 and $2.0 million for the comparable period in 1997. The Company is obligated to several operating entities of MCI WorldCom for a minimum monthly usage commitment of $0.7 million for total long distance service through June 1999 and $0.5 million from July 1999 to October 2001. 10 The Company's principal sources of liquidity at September 30, 1998 included cash and cash equivalents of $4.7 million and $0.3 million in net available balances of the financing agreements with Silicon Valley Bank and Phoenix Growth Capital Corp. Management believes that its current sources of liquidity will be sufficient to satisfy the Company's requirements through at least September 30, 1999. Thereafter, if the Company does not begin to generate positive cash flows from operations in amounts that are sufficient to satisfy the Company's liquidity requirements, it will be necessary for the Company to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. Additional funding may not be available when needed or on terms acceptable to the Company, which could have a material adverse effect on the Company's business, financial condition and results of operations. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than fourteen months, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements or risk system failure or miscalculations causing disruptions of normal business activities. State of Readiness. We have conducted a study of the Year 2000 readiness of our information technology ("IT") systems, including our computing and networking systems, and our non-IT systems. Our study consisted of (i) contacting third-party vendors and licensors of material hardware, software and services that are both directly and indirectly related to the delivery of the our faxSAV for internet suite of services and the faxSAV Connector; (ii) contacting vendors of material non-IT systems; (iii) assessment of repair or replacement requirements; and (iv) repair or replacement. We intend to conduct a test our IT systems to verify the results of our study prior to the Year 2000. We have been informed by many of our vendors of material hardware and software components of our IT systems that the products that we use are currently Year 2000 compliant. The computing systems that provide application layer services (i.e., FaxSav customer services) within the FaxSav network are based upon some variant of the Unix operating system, which adequately represents dates beyond the year 2000. Many of the computing systems that support the internal operations of our business have the similar capacity to represent dates beyond the Year 2000. In addition, for all of our internal accounting applications, we have purchased new accounting system software that the manufacturer specifies as Year 2000 compliant. We will require vendors of our other material hardware and software components of our IT systems to provide assurances of their Year 2000 compliance, and we plan to complete this process during the first half of 1999. We will also seek assurances of Year 2000 compliance from providers of our material non-IT systems. Costs. To date, the we have not incurred any material expenditures in connection with identifying or evaluating Year 2000 compliance issues. Most of our expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. Our expected costs to implement the new accounting software mentioned above is approximately $0.2 million. Risks. We are not currently aware of any Year 2000 compliance problems relating to the faxSAV for internet suite of services, the faxSAV Connector or our other IT or non-IT systems that would have a material adverse effect on our business, financial condition and results of operations, without taking into account our efforts to avoid or fix such problems. There can be no assurance that our software contains all necessary date code changes or that all problems can be identified by our study and subsequent testing. Compliance with Year 2000 requirements may disrupt our ability to continue to developing and marketing facsimile transmission products and services. The failure to adequately address Year 2000 compliance issues in our products, services, and in our IT and non-IT systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of our control will be Year 2000 compliant. The failure by such entities to be Year 2000 compliant could result in a systemic failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering services to our customers, which could have a material adverse effect on our business, financial condition and results of operations. 11 Contingency Plan. As discussed above, we intend to conduct a further tests of our Year 2000 compliance to confirm the results of our study, and have not yet developed any contingency plans. The results of our tests and the responses received from third-party vendors and service providers will be taken into account in determining the nature and extent of any contingency plans. Certain Factors That May Affect Future Results, Financial Condition and the Market Price of Securities. History of Operating Losses; Accumulated Deficit From our inception in 1989 through the nine month period ended September 30, 1998, we have experienced significant operating losses. We incurred operating losses of $4.1 million, $7.5 million and $7.1 million during the years ended December 31, 1995, 1996 and 1997, respectively, and $6.0 million during the nine months ended September 30, 1998. We currently anticipate that we will have additional operating losses as we attempt to expand our business and we may not have positive operating income in the future. As of September 30, 1998, we had an accumulated deficit of $38.1 million. Since inception, we have incurred substantial costs to develop and enhance our technology and to create, introduce and enhance our service and product offerings. We intend to continue these efforts and, in addition, to increase our marketing spending. We recently announced a new marketing campaign, which will involve significant expenditures by us, including the hiring of an outside advertising agency. There can be no assurance that our new marketing campaign will be successful or that it will result in any increase in revenues. We generated net operating loss ("NOL") carryforwards for income tax purposes of approximately $30.0 million through December 31, 1997. These NOL carryforwards have been recorded as a deferred tax asset of approximately $9.5 million. Based upon our history of operating losses and other presently known factors, management has determined that it is more likely than not that we will be unable to generate sufficient taxable income prior to the expiration of these NOL carryforwards in order to receive the benefit of them and has accordingly reduced our deferred tax assets to zero with a full valuation allowance. Intense Competition The market for facsimile transmission services is intensely competitive and the industry is characterized by low barriers to entry. We expect that competition will intensify in the future. We believe that our ability to compete successfully will depend upon a number of factors, including market presence; the capacity, reliability and security of our network infrastructure; the pricing policies of our competitors and suppliers; the timing of introductions of new services and service enhancements by us and our competitors; and industry and general economic trends. Our current and future competitors generally fall into the following groups: (i) telecommunication companies, such as AT&T, MCI WorldCom, Sprint and the regional Bell operating companies, and telecommunications resellers; (ii) Internet service providers, such as Uunet Technologies, Inc., a subsidiary of MCI WorldCom, Inc., and NETCOM On-Line Communications Services, Inc., (iii) on-line services providers, such as Microsoft Corporation and America Online, Inc. and (iv) direct fax delivery competitors, including Xpedite Systems, Inc. and UNIFI Communications, Inc. Many of these competitors have greater market presence, engineering and marketing capabilities, and financial, technological and personnel resources than we do. As a result, they may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the marketing and sale of their products and services than we can. Further, the foundation of our telephony network infrastructure consists of the right to use the telecommunications lines of several of the above-mentioned long distance carriers, including MCI WorldCom. There can be no assurance that these companies will not discontinue or otherwise change their relationships with us in a manner that would have a material adverse effect upon our business, financial condition and results of operations. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their services to address the needs of our current and prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. In addition to direct competitors, many of our larger potential customers may seek to internally fulfill their fax 12 communication needs through the deployment of their own computerized fax communications systems or network infrastructures for intra-company faxing. Increased competition is likely to result in price reductions and could result in reduced gross margins and erosion of our market share, any of which would have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations. On August 7, 1997, the Federal Communications Commission (the "FCC") issued new rules, which may significantly reduce the cost of international calls originating in the United States. The five-year phase-in period began on January 1, 1998. To the extent that these new regulations are implemented and result in reductions in the cost of international calls originating in the United States, we will face increased competition for our international fax services which may have a material adverse effect on our business, financial condition or results of operations. Possible Delisting from Nasdaq Our Common Stock is currently traded on the Nasdaq National Market ("Nasdaq"). In order to continue to trade on Nasdaq, Nasdaq generally requires, among other things, that we maintain at least $4.0 million in net tangible assets. In the past, we have not been in compliance with this requirement. We believe that we are currently in compliance with Nasdaq's requirements. However, if in the future we are unable to satisfy Nasdaq's requirements, our securities may be delisted from Nasdaq. There can be no assurance that our Common Stock will not be delisted, which would materially affect your ability to buy or sell shares of our Common Stock. Future Capital Needs; Uncertainty of Additional Financing; Dilution We believe that our current cash and cash equivalents will be sufficient to meet our presently anticipated cash needs for working capital and our capital expenditure requirements through September 30, 1999. However, our cash requirements may vary materially from those now planned as a result of unforeseen changes that could consume a significant portion of our available resources before such time. To the extent that funds expected to be generated from our operations are insufficient to meet current or planned operating requirements or to maintain a Nasdaq listing, we will seek to obtain additional funds through bank facilities, equity or debt financing, collaborative or other arrangements with corporate partners and others and from other sources. See "-- Possible Delisting from Nasdaq." Additional funding may not be available when needed or on terms acceptable to us, which could have a material adverse effect on our business, financial condition and results of operations. If adequate funds are not available, we may be required to delay or to eliminate certain expenditures or to license to third parties the rights to commercialize technologies that we would otherwise seek to develop ourselves. In addition, in the event that we obtain any additional funding, such financings may have a dilutive effect on the holders of our securities. Limited Protection of Intellectual Property Rights; Risk of Third Party Claims of Infringement Our success is dependent upon our proprietary technology. We rely primarily on a combination of contract, copyright and trademark law, trade secrets, confidentiality agreements and contractual provisions to protect our proprietary rights. We were granted a patent related to our faxSAV Connector and have a patent application pending for our "e-mail Stamps" security technology incorporated into our faxMailer service. There can be no assurance that a patent will issue from such application or that present or future patents will provide sufficient protection to our present or future technologies, services and processes. In addition, there can be no assurance that others will not independently develop substantially equivalent proprietary information or obtain access to our know-how. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent, as do the laws of the United States. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technologies. There can be no assurance that other third parties will not assert infringement claims against us in the future. Patents have been granted recently on fundamental technologies in the communications and desktop software areas, and patents may issue which relate to fundamental technologies incorporated in our services. As patent applications in the United States 13 are not publicly disclosed until the patent issues, applications may have been filed which, if issued as patents, could relate to our services. We could incur substantial costs and diversion of management resources with respect to the defense of any claims that we have infringed upon the proprietary rights of others, which costs and diversion could have a material adverse effect on our business, financial condition and results of operations. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block our ability to license and sell our services in the United States or abroad. Any such judgment could have a material adverse effect on our business, financial condition and results of operations. In the event a claim relating to proprietary technology or information is asserted against us, we may seek licenses to such intellectual property. There can be no assurance, however, that licenses could be obtained on terms acceptable to us, or at all. The failure to obtain any necessary licenses or other rights could have a material adverse effect on our business, financial condition and results of operations. Quarterly Fluctuations; Possible Volatility of Stock Price We may experience significant quarter to quarter fluctuations in our results of operations, which may result in volatility in the price of our Common Stock. Quarterly results of operations may fluctuate as a result of a variety of factors, including demand for our services, the introduction of new services and service enhancements by us or our competitors, market acceptance of new services, the mix of revenues between Internet-based versus telephony-based deliveries, the timing of significant marketing programs, the number and timing of the hiring of additional personnel, competitive conditions in the industry and general economic conditions. Our revenues are difficult to forecast. Shortfalls in revenues may adversely and disproportionately affect our results of operations because a high percentage of our operating expenses are relatively fixed, and planned expenditures, such as the anticipated expansion of our Internet infrastructure, are based primarily on sales forecasts. In addition, the stock market in general has experienced extreme price and volume fluctuations, which have affected the market price of securities of many companies in the telecommunications and technology industries and which may have been unrelated to the operating performance of such companies. These market fluctuations may adversely affect the market price of our Common Stock. Accordingly, we believe that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as an indication of future results of operations. There can be no assurance that we will be profitable in any future quarter. Due to the foregoing factors, it is likely that in one or more future quarters our operating results will be below the expectations of public market analysts and investors. Such an event would have a material adverse effect on the price of our Common Stock. Dependence on Network Infrastructure; No Assurance of Additional Internet-Capable Node Deployment Our future success will depend in part upon the capacity, reliability and security of our network infrastructure and in part upon our ability to expand the deployment of an international network of Internet-capable facsimile nodes. We must continue to expand and adapt our network infrastructure as the number of customers and the volume of traffic they wish to transmit increases. The expansion and adaptation of our network infrastructure will require substantial financial, operational and management resources. There can be no assurance that we will be able to expand or adapt our network infrastructure to meet any additional demand on a timely basis, at a commercially reasonable cost, or at all. In addition, there can be no assurance that we will be able to deploy additional contemplated Internet-capable facsimile nodes on a timely basis, at a commercially reasonable cost, or at all. Any failure to expand our network infrastructure on a timely basis, to adapt it to changing customer requirements or evolving industry standards or to complete the development of the contemplated Internet-capable facsimile node infrastructure on a timely basis would have a material adverse effect on our business, financial condition and results of operations. Further, there can be no assurance that we be able to satisfy the regulatory requirements in each of the countries currently targeted for node deployment, which may prevent us from installing Internet-capable facsimile nodes in such countries and may have a material adverse effect on our business, operating results and financial condition. Dependence on the Internet as a Low-Cost Facsimile Transmission Medium; No Assurance of Increased Market Acceptance We believe that our future success will depend in part upon our ability to significantly expand our base of Internet-capable nodes and route more of our customers' traffic through the Internet. Our success is therefore largely dependent upon the viability of the Internet as a medium for the transmission of documents. There can be no assurance that document transmission over the Internet will continue to be reliable or that Internet capacity constraints will not develop 14 which inhibit efficient document transmission. We access the Internet from our Internet-capable nodes by dedicated connection to third party Internet service providers. We pay fixed monthly fees for such Internet access, regardless of our usage or the volume of our customers' traffic. There can be no assurance that the current pricing structure for access to and use of the Internet will not change unfavorably. If material capacity constraints develop on the Internet or the current Internet pricing structure changes unfavorably, our business, financial condition and results of operations would be materially and adversely affected. In addition, our future success is dependent upon the increased acceptance by potential customers of the Internet as the preferred medium for transmission of documents. There can be no assurance that such market acceptance shall continue to increase. Lack of increased market acceptance would materially and adversely affect our business, financial condition and results of operations. No Assurance of Successful Management of Growth We have rapidly and significantly expanded our operations and anticipate that significant expansion will continue to be required in order to address potential market opportunities. There can be no assurance that such expansion will be successfully completed or that it will generate sufficient revenues to cover our expenses. Our inability to promptly address and respond to these circumstances could have a material adverse effect on our business, financial condition and results of operations. Rapid Industry Change The telecommunications industry in general, and the facsimile transmission business in particular, are characterized by rapid and continuous technological change. Future technological advances in the telecommunications industry may result in the availability of new services or products that could compete with the facsimile transmission services we provide or reduce the cost of existing products or services, any of which could enable our existing or potential customers to fulfill their fax communications needs more cost efficiently. There can be no assurance that we will be successful in developing and introducing new services that meet changing customer needs and respond to technological changes or evolving industry standards in a timely manner, if at all, or that services or technologies developed by others will not render our services noncompetitive. Our inability to respond to changing market conditions, technological developments, evolving industry standards or changing customer requirements, or the development of competing technology or products that render our services noncompetitive would have a material adverse effect on our business, financial condition and results of operations. Risk of System Failure; Security Risks Our operations are dependent on our ability to protect our network from interruption by damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, computer viruses or other events beyond our control. Most of our current computer hardware and switching equipment, including our processing equipment, is currently located at three sites. There can be no assurance that our existing and planned precautions of backup systems, regular data backups and other procedures will be adequate to prevent significant damage, system failure or data loss. Despite the implementation of security measures, our infrastructure may also be vulnerable to computer viruses, hackers or similar disruptive problems caused by our customers or other Internet users. Persistent problems continue to affect public and private data networks, including computer break-ins and the misappropriation of confidential information. Such computer break-ins and other disruptions may jeopardize the security of information stored in and transmitted through the computer systems of the individuals, businesses and financial institutions utilizing our services. This may result in significant liability to us and also may deter potential customers from using our services. Any damage, failure or security breach that causes interruptions or data loss in our operations or in the computer systems of our customers could have a material adverse effect on our business, financial condition and results of operations. Dependence Upon Suppliers; Sole and Limited Sources of Supply We rely on third parties to supply key components of our network infrastructure, including long distance telecommunications services and telecommunications node equipment, many of, which are available only from sole or limited sources. MCI WorldCom is our primary provider of long distance telecommunications services. We have from time-to-time experienced partial interruptions of service from our telecommunications carriers, which have temporarily prevented customers in limited geographical areas from reaching the FaxSav network. There can be no assurance that we will not experience partial or complete service interruptions in the future. There can be no assurance that MCI WorldCom 15 and our other telecommunications providers will continue to provide long distance services to us at attractive rates, or at all, or that we will be able to obtain such services in the future from these or other long distance providers on the scale and within the time frames required by us. Any failure to obtain such services on a timely basis at an affordable cost, or any significant delays or interruptions of service from such carriers, would have a material adverse effect on our business, financial condition and results of operations. All of the faxboards used in our telecommunications nodes are supplied by Brooktrout Technology, Inc. ("Brooktrout"). We purchase Brooktrout faxboards on a non-exclusive basis pursuant to purchase orders placed from time-to-time, carry a limited inventory of faxboards and have no guaranteed supply arrangement with Brooktrout. In addition to faxboards, many of the routers, switches and other hardware components used in our network infrastructure are supplied by sole or limited sources on a non-exclusive, purchase order basis. There can be no assurance that Brooktrout or our other suppliers will not enter into exclusive arrangements with our competitors, or cease selling these components to us at commercially reasonable prices, or at all. The anticipated expansion of our network infrastructure is expected to place a significant demand on our suppliers, some of which have limited resources and production capacity. In addition, certain of our suppliers, in turn, rely on sole or limited sources of supply for components included in their products. Should our suppliers fail to adjust to meet such increasing demand, they may be unable to continue to supply components and products in the quantities and quality and at the times required by us, or at all. Our inability to obtain sufficient quantities of sole or limited source components or to develop alternative sources if required could result in delays and increased costs in the expansion of our network infrastructure or in our inability to properly maintain the existing network infrastructure, which would have a material adverse effect on our business, financial condition and results of operations. Risk of Software Defects or Development Delays Software-based services and equipment, such as our faxSAV for Internet suite of services and the faxSAV Connector, may contain undetected errors or failures when introduced or when new versions are released. There can be no assurance that, despite testing by us and by current and potential customers, errors will not be found in such software or other releases after commencement of commercial shipments, or that we will not experience development delays, resulting in delays in the shipment of software and a loss of or delay in market acceptance, any of which could have a material adverse effect on our business, financial condition and results of operations. Dependence on Key Personnel Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel, none of whom is bound by an employment agreement. Competition for such personnel is intense, and there can be no assurance that we can retain our key technical, sales and managerial employees or that we can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future. Reliance on International Strategic Alliances; Risks Associated with International Operations We have established and intend to expand an international customer base by forming strategic sales and marketing alliances with foreign Internet service providers, telecommunications companies and resellers. There can be no assurance that we will be able to establish additional strategic alliances or to maintain such strategic alliances. Our success in expanding our international customer base depends not only on the formation of additional strategic alliances but also on the success of these partners and their ability to market our services. The failure to maintain such strategic alliances or the failure of these partners to successfully develop and sustain a market for our services will have a material adverse effect on our ability to expand our international customer base, which could have a material adverse effect on our business, financial condition and results of operations. In 1997, we derived approximately $2.3 million, or 13.2% of our total revenues, from customers outside of the United States. We expect that such revenues will represent an increasing percentage of our total revenues in the future. Risks inherent in our international business activities generally include foreign currency exchange risk, unexpected changes in regulatory requirements, tariffs and other trade barriers, costs of localizing products for foreign countries, lack of acceptance of localized products in foreign markets, longer accounts receivable payment cycles, difficulties in managing international operations, potentially adverse tax consequences, and the burdens of complying with a wide variety of 16 foreign laws. There can be no assurance that such factors will not have a material adverse effect on our future international revenues and, consequently, on our business, financial condition and results of operations. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than fourteen months, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements or risk system failure or miscalculations causing disruptions of normal business activities. State of Readiness. We have conducted a study of the Year 2000 readiness of our information technology ("IT") systems, including our computing and networking systems, and our non-IT systems. Our study consisted of (i) contacting third-party vendors and licensors of material hardware, software and services that are both directly and indirectly related to the delivery of the our faxSAV for internet suite of services and the faxSAV Connector; (ii) contacting vendors of material non-IT systems; (iii) assessment of repair or replacement requirements; and (iv) repair or replacement. We intend to conduct a test our IT systems to verify the results of our study prior to the Year 2000. We have been informed by many of our vendors of material hardware and software components of our IT systems that the products that we use are currently Year 2000 compliant. The computing systems that provide application layer services (i.e., FaxSav customer services) within the FaxSav network are based upon some variant of the Unix operating system, which adequately represents dates beyond the year 2000. Many of the computing systems that support the internal operations of our business have the similar capacity to represent dates beyond the Year 2000. In addition, for all of our internal accounting applications, we have purchased new accounting system software that the manufacturer specifies as Year 2000 compliant. We will require vendors of our other material hardware and software components of our IT systems to provide assurances of their Year 2000 compliance, and we plan to complete this process during the first half of 1999. We will also seek assurances of Year 2000 compliance from providers of our material non-IT systems. Costs. To date, the we have not incurred any material expenditures in connection with identifying or evaluating Year 2000 compliance issues. Most of our expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. Our expected costs to implement the new accounting software mentioned above is approximately $0.2 million. Risks. We are not currently aware of any Year 2000 compliance problems relating to the faxSAV for internet suite of services, the faxSAV Connector or our other IT or non-IT systems that would have a material adverse effect on our business, financial condition and results of operations, without taking into account our efforts to avoid or fix such problems. There can be no assurance that our software contains all necessary date code changes or that all problems can be identified by our study and subsequent testing. Compliance with Year 2000 requirements may disrupt our ability to continue to developing and marketing facsimile transmission products and services. The failure to adequately address Year 2000 compliance issues in our products, services, and in our IT and non-IT systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of our control will be Year 2000 compliant. The failure by such entities to be Year 2000 compliant could result in a systemic failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering services to our customers, which could have a material adverse effect on our business, financial condition and results of operations. Contingency Plan. As discussed above, we intend to conduct a further tests of our Year 2000 compliance to confirm the results of our study, and have not yet developed any contingency plans. The results of our tests and the responses received from third-party vendors and service providers will be taken into account in determining the nature and extent of any contingency plans. 17 Government Regulation We are subject to regulation by various state public service and public utility commissions and by various international regulatory authorities. We are licensed by the FCC as an authorized telecommunications company and our classified as a "non-dominant interexchange carrier." Generally, the FCC has chosen not to exercise its statutory power to closely regulate the charges or practices of non-dominant carriers. Nevertheless, the FCC acts upon complaints against such carriers for failure to comply with statutory obligations or with the FCC's rules, regulations and policies. The FCC also has the power to impose more stringent regulatory requirements on us and to change our regulatory classification. There can be no assurance that the FCC will not change our regulatory classification or otherwise subject us to more burdensome regulatory requirements. In connection with the deployment of Internet-capable nodes in countries throughout the world, we are required to satisfy a variety of foreign regulatory requirements. We intend to explore and seek to comply with these requirements on a country-by-country basis as the deployment of Internet-capable facsimile nodes continues. There can be no assurance that we will be able to satisfy the regulatory requirements in each of the countries currently targeted for node deployment, and the failure to satisfy such requirements may prevent us from installing Internet-capable facsimile nodes in such countries. The failure to deploy a number of such nodes could have a material adverse effect on our business, operating results and financial condition. Our nodes and FAXLAUNCHER service utilize encryption technology in connection with the routing of customer documents through the Internet. The export of such encryption technology is regulated by the United States government. We have the authority to export such encryption technology except to Cuba, Iran, Iraq, Libya, North Korea and Rwanda. Nevertheless, there can be no assurance that such authority will not be revoked or modified at any time for any particular jurisdiction or in general. In addition, there can be no assurance that such export controls, either in their current form or as may be subsequently enacted, will not limit our ability to distribute our services outside of the United States or electronically. While we take precautions against unlawful exportation of our software, the global nature of the Internet makes it virtually impossible to effectively control the distribution of our services. Moreover, future Federal or state legislation or regulation may further limit levels of encryption or authentication technology. Any such export restrictions, the unlawful exportation of our services, or new legislation or regulation could have a material adverse effect on our business, financial condition and results of operations. 18 PART II o OTHER INFORMATION Item 1. Legal Proceedings None 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 As disclosed in the Company's latest proxy statement, the deadline for submitting proposals to be considered for inclusion in the Company's Proxy Statement for the 1999 Annual Meeting is December 7, 1998. Pursuant to recent amendments to Rule 14a-4(C)(1) under the Securities Exchange Act of 1934, as amended, the Company will have discretionary voting authority if a proponent does not notify the Company by March 1, 1999 of their intent to present a proposal from the floor at the 1999 Annual Meeting of Stockholders or of their intent to commence a proxy solicitation for the 1999 Annual Meeting of Stockholders. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. 3.1 Registrant's Ninth Amended and Restated Certificate of Incorporation (incorporated by reference to exhibit 3.3 to the Registrant's Registration Statement on Form S-1, Registration No. 333-09613 ("Registrant's Registration Statement")). 3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4 and 3.5 to the Registrant's Registration Statement and Exhibit 3.3 to the Registrant's Report on form 10-Q for the quarter ended September 30, 1997). 4.1 Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Registrant's Registration Statement). 4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant. 10.1 Fifth Amended and Restated Investor Rights Agreement, as amended (incorporated by reference to exhibit 10.1 and 10.3 to the Registrant's Registration Statement 10.2 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to the Registrant's Registration Statement). 10.3 1996 Stock Option/Stock Issuance Plan (incorporated by reference to exhibit 10.4 to the Registrant's Registration Statement). 10.4 Form of Officer Severance Agreement (incorporated by reference to exhibit 10.5 to the Registrant's Registration Statement). 10.5 Form of Director Severance Agreement (incorporated by reference to exhibit 10.6 to the Registrant's Registration Statement). 10.6* Telecommunications Services Agreement, between LDDS World Com and the Registrant, dated December 1, 1996 (incorporated by reference to exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1997). 19 10.7* Agreement between MCI Telecommunications Corporation and the Registrant, effective March 1, 1996 (incorporated by reference to exhibit 10.9 to the Registrant's Registration Statement). 10.8 Lease Agreement, dated May 28, 1992, between Metro Four Associates Limited Partnership, Thornall Associates and the Registrant, as extended and amended to date (incorporated by reference to exhibit 10.10 to the Registrant's Registration Statement). 10.10 Credit Agreement, dated July 7, 1995, between the Company and Silicon Valley Bank, as amended to date (incorporated by reference to exhibit 10.11 to the Registrant's Registration Statement). 10.11 Letter Agreement, dated November 1, 1994 between Telstra Incorporated and the Registrant (incorporated by reference to exhibit 10.12 to the Registrant's Registration Statement). 10.12 Series B Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14 to the Registrant's Registration Statement). 10.13 Series B Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated September 16, 1992 (incorporated by reference to exhibit 10.15 to the Registrant's Registration Statement). 10.14 Series D Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated October 28, 1993 (incorporated by reference to exhibit 10.16 to the Registrant's Registration Statement). 10.15 Common Stock Warrant between the Registrant and LTI Ventures Leasing Corp., dated February 15, 1993 (incorporated by reference to exhibit 10.17 to the Registrant's Registration Statement). 10.16 Common Stock Warrant between the Registrant and LTI Ventures Leasing Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18 to the Registrant's Registration Statement). 10.17 Common Stock Warrant between the Registrant and Silicon Valley Bancshares, dated April 6, 1992 (incorporated by reference to exhibit 10.19 to the Registrant's Registration Statement). 10.18 Common Stock Warrant between the Registrant and Silicon Valley Bancshares, dated July 7, 1995 (incorporated by reference to exhibit 10.20 to the Registrant's Registration Statement). 10.19 Form of Common Stock Purchase Agreement, dated November 21, 1997 (incorporated by reference to exhibit 10.1 to the Registrant's Registration Statement on form S-3 dated January 9, 1998, Registration No. 333-43939) 10.20 Loan and Security Agreement, dated as of March 27, 1998, between Silicon Valley Bank and the Registrant. (incorporated by reference to exhibit 10.20 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1998) 10.21 Form of Common Stock Purchase Agreement, dated July 22, 1998 (incorporated by reference to exhibit 10.1 of the Registrant's Registration Statement on Form S-3 dated September 29, 1998, Registration No. 333-64515) 10.22 Rights Agreement, dated September 17, 1998 (incorporated by reference to exhibit 10.1 of the Registrants Registration Statement on Form S-3 dated November 16, 1998 Registration No. 333- ) 10.23** Amendment No. 1 to Telecommunications agreement between Worldcom Network Services, Inc. and the Registrant effective October 6, 1998. 27. Financial Data Schedule. - --------- * Confidential treatment granted ** Confidential treatment requested (b) Reports on Form 8-K. Report on Form 8-K dated September 23, 1998 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FAXSAV INCORPORATED ------------------- (Registrant) Date: November 13, 1998 /s/ Thomas F. Murawski -------------------------------------------- Thomas F. Murawski Chief Executive Officer, President and Chairman of the Board of Directors Date: November 13, 1998 /s/ Peter S. Macaluso -------------------------------------------- Peter S. Macaluso Chief Financial Officer Treasurer and Secretary, (Principal Financial and Accounting Officer) 21 FAXSAV INCORPORATED Exhibit Index Exhibit No. 3.1 Registrant's Ninth Amended and Restated Certificate of Incorporation (incorporated by reference to exhibit 3.3 to the Registrant's Registration Statement on Form S-1, Registration No. 333-09613 ("Registrant's Registration Statement")). 3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4 and 3.5 to the Registrant's Registration Statement and Exhibit 3.3 to the Registrant's Report on form 10-Q for the quarter ended September 30, 1997). 3.3 Amendment to the By-laws of the Registrant, dated April 25, 1997. 4.1 Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Registrant's Registration Statement). 4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant. 10.1 Fifth Amended and Restated Investor Rights Agreement, as amended (incorporated by reference to exhibit 10.1 and 10.3 to the Registrant's Registration Statement 10.2 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to the Registrant's Registration Statement). 10.3 1996 Stock Option/Stock Issuance Plan (incorporated by reference to exhibit 10.4 to the Registrant's Registration Statement). 10.4 Form of Officer Severance Agreement (incorporated by reference to exhibit 10.5 to the Registrant's Registration Statement). 10.5 Form of Director Severance Agreement (incorporated by reference to exhibit 10.6 to the Registrant's Registration Statement). 10.6* Telecommunications Services Agreement, between LDDS World Com and the Registrant, dated December 1, 1996 (incorporated by reference to exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1997). 10.7* Agreement between MCI Telecommunications Corporation and the Registrant, effective March 1, 1996 (incorporated by reference to exhibit 10.9 to the Registrant's Registration Statement). 10.8 Lease Agreement, dated May 28, 1992, between Metro Four Associates Limited Partnership, Thornall Associates and the Registrant, as extended and amended to date (incorporated by reference to exhibit 10.10 to the Registrant's Registration Statement). 10.10 Credit Agreement, dated July 7, 1995, between the Company and Silicon Valley Bank, as amended to date (incorporated by reference to exhibit 10.11 to the Registrant's Registration Statement). 10.11 Letter Agreement, dated November 1, 1994 between Telstra Incorporated and the Registrant (incorporated by reference to exhibit 10.12 to the Registrant's Registration Statement). 10.12 Series B Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14 to the Registrant's Registration Statement). 10.13 Series B Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated September 16, 1992 (incorporated by reference to exhibit 10.15 to the Registrant's Registration Statement). 10.14 Series D Preferred Stock Warrant between the Registrant and Comdisco, Inc., dated October 28, 1993 (incorporated by reference to exhibit 10.16 to the Registrant's Registration Statement). 10.15 Common Stock Warrant between the Registrant and LTI Ventures Leasing Corp., dated February 15, 1993 (incorporated by reference to exhibit 10.17 to the Registrant's Registration Statement). 10.16 Common Stock Warrant between the Registrant and LTI Ventures Leasing Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18 to the Registrant's Registration Statement). 10.17 Common Stock Warrant between the Registrant and Silicon Valley Bancshares, dated April 6, 1992 (incorporated by reference to exhibit 10.19 to the Registrant's Registration Statement). 10.18 Common Stock Warrant between the Registrant and Silicon Valley Bancshares, dated July 7, 1995 (incorporated by reference to exhibit 10.20 to the Registrant's Registration Statement). 10.19 Form of Common Stock Purchase Agreement, dated November 21, 1997 (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on form S-3 dated January 9, 1998, Registration No. 333-43939) 10.20 Loan and Security Agreement, dated as of March 27, 1998, between Silicon Valley Bank and the Registrant. (incorporated by reference to Exhibit 10.20 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1998) 10.21 Form of Common Stock Purchase Agreement, dated July 22, 1998 (incorporated by reference to exhibit 10.1 of the Registrant's Registration Statement on Form S-3 dated September 29, 1998, Registration No. 333-64515) 10.22 Rights Agreement, dated September 17, 1998 (incorporated by reference to exhibit 10.1 of the Registrants Registration Statement on Form S-3 dated November 16, 1998 Registration No. 333- ) 10.23** Amendment No. 1 to Telecommunications agreement between Worldcom Network Services, Inc. and the Registrant effective October 6, 1998. 27. Financial Data Schedule. - --------- * Confidential treatment granted ** Confidential treatment requested (b) Reports on Form 8-K. Report on Form 8-K dated September 23, 1998 EX-10.23 2 AMENDMENT NO. 1 TO TELECOMMUNICATIONS AGREEMENT EXHIBIT 10.23 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AMENDMENT NO. 1 This Amendment No. 1 is made by and between FaxSAV, Inc. ("Customer") and WorldCom Network Services, Inc. ("WorldCom"), to those certain Amended and Restated Program Enrollment Terms (the "Amended PET") to that certain WilMAX UNIVERSAL Telecommunications Services Agreement (TSA#FSI-961201) made by and between Customer and WorldCom dated as of December 1, 1996 (the "TSA"). The parties acknowledge that the prior Telecommunications Services Agreement (along with the Program Enrollment Terms, Pricing Exhibit and Service Schedule) between Digitran Corp. (now known as FaxSAV, Inc.) and WilTel, Inc. (now known as WorldCom Network Services, Inc.) were canceled in their entirety and superseded by the TSA.. The parties agree that the Service Schedule attached to the TSA will be canceled in its entirety and superseded by the Service Schedule (the "New Service Schedule") attached hereto. All references to "WilTel" in the TSA or the Amended PET shall be deemed to refer to WorldCom. In the event of any conflict between the terms of the TSA or the Amended PET and the terms of this Amendment No. 1, the terms of this Amendment No. 1 shall control. The TSA (along with the Amended PET, the New Service Schedule and the Rate and Discount Schedule) and this Amendment No. 1 shall collectively be referred to as the "Agreement". The parties agree for good and valuable consideration, intending legally to be bound, as follows: A. SERVICE TERM. The parties agree to substitute Section 2 of the Amended PET to read in its entirety as follows: 2. SERVICE TERM: This Agreement shall commence as of June 1, 1998 (the "Effective Date"), and shall continue for a period of thirty-two (32) months thereafter (the "Service Term"). B. DISCOUNT SCHEDULE/APPLICATION OF DISCOUNTS/RATES. The parties agree to delete Sections 3, 6 and 7 of the Amended PET in their entirety and replace such provisions with the Rate and Discount Schedule attached hereto. C. CUSTOMER'S COMMITMENT. The parties agree to substitute Section 4 of the Amended PET to read in its entirety as follows: 4. CUSTOMER'S MINIMUM REVENUE COMMITMENT: (A) Commencing with the first day of the fifth (5th) billing period following Page 1 of 2 CONFIDENTIAL the Effective Date and continuing through the end of the Service Term (including any extensions thereto) (the "Commitment Period"), Customer agrees to maintain, on a take-or-pay basis, Monthly Revenue (as defined in the applicable Rate and Discount Schedule) of at least $500,000 ("Customer's Minimum Revenue Commitment"). (B) Provided Customer's cumulative Monthly Revenue from WorldCom under this Agreement commencing with the Effective Date of this Amendment is at least $[****] (i.e., in the aggregate), Customer may elect to terminate Customer's Minimum Revenue Commitment described in Subsection 4(A) above by providing WorldCom written notice ("Customer Notice"). In such event, commencing with the first day of the first full month following at least thirty (30) days after WorldCom receives the Customer Notice (the "Commitment Termination Date"), Customer's Minimum Revenue Commitment shall terminate and will no longer be in force or effect. Provided, for the remainder of the Service Term, Customer will continue to receive the Discount determined under Section II.(B) of the Rate and Discount Schedule. D. DEFICIENCY CHARGE: The parties agree to substitute Section 5 of the Amended PET to read in its entirety as follows: 5. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's Minimum Revenue Commitment in any month during the Commitment Period (regardless of whether Customer has commenced using any or all of the Switched Services described herein), then for those month(s) only, Customer will pay WorldCom the difference between Customer's Minimum Revenue Commitment and Customer's actual Monthly Revenue (as described in the applicable Rate and Discount Schedule) (the "Deficiency Charge"). The Deficiency Charge will be due at the same time payment is due for Service provided to Customer, or immediately in an amount equal to Customer's Minimum Revenue Commitment for the unexpired portion of the Service Term, if WorldCom terminates this Agreement based on Customer's default. E. CREDIT. In consideration of Customer's Commitment described in Paragraph C. above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, WorldCom agrees to give Customer a credit (the "Credit") in an amount equal to $[****]. The Credit will be applied to Customer's invoices from WorldCom commencing with the first invoice following the Effective Date (but in no event less than zero) until such Credit is completely utilized. - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 2 of 2 CONFIDENTIAL F. OTHER TERMS AND CONDITIONS. Except as specifically amended or modified herein, the terms and conditions of the TSA and the Amended PET will remain in full force and effect throughout the Service Term and any extensions thereof. IN WITNESS WHEREOF the parties have entered into this Amendment No. 1 on the date first written above. WORLDCOM NETWORK SERVICES, INC. FAXSAV, INC. By: /s/ Charles M. Cole By: /s/ Peter S. Macaluso -------------------------------- -------------------------------- Print Name: Charles M. Cole Print Name: Peter S. Macaluso Title: Vice President Carrier Sales Title: Vice President and CFO Page 2 of 2 CONFIDENTIAL WORLDCOM NETWORK SERVICES, INC. CLASSIC/TRANSCEND(TM) SWITCHED SERVICES SERVICE SCHEDULE This Service Schedule is made by and between WorldCom Network Services, Inc. ("WorldCom") and FaxSAV, Inc. ("Customer") and is a part of their Telecommunication Services Agreement for Switched Services. Neither Customer nor WorldCom shall be obligated with respect to the Switched Services described below, nor any other condition of such Switched Services until Customer has submitted and WorldCom has accepted a Service Request with respect to the particular Switched Service. Capitalized terms not defined herein shall have the meaning ascribed to them in the TSA, the PET or the applicable Rate and Discount Schedule. 1. SWITCHED SERVICES: During the Service Term of the Agreement, WorldCom will provide the following Switched Services (all as more particularly described herein), (i) to and from the locations below, and (ii) for the charges and applicable discounts set forth in the applicable Rate and Discount Schedule attached herewith: (a) "TERMINATION Service" which is WorldCom's termination of calls received from Customer's Service Interconnection(s). (b) "TOLL FREE ORIGINATION Service" which is the origination of Toll Free calls by WorldCom and the termination of such calls to Customer's Service Interconnection(s). (c) "SWITCHED ACCESS Service" which is the origination (via individual telephone access lines) and termination of calls solely over facilities comprising the WorldCom network. (d) "DEDICATED ACCESS Service" which is the origination and termination of calls solely over facilities comprising the WorldCom network which origination or termination is via dedicated access lines. (e) "TRAVEL CARD Service" which is the origination (via Travel Card Toll Free number access) and termination of calls solely over facilities comprising the WorldCom network. 2. SERVICE INTERCONNECTIONS: (a) In order to utilize (i) TERMINATION Service and TOLL FREE ORIGINATION Service, one or more full time dedicated connections between Customer's network and the WorldCom network at one or more WorldCom designated locations ("WorldCom POP") must be established ("Carrier Service Interconnections"), and (ii) DEDICATED ACCESS Service, one or more Page 1 of 8 CONFIDENTIAL full time dedicated connections between an End User's private branch exchange ("PBX") or other customer premise equipment and the WorldCom network at one or more WorldCom POP(s) must be established ("Dedicated Service Interconnections"). Each Carrier Service Interconnection and Dedicated Service Interconnection shall be comprised of one or more dedicated access circuits, as the case may be. Carrier Service Interconnections and Dedicated Service Interconnections are collectively referred to as "Service Interconnections". (b) The circuit(s) comprising each Service Interconnection to a WorldCom POP shall be requested by Customer on the appropriate WorldCom Service Request. Each Service Request will describe (among other things) the WorldCom POP to which a Service Interconnection is to be established, the Requested Service Date therefor, the type and quantity of circuits comprising the Service Interconnection and any charges and other information relevant thereto, such as, Customer's terminating or originating switch location, as the case may be. Such additional information may be obtained from Customer or gathered by WorldCom and recorded in Technical Information Sheets provided by WorldCom. (c) Once ordered, and unless otherwise provided for in this TSA, Service Interconnections or the circuits comprising each Service Interconnection may only be canceled by Customer upon not less than thirty (30) days prior written notice to WorldCom. (d) With respect to a Carrier Service Interconnection, absent the automatic number identification ("ANI") of the calling party, Customer shall provide WorldCom with a written certification (the "Certification") of the percentage of interstate (including intentional) and intrastate minutes of use relevant to the minutes of traffic to be terminated in the same state in which the WorldCom POP is located to which the Carrier Service Interconnection is made. This Certification shall be provided by Customer prior to Start of Service for any Carrier Service Interconnection and may be modified from time to time by Customer and subject to recertification upon the request of WorldCom which requests shall not be made unilaterally by WorldCom more than once each calendar quarter. Any such modification(s) or Certification(s) shall be effective as of the first day of any calendar month and following at least forty-five (45) days notice from Customer. In the event Customer fails to make such Certification, the relevant minutes of use will be deemed to be subject to the Intrastate Rates described in the applicable Rate and Discount Schedule. In the event WorldCom or any other third party requires an audit of WorldCom's interstate/intrastate minutes of traffic, Customer agrees to cooperate in such audit at its expense and make its call detail records, billing systems and other necessary information reasonably available to WorldCom or any third party solely for the purpose of verifying Customer's interstate/intrastate minutes of traffic. Customer agrees to indemnify WorldCom for any liability WorldCom incurs in the event Customer's Certification is different than that determined by the audit. (e) With respect to Carrier Service Interconnections, Customer shall be solely responsible for establishing and maintaining each Carrier Service Interconnection over facilities subject to WorldCom's approval. With respect to Dedicated Service Interconnections, WorldCom will provision and maintain local access facilities between the End User location (i.e., PBX) and the WorldCom POP, subject to any LEC charges plus other applicable terms and charges set forth in Page 2 of 8 CONFIDENTIAL WorldCom's F.C.C. Tariff No. 5, however, Customer may elect to be responsible for establishing each Dedicated Service Interconnection over facilities subject to WorldCom's approval. Service Interconnections shall only be comprised of DS-1 facilities unless otherwise provided for in the Service Request and agreed to in writing by WorldCom. If a Service Interconnection is proposed to be made via a local exchange carrier, WorldCom will have the authority to direct Customer to utilize WorldCom's entrance facilities or local serving arrangement ("LSA") with the relevant local telephone operating company, and Customer will be subject to a non-discriminatory charge therefor from WorldCom. The monthly recurring charge relevant to Customer's use of LSA capacity shall be subject to upward adjustment by WorldCom from time to time which adjustment, if any, shall not exceed the rate that otherwise would be charged for the equivalent switched access capacity between the same points by the relevant local telephone operating company pursuant to its published charges for the type of service in question. (f) If other private line interexchange facilities are necessary to establish a Service Interconnection, and such facilities are requested from WorldCom, such facilities will be provided on an individual case basis. (g) Commencing with the second full calendar month following Start of Service for each circuit comprising a Service Interconnection (i.e., both Carrier Service Interconnections and Dedicated Service Interconnections) and thereafter, Customer will maintain Switched Services measured usage charges per DS-1 (or DS-1 equivalent circuit) of not less than $[****] per calendar month/billing period ("Minimum Monthly Usage"). In the event Customer fails to obtain the required Minimum Monthly Usage for the circuits comprising each Service Interconnection, WorldCom will charge and Customer will pay the difference between the number of DS-1s times the Minimum Monthly Usage (i.e., $[****]) and Customer's total Switched Services measured usage charges for the circuit(s) comprising the Service Interconnection in question ("Minimum Usage Charge"). WorldCom TERMINATION Service and TOLL FREE ORIGINATION Service minutes carried over the same Service Interconnection, if any, shall be included in determining if Customer has met the Minimum Monthly Usage requirement. Example: [****] (h) DS-1 circuits comprising all Service Interconnections will be subject to a nonrecurring $[****] per DS-1 switch port installation charge, and DS-3 circuits comprising all Service Interconnections will be subject to a nonrecurring per DS-3 switch port installation charge as determined on an individual case basis. - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 3 of 8 CONFIDENTIAL 3. FORECASTS: Before Customer's initial order for Switched Services, Customer shall provide WorldCom with a forecast regarding the number of minutes expected to be terminated or originated in various LATAs and/or Tandems, so as to enable WorldCom to configure optimum network arrangements. In the event Customer's Switched Service traffic volumes result in a lower than industry standard completion rate or otherwise adversely affect the WorldCom Network, WorldCom reserves the right to block the source of such adverse traffic at any time. Customer will provide WorldCom with additional forecasts from time to time upon WorldCom's request which shall not be more frequent than once every three (3) months. 4. START OF SERVICE: Start of Service for the various Switched Services will occur as described below: - -------------------------------------------------------------------------------- SERVICE START OF SERVICE - -------------------------------------------------------------------------------- TERMINATION Service Concurrently with the activation of each circuit comprising Carrier Service Interconnections relevant to TERMINATION Service - -------------------------------------------------------------------------------- TOLL FREE ORIGINATION Concurrently with the activation of each circuit comprising Carrier Service Interconnections relevant to TOLL FREE ORIGINATION Service - -------------------------------------------------------------------------------- SWITCHED ACCESS Service ANI by ANI basis concurrently with the activation of each ANI to be served, and a TOLL FREE Number by TOLL FREE Number basis concurrently with activation of each TOLL FREE Number - -------------------------------------------------------------------------------- DEDICATED ACCESS Service Concurrently with the activation of each circuit comprising Dedicated Service Interconnections - -------------------------------------------------------------------------------- TRAVEL CARD Service Code by Code basis concurrently with the activation of each Code - -------------------------------------------------------------------------------- 5. LIMITATION OF ORIGINATION OR TERMINATION LOCATIONS: - -------------------------------------------------------------------------------- SWITCHED SERVICE ORIGINATION FROM TERMINATION TO - -------------------------------------------------------------------------------- TERMINATION Service Any WorldCom POP Any dialable location worldwide - -------------------------------------------------------------------------------- TOLL FREE ORIGINATION Locations in the 48 Any Customer Service contiguous United designated Carrier States, Hawaii, Service Interconnection Alaska, the US Virgin Islands, Puerto Rico and Canada - -------------------------------------------------------------------------------- SWITCHED ACCESS (1+) All equal access Any direct dialable Service exchanges in the 48 location worldwide contiguous United States (except in LATA 921-Fishers Island, New York) and Hawaii - -------------------------------------------------------------------------------- SWITCHED ACCESS (Toll Locations in the 48 Locations in the 48 Free) Service contiguous United contiguous United States, Hawaii, States and Hawaii Alaska, the US Virgin Islands, Puerto Rico - -------------------------------------------------------------------------------- Page 4 of 8 CONFIDENTIAL - -------------------------------------------------------------------------------- DEDICATED ACCESS (1+) Locations in the 48 Any direct dialable Service contiguous United location worldwide States - -------------------------------------------------------------------------------- DEDICATED ACCESS (Toll Locations in the 48 Any Customer Free) Service contiguous United designated Dedicated States, Hawaii, Service Interconnection Alaska, the US Virgin Islands, Puerto Rico - -------------------------------------------------------------------------------- BASIC TRAVEL CARD Locations in the 48 Locations in the 48 Services contiguous United contiguous United States States, Hawaii, Alaska, the US Virgin Islands, Puerto Rico and Canada - -------------------------------------------------------------------------------- BASIC TRAVEL CARD Locations in Hawaii, Locations in the 48 Services Alaska, the US Virgin contiguous United Islands, Puerto Rico States and Canada - -------------------------------------------------------------------------------- BASIC TRAVEL CARD Select International Locations in the 48 Service locations. contiguous United States - -------------------------------------------------------------------------------- TRAVEL CARD Service - SEE Schedule 6 to the SEE Schedule 6 to the Enhanced and Discount applicable Rate and applicable Rate and Features Discount Schedule Discount Schedule - -------------------------------------------------------------------------------- 6. BILLING INCREMENTS: (A) Classic Service - (i) all calls (excluding California IntraLATA and California intrastate calls and calls to International Locations, Canada and Mexico) will be billed in six (6) second increments and subject to a six (6) second minimum charge, (ii) California IntraLATA and California intrastate calls will be billed in six (6) second increments and subject to an eighteen (18) second minimum, and (ii) calls to International Locations, Canada and Mexico will be billed in six (6) second increments and subject to a thirty (30) second minimum charge. (B) TRANSCEND(TM) Service - (i) all calls (excluding calls to International Locations, Canada and Mexico and calls from Canada) will be billed in six (6) second increments and subject to a six (6) second minimum charge, and (iii) calls to International Locations, Canada and Mexico and calls from Canada will be billed in six (6) second increments and subject to a thirty (30) second minimum charge. (C) All calls will be billed (i) utilizing Hardware Answer Supervision where available, and with respect to TOLL FREE Services, commencing with Customer's switch wink or answer back. If Customer is found to be non-compliant in passing back appropriate answer supervision, i.e., answer back, WorldCom reserves the right to suspend TOLL FREE Service or deny requests by Customer for additional Service until appropriate compliance is established. 7. CDR MEDIA: WorldCom will provide Call Detail Records (CDRs) for WorldCom's Switched Services in machine readable form in one of several magnetic tape formats (selected by Customer on Customer's Service Request) ("CDR Media"). CDR Media provided under this Section (i) monthly is provided at no charge, (ii) weekly is subject to a recurring monthly charge of $150, and (iii) daily is subject to the applicable non-recurring Installation Charge as described below (plus all leased-line and equipment costs necessary to implement Daily CDR Media which will be determined on an individual case basis depending on Customer's specific configuration). Page 5 of 8 CONFIDENTIAL - -------------------------------------------------------------------------------- TYPE Total Contract Value Non-Recurring Installation Charge - -------------------------------------------------------------------------------- Daily CDR <$1,000,000 $[****] Media-Customer provided $1,000,000+ $[****] hardware and software - -------------------------------------------------------------------------------- Daily CDR Media-PC <$1,000,000 $[****] Solution $1,000,000+ $[****] - -------------------------------------------------------------------------------- Sub-Daily CDR <$1,000,000 $[****] Media-Customer provided $1,000,000+ $[****] hardware and software - -------------------------------------------------------------------------------- Sub-Daily CDR Media-PC <$1,000,000 $[****] Solution $1,000,000+ $[****] - -------------------------------------------------------------------------------- 8. TOLL FREE NUMBERS: (a) TOLL FREE numbers will be issued to Customer (i.e., issuance equates to activation or reservation, whichever occurs first) on a random basis. Customer requests for specific numbers will be considered by WorldCom, and if provided, will be subject to additional charges as set forth below and WorldCom's then current reservation policy which shall also apply to any randomly selected and reserved TOLL FREE number. At any time preceding three (3) months from the scheduled expiration of the Service Term, Customer may only reserve TOLL FREE numbers in an amount equal to the greater of (i) 50, or (ii) fifteen percent (15%) of the total number of TOLL FREE numbers activated by WorldCom for Customer. Customer requests for TOLL FREE numbers inconsistent with the above stated conditions may be considered by WorldCom on an individual case basis. TOLL FREE numbers reserved for Customer will be activated upon Customer's request, however, with respect to TRANSCEND(TM) WorldCom may charge Customer an SMS Storage fee for each TOLL FREE number. (b) Customer Request for Specific Numbers - $[****] per individual TOLL FREE number. (c) Customer specifically agrees that regardless of the method in which a TOLL FREE number is reserved for or otherwise assigned to Customer, that Customer will not seek any remedy from WorldCom under a theory of detrimental reliance or otherwise that such TOLL FREE number(s) are found not to be available for Customer's use until such TOLL FREE number is put in service for the benefit of Customer, and that such TOLL FREE number(s) shall not be sold, bartered, brokered or otherwise released by Customer for a fee ("TOLL FREE Number Trafficking"). Any attempt by Customer to engage in TOLL FREE Number Trafficking shall be grounds for reclamation by WorldCom for reassignment of the TOLL FREE number(s) reserved for or - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 5 of 8 CONFIDENTIAL assigned to Customer 9. ENHANCED TOLL FREE SERVICES: The following TOLL FREE identification services and routing options (collectively, "Enhanced TOLL FREE Services") are available from WorldCom: IDENTIFICATION SERVICES: i. Dialed Number Identification Service - identification of specific TOLL FREE number dialed. ii. Real-Time ANI - receipt of telephone number of calling party. TOLL FREE ROUTING OPTIONS: i. Message Referral - recording (up to six (6) months) that informs callers that the TOLL FREE number has been disconnected or refers callers to new number. ii. Call Area Selection - selection or blockage of locations from which TOLL FREE numbers can be received (i.e., State, NPA, LATA or NXX level). iii. Call Distributor Routing - distribution of TOLL FREE traffic evenly over dedicated access lines in a trunk group (e.g., ascending, descending, most idle, least idle). iv. Route Completion (Overflow) - overflow of TOLL FREE dedicated access traffic only to up to five (5) pre-defined alternate routing groups (e.g., dedicated access, WATs access lines or switched access lines). v. Geographic Routing - termination of calls to a single TOLL FREE number from two or more originating routing groups to different locations. vi. Time-of-Day Routing - routing of calls to single TOLL FREE number based on time of day (up to forty-eight (48) time slots of 15-minute increments in a 24-hour period). vii. Day-of-Week Routing - routing of calls to single TOLL FREE number based on each day of the week. viii. Day-of-Year Routing - routing of calls to single TOLL FREE number based on up to fifteen (15) customer-specified holidays. ix. Percent Allocation Routing - routing of calls for each originating routing group to two (2) or more terminating locations based on customer-specified percentage. Customer will receive the Identification Services described above at no charge. The minutes of use rates for TOLL FREE Routing Options described above (in addition to the TOLL FREE Routing Option Feature Charges described below) will be the same rates for SWITCHED ACCESS Service (TOLL FREE) and DEDICATED ACCESS Service (TOLL FREE), whichever is applicable, as described in the applicable Rate and Discount Page 6 of 8 CONFIDENTIAL Schedule excluding Route Completion (Overflow). If Customer selects Route Completion (Overflow) and Customer's traffic overflows from DEDICATED ACCESS Service (TOLL FREE) to SWITCHED ACCESS Service (TOLL FREE), Customer's minute of use rate will be the rate associated with SWITCHED ACCESS Service (TOLL FREE). The TOLL FREE Routing Option Feature Charges are as follows: Installation Charge: $[****] per feature; maximum of $[****] per TOLL FREE number. Change Order Charge: $[****] per feature; maximum of $[****] per TOLL FREE number. Monthly Recurring Charge: $[****] per feature; maximum of $[****] per TOLL FREE number. Expedite Charge: $500.00 (i.e., outside normal interval time of four (4) business days). Note: More than ten (10) points of termination for a single feature will be treated as two (2) features. Further, every additional ten (10) points of termination will be treated as a separate feature. 10. RESPORG SERVICES: Responsible Organization Services (relevant to TOLL FREE Numbers) if provided by WorldCom will be provided by WorldCom pursuant to WorldCom's F.C.C. Tariff No. 5. 11. AUTHORIZATION CODES FOR TRAVEL CARD SERVICE: WorldCom will supply Customer with authorization codes ("Codes") containing nine (9) or fourteen (14) digits for use with a corresponding TOLL FREE Service number for origination and termination of TRAVEL CARD Service calls. The Codes may be obtained by Customer in blocks of ten (10) not to exceed a total of 1000 Codes at any one time. WorldCom reserves the right to deny access to any Code at any time. 12. INBOUND PORTION OF TRAVEL CARD SERVICE CALL: The inbound service portion of a TRAVEL CARD Service call (i.e., the TOLL FREE Service) must be provided by WorldCom. 13. ACCOUNTING CODES: For every billed telephone number (BTN) requested by Customer, whether verified or non-verified, Customer shall pay a monthly recurring charge of $[****]. 14. PAY PHONE SURCHARGE: In the event WorldCom is required to compensate payphone - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 7 of 8 CONFIDENTIAL service providers (PSPs) for toll-free or access code calls which originate from payphones (including without limitation, any Order adopted by the FCC) ("Payphone Surcharge"), WorldCom will charge and Customer agrees to pay WorldCom the amount of the Payphone Surcharge which is required to be paid by WorldCom. 15. RBOC TERMINATION/ORIGINATION: With respect to Classic Switched Services, following Start of Service for TERMINATION SERVICE, TOLL FREE ORIGINATION Service and/or DEDICATED ACCESS Service, Customer will maintain at least 80% of the minutes of traffic (during any calendar month or pro rata portion thereof) comprising Customer's TERMINATION Service, TOLL FREE ORIGINATION Service and DEDICATED ACCESS Service for termination or origination in a Tandem owned and operated by a Regional Bell Operating Company ("RBOC Terminations/Originations") and subject to such RBOC's tariffed access charges. WorldCom shall have the right to apply a ($.015) per minute surcharge to the number of minutes by which Non-RBOC Terminations/Originations exceed 20% of total monthly TERMINATION Service, TOLL FREE ORIGINATION Service and DEDICATED ACCESS Service minutes. 16. PRESUBSCRIBED INTEREXCHANGE CARRIER CHARGE (PICC): With respect to Classic Switched Services, WorldCom will charge Customer for any LEC-assessed presubscribed interexchange carrier charge ("PICC Charge") which PICC Charge will be reasonably determined by WorldCom as of a date certain each month (the "PICC Charge Determination Date") but only if WorldCom is directly billed by the LEC for such PICC Charge. Customer's PICC Charge will be determined as of the PICC Charge Determination Date and will be based on the same criteria for which WorldCom is assessed such charge by the LEC (e.g., number and type of Customer's End Users (i.e., residential or business) as well as the type of line associated with each such End User (i.e., single line, secondary line or multi-line). This Section 16 will be deemed to include any other similar additional charges assessed by a LEC after the date of this Agreement. (i.e., charges for which WorldCom is not currently being assessed). IN WITNESS WHEREOF, Customer has initialed this CLASSIC/TRANSCEND(TM) SWITCHED SERVICES Service Schedule on the date first written above. FAXSAV, INC. Customer's Initials: /s/ PSM Page 8 of 8 CONFIDENTIAL WORLDCOM NETWORK SERVICES, INC. CLASSIC SWITCHED SERVICES RATE AND DISCOUNT SCHEDULE This Rate and Discount Schedule is made by and between WorldCom Network Services, Inc. ("WorldCom") and FaxSAV, Inc. ("Customer") and is a part of their Telecommunications Services Agreement for Switched Services. Capitalized terms not defined herein shall have the meaning ascribed to them in the TSA, the PET or the Service Schedule. NOTE: ANY MODIFICATIONS, ADDITIONS OR DELETIONS FROM THIS RATE AND DISCOUNT SCHEDULE WILL NOT BE EFFECTIVE UNLESS SPECIFICALLY SET FORTH IN THE PET. I. RATES (A) TERMINATION Service - -------------------------------------------------------------------------------- JURISDICTION RATE PER MINUTE - -------------------------------------------------------------------------------- INTERSTATE o Within the 48 contiguous United States $[****] (excluding termination to SUPERSAVER LATAs) o Within the 48 contiguous United States $[****] (termination to SUPERSAVER LATAs on Schedule 1) - -------------------------------------------------------------------------------- INTERSTATE Extended o 48 contiguous United States to Hawaii $[****] o 48 contiguous United States to Alaska, $[****] Puerto Rico and US Virgin Islands - -------------------------------------------------------------------------------- INTRASTATE+ SEE Schedule 2 (DEDICATED ACCESS Service Rates) - -------------------------------------------------------------------------------- INTERNATIONAL+ o 48 contiguous United States to SEE Schedule 5++ International locations (excluding Canada and Mexico) o 48 contiguous United States to Canada SEE Schedule 3 o 48 contiguous United States to Mexico SEE Schedule 3 - -------------------------------------------------------------------------------- + NOT SUBJECT TO DISCOUNT. ++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the Amended PET rounded down to the nearest level. - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 1 of 6 CONFIDENTIAL B. TOLL FREE ORIGINATION Service - -------------------------------------------------------------------------------- JURISDICTION RATE PER MINUTE - -------------------------------------------------------------------------------- INTERSTATE o Within the 48 contiguous United States $[****] (excluding termination to SUPERSAVER LATAs) o Within the 48 contiguous United States $[****] (origination from SUPERSAVER LATAs on Schedule 1) - -------------------------------------------------------------------------------- INTERSTATE Extended o Hawaii to 48 contiguous United States $[****] o Alaska to 48 contiguous United States $[****] o Puerto Rico to 48 contiguous United $[****] States o US Virgin Islands to 48 contiguous $[****] United States - -------------------------------------------------------------------------------- INTRASTATE+ SEE Schedule 2 (DEDICATED ACCESS Service Rates) - -------------------------------------------------------------------------------- INTERNATIONAL+ o Canada to 48 contiguous United States SEE Schedule 3 (DEDICATED ACCESS Service Rates) - -------------------------------------------------------------------------------- + NOT SUBJECT TO DISCOUNT. C. SWITCHED ACCESS Service - -------------------------------------------------------------------------------- JURISDICTION RATE PER MINUTE - -------------------------------------------------------------------------------- INTERSTATE (1+ and TOLL FREE) o Within the 48 contiguous United States $[****] - -------------------------------------------------------------------------------- INTERSTATE (1+) Extended o 48 contiguous United States to Hawaii $[****] o 48 contiguous United States to Alaska, $[****] Puerto Rico and US Virgin Islands o Hawaii to 48 contiguous United States $[****] o Hawaii to Alaska, Puerto Rico and US $[****] Virgin Islands - -------------------------------------------------------------------------------- INTERSTATE (TOLL FREE) Extended+ o Hawaii to 48 contiguous United States $[****] o Alaska to 48 contiguous United States $[****] o Puerto Rico to 48 contiguous United $[****] States o US Virgin Islands to 48 contiguous $[****] United States - -------------------------------------------------------------------------------- INTRASTATE (1+ and TOLL FREE)+ SEE Schedule 2 - -------------------------------------------------------------------------------- - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 2 of 5 CONFIDENTIAL - -------------------------------------------------------------------------------- INTERNATIONAL+ o 48 contiguous United States to SEE Schedule 4++ International locations (excluding Canada and Mexico) o 48 contiguous United States to Canada SEE Schedule 3 o 48 contiguous United States to Mexico SEE Schedule 3 o Hawaii to certain international locations SEE Schedule 7 o Hawaii to Canada SEE Schedule 3 o Hawaii to Mexico SEE Schedule 3 - -------------------------------------------------------------------------------- + NOT SUBJECT TO DISCOUNT. ++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the Amended PET rounded down to the nearest level. D. DEDICATED ACCESS Service - -------------------------------------------------------------------------------- JURISDICTION RATE PER MINUTE - -------------------------------------------------------------------------------- INTERSTATE (1+) o Within the 48 contiguous United States $[****] (excluding termination to SUPERSAVER LATAs) o Within the 48 contiguous United States $[****] (termination to SUPERSAVER LATAs on Schedule 1) - -------------------------------------------------------------------------------- INTERSTATE (TOLL FREE) o Within the 48 contiguous United States $[****] (excluding termination to SUPERSAVER LATAs) o Within the 48 contiguous United States $[****] (termination to SUPERSAVER LATAs on Schedule 1) - -------------------------------------------------------------------------------- INTERSTATE (1+) Extended o 48 contiguous United States to Hawaii $[****] o 48 contiguous United States to Alaska, $[****] Puerto Rico and US Virgin Islands - -------------------------------------------------------------------------------- INTERSTATE (TOLL FREE) Extended+ o Hawaii to 48 contiguous United States $[****] o Alaska to 48 contiguous United States $[****] o Puerto Rico to 48 contiguous United $[****] States o US Virgin Islands to 48 contiguous $[****] United States - -------------------------------------------------------------------------------- INTRASTATE (1+ and TOLL FREE)+ SEE Schedule 2 - -------------------------------------------------------------------------------- INTERNATIONAL+ o 48 contiguous United States to SEE Schedule 5++ International locations (excluding Canada and Mexico) o 48 contiguous United States to Canada SEE Schedule 3 o 48 contiguous United States to Mexico SEE Schedule 3 - -------------------------------------------------------------------------------- + NOT SUBJECT TO DISCOUNT. ++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the Amended PET rounded down to the nearest level. - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 3 of 5 CONFIDENTIAL E. TRAVEL CARD Service - -------------------------------------------------------------------------------- JURISDICTION RATE PER MINUTE - -------------------------------------------------------------------------------- BASIC INTERSTATE o Within the 48 contiguous United States $[****] - -------------------------------------------------------------------------------- BASIC INTERSTATE Extended o 48 contiguous United States to Alaska, $[****] Hawaii, Puerto Rico and US Virgin Islands o Hawaii to 48 contiguous United States $[****] o Alaska to 48 contiguous United States $[****] o Puerto Rico to 48 contiguous United $[****] States o US Virgin Islands to 48 contiguous $[****] United States - -------------------------------------------------------------------------------- BASIC INTRASTATE+ SEE Schedule 2 (SWITCHED ACCESS Service Rates) - -------------------------------------------------------------------------------- BASIC INTERNATIONAL+ o 48 contiguous United States to SEE Schedule 4++ (SWITCHED International locations (excluding ACCESS Service Rates) Canada and Mexico) o 48 contiguous United States to Canada $[****] o 48 contiguous United States to Mexico SEE Schedule 3 (SWITCHED ACCESS Service Rates) o Canada to 48 contiguous United States $[****] - -------------------------------------------------------------------------------- ENHANCED SEE Schedule 6 - -------------------------------------------------------------------------------- + NOT SUBJECT TO DISCOUNT. ++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the Amended PET rounded down to the nearest level. F. Directory Assistance (i) Interstate Rate Per Call [NOT SUBJECT TO DISCOUNT]: $[****]. (ii) Intrastate Rate Per Call [NOT SUBJECT TO DISCOUNT]: $[****]. II. DISCOUNTS (A) For purposes of this Agreement, Customer's "Monthly Revenue" will be comprised of (i) Customer's gross measured and per call Switched Service charges (i.e., Directory Assistance and both Domestic and International) which shall include Customer's measured usage charges for International Toll Free Service (ITFS) and Universal International Free Phone Number Service (UIFN) from WorldCom (ii) the PICC Charge described in Section 16 of the Service Schedule (if billed directly to WorldCom by the LEC) (iii) three (3) times Customer's first $[****] recurring monthly Private Line Interexchange Service charges (i.e., both Domestic and International) from WorldCom, two (2) times Customer's second $[****] recurring monthly Private Line - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 3 of 5 CONFIDENTIAL Interexchange Service charges (i.e., both Domestic and International) from WorldCom, and Customer's recurring monthly Private Line Interexchange Service charges (i.e., both Domestic and International) from WorldCom in excess of $[****] and (iv) Monthly Port Charges, Monthly CIR Charges and Monthly NNI Charges, if any, as are specifically described in an agreement for Frame Relay Services between WorldCom and Customer. Customer's Monthly Revenue will not include any pro rata charges, access charges, ancillary or special feature charges, such as, Authorization codes or CDR Tapes, or any other charges other than those identified by the relevant WorldCom invoice as monthly recurring private line Interexchange service charges or the switched service charges specifically mentioned in this Subsection (A). (B) Commencing with the Effective Date and continuing through the end of the Service Term (including any applicable extensions thereto), Customer's discount percentage (the "Discount") will be determined under this Subsection (B) taking into account any increase as described in Subsection (C) below. Throughout the Service Term, Customer will automatically receive the next higher (or lower) Discount when Customer's eligible Monthly Revenue reaches the next level (or falls below a level which in no event shall be less than Customer's Minimum Revenue Commitment, if any, described in the PET). Customer will receive the percentage shown in the Discount Schedule associated with Customer's Minimum Revenue Commitment commencing with the Effective Date regardless of Customer's actual Monthly Revenue. Monthly Revenue Discount $[****] [****]% $[****] [****] $[****] [****]% III. APPLICATION OF DISCOUNTS (A) After determining Customer's applicable Discount percentage under Article II above, the applicable percentage will be applied to Monthly Revenues comprised of Customer's Interstate (including Alaska, Hawaii, the United States Virgin Islands and Puerto Rico unless otherwise noted herein) measured usage charges (which includes 1+ and Toll Free usage unless otherwise noted herein). (B) During the Service Term, accumulated credits derived from the applicable Discount will be applied in arrears commencing with the first day of the month following the Effective Date, that is, the Discount will be applied to Customer's measured usage charges for the preceding month (the "Discount Period"). The initial Discount Period shall include any partial calendar month following Start of Service, or such other time basis as may be mutually determined by the parties. (C) Each Discount will result in the application of a credit obtained during the Discount Period to the WorldCom invoice to Customer relevant to the billed measured Switched Service for the - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 4 of 5 CONFIDENTIAL calendar month next following the completion of each Discount Period, provided Customer has paid undisputed charges (including any late fees, if applicable) for that month and has not otherwise been subject to a Suspension Notice in accordance with the TSA. Failure of Customer to comply with the foregoing provision shall entitle WorldCom to withhold any credit due Customer for the Discount Period in question until such charges (including late fees) have been paid in full. IN WITNESS WHEREOF, Customer has initialed this CLASSIC SWITCHED SERVICES Rate and Discount Schedule on the date first written above. FAXSAV, INC. Customer's Initials /s/ PSM ATTACHMENTS: Schedule 1 SUPERSAVER LATAs Schedule 2 Intrastate Rates Schedule 3 Canada and Mexico Rates; Canada and Mexico Rates from Hawaii Schedule 4 SWITCHED ACCESS Service International Rates Schedule 5 DEDICATED ACCESS Service international Rates Schedule 6 ENHANCED TRAVEL CARD Service Rates Schedule 7 Switched International Rates 1+ from Hawaii Page 5 of 5 CONFIDENTIAL - -------------------------------------------------------------------------------- SCHEDULE 1 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 2 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- SCHEDULE 3 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 4 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 5 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 6 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 6 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 7 [****] - ---------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - -------------------------------------------------------------------------------- EX-27 3 FDS
5 This schedule contains summary financial information extracted from the FaxSav, Inc. financial statements, and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1998 SEP-30-1998 4,733,241 0 3,287,723 194,844 0 7,958,797 9,940,706 5,298,251 12,980,447 5,074,550 0 0 0 131,490 (15) 12,980,447 15,507,389 15,507,389 8,121,692 13,336,133 (77,829) 0 78,008 (5,950,615) 0 (5,950,615) 0 0 0 (5,950,615) (.52) (.52)
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