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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, l997 .
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
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Commission File Number 0-2180
TOTAL-TEL USA COMMUNICATIONS, INC. .
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(Exact name of registrant as specified in its charter)
New Jersey . 22-1656895 .
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Clove Road, Little Falls, NJ 07424
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (201) 812-1100
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.05 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value (based upon a $14.625 closing price) of the
voting stock held by nonaffiliates of the Registrant as of May 6, l997:
$29,431,204.
Number of shares of Common Stock outstanding on May 6, 1997: 3,109,602.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART 1
ITEM 1. BUSINESS
Total-Tel USA Communications, Inc. ( "TotalTel", the "Registrant" or the
"Company" ), a New Jersey corporation, was organized on June 8, 1959,
under the name of Faradyne Electronics Corp. and adopted its present
name on November 4, l991. The Registrant's principal executive office is
located at 150 Clove Road, Little Falls, New Jersey 07424 and its
telephone number is (201) 812-1100. The Registrant operates as a full
service inter exchange carrier as more fully described herein.
PRINCIPAL PRODUCTS AND SERVICES
Telecommunications Services
In September, l982, Registrant formed Total-Tel USA ( "TotalTel" ), as a
division of its principal operating subsidiary, commenced offering
interstate telephone communication services in January, 1983 and
provided the foundation for what is now the Registrant's primary
business. TotalTel operates as a full service interexchange carrier
providing 24 hour, 7 day a week, telephone communication services to
customers nationwide. The Registrant's principal market is Northern New
Jersey and the New York Metropolitan area for direct transmission within
the contiguous United States, and to over 150 countries around the
world. The intercity circuits TotalTel utilizes to transmit its
customers' telephone calls include, among other facilities, private
lines leased from AT&T, World Com, Inc., Qwest and other usage sensitive
services leased from other competing carriers. TotalTel offers its
services primarily through its network consisting of a digital
computerized switch in Newark, New Jersey and intercity circuits which
provide access and identification, call routing, transmission and
billing records. Subscribers are billed based on the distance and
duration of each call completed.
In July, 1987, TotalTel began offering its telecommunication services to
commercial customers in Manhattan through Total-Tel USA, Incorporated, a
wholly owned subsidiary of the Registrant. In August, l992, TotalTel
extended its telecommunications services to commercial customers in the
Southeastern United States through Total-Tel Southeast, Inc., a wholly
owned subsidiary of the Registrant. TotalTel began offering its
dedicated services and related high usage T1.544 services in late 1985.
These services were designed to attract larger, more sophisticated
business customers to the Registrant. In April 1995, the Registrant
formed TotalTel Carrier Services, Inc. for the purpose of providing long
distance service to other common carriers in the telecommunications
industry, on a wholesale basis. Wholesale sales were $31,429,277 and
$3,584,182 for the years ended January 31, 1997 and 1996, respectively.
TotalTel employs SS7 digital technology and Sonet Ring technology in its
network. Digital facilities utilize more sophisticated engineering to
yield enhanced voice quality as opposed to older analog technology. The
capital expenditure necessary to increase transmission capability
through digital technology is less than the comparable cost to expand on
an analog basis. Additionally, most of TotalTel's calling volume is
carried over fiber optic facilities leased from other carriers as
described above and from Bell Atlantic, NYNEX, other Regional Bell
Operating Companies.
During the year ended January 31, 1997, as in the Fiscal 1996, a
majority of the traffic was carried through various equal access
services, also known as switched access, and are priced and offered
based on the calling volume of the particular customer. The retail
marketing focus is on customizing services for business customers in the
niche market now served by Registrant.
TotalTel currently has approximately 18,000 active accounts of which
approximately 95% are commercial and the balance are residential
subscribers. Sales are made primarily through advertising, direct
telephone solicitation, field sales contacts, agent sales and referrals
from present customers.
In February, 1993, the Registrant, through its wholly owned subsidiary,
TotalTel Services, Inc., commenced the sale and installation of
Panasonic telephone systems primarily in the Northern New Jersey and New
York Metropolitan area. Sales during Fiscal 1997 were not significant.
Net sales of telecommunications services and systems in Fiscal 1997 were
$89,325,921 as compared to $49,873,477 in fiscal year 1996. TotalTel had
operating income of $4,135,585 in Fiscal 1997 and operating income of
$2,308,982 in Fiscal 1996. The operating income represents the income
before interest income, interest expense, other income, other expense
and provision for income taxes. For further details, see MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
elsewhere in this Report.
The continued growth in revenues in Fiscal 1997 is largely attributable
to the rapid expansion of the Registrant's sales to other carriers along
with aggressive internal sales and marketing efforts. The Registrant
completed the installation of its upgraded DEX 600 switch at its new
facility in Newark, New Jersey in the second quarter of the Fiscal 1995,
which increased transmission capabilities significantly and was
designated to allow for substantial future expansion.
The Registrant is currently in the process of installing a DEX 600E
MEGAHUB switch at its new facility in New York City which will double
the Registrant's current revenue capacity. It is expected that this
facility should be operational in the second quarter of the Registrant's
current fiscal year.
Due to TotalTel's strategic geographic location in the New York
Metropolitan Area, the Company continues to foresee benefits from the
availability of a large number of suppliers of transmission facilities
located in New York which should provide potential for improved
operating efficiency.
Competition
The most significant competitor in the telecommunications industry,
AT&T, has indicated that it intends to compete vigorously with other
common carriers (other independent telephone companies). In the past
several years, AT&T has implemented several significant rate reductions
for its long distance message services. These reductions have required
other carriers, including TotalTel, to lower their rates in order to
remain competitive.
In addition, TotalTel competes with carriers such as MCI Communications
Corporation ( "MCI" ), Sprint, World Com, Inc., Frontier and other large
companies engaged in providing services in competition with those
services offered by TotalTel. TotalTel also directly competes with local
and regional companies which resell services, a number of which are
substantially larger than TotalTel.
More recently, the Telecom Act of 1996 ("The Act") allows local exchange
carriers (LECSs) to compete in the long distance telecommunications
market which should substantially increase competition in the future.
The Act also allows long distance carriers to provide local service and
the Registrant intends to enter this market during the current fiscal
year.
In the opinion of Registrant's management, TotalTel's principal methods
of competition with AT&T and others have been and are expected to
continue to be pricing, customized service, quality and the development
of special billing and other niche services. TotalTel's long distance
capability and its customer services should continue to make it
competitive for most business users of AT&T, MCI and US Sprint services.
Seasonal Nature of Business
Registrant's business is not seasonal.
Patents, Trademarks, Licenses, etc.
Registrant does not hold any material patents, franchises or
concessions.
Government Regulations
In August, l982, the Federal Communications Commission ( "FCC" )
substantially deregulated resale common carriers, such as the
Registrant. The FCC does not require certification of such carriers to
initiate business activities nor does it exercise its authority to
regulate their rates and services, although it has the power to do so in
the future, The FCC may act upon complaints against the Registrant or
any other common carrier for failure to comply with its statutory
obligations as a common carrier. Registrant is duly tariffed with the
FCC as a switched bases interexchange carrier.
In 1995, the FCC discontinued regulating the rates and services of AT&T,
determining that AT&T is a non dominant carrier. This determination may
affect the Registrant because it competes with AT&T, utilizes AT&T lines
to transmit some of its long distance traffic and leases local access
transmission facilities from local telephone companies which are FCC
regulated. The FCC currently prohibits carriers such as AT&T from
refusing to permit resale of their services.
Services in New York City are regulated by the New York State Public
Service Commission, which requires the filing of a tariff, among other
requirements. TotalTel has received approval of its tariff and continues
to maintain its tariff in full force and effect. TotalTel Southeast,
Inc. is regulated by Georgia Public Service Commission which requires
the filing of a tariff. TotalTel Southeast, Inc. has received approval
of its tariff and continues to maintain its tariff in full force and
effect.
Since Fiscal 1996, the Registrant is registered in 49 states, in respect
to service within those states, and is thus subject to the regulatory
requirements of the various Public Service Commissions or similar
agencies of these states.
Beginning in April, 1988, TotalTel provided its domestic customers
international phone service to numerous foreign countries. International
services are regulated by the FCC which requires a license and the
filing of a tariff. Total-Tel's license has been granted and its tariff
has been approved.
Compliance with Environmental Provisions
Registrant believes that it complies in all material respects with
current pertinent Federal, state, and local provisions relating to the
protection of the environment and does not believe that continued
compliance should require any material capital expenditures.
Personnel
Registrant and its subsidiaries currently employ 183 full-time and 23
part-time employees in its long distance telecommunication service, of
whom 45 are engaged in sales activities, 7 in customer support, 19 in
customer service, 28 in technical and field services, 16 in data
processing, and 91 in general and administrative activities. The
Registrant considers its relations with its employees to be excellent.
Foreign Operations and Export Sales
While the Registrant currently has no significant foreign operations or
export sales, it is conducting a feasability study of the European
telecommunications market to determine the viability of entering this
market. The requirements, including costs and personell needs have not
yet been determined. Depending on the capital requirements, the
Registrant may need additional capital funds, the source and cost of
which are not currently known.
ITEM 2. PROPERTIES
On November 15, l993 and December 28, l993 Total-Tel USA, Inc., a
subsidiary of the Registrant, entered into leases to rent an aggregate
of approximately 3,500 square feet of space at 744 Broad Street, Newark,
New Jersey for its upgraded switching equipment. The leases run from
January 1, l994 through December 31, 1998 at an annual rental of $51,480
and also require the tenant to pay a proportionate share of any
increases in the "Consumer Price Index", U. S. City Average, over the
base year.
On December 1, l993, Total-Tel USA, Inc. a subsidiary of the Registrant,
entered into a five year lease to rent approximately 20,000 square feet
of space from a partnership in which two of the partners are directors
and major shareholders of the Company. The lease provides for annual
rentals of $58,560 for the first three years and $63,885 for years four
and five. This space is used for warehousing and office space for the
technical support employees. The lease requires the payment of any
increase in operating expenses and real estate taxes over the base year.
On February 22, l994, Total-Tel USA Inc., a subsidiary of the
Registrant, entered into a lease, subsequently modified on April 15,
l994, for approximately 17,700 square feet of space at 150 Clove Road,
Little Falls, New Jersey to be used as its sales, executive and
administrative offices. The lease provided for a rent holiday until
July, 1995 after which the annual rental would be approximately
$360,000. The lease is for five years and ten months and has been
amended by a second lease modification agreement dated February 9, l995
whereby the Registrant leased approximately 6,700 additional square feet
of space at the same location at an additional annual rental of $121,707
for the first four years and $138,154 for the next year and two months.
The modified agreement also extended the term of the existing lease for
an additional two years to August 14, 2002 at a then annual rental of
$563,063. The lease requires the payment of the tenant's proportionate
share of operating expenses and real estate tax increases over the base
year.
On November 1, l996, the Company entered into a lease for approximately
8,300 square feet of space at 40 Rector Street, New York City, New York
to be used for a second switching facility. The term of the lease is for
fifteen years and ten months from the date of commencement which is
estimated to be February 1, l998. Rental payments are $133,184 per annum
for the first five years after commencement, $166,480 per annum for the
next five years and $183,128 per annum for five years and ten months.
The lease requires the payment of the tenant's proportional share of
operating expenses and real estate tax increase over the base year.
On November 8, l996, a subsidiary of the Company entered into a lease
for approximately 2,300 square feet of office space in New York City,
New York at an annual rental of approximately $75,900. The lease
commenced February 1, l997 and is for sixty three months. The lease
requires the payment of the tenant's proportionate share of operating
expenses and real estate tax increases over the base year.
On January 30, l997, the Company entered into a third modification of
its lease for approximately 16,640 square feet of additional office
space at its existing facility at 150 Clove Road, Little Falls, New
Jersey. The commencement date of the modification is expected to be July
1, l997. The annual rental on the additional space will be $357,760 per
annum from July 1, l997 through February 14, l998, $366,800 per annum
from February 15, l998 through August 14, 2000 and $382,720 per annum
from August 15, 2000 through August 14, 2002. In addition, the Company
is liable for its proportionate share of increases in real estate taxes
and operating expenses over the base year.
All leases contain options to renew for various periods at rentals to be
determined by the then prevailing fair market rental rates for similar
real estate in the area.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Registrant brought suit in Civil Court of the City of New York,
County of New York against a customer, Community Network Services, Inc.
d/b/a Telecommunity, for the recovery of an account receivable of
$37,917 plus interest, attorneys fees and damages. Defendant has
asserted a counter claim against the Registrant in the Supreme Court of
the State of New York, County of New York alleging breach of contract
and seeks compensatory and punitive damages of $1,300,000. The
Registrant believes the counter suit is without merit and is vigorously
defending this action.
The Registrant is a defendant in an action filed in State Court in New
Jersey by a former employee which, among other claims, alleged breach of
contract and seeks compensatory and punitive damages of $1,900,000. The
Registrant believes that the suit is without merit and intends to
vigorously defend this action.
In another action, previously reported, Telecommunications Specialists,
Inc., a former customer of the Registrant, brought suit in the United
States District Court for the District of Minnesota alleging breach of
contract which sought compensatory and punitive damages. The suit was
settled without material liability to the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) Registrant's Common Stock is traded in the over-the-counter market
on the NASDAQ National Market System. The following table sets forth,
for the quarterly fiscal periods indicated, the high and low closing
sales prices for Registrant's Common Stock in such market, as reported
by the National Association of Securities Dealers, Inc. Closing sale
prices prior to July 1, l996 have been adjusted to reflect the stock
split, discussed in (d) below.
FISCAL 1997 HIGH LOW
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February 1 thru April 30 12 1/4 8 3/4
May 1 thru July 31 18 1/8 9 1/4
August 1 thru October 31 25 7/8 16 1/2
November 1 thru January 31,1997 23 15 1/4
FISCAL 1996
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February 1 thru April 30 9 3/8 7 5/8
May 1 thru July 31 10 8 1/2
August 1 thru October 31 11 1/2 8 1/4
November 1 thru January 31, l996 12 1/4 8 1/2
(b) As of May 6, l997, the approximate number of recordholders of
Registrant's Common Stock was 349, as reported by Registrant's transfer
agent.
(c) Registrant has not paid or declared any cash dividends during the
past two fiscal years and does not anticipate paying any in the
foreseeable future.
(d) On July 1, l996 the Registrant distributed 1,873,420 shares of
Common Stock in connection with a 2 for 1 stock split of all outstanding
shares as of June 15, 1996.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share amounts)
Year ended January 31, .
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RESULTS OF OPERATIONS: 1997 1996 1995 1994 1993 .
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Net sales $89,326 $49,873 $29,817 $18,999 $11,736
Earnings from
continuing operations $ 2,588 $ 1,555 $ 1,100 $ 1,052 9
Net earnings $ 2,588 $ 1,555 $ 1,100 $ 1,156 $ 9
Earnings Per Common and Common Equivalent Shares (b):
Primary:
Continuing Operations
Before Cumulative Effect
Of Accounting Change $ 0.75 $ 0.47 $ 0.34 $ 0.34 $ 0.01
Accounting Change $ -- $ -- $ -- $ 0.03 $ --
Net earnings per share $ 0.75 $ 0.47 $ 0.34 $ 0.37 $ 0.01
Fully Diluted:
Continuing Operations
Before Cumulative Effect
Of Accounting Change $ 0.75 $ 0.47 $ 0.34 $ 0.32 $ 0.01
Accounting Change $ -- $ -- $ -- $ 0.03 $ --
Net earnings per share $ 0.75 $ 0.47 $ 0.34 $ 0.35 $ 0.01
Average common shares
outstanding (a) (b)
Primary 3,430 3,284 3,258 3,158 2,998
Fully Diluted 3,430 3,284 3,258 3,268 2,998
Cash dividends per
common share NONE NONE NONE NONE NONE
Additions to property
& equipment $ 6,397 $ 3,028 $ 2,268 $ 1,375 $ 721
Depreciation and
amortization $ 1,382 $ 1,026 $ 663 $ 492 $ 458
FINANCIAL POSITION:
Working Capital $ 5,486 $ 4,799 $ 5,031 $ 4,683 $ 4,717
Property and equipment - net $11,066 $ 6,011 $ 3,924 $ 2,236 $ 1,272
Total assets $30,494 $20,520 $15,110 $11,071 $ 9,044
Long-term debt $ 2,940 $ -- $ -- $ -- $ --
Shareholders' Equity $13,387 $10,700 $ 9,093 $ 7,917 $ 6,860
Common shares
outstanding (a) (b) 2,945 2,927 2,900 2,876 2,876
(a) All per share amounts have been restated to reflect the 2 for 1
stock split distributed July 1, l996.
ITEM 7. ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Fiscal 1997 as Compared to Fiscal 1996
The following discussion of the results of operations relates to the
continuing operations of the Registrant.
Net sales for Fiscal 1997 increased approximately $39,453,000 as
compared to Fiscal 1996. The increase in telephone sales volume of
approximately 79.1% was primarily due to intensive sales and marketing
by the Registrant, both internally, through expanded agency sales
partially offset by lower prices and the substantial increase in sales
to other carriers on a wholesale basis.
For Fiscal 1997, the Registrant billed approximately 616,990,000 minutes
of calls as compared to approximately 365,878,000 minutes of calls for
the prior fiscal year, an increase of approximately 251,112,000 minutes
or 68.6%.
Cost of sales for Fiscal 1997 increased approximately $31,975,000 or
91.7% as compared to the prior fiscal year. This increase was
unfavorable in relation to the 79.1% increase in sales volume for the
period and is attributable to the lower gross profit in wholesale sales
to other carriers and competitive pricing pressures in the industry.
Line costs for Fiscal 1997 were $63,835,000, an increase of $31,393,000
or 96.8% over the prior year. The other components are switch and field
technician salaries, utilities, rent and depreciation which totaled
$2,994,000 for Fiscal 1997, an increase of $580,000 or 24.1%. The
increase in cost of sales was attributable primarily to the
substantially increased sales of the Company. Gross profit decreased in
Fiscal 1997 to 25.2% from 30.1% in Fiscal 1996. The decrease in gross
profit was due to carrier sales having a substantial lower gross margin.
Selling, general and administrative expenses increased approximately
$5,651,000 or 44.5% for Fiscal 1997 as compared to the prior fiscal
year. The increase was primarily due to increased salaries of $2,113,000
or 47.3%, increased commissions of $1,228,000 or 36.8%, increased
provision for bad debts of $130,000 or 15.9% and an increase in legal
and professional of $445,000 or 38.7%. The continued substantial
increase in commission is attributable to the aggressive pursuit of new
business in a highly competitive market. The substantial increase in
legal and professional is attributable to the defense of a lawsuits as
disclosed in the Registrant's Financial Statements, which was settled
during the year.
Interest income for Fiscal 1997 decreased approximately $25,000 as
compared to Fiscal 1996 primarily due to a reductions in the funds
available for investment.
Fiscal 1996 as Compared to Fiscal 1995
The following discussion of the results of operations relates to the
continuing operations of the Registrant, which is comprised of the long
distance telephone service business.
Net sales for Fiscal 1996 increased approximately $20,056,000 as
compared to Fiscal 1995. The increase in telephone sales volume of
approximately 67.3% was primarily due to intensive sales and marketing
by the Registrant.
For Fiscal 1996, the Registrant billed approximately 365,878,000 minutes
of calls as compared to approximately 204,631,000 minutes of calls in
the prior fiscal year, resulting in an increase of approximately
161,247,000 minutes or 78.8% as compared to the prior fiscal year. This
increase was unfavorable in relation to the 67.3% increase in sales
volume for the period and was indicative of the lower cost per minute
billed due to substantial competitive pressure.
The major component of cost of sales is leased facilities or line costs
which is the purchased transmission capacity over which the Registrant
routes its long distance traffic. Line costs for Fiscal 1996 were
$32,442,000 an increase of $13,335,000 or 69.9% which was slightly
unfavorable as compared to the increase in sales of approximately 67.3%.
The other components are switch and technician salaries, utilities, rent
and depreciation which totaled $2,413,000 for Fiscal year 1996 an
increase of $666,000 or 38.1%. The increase in cost of sales was
attributable to the increased sales of the Registrant.
Selling, general and administrative expenses increased approximately
$5,299,000 or 71.5% for fiscal year 1996 as compared to the prior fiscal
year. The increase was primarily due to increased salaries expense of
$1,774,000 or 58.4%, increased commissions of $1,432,000 or 75.1% and
increased provision for bad debts of $428,000 or 109.2%. The substantial
increase in commissions and provision for bad debts is a reflection of
the aggressive pursuit of new business in a highly competitive market.
The increase in interest income for the Fiscal 1996 was primarily due to
increased interest rates.
Liquidity and Capital Resources
At January 31, l997, the Registrant had working capital of $5,486,000 as
compared to $4,799,000 at January 31, l996, an increase of $687,000. The
ratio of current assets to current liabilities at January 31, 1997 was
1.4:1 and at January 31, 1996 was 1.5:1. This increase in working
capital at January 31, l997 was attributable primarily to an increase in
accounts receivable of $5,192,000 (net of doubtful accounts), an
increase in the current portiion of notes receivable of $137,000, an
increase in prepaid and other current assets of $190,000, partially
offset by a decrease in cash and cash equivalents of $588,000, an
increase in accounts payable of $3,618,000 and an increase in other
current and accrued liabilities and salaries and wages payable of
$619,000.
The decrease in the current ratio from 1.5:1 to 1.4:1 is primarily due
to the purchase of property and equipment during Fiscal Year 1997 in the
amount of $6,397,000. The Registrant continues to maintain a strong
liquid position with cash and cash equivalents and investments available
for sale of $3,600,000 representing 27.6% of current liabilities. The
Registrant believes that its current cash position, projected operating
revenue and bank line availability should be sufficient to meet its
foreseeable operating needs and planned capital expenditures.
The cash flow statement of the Registrant for Fiscal 1997 indicated a
decrease in cash of $588,000. Net earnings of $2,588,000 and non cash
adjustments of $2,730,000 reduced by net changes in assets and
liabilities of $2,298,000 provided cash from operations of $3,020,000.
Cash used in investing activities totaled $6,615,000. The major
components were purchases of property and equipment of $6,397,000 and
additions to line installation cost of $127,000, net maturities of
available for sale securities of $973,000, and issuance of notes to
employees net of repayment of $133,000. Cash provided by financing
activities totaled $3,006,000 and was the result of bank borrowings and
the exercise of stock options.
Capital Expenditures
Capital expenditures during Fiscal 1997 totaled approximately $6,397,000
and were financed from funds provided from Registrant's working capital,
cash derived from operations, and bank borrowings. The capital
expenditures were used to purchase the following equipment and leasehold
improvements:
$1,389,000 - to upgrade and provide further enhancement of the
signaling and switching system, to enhance the
interconnection to the Bell Companies and other long
distance carriers and to increase switching capacity to
allow for future growth.
$ 755,000 - primarily data processing equipment and data processing
software to be used in the headquarters' local area
network and enhancement of the Registrant's billing and
information systems.
$ 245,000 - furniture and fixtures for the general offices located in
Little Falls, New Jersey, the switch facility in Newark,
New Jersey, and the new switch facility in New York City.
$ 291,000 - for leasehold improvements primarily for the switch in
New York City.
$3,585,000 - to construct a new switch in New York City.
$ 24,000 - trucks for service.
$ 108,000 - equipment for leasing.
Capital expenditures for Fiscal 1998 are estimated at approximately
$5,000,000 and are expected to be used for the following:
To provide a network operations center at Little Falls, New Jersey; for
office improvements, furniture and equipment in connection with the
expansion of the main office and sales office operation; for new data
processing equipment to complement and expand the present system of the
Registrant; improvement to the new facility located in New York City;
continued development of the local area network for the sales and
administrative offices in Little Falls, New Jersey.
The Registrant anticipates that capital expenditures for Fiscal 1998
will be funded from operations and current working capital and,
additional long term borrowings.
As of January 31, l997, the Registrant had a bank line of credit of
$10,000,000. During Fiscal 1997 Registrant had bank borrowings of
$2,940,000. For further detail see Note M to the Consolidated Financial
Statements.
Inflation
Since inflation has slowed in recent years, the Registrant does not
believe that its business has been materially affected by the relatively
modest rate of price increases in the economy. The Registrant continues
to seek improvements in operations and efficiency through capital
expenditures. Expenditures to improve the signaling system, information
systems and the local area network is expected to result in operating
costs savings which could partially offset any cost increases which may
occur in the future.
Environmental Matters
The Registrant is not a party to any legal proceedings or the subject of
any claim regarding environmental matters generally incidental to its
business. In the opinion of Management, compliance with the present
environmental protection laws should not have a material adverse effect
on the financial condition of the Registrant.
Accounting for the Impairment of Long - Lived Assets and For Long -
Lived Assets to Be Disposed of
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long - Lived Assets and For
Long - Lived Assets to Be Disposed of." Based on the provisions of the
statement, the Company determined that no provision for impairment of
the carrying cost of its machinery and equipment, or other long - lived
assets, was necessary.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which is
effective for financial statements ending after December 15, 1997. This
statement supersedes Accounting Principle Board Option No. 15 and
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures, and provides guidance on other computational changes. Had
the provisions of the statement been effective for the current year, the
following pro forma EPS amounts would have been disclosed.
Basic EPS: $ .88
Diluted EPS: $ .75
Accounting for Stock Based Compensation
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the stock option plans. Had compensation cost for the Company's two
stock option plans been determined based on the fair value at the grant
date for awards in the fiscal years ended January 31, l997 and 1996,
consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below
1997 1996
---- ----
Net earnings - as reported $ 2,588,138 $ 1,554,589
----------- -----------
Net earnings - pro forma $ 2,536,789 $ 1,481,221
----------- -----------
Earnings per share - as reported $ .75 $ .47
----------- -----------
Earnings per share - pro forma $ .74 $ .45
----------- -----------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are included under Item
14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Registrant are as follows:
Name Age Position
Kevin Alward 30 President, Chief Operating
Officer and Director
Solomon Feldman 76 Director
Warren H. Feldman 41 Chairman, Chief Executive
Officer and Director
Leon Genet 65 Director
Thomas P. Gunning 59 Vice President, Treasurer
and Secretary
Jay J. Miller 64 Director
The Registrant's directors all serve for one year terms or until their
successors are elected and qualify. Officers serve at the pleasure of
the Board of Directors.
Kevin A. Alward, President and Chief Operating Officer of the
Registrant, joined Registrant in October, 1988, as a sales account
executive. Mr. Alward became Manager of Sales in November, l990 and Vice
President of Marketing in 1991. In February, 1992, Mr. Alward was
promoted to Senior Vice President and assumed the additional
responsibilities of Chief Operating Officer in April, l993. In 1994, Mr.
Alward was promoted to President of TotalTel, Inc., the principal
operating subsidiary of the Registrant. In October 1996, Mr. Alward was
elected a Director, President and Chief Operating Officer of the
Registrant.
Mr. Solomon Feldman has served as a Director of the Registrant
continuously since its inception in 1959, and as Treasurer from
inception to May 2, 1997. Mr. Feldman is currently a private investor
and devotes approximately 25% of his time to the business of the
Company.
Warren H. Feldman, Esq. was elected President and Chief Executive
Officer of the Registrant in September, 1992 and was elected Chairman of
the Board in September, 1994. Prior to such time, he served as Vice
President - Regulatory Affairs of the Registrant since January, 1986,
and had been the General Manager of Total-Tel USA Division and in-house
General Counsel of Registrant since 1984. He was elected a Director on
April 1, l987 and President of Total-Tel USA Division on October 27,
l988. Warren H. Feldman is the son of Solomon Feldman.
Leon Genet is a partner in Genet Realty, a commercial and industrial
real estate brokerage firm. Following graduation from Syracuse
University, he was an officer in the United States Air Force. Mr. Genet
continues his significant involvement with Syracuse University as a
benefactor and as a charter member of the Board of the College for Human
Development, home of the highly popular Genet lecture series, which
brings CEO's of leading worldwide corporations to the Syracuse campus.
He serves as a member of the National Commerce and Industry Board for
the State of Israel Bonds Organization and is a shareholder, director
and officer of LPJ Communications, Inc. which has earned commissions
from TotalTel USA Communications, Inc. on the same basis as other
independent representatives.
Thomas P. Gunning was appointed Chief Financial Officer in September,
1994 and Secretary of the Registrant in January, 1995. He has served as
Controller of the Registrant since September 1992. He is a Certified
Public Accountant licensed by the States of New York and New Jersey.
From 1989 until joining the Registrant, Mr. Gunning was the Senior Audit
Manager at Rosenberg Selsman & Company a certified public accounting
firm. From 1976 to 1989, he was Chief Financial Officer of Flyfaire,
Incorporated a travel wholesale operator. Prior to such time, Mr.
Gunning held various positions in both public and private accounting.
Jay J. Miller, Esq. has been a practicing attorney for more than thirty
years in the State of New York. Mr. Miller is a Director of Vestro
Natural Foods, Inc., a specialty food firm, and Edison Control
Corporation, a manufacturer of pipe, fittings and accessories for
concrete pumping equipment. He is also Chairman of the Board of AmTrust,
a New Zealand real estate company.
OTHER SIGNIFICANT EMPLOYEES
Ben Goldberg joined TotalTel, Inc., the major operating subsidiary of
the Registrant, in February, 1983 as an account executive. In January
1992 Mr. Goldberg was promoted to Vice President of Sales. In June of
1994 Mr. Goldberg was promoted to Senior Vice President.
David Hess joined TotalTel Carrier Services, Inc., an operating
subsidiary of the Registrant, in May 1995 as Vice President. Mr. Hess
was appointed Senior Vice President of TotelTel Carrier Services, Inc.
in October 1996. Prior to joining the Registrant Mr. Hess served as
Director of Eastern Regional Carrier Sales for West Coast
Telecommunication, Inc. from 1993 to 1995. From 1991 to 1993 Mr. Hess
was National Account Manager for Sprint Carrier Services. From 1989 to
1993 Mr. Hess was Strategic Account Manager for United Telephone
Systems. From 1986 to 1989 Mr. Hess was employed by M C I in various
sales management positions.
Jeff Slater joined TotalTel, Inc., as Senior Vice President in September
1996. From 1991 to 1996 Mr. Slater was founder and President of JTEK
Systems, Ltd., a firm which provided consulting services to various
telecommunications companies including the Registrant. In 1990 Mr.
Slater served as Corporate Director of Products Development for LCI
Communications, Inc. From 1987 to 1990 Mr. Slater served as Executive
Vice President of Operations of Charter Network Company which was
acquired by LCI Communications, Inc. in 1990. Prior to such time Mr.
Slater held various executive positions with Companies in the
telecommunications industry.
ITEM 11. EXECUTIVE COMPENSATION
a) The following table sets forth the compensation which the Registrant
paid during the fiscal years ended January 31, l997, 1996, 1995 to the
Chief Executive, each Executive Officer of the Registrant whose
aggregate remuneration exceeded $100,000.
Summary Compensation Table
----------------------------
Name and Fiscal Year Annual Compensation Other Compensation
Principal Ended Annual Awards All Other
Position January 31 Salary ($) Bonus(s) Compensation($) Options (#) Compensations(s)
- -------- ----------- --------- -------- ---------------- -------------- -----------------
Warren H. 1997 $315,000 (1) $295,000 $7,025 (4)
Feldman 1996 $195,000 (1) $274,241 $4,667 (5)
Chairman and 1995 $195,103 (1) $ 74,153 15,000 (3) $4,583 (6)
Chief Executive
Officer
Kevin Alward 1997 $315,000 (2) $280,000 $9,769 (9)
President and 1996 $195,000 $274,241 $6,010 (10)
Chief Operating 1995 $195,000 $ 63,700 31,500 (7)(8) $5,256 (11)
Officer
Thomas P. 1997 $ 95,231 $ 6,000 $6,560 (12)
Gunning
Vice President,
Treasurer and
Secretary
(1) Does not include an annual Director's fee of $15,000.
(2) Does not include director's fees of $2,500.
(3) Represents incentive options to purchase 30,000 shares of Common
Stock exercisable at a price of $9.625 per share (110% of the market
price at the date of issue), adjusted for the 2 for 1 stock split issued
July 1, l996. These options vest over a period of forty-eight (48)
months, with 25% of each option exercisable at the 12th, 24th, 36th, and
48th month of its term, subject to earlier vesting in certain
circumstances as provided in the option agreement.
(4) The amounts shown represent the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $4,668 and
$2,357 for the use of a company vehicle for non business purposes.
(5) The amount shown represents the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $2,310 and
$2,357 for the use of a company vehicle for non business purposes.
(6) The amounts shown represents the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $2,226 and
$2,357 for the use of a company vehicle for non business purposes.
(7) Represents incentive options to purchase 33,000 shares of Common
Stock exercisable at a price of $7.28 per share, adjusted for the 10%
stock dividend issued in July 1994 and the 2 for 1 stock split issued at
July 1, l996. These options vest over a period of thirty-six (36) months
with 25% of each option exercisable at the 8th, 12th, 24th, and 36th
month of its term, subject to earlier vesting in certain circumstances
as provided in the option agreement.
(8) Represents incentive options to purchase 30,000 shares of Common
Stock exercisable at a price of $8.75 per share, adjusted for the 2 to 1
stock split issued July 1, l996. These options vest over a period of
forty-eight (48) months with 25% of each option exercisable at the 12th,
24th, 36th, and 48th month of its term, subject to earlier vesting in
certain circumstances as provided in the option agreement.
(9) The amounts shown represent the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $5,620 and
$3,071 for the use of a company vehicle for non business purposes and
$1,078 term life insurance premiums.
(10) The amounts shown represent the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $2,310 and
$2,643 for the use of a company vehicle for non business purposes and
$1,057 term life insurance premiums.
(11) The amount shown represents the Registrant's contribution under its
401 (K) Deferred Compensation and Retirement Savings Plan of $1,556 and
$2,643 for the use of a company vehicle for non business purposes and
$1,057 term life insurance premiums.
(12) The amounts shown represent the Registrant's contribution under its
401-K Deferred compensation and Retirement Savings Plan of $3,110 and
$1,179 for the use of a company vehicle for non business purposes and
$2,271 term life insurance premiums.
(b) Compensation Pursuant to Plans
1987 Stock Option Plan
In October, 1987, the Registrant adopted its 1987 Stock Option Plan and
in October, l996, adopted its 1996 Stock Option Plan (the "Plans"). The
Plans provide that certain options granted thereunder are intended to
qualify as "incentive stock options" within the meaning of Section 422A
of the United States Internal Revenue Code of 1954, as amended (the "
Code " ), while non-qualified options may also be granted under the
Plans. Incentive stock options may be granted only to employees of the
Registrant, while non-qualified options may be granted to non-executive
directors, consultants and others as well as to employees.
The Plans are administered by a Committee of the Registrant's Board of
Directors. The Registrant has reserved 664,500 shares of Common Stock
under the 1987 Plan and 300,000 shares of Common Stock under the 1996
Plan for issuance to employees, officers, directors and consultants of
the Company. The shares for options granted prior to July 15, l994 have
been adjusted for the 10% stock dividend. The shares for options granted
prior to July 1, l996 have been adjusted to reflect the 2 for 1 stock
split.
No option may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an
optionee, an option may be exercised only by him. In the event of
termination of employment other than by death or disability, the
optionee will have one month (subject to extension not to exceed an
additional two months) after such termination during which he may
exercise his option. Upon termination of employment of an optionee by
reason of death or permanent total disability, his option remains
exercisable for one year thereafter to the extent it was exercisable on
the date of such termination. No similar limitation applies to non-
qualified options.
Options under the Plans must be granted within ten years from the
effective date of the Plans. Incentive stock options granted under the
Plans cannot be exercised later than ten years from the date of grant.
Options granted under the Plans will permit payment of the exercise
price in cash or by delivery to the Registrant of shares of Common Stock
already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of
such methods of payment. Therefore, an optionee may be able to tender
shares of Common Stock to purchase additional shares of Common Stock and
may theoretically exercise all of his stock options with no additional
investment other than his original shares.
Any options that expire unexercised or that terminate upon an employee's
ceasing to be employed by the Registrant become available once again for
issuance under the Plans.
OPTIONS GRANTS IN LAST FISCAL YEAR
NONE
(c) Other Compensation
None.
(d) Compensation of Directors
Each director of the Registrant receives $15,000 per year for services
in such capacity.
(e) Termination of Employment and Change of Control Arrangements
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are know
by Registrant to own beneficially more than 5% of any class of the
Registrant's voting shares on May 7, 1997.
Name and Amount and
Title Address of Nature of Percentage
of Beneficial Beneficial of
Class Owner . Ownership (1) Class .
Common Warren H. Feldman 577,262 (2) 16.9%
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
Common Heartland Advisors, Inc. 578,700 16.9%
Stock $.05 790 North Milwaukee St. shares
par value Milwaukee, WI 53202
Common Solomon Feldman 476,190 13.9%
Stock $.05 1890 South Ocean Drive shares
par value Hallandale, FL 33009
Common Kevin Alward 281,950 (3) 8.2%
Stock $.05 182 Powell Road shares
par value Allendale, NJ 07401
Common Michael A. Karp 219,340 6.4%
Stock $.05 3416 Sansom Street shares
par value Philadelphia, PA 19104
(1) All shares are beneficially owned and sole investment and voting
power is held by the persons named to the best of the Registrant's
knowledge.
(2) Includes options to purchase 129,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(3) Includes options to purchase 181,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(b) Security Ownership of Management
The following table sets forth as of May 6, 1997 information concerning
the beneficial ownership of each class of equity securities by each
director of the Registrant and all directors and officers of the
Registrant as a group:
Name and Amount and
Title Address of Nature of Percentage
of Beneficial Beneficial of
Class Owner . Ownership (1) Class .
Common Kevin Alward 281,950 (3) 8.2%
Stock $.05 182 Powell Road
value Allendale, NJ 07401
Common Solomon Feldman 476,190 13.8%
Stock $.05 1890 South Ocean Drive shares
par value Hallandale, FL 33009
Common Warren H. Feldman 577,262 (2) 16.8%
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
Common Leon Genet 49,310 1.4%
Stock $.05 30 Farmstead Road
par value Short Hills, NJ 07078
Common Jay J. Miller --- ---
Stock $.05 430 E 57th St.,Suite 5D
value New York, NY 10022
Common All directors 1,407,212 (2)(3) 40.9%
Stock $.05 and officers as a shares
par value group (6 in number)
(1) All shares are beneficially owned and sole investment and voting
power is held by the persons named.
(2) Includes options to purchase 129,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(3) Includes options to purchase 181,000 shares of the Registrant's
Common Stock which are currently excercisable or within 60 days hereof.
c) Changes in Control
The Registrant knows of no contractual arrangement which may, at a
subsequent date, result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, l993, the Company leased warehouse space in Belleville,
New Jersey from a partnership in which two directors and major
shareholders are partners and a former director and a major shareholder
is also a partner. During the fiscal year ended January 31, l997, the
Company paid rent of $59,760 to the partnership. The annual rent for
this premise is $58,560 for the first three years and $63,885 for years
four and five. Registrant believes such premises are leased on terms not
less favorable to Registrant than in an arm's length transaction.
As explained more fully in Note K to the Financial Statements the
Registrant has from time to time made loans to an executive employee and
shareholder of the Registrant.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
TOTAL-TEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULE
YEARS ENDED JANUARY 31, 1997, 1996, AND 1995
INDEX
(a) (1) FINANCIAL STATEMENTS: The following consolidated financial
statements of Total-Tel USA Communications, Inc. and subsidiaries are
included at the end of this Report:
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Independent auditors' report F-1
Consolidated balance sheets - January 31, l997
and 1996 F-2
Consolidated statements of earnings - years
ended January 31, 1997, 1996 and 1995 F-3
Consolidated statements of shareholder's equity -
years ended January 31, 1997, 1996, 1995 F-4
Consolidated statements of cash flow - years
ended January 31, l997, 1996, 1995 F-5
Notes to consolidated financial statements F-7
(a) (2) SUPPLEMENTARY DATA FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K:
Schedule - years ended January 31, l997, l996
and 1995.
II Valuation and Qualifying Accounts (Consolidated) F-16
***************
Schedules other than those listed above are omitted because they are not
required, not applicable or the information has been otherwise supplied.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on
the 7th day of May, 1997.
TOTAL-TEL USA COMMUNICATIONS, INC.
(Registrant)
By: /S/ WARREN H. FELDMAN
Warren H. Feldman
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ KEVIN ALWARD President, Chief Operating May 7, l997
Kevin Alward Officer and Director
/S/ SOLOMON FELDMAN Director May 7, l997
Solomon Feldman
/S/ WARREN H. FELDMAN Chairman of the Board, May 7, l997
Warren H. Feldman Chief Executive Officer
and Director
/S/ LEON GENET Director May 7, l997
Leon Genet
/S/ THOMAS P. GUNNING Vice President, Treasurer, May 7, l997
Thomas P. Gunning Secretary and Principal
Accounting Officer
/S/ JAY J. MILLER Director May 7, l997
Jay J. Miller
Exhibit No. Description of Document
(3)(a) Certificate of Incorporation, as amended. Incorporated by
reference to Exhibits 2-A, 2-B, 2-C and 2-D to Registration
Statement No. 2-15546 and Registrant's proxy statement
relating to its 1987 Annual Stockholder's Meeting.
(3)(b) By-Laws of Registrant. Incorporated by reference to Exhibit
A to Registrant's Annual Report on Form 10-K for the year
ended January 31, 1972.
(3)(c) Amended Certificate of Incorporation to change the name of
the Corporation from Faradyne Electronics Corp. to Total-Tel
USA Communications, Inc., dated November 4, l991.
Incorporated by reference to Exhibit 3 (c) to Registrant's
Annual Report on Form 10-K for the year ended January 31,
l992.
(10)(a) Lease of premises at 140 Little Street, Belleville, New
Jersey, between Mansol Realty Company and Mansol Ceramics
Company, dated March 30, 1960. Incorporated by reference to
Exhibit 13 (e) to Registration Statement No. 2-17546.
(10)(a) (1) Assignment of lease from Mansol Realty Company to Mansol
Realty Associates. Incorporated by reference to Exhibit 10
(a) (1) to Registrant's Annual Report on Form 10-K for the
year ended January 31, l982.
(10)(b) Extension Agreement re: Lease of premises at 140 Little
Street dated October 31, l974. Incorporated by reference to
Exhibit 10 (b) to Registrant's Annual Report on Form 10-K
for the year ended January 31, l981.
(10)(c) Lease of premises at 471 Cortland Street, Belleville, New
Jersey, between Birnfield Associates and Mansol Ceramics
Company, dated October 31, 1974. Incorporated by reference
to Exhibit 10 (c) to Registrant's Annual Report on Form 10-K
for the year ended January 31, 1981.
(10)(d) Lease Modification Agreement re: Lease of premises at 471
Cortland Street dated July 24, 1980. Incorporated by
reference to Exhibit 10 (d) to Registrant's Annual Report on
Form 10-K for the year ended January 31, 1981.
(10)(e) (i) Term Loan Agreement and Term Note both dated April 22, l983
between Mansol Ceramics Company and United Jersey Bank in
the principal amount of $1,192,320. Incorporated by
reference to Exhibit 10 (e) to Registrants Annual Report on
Form 10-K for the year ended January 31, l983.
(10)(e)(ii) Installment Note and Equipment Loan and Security Agreement
of Mansol Ceramics Company and Guaranty of Registrant, dated
August 1, l988, in connection with extension of the maturity
date of the loan referenced to in Exhibit 10 (e) (i).
(10)(f) Lease of premises at 17-25 Academy Street, Newark, New
Jersey between Mansol Ceramics Company and Rachlin & Co.,
dated April 29, l983. Incorporated by reference to Exhibit
10 (f) to Registrant's Annual Report on Form 10-K for the
year ended January 31, l984.
(10)(g) Lease Modification Agreement re: Lease of Premises at 471
Cortland Street dated July 24, l985. Incorporated by
reference to Exhibit 10 (g) to Registrant's Annual Report on
Form 10-K for the year ended January 31, l986.
(10)(h) Master Lease Agreement between Mansol Ceramics Company and
Fidelcor Services, Inc. dated December 30, l985.
Incorporated by reference to Exhibit 10 (h) to Registrant's
Annual Report on Form 10-K for the year ended January 31,
l986.
(10)(i) Deed, Mortgage and Mortgage Note between William and Fred
Schneper as Grantees and Borrowers and Mansol Ceramics
Company as Grantor and Lender, dated July 26, l985 re:
property located in Hanover Township, New Jersey.
Incorporated by reference 10 (i) to Registrant's Annual
Report on Form 10-K for the year ended January 31, l986.
(10)(j) Lease of premises at 140 Little Street, Belleville, New
Jersey, between Mansol Realty Association and Mansol
Ceramics Company, dated July 31, 1986. Incorporated by
reference to Exhibit 10 (j) to Registrant's Annual Report on
Form 10-K for the year ended January 31, l987.
(10)(k) 1987 Stock Option Plan. Incorporated by reference to
Registrant's proxy statement relating to its 1987 Annual
Stockholders' Meeting.
(10)(k)(1) Amendment to the 1987 Stock Option Plan. Incorporated by
reference to Registrant's Form S-8 dated November 13, l995.
(10)(l) Renewal of Lease and Extension to additional space at 17-25
Academy Street, Newark, New Jersey (a/k/a 1212 Raymond
Boulevard, Newark, New Jersey) between Mansol Ceramics
Company and Rachlin & Co. Incorporated by reference to
Exhibit 10 (l) to Registrant's Annual Report on Form 10-K
for the year ended January 31, l988. (See also Exhibit 10
(f)).
(10)(m) Agreement, dated June 13, 1989, between Mansol Ceramics
Company and Bar-lo Carbon Products, Inc. providing for the
sale of Ceramics' Carbon fixtures division. Incorporated by
reference to Exhibit 10 (m) to Registrant's Annual Report on
Form 10-k for the year ended January 31, 1990.
(10)(n) Modification of Note and Mortgage from William Schneper,
Fred Schneper and Leon Schneper (Mortgagor) to Mansol
Ceramics Company (Mortgagee) dated August 1, l990, extending
the term of the Note and Mortgage and modifying the interest
provision.
(10)(o) Asset Purchase Agreement between Registrant, Mansol Ceramics
Company and Mansol Industries Inc. dated May 22, l990,
including Subordinated Term Promissory Note and Security
Agreement, covering sale of assets and business of
Manufacturing Division of Mansol Ceramics Company.
Incorporated by reference to Exhibits 1, 2 and 3 to
Registrant's Current Report on Form 8-K dated May 22, l990.
(10)(p) Modification of Loan between Mansol Industries, Inc.
(borrower) and Mansol Ceramics Company (Lender) dated
January 31, 1992, allowing for the deferral of the principal
for twelve months through and including the period ending
June 22, l992 in consideration for personal guarantees from
Borrower. Incorporated by reference to Exhibit 10 (p) to
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1992.
(10)(q) Lease of premises at 470 Colfax Avenue, Clifton, New Jersey,
between Total-Tel USA Communications, Inc. and Broadway
Financial Investment Services, Inc. dated March 25, 1991.
Incorporated by reference to Exhibit 10 (q) to Registrant's
Annual Report on Form 10-K for the year ended January 31,
l992.
(10)(r) Lease of premises at 744 Broad Street, Newark, New Jersey
between Total-Tel USA Inc. and Investment Property Services,
Inc. dated November 15, 1993. Incorporated by reference to
Exhibit 10 (r) to the Registrant's Annual Report on Form 10-
K for the year ended January 31, 1994.
(10)(s) Lease of premises at 744 Broad Street, Newark, New Jersey
between Total-Tel USA, Inc. and Investment Property
Services, Inc. dated December 28, 1993. Incorporated by
reference to Exhibit 10 (s) to the Registrant's Annual
Report on Form 10-K for the year ended January 31, l994.
(10)(t) Lease of premises at 471 Cortland Street, Belleville, New
Jersey, between Total-Tel USA Inc. and Birnfield Associates
- Belleville dated December 1, l993. Incorporated by
reference to Exhibit 10 (t) to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 1994.
(10)(u) Lease of premises at 150 Clove Road, Little Falls, New
Jersey, between Total-Tel USA Inc. and the Prudential
Insurance Company of America dated February 22, l994.
Incorporated by reference to Exhibit 10 (u) to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, l994.
(10)(v) Lease modification to the lease of the premises at 150 Clove
Road, Little Falls, New Jersey between TotalTel, Inc. and
The Prudential Company of America dated May 18, l994.
Incorporated by reference to Exhibit 10 (v) to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, l995.
(10)(w) Second lease modification to the lease of the premises at
150 Clove Road, Little Falls, New Jersey between TotalTel,
Inc. and Theta Holding Company, L. P., successor to the
Prudential Insurance Company of America dated February 9,
l995. Incorporated by reference to Exhibit 10 (w) to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, l995.
(10)(x) Third lease modification to the lease of the premises at 150
Clove Road, Little Falls, New Jersey between TotalTel, Inc.
and Theta Holding Company, L. P., successor to the
Prudential Insurance Company of America dated January 31,
1997.
(10)(y) Equipment Facility and Revolving Credit Agreement dated
August 23, l996 between Total-Tel USA Communications, Inc.,
TotalTel, Inc., Total-Tel USA, Inc., and Total-Tel Carrier
Services, Inc. and the Summit Bank in the amount of
$10,000,000.
(10)(z) Lease of premises at 500 fifth Avenue, New York City, New
York between TotalTel, Inc. and 1472 Broadway, Inc. dated
November 8, 1996. Incorporated by reference to Form SE for
the year ended January 31, l997.
(10)(AA) Lease of premises at 40 Rector Street, New York City, New
York between Total-Tel USA Communications, Inc. and 40
Rector Street Company dated November 1, l996.
Incorporated by reference to Form SE for the year ended
January 31, l997.
(10)(AB) 1996 Stock Option Plan, Incorporated by reference to
Registrant's Proxy Statement relating to its 1996 Annual
Stockholder Meeting.
(21) Subsidiaries of Registrant. Incorporated by reference to
Exhibit 22 to Registrant's Annual Report on Form 10-K for
the year ended January 31, 1996.
(27) Financial Data Schedule.
THIRD MODIFICATION OF LEASE
THIS THIRD MODIFICATION OF LEASE, sometimes hereinafter "this Lease"
dated this --th day of January, 1997, by and between THETA HOLDING
COMPANY, L.P., having an office at 150 Clove Road, Little Falls, New
Jersey, (hereinafter referred to as "Landlord"); and TOTAL-TEL USA,
INC., a corporation of the State of New Jersey, having an office at 150
Clove Road, Little Falls, New Jersey (hereinafter referred to as
"Tenant").
WHEREAS, Landlord is the owner of a building commonly known as Overlook
at Great Notch (hereinafter referred to as the "Building"), located at
150 Clove Road, Little Falls, County of Passaic, State of New Jersey,
which land is also improved with landscaping, parking facilities and
other improvements, all of which, together with the Building and
underlying land, shall be known as and referred to collectively herein
as the "Project"; and
WHEREAS, Landlord has leased to Tenant 15,011 rentable square feet on
the Eighth Floor, by lease dated February 22, 1994, 2,673 rentable
square feet on the Eighth Floor by Spreader and Modification of Lease
dated May 18, 1994 and 6,658 rentable square feet on the Eighth Floor by
Second Modification of Lease dated February 9, 1995 (together referred
to as the "Original Premises"), and which aforementioned Lease and
modifications are hereinafter collectively referred to as "the Lease",
and
WHEREAS, Landlord and Tenant wish to spread said lease over an
additional 16,640 rentable square footage on the Second Floor of the
Building, making a total of 40,982 rentable square feet on both the
Second and Eighth Floors, and to modify certain other provisions of the
Lease in connection with the taking of said additional 16,640 rentable
square feet.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the
receipt of which is hereby acknowledged, Landlord and Tenant hereby
agree to amend and modify said Lease as follows:
1.(A) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord approximately 16,640 rentable square feet on the Second Floor,
hereinafter referred to as "Additional Space", as shown on Exhibit "A",
making a total of approximately 40,982 rentable square feet,
constituting a portion of the Second Floor and the entire Eighth Floor
and hereinafter in total sometimes referred to as the "Enlarged
Premises".
(B) As referenced in the Second Modification of Lease, in order to
properly reflect the loss factor of the Building, from and after August
15, 2000, the Premises shall be increased by the addition thereto of 139
square feet of space, it being understood that no actual physical area
shall be added to the Premises. From and after said date, the Enlarged
Premises for all purposes of this Lease shall be calculated as 41,121
rentable square feet.
2.(A) The commencement date for the Additional Space shall be the date
of substantial completion of Landlord's Work to be completed by Landlord
for the Additional Space, which is estimated to be June 1, 1997,
hereinafter referred to as the "Additional Space Date". However, the
Additional Space Date shall not be postponed beyond July 1, 1997,
regardless of whether the Additional Space is ready for Tenant's
occupancy, if (i) the delay in the availability of the Additional Space
for possession shall be due to special work, changes, alterations or
additions required or made by the Tenant, (ii) the delay was caused in
whole or in part by the delay of the Tenant in submitting any plans
and/or specifications, supplying information, approving plans,
specifications or estimates, or giving authorizations; or (iii) the
delay was otherwise caused wholly or substantially by delay and/or
default on the part of the Tenant. If the Additional Space Date occurs
on any other day other than the first day of the calendar month, the
basic annual rental will be pro-rated on a daily basis (i.e., annual
rental [divided] 365 days). As of the Additional Space Date, the
Additional Space shall be deemed to be a part of the premises demised
under the Lease. The Additional Space shall expire co-terminously with
Tenant's Original Premises on August 14, 2002.
(B) The construction of the tenant improvements in the Additional Space
shall be completed by Landlord at Landlord's cost and expense in
conformance with specifications attached hereto as Exhibit B. Tenant
understands and agrees that any changes or deviations to the attached
plans and specifications requested by Tenant, shall be completed at
Tenant's sole cost and expense, which payments shall be made in full
prior to the Additional Space Date.
3.(A) Effective as of the Additional Space Date, Tenant shall pay, in
addition to the Basic Rent for the Original Premises, Basic Rent for
the Additional Space equal to $21.50 per rentable square foot through
February 14, 1998, $22.00 per rentable square foot from February 15,
1998 through August 14, 2000 and $23.00 per rentable square foot
from August 15, 2000 through August 14, 2002 as follows:
Date Monthly Rent Annual Rent Rent Per Sq.Ft.
==== ============ =========== ===============
through 2/14/98 $29,813.33 $357,760.00 $21.50
2/15/98 - 8/14/00 $30,506.67 $366,080.00 $22.00
8/15/00 - 8/14/02 $31,893.33 $382,720.00 $23.00
(B) There is presently an electric meter in operation for the
calculation of Tenant's electric usage in the Original Premises.
Likewise, the Additional Space shall also have a separate meter
installed by Landlord for the purpose of determining Tenant's actual
electric use.
4.(A) From and after the Additional Space Date, the "Percentage Share"
provided for in Basic Lease Provision 3 of said Lease shall be 4.0% for
the Additional Space only.
(B) The Base Year for Project Operating Expenses and Project Property
Taxes for the Additional Space shall be 1997. The Base Year for the
Original Premises shall remain unchanged.
5.From and after the Additional Space Date, the "Security Deposit"
provided for in Basic Lease Provision 10 of said lease shall be
increased by $89,440.00 to $215,714.12, which increase shall be paid by
Tenant in full prior to the Additional Space Date. For the convenience
of Tenant, the increase in security deposit may be paid by Tenant in the
form of a revolving letter of credit, which shall be in force for the
duration of Tenant's Lease. Landlord shall have the power to draw
against the letter for any amount that may be due as a result of
Tenant's default under any of the terms of this Lease. In the event of a
sale or leasing of the Building, Landlord shall have the right to
transfer the letter of credit to the grantee or lessee. It is agreed
that the provisions hereof shall apply to every such transfer or
assignment made of the letter of credit.
6.From and after the Additional Space Date, the number of unreserved
parking spaces provided for in Basic Lease Provision 11 of said lease
shall be increased to 135 total spaces, of which fourteen (14) shall be
reserved spaces.
7.Tenant represents and warrants that it has not directly or indirectly
dealt with any real estate broker other than Harper Lawrence, Inc. 600
Madison Avenue, New York, New York 10022, in connection with this
transaction. Landlord will pay Harper Lawrence, Inc. Tenant agrees to
indemnify, defend and hold Landlord harmless from and against any and
all liabilities, claims, suits, demands, judgements, costs, interest and
expenses (including, but not limited to, reasonable counsel fees
incurred in the defense of any action or proceeding) to which Landlord
may be subject or suffer by reason of Tenant's having had dealings with
respect to the Project or this Lease with any real estate agents or
brokers. This Article shall survive the expiration or earlier
termination of this Lease.
8.Renewal Option:The renewal option for the Additional Space shall be as
follows:
(A) Renewal Terms. Provided Tenant is not in default under this Lease,
Tenant shall have the option to renew space per the Third Modification
of the Lease for the Additional Space for two (2) Renewal Terms of five
(5) years each, commencing at the expiration of the initial Lease term,
or the First Renewal Term, as the case may be, upon the same terms and
conditions as in this Lease, except as hereinafter set forth.
(B) Notice to Landlord. The right of Tenant to renew and extend this
Third Modification of Lease is expressly conditioned upon Tenant's
delivering to Landlord, in writing, by certified mail, return receipt
requested, not later than nine (9) months prior to the expiration of the
initial Lease term or the First Renewal Term, as the case may be (such
time period being hereby made of the essence), a notice of exercise of
the Renewal Term.
(C) Basic Rent.
(i) The Basic Rent for the Renewal Term shall be the greater of Fair
Rental Value (as hereinafter defined) of the Additional Space or $23.00
per square foot times the rentable square feet in the Additional Space
which Fair Rental Value shall be determined not later than nine (9)
months prior to the commencement of the Renewal Term.
(D) Fair Rental Value. Fair Rental Value shall mean the fair rental
value for similar space in a comparable Project in the Northern New
Jersey area. In the event that, based upon the application of the above
criteria, there is an increase in the Fair Rental Value and thus an
increase in the Basic Rent hereunder for any renewal period over the
Basic Rent paid in the next preceding term of Lease or prior renewal
period, then, in that event, there shall be an adjustment of the Base
Year for Project Property Tax and Project Operating Expense which shall
thereafter be the calendar year next preceding the initial year of the
applicable Renewal Period.
(E) Appraisal.Landlord shall notify Tenant of the Fair Rental Value as
established by Landlord. Should Tenant dispute Landlord's determination,
then Tenant shall be free, at Tenant's sole cost and expense, to employ
the services of an appraiser familiar with office buildings comparable
to the Project located within the Northern New Jersey area, which
appraiser shall be an MAI and who shall render an opinion as to the Fair
Rental Value of the Additional Space. If Landlord and Tenant's appraiser
cannot agree on the Fair Rental Value, and in the event Landlord and
Tenant cannot agree on an independent appraiser who shall be acceptable
to them both, either party may request the American Arbitration
Association in Passaic County, New Jersey, to appoint an independent
appraiser who shall be an MAI and who shall be familiar with projects in
the area of the Project. The average of the Fair Rental Value in the
opinion of the two appraisers and Landlord shall be the Fair Rental
Value. If Fair Rental Value is less than the applicable square foot rent
in Section (C) above and Tenant is unwilling to pay said Basic Rent,
Tenant shall have the right to rescind the exercise of its Renewal Term
by notice given no later than six (6) months prior to the expiration of
the then current term. Failure to give a rescission notice within said
period shall constitute an acceptance of the Basic Rental established
above. In any event, Landlord and Tenant shall share equally the cost of
the independent appraiser.
9. Tenant acknowledges that the Building design specifications provide
for a maximum of one occupant per each 200 square feet.
10. As of the Additional Space Date, Paragraph 44 of the lease shall be
expanded to include the following provision:
Paragraph 44: Tenant's Right of First Offer. Upon condition that Tenant
is not in default in the payment of any Rent or other charge payable by
Tenant under this Lease and not in default in the performance of any
covenant or obligation to be performed by Tenant under this Lease,
Landlord agrees that Landlord will not enter into a lease of contiguous
second (2nd) floor space in the Building during the initial term of this
Lease with any new tenant unless Landlord shall first notify the Tenant
in writing of the availability of said space and afford Tenant the
opportunity to lease said space as hereinafter set forth. Landlord
agrees that Tenant shall thereupon have the one-time right to lease the
space indicated in the notice delivered from Landlord to Tenant at a
base rent per square foot to be determined by the greater of Fair Rental
Value (as defined in Article 8) or the base rent being paid by Tenant
pursuant to this Lease at the time of the election of this right to
lease such additional space. Said right must be exercised by Tenant
within fifteen (15) calendar days after Tenant's receipt of written
notice of said offer by Tenant's giving written notice to Landlord of
the exercise of said right. If Tenant shall fail to exercise its right
hereunder in the manner set forth herein and Landlord shall thereafter
lease the space to any tenant, then Tenant shall execute in recordable
form a release of its right of first offer herein granted as to that
space. This right of first offer (i) is not assignable and shall be
deemed personal to Total-Tel USA, Inc.; (ii) will not apply to any space
to be leased by Landlord to a tenant therein leasing other space in the
Building; and (iii) is subject to any prior rights which have been
granted to other tenants in the building.
11. Signage. If the Landlord intends to enter into an arrangement to
lease building exterior signage rights to (i) an outside entity which
does not lease or occupy space in the building or (ii) an entity leasing
other space in the Building equal to, or smaller in size than the
Enlarged Premises of the Tenant, then the Landlord shall first contact
Tenant and under the same terms and conditions and Tenant shall have the
first right to exercise the same signage arrangements for consideration
equal to that which would have been paid by an outside entity or entity
leasing space in the Building. If the offered signage rights are to be
incorporated into the entity's lease for space within the Building, then
the consideration for the signage rights will be calculated as the
excess of rental to be paid during the term of the lease over Fair
Rental Value. If Tenant chooses not to pursue the signage availability
at that time, then Landlord shall be free to lease signage rights to the
other entity without any future obligation to Tenant. This right shall
be personal to Tenant, shall not be assignable or transferrable and is
subject to any prior rights which have been granted to other tenants in
the building.
12. Tenant hereby renews its obligations to Landlord for the full,
prompt and timely payment of all Basic Annual Rent, Additional Rent and
all other sums of money required to be paid by Tenant during the term of
said Lease, as herein modified, and for the full, prompt and timely
performance, compliance and observance of all terms contained in the
Lease, as herein modified. Landlord acknowledges that all the benefits
and conditions applicable to the Original Premises under said lease,
hereby apply to the Additional Space pursuant hereto originally as if
same were part of the Lease.
13. The provisions hereto shall inure to the benefit of and be binding
upon the respective successors and assigns of each of the parties
hereto.
14. Except as herein modified and to the extent as herein modified the
provisions of said lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to be
signed by their respective duly authorized officer, the day and year
first above written.
LANDLORD:
ATTEST: THETA HOLDING COMPANY, L.P. by
M & E Packaging Corp, its General Partner
By:-----------------------------------------
Alfred S. Teo, President
TENANT:
ATTEST: TOTAL-TEL USA, INC.
/S/ Warren H. Feldman, President
By:-----------------------------------------
Warren H. Feldman, President
EXHIBIT A
MAIN TOWER
Second Floor
[GRAPHIC OMITTED]
EXHIBIT "B"
LANDLORD'S WORK
Tenant shall submit a complete set of Tenant approved working plans and
specifications, sealed by the Landlord's licensed New Jersey architect,
for the permanent leasehold improvements in the Additional Space. These
working plans and specifications may include upgrades to Project
Standards as outlined below, but must at minimum meet Project Standards
and all State and Local codes and requirements. All plans shall be
subject to Landlord's review and approval, which shall not be
unreasonably withheld or delayed. Landlord agrees that it will obtain
all permits and inspections required for occupancy, excluding any
special permits or approvals related to Tenant's equipment or business
operations, and perform the construction work in accordance with the
Tenant and Landlord approved plans prior to the Additional Space Date
(collectively referred to as "Landlord's Work"). The cost of Landlord's
Work, including the cost of working plans and specifications and filing
fees, shall not be subject to Landlord's customary supervisory and
overhead fee and shall be paid by the Landlord up to $366,080 ($22.00
per rentable square feet). If the cost of Landlord's Work exceeds
$366,080, then Tenant shall reimburse Landlord for the excess within 10
days of receiving a statement from Landlord. Landlord will perform all
work in a good and workmanlike condition.
As soon as practical, Landlord shall provide Tenant with a written
breakdown of the estimated cost of Landlord's Work for final approval.
Tenant may review the estimate and make revisions to the working plans
and specifications within seven (7) business days. Such revised working
plans and specifications shall be subject to the same terms and
approvals as above.
PROJECT STANDARDS
Partitions
Between the Premises and corridor(s) and/or between the Premises and
adjacent space, 5/8" fire code gypsum board, taped and spackled, on each
side of 3-5/8" metal studs, 16" on center. Demising partitions to have
3-1/2" (full thick) sound deadening insulation installed within from
floor to underside of floor above.
In the Premises, 5/8" gypsum board on each side of 3-5/8" metal stud,
24" on center, taped and spackled, 9' high.
Partitions terminating in the Project exterior wall shall meet either a
mullion or a column without interfering with access to the peripheral
enclosure.
Doors and Bucks
All bucks to be 16 gauge hollow metal, KD, with 2" trim.
Doors within Tenant space to be 3'0" x 6'8" x 1-3/4" solid core wood,
stain grade.
Tenant's main entrance to be double 3'0" x full height 1/2" tempered
glass doors with continuous brass top and bottom rails, polished brass
pulls, flush top and bottom pivots. Herculite or equal.
Secondary egress doors, if required, on public corridors to be full
height oak veneer, with surface mounted closer, and 2 pair ball bearing
hinges.
Glazing
Glazing in interior windows and doors shall be as required by Local,
State and Federal regulations.
Rough and Finished Hardware
All interior doors to receive Schlage or equal "D" series passage
hardware sets with lever handles, brushed chrome finish.
All secondary egress doors to receive Schlage or equal "D" series
locksets with lever handles and closer. Locksets to be keyed to
building master.
All interior wood doors to receive 1-1/2" pr. standard hinges, Stanley
FB series or equal.
All doors to be located, oriented and equipped with hardware in
accordance with local codes.
Acoustical Ceilings
Lay-in acoustic tile ceilings shall be 24" x 48" "Second Look" tile,
Armstrong #2767 or equal in 15/16" standard grid (USG Corp.), white
finish.
Flooring
Standard carpeting shall be installed, direct glue down, Queen (or
equal) "Commitment" 26 oz. nylon loop or Queen (or equal) "Baytowne" 30
oz. nylon cut pile.
Base to be 4" vinyl, cove/straight at all carpeted areas, coved at all
V.C.T. areas.
V.C.T. to be Armstrong (or equal) in all non-carpet areas.
All carpet or V.C.T. tiles will be selected from Landlord's samples,
which will include a representative range of commercially available
products.
Painting
Interior wall surfaces of gypsum board shall receive one (1) prime coat
and two (2) finish coats of flat alkyd paint, colors to be selected by
Tenant from Benjamin Moore standard colors.
Metal doors, door bucks and other metal surfaces not having baked enamel
finish shall receive two (2) coats of enamel paint over one (1) coat of
primer, colors to be selected by Tenant from Benjamin Moore standard
colors.
All stain grade doors to receive one (1) coat of stain, two (2) coats of
satin finish, color to be selected by Tenant from Minwax standard colors
Millwork
All coat closets shall be furnished with vinyl coated wire wardrobe
shelving units, continuous for length of closet, as manufactured by
Closetmaid or equal.
All storage closets shall be furnished with five (5) adjustable melamine
shelves on metal standards with clips.
Tenant Signage
All public corridor tenant signage shall conform to the following
specification: Pin mounted, stainless steel or Polished Aluminum (first
floor shall be brass), minimum 14 gauge, mirror finish, 3/8" deep,
individual letters not to exceed 4" in height, logo not to exceed 10" in
height. Overall identification not to exceed 40" in width x 15" in
height and not to be higher than 80" or lower than 65" from corridor
floor. Signage not to end closer than two inches from any corner or
door jam. No signage shall be placed directly on doors or windows.
HVAC Specifications
The HVAC system shall be a Carrier variable air volume system using 2' x
2' lay-in style diffusers. The electric "VAV" boxes will contain all
necessary controls including wall mounted thermostat.
The "VAV" boxes are connected to supply duct systems which are supplied
with conditioned air from a dual controlled chilled water system, with
cooling coils, chillers, filters, mixing dampers and relief dampers,
cooling towers and pumps.
All Demising Partitions shall have the appropriate size Fire Dampers
installed.
All heating will be provided from existing perimeter electric baseboard
radiation.
The control system for the heating will be by means of an electronic
"SCR" controller and solar compensation system.
The system will be under time clock control to operate during Business
Hours on Business Days (as those terms are defined in the Lease).
Zoning on tenant areas will be based on 600 to 1,200 square feet per
zone, depending upon usage and orientation.
Lighting load on HVAC system will be based on 2.5 to 3 watts per square
foot.
Watts per square foot of lighting load and miscellaneous equipment load
combined shall not exceed 6 watts per square foot as per original base
building design.
Base Building Standards being 1.0 CFM per square foot of building supply
air.
Base building design for outside air supply is at 7.5 CFM per person.
Upon project completion, HVAC system shall be balanced as required to
adjust air volumes in accordance with new areas. A certified balancing
report must be submitted and building engineer approved.
If Tenant's equipment (i.e., computers, etc.) requires air-conditioning
above and beyond Project standard as outlined, said additional air-
conditioning (including cost of operation as stipulated in the Lease)
shall be paid for by Tenant as an extra cost. Any special exhaust
requirements will also be an extra cost to be paid by Tenant.
Electrical Specifications
Lighting
Office areas - provide one 2'0" x 4'0" three-tube recessed parabolic
fluorescent fixture with return air troffer for each 100 square feet.
Fixtures to be as manufactured by Lithonia, catalog number 2PM3GC33218LS
277 1/3 GEB with T8-32W 41K lamps or approved equal, as selected by
Landlord.
One (1) duplex receptacle will be provided for each 100 square feet of
useable area and to meet all applicable codes. Duplex receptacles shall
be wired on 20A circuits, maximum 6 per circuit.
Exit and emergency lighting to be provided as per codes and wired to
base building 24-hour emergency circuit.
One light switch will be provided in each office. General area switches
shall be single pole or three-way based on 30 fixtures per circuit.
The average electric load of the Premises shall not exceed six (6) watts
per square foot for lighting and power.
Sprinkler
Coverage shall be estimated at 1 head per 100 sq. ft. or as per code,
whichever is greater.
Heads shall be semi-recessed, polished chrome finish, Viking or equal.
All heads shall be located in tile centers.
Telephone Service
All telephone/data wiring and equipment shall be at the expense of
Tenant and be arranged for by Tenant with Bell Atlantic or other
qualified installer. Landlord will coordinate work with other trades as
required.
(Original Document Name = 1157)
SECURITY AGREEMENT
This SECURITY AGREEMENT, is dated as of this ----- day of August, 1996
(this Agreement), made by TOTAL-TEL USA COMMUNICATIONS, INC., a --------
- - corporation (Total-Tel Comm), TOTAL-TEL, INC., a --------------
corporation (Total-Tel), TOTAL-TEL USA, INC., a -------------
corporation (Total-Tel USA), TOTAL-TEL SOUTHEAST, INC., a --------------
corporation (Total-Tel Southeast), TOTAL-TEL CARRIER SERVICES, INC., a -
- ------------- corporation (Total-Tel Carrier) and TOTAL-TEL SERVICES,
INC., a ------------- corporation (Total-Tel Services), in favor of
SUMMIT BANK, a banking corporation organized under the laws of the State
of New Jersey (the Bank). Total-Tel Comm, Total-Tel and Total-Tel USA
are herein referred to as the Borrowers, Total-Tel Southeast, Total-Tel
Carrier and Total-Tel Services are herein referred to as the Subsidiary
Guarantors and each of the Borrowers and each of the Subsidiary
Guarantors are herein referred to individually as a Grantor and
collectively as the Grantors.
PRELIMINARY STATEMENT
A. The Bank has entered into that Equipment Facility and Revolving
Credit Agreement of even date herewith (said Credit Agreement, as it may
be hereafter amended or otherwise modified from time to time, being the
Credit Agreement; capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the
Credit Agreement) with the Borrowers pursuant to which the Bank agreed
to make available to the Borrowers an equipment finance facility in the
principal amount of up to $6,000,000 and a revolving credit facility in
the principal amount of up to $4,000,000. The obligations of the
Borrowers thereunder as evidenced by the Notes referred to therein.
B. To support the obligations of the Borrowers under the Credit
Agreement, the Subsidiary Guarantors have executed and delivered to the
Bank that certain Subsidiary Guaranty and Suretyship Agreement of even
date herewith in favor of the Bank (the Subsidiary Guaranty). To further
support said obligations of the Borrowers, the Borrowers have executed
and delivered to the Bank that certain Borrower Guaranty and Suretyship
Agreement of even date herewith in favor of the Bank (the Borrower
Guaranty).
C. It is a condition to the availability of the credit facilities under
the Credit Agreement that the Grantors shall have granted to the Bank
the security interests contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and in order to induce the Bank to make the credit
facilities under the Credit Agreement available to the Borrowers, the
Grantors hereby agree as follows:
SECTION 1. Grant of Security. Each Grantor hereby grants and assigns to
the Bank a security interest in all of such Grantor's right, title and
interest in and to the following assets (collectively, the Collateral):
(a) any and all equipment and machinery, in all forms, (including, but
not limited to, (i) all digital switching equipment and computer
equipment and software that is used or useful in such Grantor's long
distance telephone service business, (ii) all sales, distribution, data
processing and office equipment, furniture, and furnishings, and (iii)
all tools, tooling, molds, templates, drawings, schematics and other
design descriptions of the foregoing and manufacturer's manuals to the
foregoing, and (iv) all shelving, warehouse racks, forklifts, conveyors
and other fixtures), together with all parts and replacements thereof
accessions and additions thereto and substitutions and exchanges
therefor (any and all such equipment, machinery, fixtures, parts,
accessions, additions, substitutions and replacements being the
Equipment); and
(b) all of such Grantor's books and records, including, but not limited
to, records indicating, summarizing, or evidencing, the Collateral, the
Obligations, or such Grantor's property, business operations, or
financial condition; computer runs, invoices, tapes, processing
software, processing contracts (such as contracts for computer time and
services) and any computer prepared information, tapes, or data of every
kind and description, whether in the possession of such Grantor or in
the possession of third parties; and
(c) any and all "Proceeds" of the foregoing (as such term is defined in
the Uniform Commercial Code in effect from time to time in the State of
New Jersey (hereinafter, the UCC)), whether cash or non-cash, together
with any insurance indemnity, warranty or guaranty payable to such
Grantor from time to time with respect to any of the Collateral, any and
all payments (in any form whatsoever) made or due and payable to such
Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or part of the
Collateral by any governmental body, authority, bureau or agency or any
other Person (whether or not acting under color of governmental
authority), and any and all other amounts from time to time paid or
payable under or in connection with any of the foregoing Collateral; and
(d) all property (together with the proceeds thereof) in which such
Grantor at any time has any rights and which at any time has been
delivered, transferred, pledged, mortgaged or assigned to, or deposited
in or credited to an account with, the Bank or any third part(y)(ies)
acting on its behalf at any time in the possession or under the control
of the Bank, or any third part(y)(ies) acting in its behalf, whether
expressly as collateral or for safekeeping or for any other or different
purposes, including, but not limited to, any property which may be in
transit by mail or carrier for any purpose, or covered or affected by
any documents in the possession of the Bank, or in the possession of any
such third part(y)(ies), and all property in which such Grantor at any
time has rights and in which at any time a security interest has been
transferred to the Bank;
in each case, whether now owned or hereafter acquired by such Grantor
and howsoever its interest therein may arise or appear (whether by
ownership, security interest, claim or otherwise).
SECTION 2. Security for Obligations. The Collateral secures the payment
of any and all obligations and indebtedness of every kind and
description of any Grantor or any other Obligor, now or hereafter
existing, owed to the Bank (including, but not limited to, all such
obligations and indebtedness arising under (i) this Agreement, the
Credit Agreement, the Notes, the Letters of Credit, the Subsidiary
Guaranty, the Borrower Guaranty, (ii) any of the other Credit Documents
executed in connection therewith, and (iii) any amendments,
modifications, extensions, supplements or renewals of any of the
foregoing), whether primary or secondary, direct or indirect, absolute
or contingent, sole, joint or several, contractual or tortious, due or
to become due, secured or unsecured, arising by operation of law or
otherwise, whether incurred by a Grantor or any other Obligor as
principal, surety, endorser, guarantor, accommodation party, or
otherwise, including, but not limited to, all late fees, collections
fees and expenses, and attorneys' fees and costs and/or allocated fees
and costs of the Bank's in-house counsel, in each case incurred in
connection therewith (all such obligations and indebtedness of any
Grantor and/or any other Obligor described in this Section 2 being
collectively hereinafter referred to as the Obligations).
SECTION 3. Delivery with Respect to Certain Collateral. If a Grantor
shall receive, by virtue of its being or having been an owner of any
Collateral, any (i) certificate, promissory note or other instrument or
(ii) option or right, whether as an addition to, or in substitution or
exchange for, any Collateral, or otherwise, such Grantor shall receive
such items in trust for the benefit of the Bank, shall segregate them
from such Grantor's other assets and shall, to the extent evidenced by a
writing, deliver said writing forthwith to the Bank in the exact form
received, with any necessary assignments, endorsements or consents to
the transfer of said interests to the Bank, to be held by the Bank as
Collateral and as further security for the Obligations.
SECTION 4. As to Equipment. (a) No Grantor will do anything to impair
the rights of the Bank in the Equipment. Each Grantor shall keep the
Equipment in which it is granting a security interest thereunder at the
places specified in Section 8(c) or, upon 30 days' prior written notice
to the Bank, at such other places in jurisdictions where all action
required by Section 9 shall have been taken with respect to such
Equipment.
(b) The Bank shall have the right to adjust any material claim under
insurance on the Equipment. Subject to Section 10(c) hereof, the Bank
may apply any proceeds of insurance received by it toward the payment of
any of the Obligations, whether or not the same shall then be due.
(c) Each Grantor shall retain all liability and responsibility in
connection with the Equipment in which it is granting or security
interest hereunder; and its liability under the Credit Documents shall
in no way be affected or diminished by reason of the fact that any such
Equipment may be lost, destroyed, stolen, damaged or for any reason
whatsoever be unavailable to it.
(d) Upon the request of the Bank, each Grantor to which such request has
been made will, at its own expense, shall, execute, endorse,
acknowledge, file and/or deliver to the Bank from time to time such
lists, descriptions and designations of its Equipment, warehouse
receipts, bills of lading, documents of title, vouchers, such invoices,
schedules, confirmations, assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps
relating to such Equipment and other property or rights covered by the
security interest hereby granted, which the Bank deems reasonably
appropriate or advisable to perfect, preserve or protect its security
interest therein. The Bank may at any time notify any bailee of any
Equipment of its security interests therein.
(e) Each Grantor shall cause the Equipment in which it is granting a
security interest hereunder to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall
forthwith, or in the case of any loss or damage to any of such Equipment
as promptly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements and other improvements in
connection therewith which are necessary or desirable to such end. Each
relevant Grantor shall promptly furnish to the Bank a statement
respecting any loss or damage to any of such Equipment.
(f) Each Grantor shall pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon
payer, and all claims (including claims for labor, materials and
supplies) against, the Equipment in which it is granting a security
interest hereunder, except to the extent contested in good faith by
appropriate proceedings and for which adequate reserves have been
maintained.
(g) No Grantor shall permit any of the Equipment in which it is granting
a security interest hereunder to become fixtures to real estate or
accessions to other personal property unless the Bank has a first
priority security interest in such real estate or personal property.
SECTION 5. Filing and Recording Costs. The Grantors shall pay the filing
and recording costs of any documents or instruments necessary to
perfect, extend, modify, or terminate the security interests created
hereunder, as demanded by the Bank.
SECTION 6. Default. The Grantors shall be in default hereunder if there
occurs an Event of Default under any of the Credit Documents. In the
event of any such default, the Bank shall have all of the rights and
remedies set forth in the Credit Agreement, the other Credit Documents,
hereunder and as available at law or equity.
SECTION 7. Borrower Remains Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed, (b) the
exercise by the Bank of any of the rights hereunder shall not release
any Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) the Bank shall not
have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the
Bank be obligated to perform any of the obligations or duties of the
relevant Grantor thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.
SECTION 8. Representations and Warranties. Each Grantor represents and
warrants that:
(a) such Grantor has exclusive possession and control of the Equipment
in which it is granting a security interest hereunder;
(b) such Grantor owns the Collateral in which it is granting a security
interest hereunder free and clear of any lien, security interest, charge
or encumbrance;
(c) set forth on Schedule I is: (i) the address of the chief executive
office (as such term is used in the UCC) of such Grantor; (ii) all
locations where the Equipment in which it is granting a security
interest hereunder is kept, used or maintained; and (iii) the record
owners of all such locations;
(d) all necessary consents required to permit the security interest,
encumbrance and assignments granted herein have been obtained;
(e) to the extent that ownership or possession of any of the Equipment
is evidenced by a certificate of title or similar instrument, such
certificates and instruments have been delivered to the Bank with all
necessary or advisable endorsements; and
(f) upon the proper and timely filing of UCC financing statements in the
filing offices set forth on Schedule I, the Bank will have a duly
perfected, legal, valid and enforceable first priority security interest
in and to the Collateral against all third parties, and all action
required to fully perfect the Bank's security interest in and to the
Collateral will have been taken and completed.
SECTION 9. Further Assurances. (a) Each Grantor agrees that from time to
time, at the expense of such Grantor, it will promptly execute and
deliver all further instruments and documents, and take all further
action, that may be necessary or that the Bank may reasonably request,
in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Bank to exercise and
enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, each
Grantor will execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices as may be
necessary and as the Bank may reasonably request, in order to perfect
and preserve the security interests granted or purported to be granted
hereby.
(b) Each Grantor hereby irrevocably authorizes the Bank to file
financing statements (and amendments thereto and continuations thereof)
relative to all or any part of the Collateral without the signature of
such Grantor. The Bank agrees to provide the relevant Grantor with
copies of the same. A photocopy or other reproduction of this Agreement
or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The
Bank shall have no obligation to file any such financing statements.
(c) The Grantors will furnish to the Bank, from time to time, statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Bank may in its
sole discretion reasonably request, all in reasonable detail.
SECTION 10. Covenants as to the Collateral Generally. Each Grantor
shall:
(a) at its own cost and expense, consistent with current practices of
such Grantor, keep and maintain satisfactory and complete records with
respect to its Equipment and make available to the Bank such books and
records at any and all reasonable times upon reasonable demand by the
Bank;
(b) at its own cost and expense, defend the Bank's right, title and
security interest in and to the Collateral against the claims of any
person or entity;
(c) at its own cost and expense, maintain insurance with respect to the
Collateral in such amounts, against such risks, in such form and with
such insurers, as shall be satisfactory to the Bank from time to time.
Each policy for liability insurance shall provide for all losses to be
paid on behalf of the Bank and the relevant Grantor as their respective
interests may appear and each policy for property damage insurance shall
provide for all losses to be paid directly to the Bank. Notwithstanding
anything to contrary set forth herein, with respect to any loss of
Collateral in an amount less than or equal to $---------- in the
aggregate and provided there is then no continuing Event of Default, the
Bank shall permit the application of any insurance proceeds to the
restoration, replacement or repair of the affected Collateral, and the
relevant Grantor shall be obligated to so replace or repair the same.
Each such policy shall in addition (i) name the Bank as loss payee and
additional insured thereunder as its interests may appear, (ii) contain
the agreement by the insurer that any loss thereunder shall be payable
to the Bank notwithstanding any action, inaction or breach of
representation or warranty by the relevant Grantor, (iii) provide that
there shall be no recourse against the Bank for payment of premiums or
other amounts with respect thereto, and (iv) provide that at least 30
days' prior written notice of cancellation or of lapse shall be given to
the Bank by the insurer. The relevant Grantor shall, if so requested by
the Bank, deliver to the Bank original or duplicate policies of such
insurance and, as often as the Bank may reasonably request a report of a
reputable insurance broker with respect to such insurance. Further, the
relevant Grantor shall, at the request of the Bank, duly execute and
deliver such insurance policies to comply with the requirements of this
Section 10;
(d) not create or suffer to exist any Lien, security interest or other
charge or encumbrance upon or with respect to any Collateral;
(e) not take or fail to take any action which should reasonably be taken
in order that the value or enforceability of any Collateral not be
impaired;
(f) not move the Equipment in which such Grantor has granted a security
interest hereunder, cause such Equipment to be annexed or permanently
affixed to any real property; or otherwise take any actions as to the
Collateral which will, under applicable law, cause the security
interests of the Bank therein to become unperfected or cause the
priority of such security interests to be adversely affected in any
manner; and
(g) not sell, assign, lease, or otherwise dispose (whether voluntary or
involuntarily) of any of the Collateral, or relinquish exclusive
possession or control of any Equipment in which such Grantor has granted
a security interest hereunder.
SECTION 11. Bank Appointed Attorney-in-Fact. The Bank is hereby
irrevocably appointed the attorney-in-fact for each Grantor, with full
authority in the place and stead of and in the name of such Grantor, the
Bank or otherwise, to take any action and to execute any instrument
which the Bank may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file any claims or take any action or institute any proceedings
which the Bank may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Bank with
respect to any of the Collateral;
(b) to execute on behalf of any Grantor any and all documents,
including, without limitation, the Agreements, as may be necessary for
the collection of any Collateral or to establish the Accounts; and
(c) to execute financing statements on behalf of any Grantor.
The power of attorney granted hereby shall be a present grant of an
irrevocable power of attorney, coupled with an interest; provided,
however, the Bank agrees not to exercise the same (other than in Section
11(c), above, which right the Bank may exercise at any time) until the
occurrence of an Event of Default. The foregoing grant of power of
attorney shall not in any manner create, or be deemed to create, any
fiduciary relationship or other relationship of trust between the Bank
and any Grantor, it being understood and agreed that the relationship of
the Bank and each Grantor is that of creditor and debtor.
SECTION 12. Bank May Perform. Except as otherwise provided herein, if
any Grantor fails to perform any agreement contained herein, the Bank
may itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Bank incurred in connection therewith shall
be payable by the Grantors under Section 15(b) hereof.
SECTION 13. The Bank's Duties. The powers conferred on the Bank
hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Collateral in its possession, and the accounting for
moneys actually received by, it the Bank shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.