<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ADVANCED COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4813 76-0549396
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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ROD K. CUTSINGER
3355 WEST ALABAMA, SUITE 580 3355 WEST ALABAMA, SUITE 580
HOUSTON, TEXAS 77098 HOUSTON, TEXAS 77098
(713) 622-9600 (713) 622-9600
FACSIMILE: (713) 599-0222 FACSIMILE: (713) 599-0222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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Copies to:
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<S> <C> <C> <C> <C>
EDGAR J. MARSTON III STEPHEN P. FARRELL
BRACEWELL & PATTERSON, L.L.P. MORGAN, LEWIS & BOCKIUS LLP
711 LOUISIANNA STREET, SUIT 2900 101 PARK AVENUE
HOUSTON, TEXAS 77002-2781 NEW YORK, NEW YORK 10178-0060
(713) 223-2900 (212) 309-6000
FACSIMILE: (713) 221-1212 FACSIMILE: (212) 309-6273
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value
per share .................... (1) (1) $138,000,000(2) $41,819
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Omitted pursuant to Rule 457(o).
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 10, 1997
SHARES
ADVANCED COMMUNICATIONS GROUP, INC. [LOGO]
COMMON STOCK
-------------------
All of the shares of Common Stock offered hereby are being sold by
Advanced Communications Group, Inc. ("ACG").
Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of ACG. It is currently estimated that the
initial public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. ACG has applied for quotation on the New York
Stock Exchange under the symbol .
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
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Total............................... $ $ $
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Total Assuming Full Exercise of
Over-Allotment Option(3) .......... $ $ $
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</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable
by ACG.
(3) Assuming exercise in full of the 30-day option granted by ACG to the
Underwriters to purchase up to additional shares, on the same
terms, solely to cover over-allotments. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to their right to reject orders in whole or in part. It is
expected that delivery of the Common Stock will be made in New York City on
or about , 1997.
-------------------
PAINEWEBBER INCORPORATED OPPENHEIMER & CO., INC.
-------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[To be supplied by amendment]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, COMMON STOCK IN THE OPEN MARKET. FOR
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
Concurrently with the closing of the Offering made hereby (the
"Offering"), ACG plans to acquire, in related transactions, six
telecommunications service providers, one yellow page publisher, two
telephone equipment sales and maintenance companies, a predecessor organized
in 1996 under the same name, and a 49% interest in a company owning a fiber
optic network (collectively, the "Acquisitions"). See "The Company." The
number of shares of Common Stock to be issued in the Acquisitions will depend
on the initial public offering price of the Common Stock. Accordingly, the
disclosures herein relating to the shares of Common Stock to be issued in the
Acquisitions are estimated, based on an assumed initial public offering price
of $ per share (the midpoint of the estimated initial public offering price
range). Unless otherwise indicated by the context, references herein to (i)
ACG refer collectively to Advanced Communications Group, Inc. and its
predecessor, and (ii) the "Company" refer collectively to the entities
acquired in the Acquisitions other than the interest in the fiber optic
network company (collectively, the "Acquired Companies"), ACG and its
predecessor company.
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, which
appear elsewhere in this Prospectus. Prospective investors should carefully
consider the factors set forth herein under the caption "Risk Factors" and
are urged to read this Prospectus in its entirety. This Prospectus contains
certain forward-looking statements with respect to the Company's expectations
regarding its business after it has consummated the Acquisitions. These
forward-looking statements are subject to certain risks and uncertainties
which may cause actual results to differ significantly from such
forward-looking statements. See "Risk Factors." Unless otherwise indicated,
the information and share and per share data in this Prospectus (i) give
effect to the Acquisitions, (ii) assume the Underwriters' over-allotment
option is not exercised and (iii) will give effect to a reverse stock split
of the outstanding capital stock of ACG's predecessor prior to the Offering.
THE COMPANY
The Company was founded to create a regional competitive local exchange
carrier ("CLEC") that provides an integrated portfolio of telecommunications
services principally to business customers in selected service areas of
Southwestern Bell Telephone Company and US WEST Communications, Inc. (the
"Region"). The Company offers long distance, local, Internet access and
cellular service primarily in Kansas, Nebraska, North Dakota, South Dakota,
Oklahoma and Texas and publishes yellow page directories covering certain
markets in Texas and Oklahoma. The Company seeks to offer a bundle of "one
stop" integrated telecommunications services tailored to its customers'
specific requirements and billed on a single monthly invoice. As of September
30, 1997, the Company provided telecommunications services to over 32,000
business customers and almost 10,000 residential customers in small to
mid-sized markets. The Company has recently experienced significant growth in
its base of local customers. The Company's customer access lines in service
have increased from approximately 1,000 at June 30, 1997 to more than 9,500
access lines at September 30, 1997. In fiscal year 1996, the Company had pro
forma combined revenues of $85.4 million and EBITDA of $11.9 million. For the
six months ended June 30, 1997, the Company had pro forma combined revenues
of $50.8 million and EBITDA of $8.1 million.
The Company operates seven digital tandem switches in Kansas, Oklahoma,
South Dakota and Texas. It also owns a 49% interest in KIN Network Inc.
("KINNET"), the owner or operator of an approximately 900-route mile fiber
optic network and a Northern Telecom DMS 500 switch in Kansas. KINNET
currently has one of the largest fiber optic networks in the state of Kansas.
As part of the KINNET acquisition, the Company made a $10.0 million direct
cash investment in KINNET, $5.0 million of which KINNET has agreed to apply
to the buildout in 1998 and 1999 of a 537-mile, $21.5 million network
extension from Wichita, Kansas to the greater Kansas City metropolitan area,
with a leg to Tulsa, Oklahoma, that will provide self-healing redundancy to
its fiber optic network. KINNET has advised the Company that it expects to
finance the balance of the expansion with loan proceeds from the Rural
Telephone Finance Cooperative.
3
<PAGE>
The Company is also an independent publisher of yellow page directories,
and in the fiscal year ended December 31, 1996 published approximately three
million copies of its yellow page directories covering 20 markets in Texas
and Oklahoma. These directories contained advertisements for approximately
47,000 business customers, and the Company anticipates expanding its yellow
page operations into additional markets in the Region. The Company believes
that the advertisers in its yellow page directories provide a significant
opportunity to cross-sell its bundle of telecommunications services through
its direct sales force of approximately 240 persons. Through a strategic
relationship, the Company also has the opportunity to cross-sell its
telecommunications services to an additional 36,000 yellow page advertising
customers of Feist Publications, Inc., an affiliate of one of the Acquired
Companies.
ACG is pursuing a growth strategy that it believes will enable it to
minimize its initial capital expenditures relative to many other CLECs that
have constructed facilities-based networks at a very early stage in their
development. The Company currently utilizes its own network facilities
combined with the leased network facilities of several long distance
providers and incumbent local exchange carriers ("ILECs") within the Region,
including Southwestern Bell and US WEST. The Company will utilize its
existing sales force to market its bundle of services to new and existing
customers within its target markets. By reselling the local service of
Southwestern Bell and US WEST, the Company has achieved a rapid penetration
of the local telephone markets in Wichita, Kansas and Sioux Falls, South
Dakota. Ultimately, the Company will only construct significant local network
infrastructure in those markets where a critical mass of customers makes it
economically justifiable to do so.
The Company has executed comprehensive local exchange resale agreements
with Southwestern Bell and US WEST in seven states within the Region.
Additionally, the Company has entered into agreements with several
interexchange carriers to provide "off net" switching and network
transmission services for its long distance traffic. The Company has also
entered into agreements to resell cellular service in selected areas in the
Region. These agreements allow the Company initially to offer a bundle of
telecommunications services without the necessity of substantial expenditures
for the construction of network facilities.
The Telecommunications Act of 1996 has created significant opportunities
for telecommunications service providers, particularly regional CLECs.
According to publicly available estimates, in 1996 total revenues from local
and long distance telecommunications services in the United States were
approximately $192.0 billion, of which approximately $107.0 billion were
derived from local exchange services and approximately $85.0 billion from
long distance services. In recent years, these telecommunications service
revenues have grown approximately 6% per year. Although the U.S. long
distance and local exchange industries are dominated by a few companies,
including AT&T, MCI, Sprint, WorldCom and the Regional Bell Operating
Companies ("RBOCs"), there are over 1,000 additional providers of long
distance, local and other telecommunications-related services. In many of the
small to mid-sized cities that are the Company's primary target markets,
there are independent telecommunications companies which have significant
market penetration, some of which have extensive infrastructure. The Company
believes that a number of these represent attractive acquisition candidates.
The Company believes it has significant opportunities to increase its
revenues and reduce elements of its cost structure that were not available to
the Acquired Companies prior to the Acquisitions and the Offering. While the
Company intends to centralize selected areas of operations where it can
benefit from its larger size, it also intends to permit the strong management
teams of the Acquired Companies to conduct the customer sensitive aspects of
their operations on a decentralized basis. In order to increase the revenues
generated by its existing customer base, the Company plans to train its sales
force to cross-sell all of the Company's services, with an increased emphasis
on selling local services. The Company believes that a personalized approach
to sales and customer service will enhance its ability to attract and retain
customers who desire the convenience of a fully integrated product offering.
To further enhance its marketing efforts, the Company intends to establish
the "ACG" brand name through co-branding with the established names of the
Acquired Companies. As part of its integration process, the Company plans to
consolidate the purchasing of minutes over its leased network, and to
consolidate its management information, billing and other administrative
functions.
4
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become a leading provider of integrated
telecommunications services primarily to businesses in Kansas, Nebraska,
North Dakota, South Dakota, Oklahoma and Texas. The Company is committed to
(i) increasing its market share in its target markets by expanding the range
of telecommunications services it offers to customers, (ii) reducing the cost
of providing those services through the utilization of its own network and
leased network facilities as appropriate and (iii) taking advantage of
consolidation efficiencies and purchasing economies. To achieve these goals,
the Company will:
o Provide an Integrated Portfolio of Telecommunications Services. The
Company believes that substantial demand exists among customers in its
target markets for a "one stop" integrated portfolio of telecommunications
services that meet all of their telecommunications needs. By bundling a
variety of telecommunications services and providing customers with a
single monthly invoice, the Company believes it will successfully
penetrate its target markets within the Region and rapidly expand its
customer base. The Company believes that the combination of its own
network switching and transport facilities, combined with its resale and
leasing agreements, will enable it to provide an attractively priced
alternative to customers' existing services. The Company believes that its
existing sales force of approximately 240 direct sales and 30
telemarketing agents will attract and retain customers by offering a
bundle of telecommunications services, competitive cross-product
discounts, and responsive customer service and support on a local level.
o Focus on Business Customers in Small and Mid-sized Markets. The Company
principally targets business customers in small and mid-sized markets,
primarily in Kansas, Nebraska, North Dakota, South Dakota, Oklahoma and
Texas. The Company expects to be among the first telecommunications
providers to offer a fully-integrated bundle of telecommunications
services in many of its target markets within the Region.
o Cross-sell Additional Services to Existing Customers. The Company believes
it can increase its revenues at a relatively minor incremental cost by
aggressively cross-selling its expanded range of services primarily to its
long distance customers and to the yellow page advertisers to which it has
access. Because the Company only recently began to offer additional
telecommunications services to its long distance customers, only a small
portion of these customers has as yet subscribed to the Company's local
service, Internet access or cellular services. In addition, the Company
has not yet cross-sold its bundle of telecommunications services to the
83,000 yellow page customers to which the Company has access. The Company
therefore believes that it has a substantial reservoir of prospective
business customers that is already familiar with some aspects of the
Company's services.
o Expand its Network Cost Effectively and Expeditiously. The Company
believes that many CLECs have expended substantial amounts of capital on
network infrastructure in the early stages of their development, a
strategy that has resulted in significant operating losses. Rather than
incur these expenditures, the Company intends initially to pursue
additional investments in and strategic relationships with regional fiber
optic network operators such as KINNET that have demonstrated their
economic viability. This will enhance the Company's margins by allowing it
to direct additional traffic at favorable transport prices on facilities
in which it owns an interest. As an intermediate step, the Company plans
to build selectively its own switch-based network and utilize the
unbundled facilities of other ILECs while it grows. Finally, the Company
will build its own fiber optic capacity only when it reaches a critical
mass of customers in a market that will justify such expenditures. This
strategy should enable the Company to expand more cost effectively and
expeditiously than if it immediately attempted to build its own
comprehensive network.
o Further Develop Effective Sales and Customer Care Organizations. The
Company expects to expand and enhance the effectiveness of its sales force
in several ways. During 1998, the Company plans to augment its sales force
of approximately 240 direct sales personnel and 30 telemarketing sales
personnel by adding approximately 150 direct sales personnel and 50
telemarketers. The Company also
5
<PAGE>
will train both its yellow page directory and telecommunications sales
forces to effectively market its entire bundle of telecommunications
services. The Company also believes that, by emphasizing a "face-to-face",
consultative sales approach, it will establish successful, long-term
relationships with business clients within its target markets. The Company
will also utilize its telemarketing sales force to market its services to
selected residential customers. Further, by offering a portfolio of
telecommunications services, the Company believes it will enhance its
ability to successfully cross-sell its telecommunications services to
potential customers.
o Explore Potential Acquisitions. While the Company expects to grow through
its expanded sales, service and cross marketing efforts, management
believes that there are a number of attractive acquisition candidates in
the Region. The Company initially intends to target leading local
companies whose customers can be added to the Company's existing network
without significant expenditures for infrastructure additions. By
aggregating the traffic of several companies onto its existing network,
the Company expects to enhance the utilization of equipment, consolidate
its buying power and increase its ability to negotiate more attractive
contracts with third-party suppliers of network services. The Company also
plans to acquire additional yellow page directory companies and
aggressively cross-sell its bundle of telecommunications services to
businesses that advertise in these companies' directories. In its
acquisitions, the Company expects to maintain its focus on business
customers in small to mid-sized cities where it believes competition is
less intense and which consequently provide more easily achievable
opportunities for profitable growth.
o Develop Strategic Relationships to Increase Access to New Customers. The
Company has a five-year strategic relationship with Feist Publications,
Inc. ("FPI"), a 20-year publisher of yellow page directories in 15 markets
in the Region. The Company's telecommunications sales force will have
access to FPI's 36,000 yellow page advertisers in the Region. The Company
intends to pursue actively the formation of additional strategic alliances
with other yellow page publishers, utility companies or cooperatives and
others in order to create marketing alliances that give the Company access
to large, stable customer bases in its market areas to which it can sell
its bundle of telecommunications services.
See the "Glossary" elsewhere in this Prospectus for the definition of
certain technical and other terms generally associated with the
telecommunications industry or the Offering.
6
<PAGE>
THE OFFERING
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Common Stock offered by the Company ........
Common Stock to be outstanding after the
Offering(1) ................................
Use of proceeds.............................. To pay the cash portion of the purchase price for the Acquired
Companies ($76.8 million), to make a direct cash investment
in KINNET, a fiber optic network company ($10.0 million),
to repay indebtedness of ACG and the Acquired Companies ($4.6
million), and for general corporate purposes, including
infrastructure buildout and acquisitions. See "Use of
Proceeds."
Proposed New York Stock Exchange Symbol .....
</TABLE>
- ------------
(1) The number of shares to be outstanding on completion of the Offering
consists of (i) shares issued to the founders and consultants of
the Company, (ii) shares to be issued in the Acquisitions and
(iii) the shares being offered hereby. Such share number does not
include an aggregate of shares subject to warrants or options
having exercise prices ranging from to the initial public offering
price granted or to be granted under the Company's 1997 Stock Awards
Plan, the Company's 1997 Nonqualified Stock Option Plan for Non-Employee
Directors (the "Directors' Plan") or otherwise issued prior to or
contemporaneously with the consummation of the Offering. See "Certain
Transactions -- Organization of the Company" and "--The Acquisitions" and
"Management -- Option Grants."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors" beginning immediately after this Prospectus Summary
for information that should be considered by prospective investors. Such risk
factors include an absence of combined operating history of ACG and the
Acquired Companies; risks of integrating numerous separate companies; ability
to manage growth; capital requirements; dependence on successful
cross-selling of existing and new customer bases; risks related to local
service strategy; dependence on development of billing, customer service and
management information systems; technology risks; limited technical staff;
competition; the implications of the Telecommunications Act of 1996 and other
regulation; dependence on third-party long distance carriers; dependence on
incumbent local exchange carriers; dependence on key personnel; new
management team; control by existing management and stockholders; risks of
expansion into additional yellow page markets; risks related to acquisitions;
potential effect of shares eligible for future sale on price of Common Stock;
no prior market and possible volatility of stock price; immediate and
substantial dilution; anti-takeover effects of certain charter and bylaw
provisions and Delaware law; and no dividends.
7
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SUMMARY PRO FORMA FINANCIAL DATA
ACG will acquire the Acquired Companies, its predecessor and its interest
in KINNET, a fiber optic network company, concurrently with and as a
condition to the consummation of the Offering. The following summary
unaudited pro forma combined financial data presents certain data for the
Company, which gives effect to the Acquisitions on an historical basis and
certain pro forma adjustments to the historical financial statements, as
adjusted to give effect to the Offering and the application of the proceeds
therefrom. See "Selected Financial Data" and the Unaudited Pro Forma Combined
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED(1)
-----------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Telecommunications services........................... $41,090 $23,446
Yellow page publishing................................ 44,324 27,366
------- -------
Total revenues...................................... 85,414 50,812
Gross profit........................................... 33,682 22,194
Operating income....................................... 7,500 6,050
Other income and expense, net(2)....................... 4,660 (682)
Net income(3).......................................... 6,241 2,555
Net income per share(3) ...............................
Shares used in computing pro forma net income per
share(4) .............................................
OTHER DATA:
Cash provided by operating activities ................. 9,037 4,154
Cash used in investing activities ..................... (711) (547)
Cash used in financing activities ..................... (7,482) (3,482)
EBITDA(5).............................................. $11,919 $ 8,147
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------
PRO
FORMA
COMBINED(1) AS ADJUSTED(6)
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BALANCE SHEET DATA:
Cash and cash equivalents......... $ 507 $ 19,385
Working capital (deficit) ........ (72,981) 36,036
Total assets...................... 152,005 170,867
Total debt, including current
portion.......................... 21,591 17,350
Stockholders' equity.............. 34,199 144,783
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
---------------
<S> <C>
OPERATING DATA:
Telecommunications services
Number of customers ........ 42,138
Markets ................... 54
Local access lines ......... 1,033
Fiber route miles(7) ....... 915
Direct sales force ......... 65
Total employees ........... 252
Yellow page publishing
Number of advertising
customers(8) .............. 47,000
Markets(8) ................. 25
Direct sales force ........ 177
Total employees ........... 314
</TABLE>
(Footnotes on following page)
8
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- ------------
(1) The pro forma statements of operations data and the pro forma balance
sheet data assume that the Acquisitions were closed on January 1, 1996
and June 30, 1997, respectively, and are not necessarily indicative of
the results the Company would have achieved had these events actually
then occurred or of the Company's future results. The pro forma
combined financial information (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus. The pro forma combined revenues are all attributable to the
Acquired Companies.
(2) Other income for the year ended December 31, 1996 includes a $6.3
million litigation settlement received by Great Western Directories,
Inc.
(3) Assumes that all income is subject to a corporate tax rate of 40% and
that all goodwill amortization is non-deductible for income tax
purposes.
(4) Includes (i) shares issued to the management of and consultants
to ACG, (ii) shares issued in the Acquisitions, and (iii)
of the shares sold in the Offering necessary to pay the cash
portion of the consideration payable in connection with the
Acquisitions and pay expenses of the Offering. Excludes options or
warrants to purchase shares granted prior to or upon consummation of
the Offering.
(5) EBITDA as used in this Prospectus consists of earnings (loss) before
interest, income taxes, depreciation and amortization and less equity
in earnings (loss) of a minority owned affiliate and less the portion
of other income and expense (net) attributable to the $6.3 million
litigation settlement received by Great Western Directories, Inc. in
1996. The Company has included EBITDA data because it is a measure
commonly used in the telecommunications industry. EBITDA is not a
measure of financial performance determined under generally accepted
accounting principles, should not be considered as an alternative to
net income as a measure of performance or to cash flows as a measure of
liquidity, and is not necessarily comparable to similarly titled
measures of other companies.
(6) As adjusted to reflect the closing of the Offering (assuming an initial
public offering price of $ per share) and the application of the
proceeds of the Offering to pay the consideration for the Acquisitions
and to retire $4.6 million of indebtedness. The balance of the net
proceeds of the Offering have been recorded as cash.
(7) Owned by KINNET, of which the Company owns 49%.
(8) For the 12 months ended June 30, 1997.
9
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SUMMARY INDIVIDUAL COMPANY FINANCIAL DATA
The following table presents historical summary income statement data and
EBITDA (as previously defined) for the Acquired Companies and KINNET (see
"The Company") for the three most recent fiscal years as well as the most
recent interim period and comparative period of the prior year, as
applicable. See "Annex M -- Management's Discussion and Analysis of Financial
Condition and Results of Operations of Certain Acquired Companies."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30,(1)
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Great Western Directories, Inc.
Revenues..................................... $29,407 $36,469 $44,324 $25,403 $27,366
Gross profit................................. 11,402 16,673 22,316 14,055 15,092
EBITDA....................................... 969 4,308 7,985 5,548 6,017
Valu-Line of Longview, Inc. and Related
Companies
Revenues..................................... 13,417 13,330 11,181 5,877 5,903
Gross profit................................. 6,243 5,121 4,326 2,240 2,276
EBITDA....................................... 2,947 2,034 1,646 917 630
FirsTel, Inc.
Revenues..................................... 4,079 7,838 10,355 5,043 6,070
Gross profit................................. 914 2,299 3,041 1,573 1,639
EBITDA....................................... (81) 820 1,176 669 487
Feist Long Distance Service, Inc.
Revenues..................................... 5,712 7,924 10,028 4,865 5,741
Gross profit................................. 1,834 2,176 2,936 1,469 1,779
EBITDA....................................... 162 174 702 449 448
Other Acquired Companies(2)
Revenues..................................... 3,940 7,946 7,798 3,958 4,875
Gross profit................................. 1,395 3,797 3,021 1,640 2,393
EBITDA....................................... 350 648 591 356 954
KIN Network, Inc.(3)
Revenues..................................... 3,550 6,497 8,553 3,816 5,610
Gross profit(4).............................. (600) 1,577 3,783 1,660 2,596
EBITDA....................................... (1,407) 514 2,353 899 1,445
Net income (loss)............................ (2,883) (2,055) (792) (557) (312)
</TABLE>
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(1) The historical summary income statement data for (i) all fiscal years
for Great Western Directories, Inc., Valu-Line of Longview, Inc., and
KIN Network, Inc., (ii) for fiscal years 1995 and 1996 for FirsTel,
Inc., and (iii) for fiscal year 1996 for Feist Long Distance, Inc., are
derived from the audited financial statements of such companies
included elsewhere herein. The historical summary income statement data
for the other fiscal years and six month periods for such Acquired
Companies, all information regarding EBITDA and all information for the
Other Acquired Companies, is unaudited. The fiscal years of Long
Distance Management II, Inc. ended on June 30, 1995, 1996 and 1997, and
the fiscal years of Long Distance Management of Kansas, Inc. ended on
March 31, 1995, 1996 and 1997. Rather than information for their fiscal
years, financial information for these two Other Acquired Companies is
included for the twelve months ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997. The fiscal years of
Great Western Directories, Inc. ended on January 31, 1995 and 1996 and
December 31, 1996. Consequently the data for Great Western for the
fiscal years ended January 31, 1996 and December 31, 1996 both include
the month of January 1996. Except for those three Acquired Companies,
all of the Acquired Companies, KINNET and ACG have fiscal years ending
on December 31.
(2) Includes Long Distance Management II, Inc., Long Distance Management of
Kansas, Inc., The Switchboard of Oklahoma City, Inc., Tele-Systems,
Inc. and National Telecom, a proprietorship.
(3) The Company will own 49% of the outstanding voting stock of KINNET, and
hence KINNET's net income or loss will be included in the Company's
financial statements using the equity method of accounting. Such
amounts included in the Company's pro forma combined financial
statements for the fiscal year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997 were $(388,000), $(273,000) and
$(153,000), respectively.
(4) KIN Network, Inc. has historically included depreciation and
amortization not in gross profit, but as a separate item in the
calculation of income (loss) from operations. The Acquired Companies
have presented depreciation and amortization expenses as an element of
gross profit, and for consistency of presentation, in the text of this
Prospectus and the pro forma financial statements, KINNET's
depreciation and amortization expense is included in the calculation of
gross profit. As presented in its historical financial statements
included herein, the gross profit of KINNET for fiscal 1994, 1995 and
1996, and for the six months ended June 30, 1996 and 1997, was (in
thousands) $1,100, $3,402, $5,689, $2,539, and $3,654, respectively.
10
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the factors set forth
herein and are urged to read this Prospectus in its entirety. This Prospectus
contains certain forward-looking statements with respect to the Company's
expectations regarding its business after it has consummated the
Acquisitions. These forward-looking statements are subject to certain risks
and uncertainties which may cause actual results to differ significantly from
such forward-looking statements.
ABSENCE OF COMBINED OPERATING HISTORY OF ACG AND THE ACQUIRED COMPANIES;
RISKS OF INTEGRATING NUMEROUS SEPARATE COMPANIES
ACG was incorporated in Delaware in September 1997 as a subsidiary of its
predecessor, which was incorporated in June 1996. ACG has conducted no
operations other than in connection with the Offering and the Acquisitions.
See "The Company." The Acquired Companies will continue to operate prior to
the consummation of the Offering as separate, independent businesses.
Consequently, the combined and pro forma combined financial information
herein may not be indicative of what the Company's operating results and
financial condition would have been for the periods presented had the
Acquisitions taken place on the dates indicated. Until the Company
establishes centralized accounting, management information and other
administrative systems, it will rely on the separate systems of the Acquired
Companies. The success of the Company will depend, in part, on the extent to
which it is able to centralize these functions, eliminate the unnecessary
duplication of other functions and otherwise integrate the Acquired Companies
and any additional businesses the Company may acquire into a cohesive,
efficient enterprise. Some or all of the Acquired Companies' systems,
hardware and software may be incompatible with those of other Acquired
Companies. The Company's senior management has been assembled only recently,
and there can be no assurance that it will be able to manage successfully the
combined entity or implement effectively the Company's operating, internal
growth or acquisition strategies (including acquisitions that may occur after
the Offering). In addition, the yellow pages business is different from the
Company's telecommunication businesses, and the Company is not aware of any
significant telecommunications company, other than the RBOCs and other local
exchange carriers and competitive local exchange carriers, that has
integrated a yellow pages business with a telecommunications business.
Furthermore, telecommunications providers generally experience higher
customer and employee turnover during and after an acquisition. The
integration of the systems of the Acquired Companies will entail significant
costs and delays can be expected. The failure of the Company to integrate the
Acquired Companies successfully would have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows
and the value of the Common Stock.
ABILITY TO MANAGE GROWTH
The Company's strategy is to expand primarily by internal growth as well
as by acquisition. Therefore the expansion and development of the Company's
business will depend not only on the Company's ability to, among other
things, successfully implement its sales and marketing strategy, evaluate
markets, install facilities, obtain any required government authorizations,
initially negotiate arrangements for the resale of local services with
incumbent local exchange carriers, implement interconnection to, and
co-location with, facilities owned by incumbent local exchange carriers and
obtain appropriately priced unbundled network elements and wholesale services
from the incumbent local exchange carriers ("ILECs"), but also on its ability
to identify, evaluate, negotiate and consummate acquisitions successfully,
all in a timely manner, at reasonable costs and on satisfactory terms and
conditions. Future growth may place a significant strain on the Company's
administrative, operational and financial resources. The Company's ability to
manage its growth successfully will require the Company to centralize and
enhance its operational, management, financial and information systems and
controls and to hire and retain qualified sales, marketing, administrative,
operating and technical personnel. There can be no assurance that the Company
will be able to do so. In addition, as the Company expands into its targeted
markets, there will be additional demands on the customer support, sales,
marketing and administrative resources and the network infrastructures of the
Acquired Companies, which have not been integrated. The Company's inability
to implement its growth strategy successfully or to manage its growth
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition and the value of the Common
Stock.
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<PAGE>
CAPITAL REQUIREMENTS
If the Company is successful in growing its local telecommunications
services business or effecting acquisitions, it will have significant future
capital requirements. The Company believes that the net proceeds of the
Offering after deducting the cash needed for the Acquisitions, together with
cash on hand and borrowings expected to be available under its proposed
credit facility, will provide sufficient funds over the near term. However,
in the event that the Company's plans or assumptions change or prove to be
inaccurate, the Company may be required to seek additional capital sooner
than currently anticipated. There can be no assurance that financing will be
available or that if financing were available, that it would be available on
terms and conditions acceptable to the Company.
DEPENDENCE ON SUCCESSFUL CROSS-SELLING OF EXISTING AND NEW CUSTOMER BASES
The Company intends to expand its revenue base through the marketing of
its bundled telecommunication services to, among others, the aggregate of
approximately 83,000 advertisers in its yellow page directories and the
yellow page directories published by FPI. This cross-selling strategy
presents risks that, singularly or in any combination, could adversely affect
the Company's business, financial condition, results of operations and cash
flows and the value of the Common Stock. These risks include the possible
adverse effects of a failure to coordinate and integrate the sales programs
of the Acquired Companies, a failure to train its sales force effectively to
market its bundled products, a failure to develop compensation and incentive
programs for its sales force that will appropriately motivate them, a failure
to develop and implement a sales program and organize a sales force that
markets effectively the Company's bundled telecommunications services to
yellow page and other customers that do not at present purchase the Company's
telecommunications services, a failure to develop integrated accounting and
management information systems for ACG and the Acquired Companies and any
companies that are acquired in the future, a failure to convert long distance
customers into local service customers and other unanticipated problems that
might arise in connection with the implementation of any new marketing
strategy. Any of the foregoing problems could have a material adverse effect
on the Company's business, results of operations and financial condition and
the value of the Common Stock.
RISKS RELATED TO LOCAL SERVICES STRATEGY
The local dial tone services market has only recently been opened to
competition through the passage of the Telecommunications Act of 1996 (the
"Telecommunications Act") and subsequent state and Federal regulatory actions
designed to implement the Telecommunications Act. Regulatory bodies have not
completed all actions expected to be needed to implement local service
competition, and there is little experience under those decisions that have
been made to date. The Company has begun to act as a CLEC only recently and
on a small scale, and has limited experience in this market. At the time the
Company determines to cease simple resale of local services in some of its
markets and provide those services with its own switches and either leased
unbundled loops or its own fiber optic facilities, the Company will be
required to make significant operating and capital investments in order to
implement its local service strategy and will have to acquire rights-of-way,
easements, conduits, other equipment and facilities and permits. There are
numerous operating complexities associated with providing local services. The
Company will be required to develop new services and systems and will need to
develop new marketing initiatives and train its sales force in connection
with selling these services. The Company will face significant competition
from ILECs, including the RBOCs, whose core business is providing local dial
tone service. The RBOCs, who currently are the dominant providers of local
services in their markets, are expected to mount a significant competitive
response to new entrants in their markets such as the Company. Further, each
of the RBOCs may expand outside of its historical markets into the market
areas of other RBOCs. The Company also will face significant competitive
product and pricing pressures from other ILECs and from other firms seeking
to compete in the local services market. Many of these competitors, including
all of the RBOCs and many CLECs, have far greater experience and operational
administrative and financial resources than the Company. A recent Eighth
Circuit Court of Appeals decision which invalidated the pricing discounts for
such services which had been prescribed by the FCC under the
Telecommunications Act adds uncertainty to the marketplace and could also
have an adverse
12
<PAGE>
effect on the Company's business, financial condition, results of operations
and cash flows and the value of the Common Stock. See "Risk Factors --
Implications of Telecommunications Act and Other Government Regulations."
The Company also expects that the addition of resold local service to its
bundle of telecommunications services will have an adverse impact on its
gross margin because the gross margin on the resale of local services through
an ILEC's facilities is lower than the gross margin on most of the Company's
existing business. See "Management's Discussion and Analysis of Combined
Financial Condition and Results of Operations -- Overview of the Company's
Business."
DEPENDENCE ON DEVELOPMENT OF BILLING, CUSTOMER SERVICE AND MANAGEMENT
INFORMATION SYSTEMS; TECHNOLOGY RISKS
Sophisticated information and processing systems are vital to the
Company's operations and growth and its ability to monitor costs, render
single monthly invoices for bundled services, process customer orders,
provide customer service and achieve operating efficiencies. As the Company
commences providing dial tone and switched local access services in future
years, the need for further enhanced billing and information systems will
increase significantly and the Company will have significant additional
requirements for data interface with RBOCs. Additionally, any subsequent
acquisitions will place additional burdens on the Company's accounting,
information and other systems.
While the Company believes that its software applications are year 2000
compliant, there can be no assurance until the year 2000 occurs that all
systems will then actually function adequately. Further, if the software
applications of local exchange carriers, long distance carriers or others on
whose services the Company depends are not year 2000 compliant, it could have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flows and the value of the Common Stock.
Unanticipated problems in any of the above areas, or the Company's
inability to implement solutions in a timely manner or to upgrade existing
systems as necessary, could have a material adverse impact on the ability of
the Company to reach its objectives and on its financial condition, results
of operations and cash flows and the value of the Common Stock.
In addition to its accounting and information systems, the
telecommunications industry generally is subject to rapid and significant
changes in technology. While the Company believes that for the foreseeable
future these changes will not materially hinder the Company's ability to
acquire necessary technologies, the effect of technological changes on the
business of the Company cannot be predicted. There can be no assurance that
technological developments in telecommunications will not have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows and the value of the Common Stock.
LIMITED TECHNICAL STAFF
The telecommunications industry is highly technical and the Company's
success in designing and operating local and long distance networks and their
components, such as switches, is dependent upon the quality of the Company's
technical support capabilities. While the Acquired Companies have technical
personnel on staff, the Company intends to engage outside technical
consultants and vendors rather than rely solely upon its in-house expertise.
The Company's technical personnel will coordinate and supervise outside
consultants and vendors, which may include KINI, L.C., the entity that
provides management services to KINNET. See "Management." While the Company
will attempt to select consultants and vendors that have the technical
expertise to provide in a timely manner the services required to design,
construct and maintain the Company's network and all additions thereto, a
failure by any consultant or vendor to perform in the anticipated manner
could have a material adverse effect upon the Company's business, financial
condition, results of operations and cash flows and the value of the Common
Stock because the Company could experience customer dissatisfaction and
possible defection and could be forced to contract with other consultants and
vendors and thereby incur time delays or additional costs.
COMPETITION
The telecommunications industry is highly competitive. The Company
competes with long distance carriers in the provision of long distance
services. The United States long distance market includes
13
<PAGE>
approximately 1,000 service providers, but is dominated by four major
competitors: AT&T Corp., MCI Communications Corporation, Sprint Corporation
and WorldCom, Inc. (the "Dominant Long Distance Carriers"). The Company also
faces intense competition from ILECs, including Southwestern Bell and US
WEST, two of the RBOCs, which currently dominate their local
telecommunications markets in the Region, and independently owned
telecommunications companies. Other ILECs and CLECs with which the Company
does not now compete may initiate service in or make acquisitions in the
Region. Other competitors of the Company may include cable television
companies, competitive access providers, microwave and satellite carriers and
private networks owned by large end users. In addition, the Company competes
with RBOCs and other ILECs, numerous direct marketers and telemarketers,
equipment vendors and installers and telecommunications management companies
with respect to certain portions of its business. Many of the Company's
existing and potential competitors have financial and other resources far
greater than those of the Company. Many of the Company's competitors may have
lower overhead and because of their ownership of fiber optic transmission
networks have substantially lower cost of service than the Company.
Consequently, these competitors may be able to provide their services at
lower rates than the Company.
The long distance telecommunications industry has relatively insignificant
barriers to entry, numerous entities competing for the same customers and a
high average churn rate, as customers frequently change long distance
providers in response to the offering of lower rates or promotional
incentives by competitors. As procompetitive regulatory initiatives are
implemented, the RBOCs will become competitors in the long distance
telecommunications industry and various other participants in the long
distance telecommunications industry, including one or more of the Dominant
Long Distance Carriers, also will seek to compete in the local switched
services market. The Company believes that the principal competitive factors
affecting its telecommunications market share are pricing, accurate billing
of a bundle of services on a single invoice, quality of service and customer
dissatisfaction with the services provided by its existing carrier. The
ability of the Company to compete effectively will depend upon its ability to
maintain high quality, market-driven services at prices generally equal to or
below those charged by its competitors. While customers may be willing to pay
to some extent for superior service, the Company believes that to maintain
its competitive posture, it must be in a position to reduce its prices in
order to meet reductions in rates, if any, by others. Any such reductions
could adversely affect the Company's business, financial condition, results
of operations and cash flows and the value of the Common Stock, and the
Company's numerous competitors with greater financial resources may be better
postured to withstand the effects of such reductions. See "Business --
Competition." The Company generally prices its services at a discount to the
primary carrier or carriers in each of its target markets. The Company has
experienced, and expects to continue to experience, declining revenue per
minute in all of its markets as a result of increased competition, although
due to technological innovation and substantial available transmission
capacity, transmission costs in the telecommunications industry often have
declined at a more rapid rate than prices. There can be no assurance that
this relationship will continue. Industry observers predict that, early in
the next decade, telephone charges will no longer be based on the distance a
call is carried. As a consequence, the Company could experience a substantial
reduction in its margins on long distance calls which, absent a significant
increase in billable minutes carried or charges for additional services,
would have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows and the value of the Common
Stock.
Local access telephone services offered by the Company compete principally
with the services offered by the local ILEC. ILECs have long-standing
relationships with their customers and have the potential to subsidize
competitive services with revenues from services they offer in which
competition is less intense. In addition, if ILECs expand their toll free
calling areas, traffic which might otherwise have been carried by the Company
as long distance traffic may be carried by the Company as local traffic, or
carried by the other carrier rather than by the Company.
The Company faces competition in the markets in which it operates from one
or more CLECs that own and operate fiber optic networks, in many cases in
conjunction with the local cable television operator. Each of the Dominant
Long Distance Carriers has indicated its intention to offer local
14
<PAGE>
telecommunications services, either directly or in conjunction with other
competitive access providers or cable television operators. There can be no
assurance that these firms, and others, will not enter the small and
mid-sized markets where the Company currently focuses its sales efforts.
The Company believes that the market for wireless telecommunications
services is likely to expand significantly as equipment costs and service
rates continue to decline, equipment becomes more convenient and functional,
and wireless services become more diverse. The Company has only a small
participation in the wireless services market, and as that market expands the
Company will face increasing competition. The Company also believes that
providers of wireless services increasingly will offer, in addition to
products that supplement customers' landline communications (similar to
cellular telephone services in use today), wireline replacement products that
may result in wireless services becoming customers' primary mode of
communication. The Company anticipates that in the future there could
potentially be several wireless competitors in each of its current or target
markets, including cellular and personal communication services providers.
The Company primarily competes in the markets in which it currently
distributes yellow pages with Southwestern Bell. In expanding its yellow page
business into other service areas in the Region, the Company will face
competition from Southwestern Bell, US WEST and other publishers of existing
directories in the Region. Many of these competitors, including all of the
RBOCs and many other ILECs, have greater financial, operational and
administrative resources than the Company.
IMPLICATIONS OF TELECOMMUNICATIONS ACT AND OTHER REGULATION
The Company's telecommunications services are subject to varying degrees
of federal, state and local regulation. The FCC exercises jurisdiction over
all telecommunications service providers to the extent such services involve
the provision, origination and termination of jurisdictionally interstate or
international telecommunications, including the resale of long distance
services and the provision of local access services necessary to connect
callers to long distance carriers. The state regulatory commissions retain
jurisdiction over services to the extent such services involve the provision,
origination and termination of jurisdictionally intrastate
telecommunications. The Company, as a provider of resale and switch-based
local and long distance telecommunications services, files tariffs with the
FCC and relevant state authorities for local, interstate and international
service on an ongoing basis. Challenges to these tariffs by third parties
could cause the Company to incur substantial legal and administrative
expenses. Additionally, the Company expects that, as its business expands and
as more procompetitive regulatory initiatives pertaining to the local
telecommunications services industry are implemented, it will offer increased
intrastate services which will be subject to state regulation. In its
provision of local telecommunications services, the Company currently is not
subject to price-cap or rate-of-return regulation, nor is it currently
required to obtain FCC authorization for installation or operation of the
facilities used by the Company in providing its domestic services.
The Company believes that the Telecommunications Act and state legislative
and regulatory initiatives have substantially reduced the barriers to local
exchange competition. These initiatives include requirements that the RBOCs
negotiate with entities such as the Company to provide interconnection to the
existing local telephone network, to allow the purchase, at cost-based rates,
of access to unbundled network elements, to establish dialing parity, to
obtain access to rights-of-way and to resell services offered by the ILECs.
See "Business -- Regulation." The Company's plans to provide local switched
services are dependent, among other things, upon obtaining favorable
interconnection agreements with local exchange carriers. In August 1996, the
FCC adopted the Interconnection Decision to implement the interconnection,
resale and number portability provisions of the Telecommunications Act. In
October 1996, the U.S. Eighth Circuit Court of Appeals stayed the
effectiveness of certain portions of the Interconnection Decision, including
provisions establishing a pricing methodology and a procedure permitting new
entrants to "pick and choose" among various provisions of existing
interconnection agreements. Although the judicial stay of the Interconnection
Decision did not prevent the Company from attempting to negotiate
interconnection agreements with local exchange carriers, it did create
uncertainty about the rules governing pricing, terms and conditions of
interconnection agreements, and could make negotiating such agreements more
difficult and protracted. Although the FCC had applied to
15
<PAGE>
the U.S. Supreme Court to vacate the judicial stay, on July 18, 1997, the
U.S. Eighth Circuit Court of Appeals issued an opinion which, among other
things, held that the stay had expired. The decision also invalidated key
elements of the Interconnection Decision and stated that the law grants the
state commissions, not the FCC, the authority to determine rates involved in
the implementation of the local competition provisions of the
Telecommunications Act. More specifically, the court overturned the FCC's
pricing guidelines, the "pick and choose" provisions, and some portions of
the FCC unbundling rules, although it upheld the FCC's list of network
elements that ILEC's must unbundle and other aspects of the Interconnection
Decision. Several interexchange carriers (including AT&T, MCI and Sprint)
have filed a petition for rehearing with the Eighth Circuit requesting the
court to reinstate certain of the FCC rules found unlawful. In another more
recent decision, the Eighth Circuit has also held that the FCC exceeded the
scope of its jurisdiction by issuing rules concerning dialing parity that
affect purely intrastate services. There can be no assurance that the Company
will be able to obtain resale and interconnection agreements on terms
acceptable to the Company.
In early July 1997, the parent company of Southwestern Bell initiated
litigation in the Federal District Court in North Texas challenging the
constitutionality of the Telecommunications Act on four grounds, including a
denial of First Amendment free speech rights. See "Business -- Regulation --
Federal Regulations."
The Telecommunications Act provides the ILECs with new competitive
opportunities. That Act removes previous restrictions concerning the
provision of long distance service by the RBOCs and also provides them with
increased pricing flexibility. Under the Telecommunications Act, the RBOCs
will, upon the satisfaction of certain conditions, be able to offer long
distance services that would enable them to duplicate the "one-stop"
integrated telecommunications approach that the Company intends to use. There
can be no assurance that the anticipated increased competition will not have
a material adverse effect on the Company's business, results of operation and
financial condition and the value of the Common Stock. The Telecommunications
Act provides that rates charged by ILECs for interconnection to their network
are to be nondiscriminatory and based upon the cost of providing such
interconnection, and may include a "reasonable profit," which terms are
subject to interpretation by regulatory authorities. If the ILECs,
particularly the RBOCs, charge alternative providers such as the Company
unreasonably high fees for interconnection to their networks or significantly
lower their rates for access and private line services or offer significant
volume and term discount pricing options to their customers, the Company
could be at a significant competitive disadvantage.
Effective January 1, 1998 ILECs are entitled to charge subscriber
interexchange carrier charges ("PICC") upon switching a customer's service
from one provider to another. At the present time, the Company expects to pay
an approximately $5.00 per customer PICC charge. Unless all interexchange
carriers elect to pass these changes along to their customers, those carriers
that elect to absorb the PICC charge will enjoy a competitive advantage over
those that attempt to pass the charge along to their customers. The Company
believes that larger carriers will be better able to absorb the PICC charges
over the short term, and hence will enjoy a competitive advantage until
market conditions drive the cost of the PICC charge to lower levels. The
Company will determine whether to absorb or pass along the PICC charge once
it assesses the action taken by its competitors. Absorption of the PICC
charge would increase the Company's cost of providing telecommunication
services and consequently would adversely impact the Company's results of
operations and cash flows and could adversely affect the value of the Common
Stock.
Although the Company believes that it is in substantial compliance with
all material laws, rules and regulations governing its operations and has
obtained, or is in the process of obtaining, all licenses, tariffs and
approvals necessary or appropriate to conduct its operations, changes in
existing laws and regulations, or any failure or significant delay in
obtaining necessary regulatory approvals, could have a material adverse
effect on the Company's business, results of operations, financial condition
and cash flows and the value of the Common Stock. Statutes and regulations
which may become applicable to the Company as it expands could require the
Company to alter methods of operations, at costs which could be substantial,
or otherwise limit the types of services offered by the Company.
16
<PAGE>
The telecommunications industry is undergoing dynamic change and
regulatory responses to such change could be sweeping. Larger, more
established telecommunications companies may promote legislation or
regulations which could adversely affect the Company's ability to offer its
services to its targeted customers or to carry out its business plans. There
can be no assurance that the Company will be able to comply with additional
applicable laws, regulations and licensing requirements or have sufficient
resources to take advantage of the opportunities which may arise from this
dynamic regulatory environment. See "Business -- Regulation."
DEPENDENCE ON THIRD-PARTY LONG DISTANCE CARRIERS
The Company is dependent on certain major long distance carriers to
transmit its customers' long distance telephone calls. The Company has
agreements with such long distance carriers that provide it with access to
such carriers' networks for transmission of its customers' calls. Although
the Company believes that it currently has sufficient access to transmission
facilities and long distance networks and believes that its relationships
with its carriers are generally satisfactory, any increase in the rates
charged by carriers or their unwillingness to provide service to the Company
would materially adversely affect the Company's business, financial
condition, results of operations and cash flows and the value of the Common
Stock. Failure to obtain continuing access to such facilities and networks
also would have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease its long distance
operations. In addition, the Company's long distance service operations
require that its switching facilities and its carriers' long distance
networks operate on a continuous basis. It is not atypical for long distance
carriers and switching facilities to experience periodic service
interruptions and equipment failures. It is possible that the Company's
switching facilities and its carriers' long distance networks may from time
to time experience service interruptions or equipment failures resulting in
material delays which would adversely affect consumer confidence as well as
the Company's business operations and reputation, which might ultimately
affect the value of the Common Stock.
DEPENDENCE ON INCUMBENT LOCAL EXCHANGE CARRIERS
The Company intends to obtain the local telephone services of ILEC's on a
wholesale basis and resell that service to end users, particularly in the
early stages of its local telephone service business. To the extent that the
Company resells the local services of an ILEC, the Company and its customers
will be subject to the quality of service, equipment failures and service
interruptions of those carriers, all of which could redound to the Company's
detriment. Even if the Company ultimately constructs its own local network
facilities, it will be dependent on incumbent local exchange carriers for
provision of local telephone service through access to local loops,
termination service and, in some markets, central office switches.
The Company is also dependent on ILECs to provide access service for the
origination and termination of its toll long distance traffic and
interexchange private lines. Historically those access charges have made up a
significant percentage of the overall cost of providing long distance
service. On May 7, 1997, the FCC adopted changes to its interstate access
rules that, among other things, will reduce per-minute access charges and
substitute new per-line flat rate monthly charges. The FCC also approved
reductions in overall access rates, and established new rules to recover
subsidies to support universal service and other public policies. The impact
of these changes on the Company or its competitors is not yet clear. The
Company could be adversely affected if it does not experience access cost
reductions proportionally equivalent to those of its competitors. See
"Business --Regulation."
Any successful effort by the ILECs to deny or substantially limit the
Company's access to their network elements or wholesale services would have a
material adverse effect on the Company's ability to provide local telephone
services which could ultimately have a material adverse effect on its
business, financial condition, results of operations and cash flows and the
value of the Common Stock. Although the Telecommunications Act imposes
interconnection obligations on ILECs, there can be no assurance that the
Company will be able to obtain access to such network elements or services at
rates, and on terms and conditions, that permit the Company to offer local
services at rates that are both profitable and competitive. In order to
provide switched based local service, the Company must negotiate satisfactory
17
<PAGE>
interconnect agreements with Southwestern Bell, US WEST and other ILECs. The
forms of such agreements currently in use do not provide for all material
terms for the resale of local services or access to the unbundled network
elements. Some of such terms may be affected by pending legal proceedings
regarding FCC regulatory requirements. Many issues relevant to the terms and
conditions by which competitors may use an ILEC's network and wholesale
services remain to be resolved. For example, Southwestern Bell, US WEST and
certain other ILECs have taken the position that when a carrier seeking to
provide local service obtains all necessary elements (loops and switches)
from the ILEC in a combined form, the ILEC retains the right to receive the
access revenues associated with service to the customers served on that
basis. See "Business -- Regulation."
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT TEAM
The efforts of a small number of key management and operating personnel
will largely determine the Company's success. The Company's operations depend
on the continuing efforts of its executive officers and the senior management
of the Acquired Companies. Because the Company is a holding company with no
previous operating experience and is seeking to consolidate numerous separate
businesses, it is particularly vulnerable to the loss of one or more members
of management in the near term. In addition, the Company likely will depend
on the senior management of any significant business it acquires in the
future. The Company's business, financial condition, results of operations
and cash flows and the value of the Common Stock could be affected adversely
if any of these persons does not continue in his or her management role after
joining the Company and the Company is unable to attract and retain qualified
replacements. As competition in the telecommunications business has
increased, it has become increasingly difficult and expensive to attract and
retain management personnel. The success of the Company's growth strategy, as
well as the Company's current operations, will depend, in part, on the extent
to which the Company is able to retain, recruit and train qualified personnel
who meet the Company's standards of conduct and service to its customers. The
Company's senior management team has been assembled only recently, and the
Company may seek to augment that team with additional personnel. There can be
no assurance that the management team can function effectively to implement
the Company's business plans. Further, although several members of senior
management have experience in acquisitions and the consolidation of acquired
businesses, several members of senior management have no prior experience in
the telecommunications business. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
On closing of the Acquisitions and the Offering, Consolidation Partners
Founding Fund, L.L.C. ("CPFF"), the executive officers of the Company and
former owners of the Acquired Companies and KINNET will own in the aggregate
approximately % of the outstanding Common Stock. Promptly after the
Offering, CPFF intends to distribute to its owners all shares of Common Stock
owned by it. As a result of such distribution, Consolidation Partners, L.L.C.
("Consolidation Partners"), a limited liability company owned by Rod K.
Cutsinger, Chairman of the Board and Chief Executive Officer of the Company,
his wife and two children, will own approximately % of the then outstanding
shares of Common Stock.
RISKS OF EXPANSION INTO ADDITIONAL YELLOW PAGE MARKETS
The Company's strategy to expand into additional yellow page markets
carries certain risks in addition to those of its expansion plans generally.
To enter a new yellow page market, the Company will typically be required to
increase its sales force if it hopes to communicate effectively with its
proposed new customers. When the Company first expands into a yellow page
market, it often seeks to attract its targeted customers by producing and
publishing a full-scale initial directory with minimal or no charges for
advertising space. Thus for a first directory in a new market, the Company
may have substantial expenses, depending on the size of the directory and the
market, with insignificant offsetting revenues. Additionally, when the
Company enters a new market it has no prior first-hand credit experience with
its advertising customers, and therefore typically has higher bad debt risk
for the first directory in which advertising space is sold. Further, many of
the Company's yellow page advertisers pay for their advertisements in
installments over terms of twelve months.
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<PAGE>
RISKS RELATED TO ACQUISITIONS
A portion of the Company's future growth is expected to come through the
acquisition of companies engaged in the various aspects of the
telecommunications and yellow page publishing businesses. Other companies,
including existing publicly owned telecommunications companies, which have
objectives similar to those of the Company, may be actively evaluating the
same companies that would otherwise be targeted for acquisition by the
Company. A number of these acquiring companies may have greater resources
than the Company to finance acquisition opportunities and might be willing to
pay higher prices than the Company. Further, as competition for acquisitions
increases, the prices for the companies to be acquired are likely to increase
as well. Consequently, the Company may encounter significant difficulties in
its efforts to achieve growth through acquisitions. Its acquisition strategy
presents risks that, singularly or in any combination, could materially
adversely affect the Company's business, financial condition, results of
operations and cash flows and the value of the Common Stock. These risks
include the possibility of an adverse effect on existing operations of the
Company from the diversion of management attention and resources to
acquisitions, the possible loss of acquired customer bases and key personnel
and the contingent and latent risks associated with the past operations of
and other unanticipated problems arising in the acquired businesses. Customer
dissatisfaction or performance problems of a single acquired company could
have an adverse effect on the reputation of the Company generally and render
the Company's sales and marketing initiatives ineffective. Whether the
Company's acquisition strategy is successful will depend on the extent to
which it is able to acquire, successfully integrate and profitably manage
additional businesses, and no assurance can be given that the Company's
strategy will succeed.
The Company may use Common Stock, cash, notes or other consideration to
effect future acquisitions. The extent to which the Company will be able or
willing to use the Common Stock for this purpose will be dependent on its
market value from time to time and the willingness of potential sellers to
accept the Common Stock as payment. To the extent the Company is unable or
unwilling to use its Common Stock to make future acquisitions, its ability to
grow may be limited by the extent to which it is able to raise capital for
this purpose, as well as to expand existing operations, through debt or
additional equity financings. Significant incurrences of debt for
acquisitions or other purposes would increase the Company's leverage and
could adversely affect its business, financial condition, results of
operations and cash flows and the value of the Common Stock. See
"Management's Discussion and Analysis of Combined Financial Condition and
Results of Operations -- Combined Liquidity and Capital Resources."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
On closing of the Acquisitions and the Offering, shares of Common
Stock will be outstanding. The shares sold in the Offering (other than
shares that may be purchased by affiliates of the Company) will be freely
tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act, or pursuant
to an available exemption (such as that provided by Rule 144 following a one
or two year holding period from the registration requirements of the
Securities Act of 1993, as amended (the "Securities Act")). The holders of
substantially all of the remaining shares have certain rights to require the
Company to file a registration statement with respect to their shares
registered in the future under the Securities Act (see "Shares Eligible for
Future Sale"), but may not exercise such registration rights for a period of
one year following the closing of the Acquisitions. Sales made pursuant to
Rule 144 must comply with its applicable volume limitations and other
requirements.
On closing of the Offering, the Company also will have outstanding options
and warrants to purchase up to a total of shares of Common Stock.
The Company has agreed not to offer or sell any shares of Common Stock for
a period of 180 days following the date of this Prospectus, subject to
certain exceptions, without the prior written consent of PaineWebber
Incorporated, provided that the Company may issue shares of Common Stock in
acquisitions if such Common Stock is subject to similar lock-up provisions.
The Company's directors, its executive officers, all persons who acquire
shares of Common Stock in connection with the Acquisitions and CPFF have
agreed not to offer or sell any shares for a period of one year following the
date of this Prospectus (the "Lock-up Period"), subject to certain
exceptions, without the prior written consent of
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<PAGE>
PaineWebber Incorporated. In addition, Rod K. Cutsinger, the Chairman of the
Board of Directors and Chief Executive Officer of the Company, has agreed not
to offer or sell any of his shares during a period ending on March 31, 1999,
subject to certain exceptions, without the prior written consent of
PaineWebber Incorporated. See "Underwriting."
The effect, if any, of the availability for sale, or sale, of shares of
Common Stock will have on the market price of the Common Stock prevailing
from time to time is unpredictable, and no assurance can be given that the
effect will not be adverse.
NO PRIOR MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which has been determined by
negotiation between the Company and representatives of the Underwriters, may
not be indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting." The Company is applying for the listing of the
shares of Common Stock on the New York Stock Exchange; however, no assurance
can be given that an active trading market for the Common Stock will develop
or, if developed, continue after the Offering. The market price of the Common
Stock after the Offering may be subject to significant fluctuations from time
to time in response to numerous factors, including variations in the reported
financial results of the Company, actions and recommendations of securities
analysts, and changing conditions in the economy in general or in the
Company's industry in particular. In addition, the stock markets experience
significant price and volume volatility from time to time which may affect
the market price of the Common Stock for reasons unrelated to the Company's
performance at that time.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $ per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of Common Stock in connection with future acquisitions.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE
LAW
The terms of the Company's Restated Certificate of Incorporation, as well
as the concentration of ownership of the Common Stock and the Company's
ability to issue up to 20,000,000 "blank check" shares of preferred stock may
have the effect of discouraging proposals by third parties to acquire a
controlling interest in the Company, which could deprive stockholders of the
opportunity to consider an offer to acquire their shares at a premium price
to them. These provisions include (i) a classified Board of Directors, (ii)
the ability of the Board of Directors to establish a sinking fund for the
purchase or redemption of shares, fix the number of directors within a
certain range and fill vacancies on the Board of Directors, and (iii)
restrictions on the ability of stockholders to call special meetings, act by
written consent or amend the foregoing provisions. In addition, under certain
conditions Section 203 of the DGCL would impose a three-year moratorium on
certain business combinations between the Company and an "interested
stockholder" (in general, a stockholder owning 15% or more of a corporation's
outstanding voting stock). The existence of such provisions may have a
depressive effect on the market price of the Common Stock in certain
situations. While the Company has not adopted a stockholders' rights plan,
the Company has the power to do so under Delaware law. See "Description of
Capital Stock -- Provisions Having Possible Anti-Takeover Effect."
NO DIVIDENDS
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes and does not
anticipate paying any cash dividends on its Common Stock for the foreseeable
future. In addition, the Company's proposed credit facility may contain
certain significant restrictions on the ability of the Company to pay
dividends. See "Dividend Policy" and "Management's Discussion and Analysis of
Combined Financial Condition and Results of Operations -- Combined Liquidity
and Capital Resources."
20
<PAGE>
THE COMPANY
ACG: ACG was founded to create a regional CLEC that provides an integrated
portfolio of telecommunications services principally to business customers in
the Region. The Company offers long distance, local, Internet access and
cellular service and other enhanced services, primarily in Kansas, Nebraska,
North Dakota, South Dakota, Oklahoma and Texas. As of September 30, 1997, the
Company provided telecommunications services to over 32,000 business
customers and almost 10,000 residential customers, typically located in
mid-sized to smaller markets. The Company is also an independent publisher of
yellow page directories. As of September 30, 1997, the Company had
approximately 240 direct sales personnel and 30 telemarketing personnel. The
Company is entering into these businesses concurrently with the Offering by
acquiring the nine Acquired Companies, its predecessor and its interest in
KINNET. The Company had pro forma combined revenues of $85.4 million and
EBDITA of $11.9 million in fiscal 1996. See "Certain Transactions --
Organizational Transactions" and "--The Acquisitions." The following is a
description of the operating companies involved in the Acquisitions:
GREAT WESTERN: Great Western Directories, Inc. ("Great Western"), founded
in 1984 and headquartered in Amarillo, Texas, produces and distributes
approximately three million yellow page directories annually covering 20
service areas in Texas and Oklahoma, and also publishes three yellow page
directories in California. During the twelve months ended September 30, 1997,
Great Western published 20 yellow page directories covering markets in the
Region that contained advertisements for approximately 47,000 primarily small
to mid-sized business customers. Great Western's revenues and EBITDA for
fiscal 1996 were $44.3 million and $8.0 million, respectively.
VALU-LINE: Valu-Line of Longview, Inc. ("Valu-Line"), headquartered in
Longview, Texas, was founded in 1983. Valu-Line utilizes a Harris 2020 LX
digital tandem and local switch located in Dallas, Texas, and as of September
30, 1997, provided long distance services to approximately 10,000 customers.
Valu-Line has recently received authorization to provide local telephone
service in Texas, and as of September 30, 1997 Valu-Line provided local
service to approximately 1,500 access lines on a resale basis through
Southwestern Bell to customers in North and East Texas. Valu-Line's revenues
and EBITDA for fiscal 1996 were $11.2 million and $1.6 million, respectively.
FIRSTEL: FirsTel, Inc. ("FirsTel") headquartered in Sioux Falls, South
Dakota, was founded in 1993. FirsTel operates a switch center in Sioux Falls
that includes three linked Harris 2020 digital tandem switches and, as of
September 30, 1997, provided bundled telecommunications service for 7,500
customers in North Dakota, South Dakota, Nebraska, Iowa, Minnesota, Montana,
Wyoming, Colorado, and Idaho. As of September 30, 1997, FirsTel provided
local service to approximately 3,000 access lines on a resale basis through
US WEST to customers in North Dakota and South Dakota. FirsTel has recently
secured authorization to provide local service in Nebraska, Minnesota and
Wyoming and has an application pending to provide local service in Iowa.
FirsTel began offering cellular service on a resale basis in South Dakota in
February 1997 and had approximately 1,600 cellular subscribers as of
September 30, 1997. FirsTel's revenues and EBITDA for fiscal 1996 were $10.4
million and $1.2 million, respectively. In early September 1997, FirsTel
acquired two small long distance companies whose combined revenues for fiscal
1996 were $1.7 million.
FEIST LONG DISTANCE: Feist Long Distance Service, Inc. ("Feist Long
Distance"), headquartered in Wichita, Kansas, was founded in 1992 by the
stockholders of FPI, a yellow page publisher that has been in business for 20
years. Feist Long Distance utilizes a Northern Telecom DMS 250 digital tandem
switch located in Wichita, Kansas, and as of September 30, 1997, provided
primarily long distance services to approximately 14,000 customers. Feist
Long Distance received authorization in March 1997 to provide local telephone
service in Kansas and has an application pending to provide local service in
Oklahoma. As of September 30, 1997, Feist Long Distance provided local
service to approximately 5,100 access lines on a resale basis through
Southwestern Bell to customers in the Wichita, Kansas metropolitan area.
Feist Long Distance's revenues and EBITDA for fiscal 1996 were $10.0 million
and $0.7 million, respectively.
OTHER ACQUIRED COMPANIES: The Other Acquired Companies (Long Distance
Management II, Inc., Long Distance Management of Kansas, Inc., The
Switchboard of Oklahoma City, Inc., Tele-Systems, Inc. and National Telecom,
a proprietorship) include three other small long distance companies and two
21
<PAGE>
telephone equipment sales and service companies. As of September 30, 1997,
the Other Acquired Companies provided long distance service to approximately
8,600 customers and also provided telephone equipment and related maintenance
services to over 2,800 customers in the Wichita, Kansas market. The Other
Acquired Companies' combined revenues and EBITDA for fiscal 1996 were $7.8
million and $0.6 million, respectively.
KINNET: KINNET, headquartered in Salina, Kansas, operates an approximately
900 route mile fiber optic network in Kansas that connects 105 Kansas
communities. KINNET sells private line services of DS0, DS1 and DS3 capacity
to interexchange companies, cellular companies, independent local telephone
companies, business and governmental accounts and others, including Feist
Long Distance. KINNET also operates a Northern Telecom DMS 500 digital tandem
and local switch located in Moundridge, Kansas capable of handling both long
distance and local services, at the center of KINNET's fiber optic network.
In 1996, KINNET provided 104 million minutes of equal access time or 1+
dialing service for approximately 18 independent local telephone companies in
Kansas. ACG will account for its 49% ownership interest in KINNET by using
the equity method of accounting. KINNET's revenues and EBITDA for fiscal 1996
were $8.6 million and $2.4 million, respectively.
As part of the consideration in the KINNET acquisition, the Company issued
its shares to the existing stockholder of KINNET, and it also made a $10.0
million direct cash investment in KINNET, $5.0 million of which KINNET has
agreed to apply to the buildout in 1998 and 1999 of a 537-mile, $21.5 million
network extension from Wichita, Kansas to the greater Kansas City
metropolitan area, with a leg to Tulsa, Oklahoma that will provide
self-healing redundancy to its fiber optic network. KINNET has advised the
Company that it expects to finance the balance of the expansion with proceeds
from the Rural Telephone Finance Cooperative ("RTFC").
STRATEGIC RELATIONSHIP: The Company has a strategic relationship with
Feist Publications, Inc. During the twelve months ended September 30, 1997,
FPI sold advertisements in its yellow page directories published during the
period to approximately 36,000 business customers in Kansas, Texas and
Oklahoma. FPI has agreed, for a period of five years, to provide the Company
access to its advertising customers and to provide eight information pages in
the front of its directories with instructions on how to subscribe to the
Company's services as well as free advertising space in each of FPI's 15
yellow page directories that are currently in publication.
SUMMARY OF TERMS OF THE ACQUISITIONS
ACG has entered into definitive acquisition agreements to acquire each of
the Acquired Companies, its predecessor and its interest in KINNET. The
aggregate consideration to be paid by ACG in the Acquisitions consists of
approximately $76.8 million in cash to stockholders of the Acquired
Companies, $10.0 million as a direct cash investment in KINNET, a fiber optic
network company, promissory notes in the aggregate principal amount of $17.4
million, shares of Common Stock (assuming an initial public offering price
of $ per share, the midpoint of the initial public offering price range),
options or warrants granted or issued in June 1997 to purchase 2,000,000
shares of Common Stock exercisable at $2.50 per share, and options or
warrants to be issued at the closing to purchase 598,500 shares of Common
Stock exercisable at the initial public offering price and 38,635 shares of
Common Stock exercisable at one-third of the initial public offering price.
Additional shares of Common Stock may be issued in the acquisition of FirsTel
if a company recently acquired by FirsTel reaches certain customer targets by
early November 1997. Further, prior to the closing of the Acquisitions,
certain of the Acquired Companies that are S Corporations will make cash
distributions to their stockholders in amounts generally equal either to the
undistributed retained earnings of the S Corporations, or the income tax due
on those amounts, subject to certain limitations. Had these distributions
been made at June 30, 1997, they would have been approximately $1.3 million.
To the extent these Acquired Companies have additional earnings after June
30, 1997, the amounts of these distributions will increase. Additionally, ACG
will also acquire from the stockholders of Feist Long Distance and FirsTel,
together with the stock of those companies, approximately $0.7 million and
$1.0 million, respectively, of notes owed by those corporations to certain of
their stockholders. See "Certain Transactions -- The Acquisitions."
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<PAGE>
The following table sets forth certain summary information relating to the
acquisition of the Acquired Companies and the interest in KINNET, including
the consideration payable, anticipated debt of the Acquired Companies and
estimated cash distributions by S Corporations. See "The Company" and the
separate financial statements for certain of the Acquired Companies and
KINNET listed below included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSIDERATION
---------------------------------------------------
ANTICIPATED
ACQUIRED NUMBER OF DEBT OF ESTIMATED
COMPANIES SHARES OF ACQUIRED S CORPORATION
AND KINNET(1) COMMON STOCK(2) CASH NOTES OTHER COMPANIES(3) DISTRIBUTIONS(4)
- -------------- --------------- ------------ ------------ ------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Great Western . $55,000 $15,000(5) (6) $ -- $ 798
Valu-Line...... 6,600 -- -- 1,575 16
FirsTel........ 5,000 2,000(7) (8) 232(9) 13
Feist Long
Distance...... 5,000 -- -- 252 336
Other Acquired
Companies..... 5,236 350(10) (11) 307 124
KINNET......... (12) 10,000(12) -- N/A N/A
--------------- ------------ ------------ ------- ------------- --------------
Total........ $86,836 $17,350 $2,366 $1,287
=============== ============ ============ ======= ============= ==============
</TABLE>
- ------------
(1) In each case represents the acquisition of all of the stock or
substantially all of the assets, except KINNET, where the Company is
acquiring 49% of outstanding capital stock.
(2) The number of shares of Common Stock issued in the Acquisitions
depends on the initial public offering price. The definitive
agreements with respect to the various Acquisitions provide that the
number of shares of Common Stock to be issued in each Acquisition
shall be calculated by dividing the initial public offering price
into the following dollar amounts: Great Western -- $10.0 million;
Valu-Line -- $5.2 million; FirsTel -- $11.1 million; Feist Long
Distance -- $10.0 million; Other Acquired Companies -- $1.2 million;
and KINNET -- $10.0 million.
(3) Includes long term debt outstanding as of June 30, 1997 and
anticipated borrowings necessary for S Corporation distributions.
Does not include approximately $1.7 million of notes owed to
stockholders of Feist Long Distance and FirsTel which will be
acquired by ACG in the Acquisitions.
(4) These S Corporation distributions are estimated as of June 30, 1997,
and are shown net of any distributions made by the Acquired Companies
during the first six months of fiscal 1997.
(5) Notes mature on the second anniversary date of the closing of the
Acquisitions, bear interest at 5% per annum, payable annually, and
are subordinated to the first $50.0 million of outstanding bank debt.
(6) Includes 2,000,000 non-transferable ten-year warrants to purchase
Common Stock exercisable at $2.50 per share granted in June 1997 and
500,000 non-transferrable five-year warrants to purchase Common Stock
at the initial public offering price issued at the closing of the
Acquisitions.
(7) Notes are convertible into Common Stock at the initial public
offering price, mature on the second anniversary date of the closing
of the Acquisitions, bear interest at 10% per annum, payable
annually, and are subordinated to the first $50.0 million of
outstanding bank debt.
(8) Includes 50,000 non-transferrable five-year warrants to purchase
Common Stock at the initial public offering price issued at the
closing of the Acquisitions.
(9) Includes obligations of $101,000 incurred by FirsTel in connection
with two acquisitions it made in September 1997 which will be paid
out of the proceeds of the Offering.
(10) Note bears interest at 7% per annum, and is payable in three equal
installments plus accrued interest, payable on the first three
anniversary dates of the closing of the Acquisitions.
(11) Includes 12,500 ten-year options and 36,000 ten-year warrants to
purchase Common Stock exercisable at the initial public offering
price and 38,635 ten-year options to purchase Common Stock at
one-third of the initial public offering price. These 38,635 options
vest as an entirety at the end of the 37th month following the
closing of the Acquisitions, may be put back to the Company for
$155,000 during the 38th month following the closing of the
Acquisitions, and are subject to cancellation if the terms of certain
employment and non-competition agreements are violated. A stockholder
of one of the Other Acquired Companies may receive up to 12,500
additional ten-year options to purchase Common Stock at the initial
public offering price if his company meets certain financial tests
subsequent to the closing.
(12) The shares are being issued to the stockholder of KINNET, and the
$10.0 million cash component is a direct cash investment in KINNET.
23
<PAGE>
The consideration being paid by ACG in the Acquisitions was determined by
arm's length negotiations between representatives of ACG and each of the
respective companies. The closing of each Acquisition is subject to customary
conditions. These conditions include, among others, the accuracy on the
closing date of the Acquisitions of the representations and warranties made,
their principal stockholders and ACG; the performance of each of their
respective covenants included in the agreements relating to the Acquisitions;
and the nonexistence of a material adverse change in the results of
operations, financial condition or business of each of the companies being
acquired.
Each agreement relating to an Acquisition may be terminated, under certain
circumstances, prior to the closing of the Offering (i) by the mutual consent
of the boards of directors of ACG and the relevant company being acquired;
(ii) if the Offering and the acquisition of that company are not closed by
January 31, 1998; (iii) by ACG if the schedules to the acquisition agreement
are amended to reflect a material adverse change; or (iv) if a material
breach or default under the agreement by one party occurs and is not waived.
No assurance can be given that the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each Acquisition will close.
For information regarding the employment agreements to be entered into by
certain officers of certain of the Acquired Companies (which include
covenants not to compete), see "Management -- Employment Agreements."
DIVIDEND POLICY
It is the Company's current intention to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes and
the Company expects that it will not pay any dividends for the foreseeable
future. Any future dividends will be at the discretion of the Board of
Directors after taking into account various factors, including, among others,
the Company's financial condition, results of operations, cash flows from
operations, current and anticipated cash needs, general business conditions,
the income tax laws then in effect, the requirements of Delaware law, the
restrictions that may be imposed by the Company's proposed $20 million
revolving credit facility to finance the Company's working capital
requirements ("Proposed Credit Facility"), any restrictions that may be
imposed by the Company's future indebtedness and such other factors as the
Board of Directors deems relevant. The Proposed Credit Facility may place
limitations on the payment of dividends (except for dividends payable in
Common Stock and certain preferred stock). See "Management's Discussion and
Analysis of Combined Financial Condition and Results of Operations --
Combined Liquidity and Capital Resources."
24
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby, after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company, are estimated to be
approximately $ million (approximately $ million if the Underwriters
exercise their over-allotment option in full). Of those net proceeds, $76.8
million will be used to pay the aggregate cash portion of the purchase price
for the Acquired Companies, $10.0 million will be used to make a direct cash
investment in KINNET, a fiber optic network company, and the remaining net
proceeds will be used for (i) the concurrent repayment of outstanding
indebtedness of the Acquired Companies (approximately $2.4 million) and of
ACG to CPFF (approximately $2.2 million); and (ii) general corporate
purposes, including infrastructure buildout and acquisitions. See "Certain
Transactions -- Organization of the Company."
The indebtedness of the Acquired Companies to be repaid from the proceeds
of the Offering (some of which has been guaranteed by stockholders of the
Acquired Companies) bears interest at rates ranging from 5.75% to 18.6% per
annum. Such indebtedness would otherwise mature at various dates through
August 2005. The indebtedness of ACG to CPFF bears interest at 8% per annum
and is payable on the earlier of the effectuation of an initial public
offering by ACG or December 31, 1998.
25
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, the cash, short-term
debt and current maturities of long-term obligations and capitalization of
(i) ACG and its predecessor on an actual basis, (ii) the Company on a pro
forma combined basis to give effect to the Acquisitions, and (iii) the
Company on a pro forma combined basis to give effect to the Acquisitions, as
further adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Unaudited Pro Forma Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
COMPANY
COMPANY PRO FORMA
PRO AS
ACG FORMA ADJUSTED
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................... $ 3 $ 507 $ 19,385
========= ========== ===========
Short-term debt and current maturities of long-term
obligations
8% promissory note payable to CPFF........................... $ 1,295 $ 1,295 $ --
Other(1)..................................................... -- 1,597 117
Obligation for cash portion of consideration for Acquisitions . -- 86,836 --
Long-term debt:
Long-term debt of Acquired Companies, less current
maturities.................................................. -- 1,567 --
5% Subordinated Notes(2)..................................... -- 15,000 15,000
10% Convertible Subordinated Notes(3)........................ -- 2,000 2,000
7% Note, less current maturities(4).......................... -- 233 233
Stockholders' equity:
Preferred Stock: $0.0001 par value, 20,000,000 shares
authorized: no shares issued and outstanding................ -- -- --
Common Stock: $0.0001 par value, 180,000,000 shares
authorized: shares issued and outstanding ACG;
shares issued and outstanding, Company pro forma;
shares issued and outstanding Company pro forma as
adjusted(5).................................................
Additional paid-in capital................................... 5,582 41,109 151,693
Retained earnings............................................ (6,910) (6,910) (6,910)
--------- ---------- -----------
Total stockholders' equity.................................. (1,328) 34,199 144,783
--------- ---------- -----------
Total debt and capitalization.............................. $ (33) $142,727 $162,133
========= ========== ===========
</TABLE>
- ------------
(1) Includes $101,000 payable by FirsTel in connection with the
acquisitions of two companies in September 1997.
(2) Notes mature on the second anniversary date of the closing of the
Acquisitions and are subordinated to the first $50.0 million of
outstanding bank debt.
(3) Notes are convertible into Common Stock at the initial public offering
price, mature on the second anniversary date of the closing of the
Acquisitions and are subordinated to the first $50.0 million of
outstanding bank debt.
(4) Note is payable in three annual installments on the first, second and
third anniversary dates of the closing of the Acquisitions.
(5) Excludes an aggregate of shares of Common Stock issuable upon the
exercise of options granted pursuant to the Company's 1997 Stock Awards
Plan, the Directors' Plan or otherwise issuable upon the exercise of
warrants issued prior to or contemporaneously with the consummation of
the Offering at exercise prices ranging from to the initial public
offering price. See "Management -- 1997 Stock Awards Plan."
26
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
was approximately $ , or approximately $ per share, after giving
effect to the Acquisitions. The pro forma net tangible book value per share
represents the Company's pro forma net tangible assets as of June 30, 1997,
divided by the number of shares to be outstanding after giving effect to the
Acquisitions. After giving effect to the sale of the shares offered
hereby at an assumed initial public offering price of $ per share (the
midpoint of the initial public offering price range) and deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
June 30, 1997 would have been approximately $ or approximately $
per share. This represents an immediate increase in pro forma net tangible
book value of approximately $ per share to existing stockholders and an
immediate dilution of approximately $ per share to new investors
purchasing shares in the Offering. The following table illustrates this pro
forma dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share before the Offering ...... $
Increase in pro forma net tangible value per share attributable to
new investors .......................................................
------------
Pro forma net tangible book value per share after the Offering .......
------------
Dilution per share to new investors................................... $
============
</TABLE>
The following table sets forth on a pro forma basis to give effect to the
Acquisitions as of June 30, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the
new investors purchasing shares from the Company in the Offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
------------------------ ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders .... % $ % $
New investors.............
----------- ----------- ------------ -----------
Total................... 100% $ 100%
=========== =========== ============ ===========
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the
combined stockholders' equity of ACG and the Acquired Companies before
the Offering, adjusted to reflect the payment of $86.8 million in cash
as part of the consideration for the acquisition of the Acquired
Companies and the interest in KINNET.
27
<PAGE>
SELECTED FINANCIAL DATA
ACG will effect the Acquisitions concurrently with and as a condition to
the consummation of the Offering. For financial statement presentation
purposes, ACG has been identified as the "accounting acquiror." The following
selected financial data for ACG as of December 31, 1996 and for the period
from inception to December 31, 1996, has been derived from the audited
financial statements of ACG. The selected historical financial data for ACG
as of and for the six months ended June 30, 1997 have been derived from
unaudited financial statements of ACG which have been prepared on the same
basis as the audited financial statements and, in the opinion of ACG, reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of such data. The selected unaudited pro forma
combined financial data for the Company as of June 30, 1997, and for the year
ended December 31, 1996 and the six months ended June 30, 1996 and 1997, are
as adjusted for (i) the effects of the Acquisitions; (ii) the effects of
certain pro forma adjustments to the historical financial statements and
(iii) the consummation of the Offering and the application of the net
proceeds therefrom as set forth under "Use of Proceeds" and recording the
balance as cash. See the Unaudited Pro Forma Combined Financial Statements
and the notes thereto and the historical financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 6, 1996)
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
ACG
Revenues................................... $ -- $ --
Selling, general and administrative
expenses.................................. 649 6,182 (1)
Net loss................................... (659) (6,252)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
THE COMPANY
PRO FORMA COMBINED(2)
Revenues
Telecommunications services............... $41,090 $23,446
Yellow page publishing.................... 44,324 27,366
----------------- ----------------
Total revenues.......................... 85,414 50,812
Cost of services............................ 47,479 26,692
Depreciation and amortization(3)............ 4,253 1,926
----------------- ----------------
Gross profit................................ 33,682 22,194
Selling, general and administrative
expenses................................... 26,182 16,144
----------------- ----------------
Operating income............................ 7,500 6,050
Other income and expense, net(4)............ 6,448 171
Interest expense............................ (974) (487)
Equity in earnings (loss) of KINNET ........ (814) (366)
----------------- ----------------
Income before tax........................... 12,160 5,368
----------------- ----------------
Net income(5)............................... $ 6,241 $ 2,555
================= ================
Net income per share........................ $ $
Shares used in computing pro forma net
income per share(6)........................
Cash provided by operating activities ...... 9,037 4,154
Cash used in investing activities........... (711) (547)
Cash used in financing activities........... (7,482) (3,482)
EBITDA(7)................................... $11,919 $ 8,147
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
ACG JUNE 30, 1997
-------------------------- -----------------------
DECEMBER 31, JUNE 30, AS
1996 1997 PRO FORMA ADJUSTED
-------------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 33 $ 3 $ 507 $ 19,385
Working capital (deficit) .......... (689) (1,845) (72,981) 36,036
Total assets........................ 92 526 152,005 170,867
Total debt, including current
portion............................ 575 1,295 21,591 17,350
Stockholders' equity................ (632) (1,328) 34,199 144,783
</TABLE>
- ------------
(1) Reflects a nonrecurring, non-cash compensation charge of $5.6 million
recorded in the quarter ended June 30, 1997 related to options to
purchase Common Stock issued to management of ACG which amount has been
reversed as a non-recurring expense item.
(2) The pro forma statements of operations data and the pro forma balance
sheet data assume that the Acquisitions were closed on January 1, 1996
and June 30, 1997, respectively, and are not necessarily indicative of
the results the Company would have obtained had these events actually
then occurred or of the Company's future results. The pro forma
combined financial information (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus. The pro forma combined revenues are all attributable to the
Acquired Companies.
(3) Includes $2.6 million and $1.3 million of amortization for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively, on the estimated $104.0 million of goodwill to be
recorded as a result of the Acquisitions computed on the basis
described in Notes to the Unaudited Pro Forma Combined Financial
Statements.
(4) Other income for the year ended December 31, 1996 includes a $6.3
million litigation settlement received by Great Western.
(5) Assumes that all income is subject to a corporate tax rate of 40% and
that all goodwill amortization is non-deductible for income tax
purposes.
(6) Includes (i) shares issued to the management of and consultants to ACG,
(ii) shares issued in the Acquisitions, and (iii) of the shares sold in
the Offering necessary to pay the cash portion of the consideration
payable in connection with the Acquisitions and pay expenses of the
Offering. Excludes options or warrants to purchase shares granted prior
to or upon consummation of the Offering.
(7) EBITDA as used in this Prospectus consists of earnings (loss) before
interest, income taxes, depreciation and amortization and less equity
in earnings (loss) of a minority owned affiliate and less the portion
of other income and expense (net) attributable to the $6.3 million
litigation settlement received by Great Western in 1996. The Company
has included EBITDA data because it is a measure commonly used in the
telecommunications industry. EBITDA is not a measure of financial
performance determined under generally accepted accounting principles,
should not be considered as an alternative to net income as a measure
of performance or to cash flows as a measure of liquidity, and is not
necessarily comparable to similarly titled measures of other companies.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMBINED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, the notes thereto and the other financial data included elsewhere
in this Prospectus. The following discussion contains certain forward-looking
statements with respect to the Company's expectations regarding its business
after it has consummated the Acquisitions. These forward-looking statements
are subject to certain risks and uncertainties which may cause actual results
to differ significantly from such forward-looking statements. See "Risk
Factors."
See Annex M for Management's Discussion and Analysis of Financial
Condition and Results of Operations for Certain Acquired Companies, including
Great Western, Valu-Line, FirsTel, Feist Long Distance and KINNET.
OVERVIEW OF THE COMPANY'S BUSINESS
The Company derives its revenues primarily from the provision of
telecommunications services in the Region and the sale of advertising space
in yellow page directories serving market areas in Texas, Oklahoma and
California.
Telecommunications Services Revenues and Price Declines
The Company's telecommunications services principally include long
distance and local services, Internet access, cellular service and other
enhanced services. Its telecommunications revenues are derived principally
from minutes of long distance telecommunications traffic carried. The
following table shows the domestic revenue per minute, domestic cost per
minute and millions of domestic billable minutes of use attributable to the
Company's combined long distance operations for 1994, 1995, 1996 and the six
months ended June 30, 1996 and 1997. See "--Introduction to Acquisitions"
below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue per minute.................. $0.1512 $0.1458 $0.1425 $0.1450 $0.1345
% change.......................... (3.6)% (2.3)% (7.2) %
Cost per minute..................... $0.0950 0.0877 $0.0777 $0.0773 0.0687
% change.......................... (7.7)% (11.4)% (11.1 )%
Millions of billable minutes of use. 168.4 238.3 264.3 128.4 151.3
% change.......................... 41.5% 10.9% 17.8%
</TABLE>
The Company generally prices its long distance services at a discount to
the primary carrier or carriers in each of its markets. The Company has
generally experienced and expects to continue to experience declining revenue
per minute in all of its markets as a result of increased competition,
although, due to technological innovation and substantial available
transmission capacity, transmission costs in the telecommunications industry
have often declined at a more rapid rate than prices. There can be no
assurance that this relationship will continue. Industry observers predict
that, early in the next decade, telephone charges will no longer be based on
the distance a call is carried. As a consequence, the Company could
experience a substantial reduction in its margins on long distance calls
which, absent a significant increase in billable minutes of traffic carried
or charges for additional services, would have a material adverse effect on
the Company's financial position and results of operations and could have a
material adverse effect on the price of the Common Stock.
Local service revenues, which are currently not material but which the
Company expects to increase in future periods, represent the resale at a
discount of the local carrier services provided primarily by Southwestern
Bell and US WEST. In most of the Company's market areas, local service is
sold on a flat monthly fee basis. The Company has only recently commenced
reselling cellular service in a limited portion of the Region, and the
revenues generated to date from these activities have not been material.
30
<PAGE>
Yellow Page Publishing
Yellow page publishing revenues are attributable to the sale of
advertising space in the directories that serve its 17 market areas in Texas,
three market areas in Oklahoma and six market areas in California. Revenues
are recognized when each directory is published. The Company has decided to
discontinue three of those directories in California, which produced revenues
of $2.3 million in fiscal 1996. Because of the timing of the discontinuation,
$1.4 million of these revenues will not recur in 1997, and none of them will
recur in 1998. While the Company's yellow page business is not seasonal, five
of its directories which have for the last several years accounted for
approximately one-third of its annual revenue are published in the first
quarter. Directories are typically published annually in each market area.
Increases in revenues have generally been attributable to increases in the
number and size of advertisements in the directories.
When the Company expands into a new yellow page market, it typically seeks
to attract its targeted customers by producing and publishing a full scale
initial directory in which it gives away advertising space. Thus on a first
directory in a new market (the "prototype year"), the Company may have
substantial expenses, depending on the size of the market, with little or no
offsetting revenues. During the last three fiscal years, the expenses
associated with the first publication of a directory in a market have ranged
from approximately $500,000 to $2.0 million, depending on the size of the
market. The Company sells advertising in the second directory in a market
(the "first sold year"), after the advertisers have had an opportunity to
experience the reception of the new yellow page directory and their
advertisements in the marketplace. See "Annex M -- Management's Discussion
and Analysis of Financial Condition and Results of Operations of Certain
Acquired Companies -- Great Western Directories, Inc." The Company usually is
able to sell advertising space in the directory for the first sold year to
approximately 65% of the advertisers who received free space in the prototype
directory. In a new market, however, the Company has no prior first-hand
credit experience with its advertising customers, and therefore usually has
disproportionate bad debt expense with respect to the directory for the first
sold year, and it typically records a provision for bad debts of 20% with
respect to that directory. Once in a market, the Company may seek to increase
its geographic coverage by expanding outward from its initial service area.
The following table shows the numbers of total market areas served, number
of advertisers, advertising revenues, and number of directories published for
the years ended January 31, 1995 and 1996, and December 31, 1996, and the six
months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JANUARY 31, YEAR ENDED JUNE 30,
---------------------------- DECEMBER 31, ----------------------------
1995 1996 1996 1996 1997
------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total market areas served during fiscal
year................................... 22 26 26 26 25
Number of advertisers in directories
published during period................ 38,300 47,800 52,200 27,200 28,400
Advertising revenues(1)................. $29,406,843 $36,469,094 $44,324,097 $25,403,026 $27,366,452
Directories published................... 2,699,200 3,406,800 3,688,800 1,777,400 1,843,200
</TABLE>
- ------------
(1) Because of a change in fiscal year, the month of January 1996 is
included both in the fiscal year ended January 31, 1996 and the fiscal
year ended December 31, 1996.
Cost of Services
Telecommunications Services. The Company has an extensive network that
connects a number of cities in the Region and upon which the Company can
transmit its customers' long distance calls. These "on-net" facilities
include the Company's switches, a web of leased access trunks that connect
those switches to the local exchange carrier's switches, DS1 and DS3 lines
that connect certain high volume customers to the Company's switches and
leased lines from other long-haul carriers. Once a long distance call reaches
one of the Company's switches, it can be routed over the Company's network
or, if the
31
<PAGE>
Company does not have an "on-net" connection, over the network of another
long-haul carrier from which the Company purchases access. The bulk of the
Company's "off-net" termination services are provided by large long distance
companies with long haul transmission capabilities. See "Business -- The
Company's Network."
Because of its ownership interest in KINNET, the Company expects to
consolidate some of its traffic in KINNET's area of operations on the KINNET
network after the Acquisitions. Further, the Company expects that after the
Acquisitions it will obtain pricing reductions from KINNET with respect to
the traffic that the Company consolidates on the KINNET network.
The Company's cost of long distance services comprises the costs
associated with acquiring switched transmission and leased line capacity.
Switched transmission capacity is acquired on a per-minute basis (with volume
discounts) and is, therefore, a variable cost. Virtually all calls carried by
the Company must be originated or terminated over another carrier's
facilities and access charges must be paid to utilize those facilities.
Termination, origination and access charges on calls are paid by the Company
to ILEC. Leased transmission capacity is typically acquired on a fixed cost
basis, generally involving fixed monthly payments regardless of usage levels.
Accordingly, once certain volume levels are reached, leased line capacity is
more cost effective than switched transmission capacity. Following the
Offering, the Company expects to be able to obtain better pricing on switched
transmission capacity and from leased lines because of the substantial number
of minutes of traffic generated by the Acquired Companies on a combined
basis. Although the Company has entered into four take-or-pay agreements with
other carriers in order to maximize volume discounts, since their inception
the minimum usage levels under these contracts have been met, and the Company
has not incurred any obligation to make cash payments in lieu of usage under
these agreements. See "Business -- Network Facilities and Carrier
Agreements."
At present the Company typically provides local services by reselling the
local services of other local exchange carriers at a discount from the prices
charged by those carriers to individual customers. The cost of providing such
services depends on the rates which the Company can negotiate from those
carriers.
Yellow Page Publishing. The principal components of cost of service relate
to sales commissions, paper and publishing costs, colorizing advertisements
and delivery expenses. The Company anticipates that the introduction of a new
directory of significant size in one of the cities in the Region will
increase the Company's yellow page cost of services. The Company has in the
last year lowered its printing costs by switching from a single printing
supplier to a competitive bidding process among several suppliers. The
Company contracts with third parties for printing and delivering its
directories and routinely purchases its paper requirements from third party
suppliers. The colorizing of advertisements in its yellow page directories is
provided by a company in which a director of the Company is an officer,
director and significant stockholder. See "Certain Transactions -- Other
Matters."
Selling, General Administrative Expenses
The Company has historically sold its telecommunication services primarily
through commissioned sales personnel, advertising, internal and external
marketers and agents. Selling expenses have, therefore, primarily consisted
of advertising and promotion costs, salaries of employees, expenses related
to its customer service department and, to a lesser extent, commissions paid
to agents. The Company has historically sold advertising space in its yellow
page directories through commissioned sales personnel. Hence selling expenses
for the Company's yellow pages business consists primarily of employee
salaries and commissions. After the Offering, the Company expects its total
selling expenses to increase as it increases its sales staff to expand its
marketing efforts. Great Western has historically included its selling
expenses in cost of services.
In anticipation of the commencement of operating activities and of the
Offering, the Company has been assembling its senior management team, which
it expects to continue to augment, which is resulting in an increase in
general and administrative expenses. General and administrative expenses will
increase substantially subsequent to the Offering, as the Company publishes
additional yellow page directories,
32
<PAGE>
expands its customer service and sales staffs, implements billing, financial
reporting and other management information systems and network management
systems and incurs organizational expenses relating to entering additional
markets. Such expenses will be incurred in advance of anticipated related
revenues.
INTRODUCTION TO THE ACQUISITIONS
The Acquired Companies have operated throughout the periods presented as
privately-owned entities and their results of operations reflect different
tax structures ("S Corporations" or "C Corporations") or proprietorships
which have influenced the historical level of owners' compensation and other
aspects of their business. Accordingly, selling, general and administrative
expenses as a percentage of net sales may not be comparable among the
individual Acquired Companies. Certain owners of the Acquired Companies have
contractually agreed to certain reductions in both their compensation and
benefits. These reductions would have decreased compensation expense for
fiscal 1996 and for the six months ended June 30, 1997 by $445,000 and
$223,000, respectively, and, accordingly, pro forma adjustments for fiscal
1996 and the six months ended June 30, 1997 have been reflected in the
Unaudited Pro Forma Combined Statement of Operations presented elsewhere in
this Prospectus.
The Company anticipates that following the Offering and the consummation
of the Acquisitions, it will realize savings from: (i) greater volume
discounts from equipment and other suppliers, and for long distance minutes
of use, and (ii) consolidation of insurance, employee benefit programs and
other general and administrative costs. It is anticipated that these savings
will be offset by costs related to the Company's new corporate management and
expanded business activities and by the costs attributable to being a public
company. However, because these savings and costs cannot be accurately
quantified at this time, they have not been included in the pro forma
financial information included herein.
During the first and second quarters of 1997, the Company issued options
and warrants to purchase an aggregate of 1,088,000 shares of Common Stock to
management of and a consultant to the Company and others at prices ranging
from $1.00 to the initial public offering price per share. Accordingly, the
Company has recorded a non-cash compensation charge of $5.6 million in the
second quarter of 1997, representing the difference between the amount paid
or payable for the shares and the estimated fair value of the underlying
shares on the date of sale as if the Companies were combined.
In July 1996, the Commission issued Staff Accounting Bulletin No. 97 ("SAB
97") relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of accounting. Under the purchase method, one of the
companies must be designated as the accounting acquiror and ACG has been so
designated. For the remaining companies, $104.0 million, representing the
excess of the fair value of the consideration paid on the acquisition of the
Acquired Companies over the fair value of the net assets acquired will be
recorded as "goodwill" on the Company's balance sheet. Goodwill will be
amortized as a non-cash charge to the income statement over a 40-year period.
In addition, approximately $17.0 million of goodwill is attributable to
KINNET and will be amortized against the Company's equity interest in the
earnings or losses of KINNET over a 40-year period. The pro forma impact of
the total amortization expense, which is non-deductible for tax purposes, is
expected to be approximately $3.0 million per year, approximately $2.6
million of which will appear directly in the Company's depreciation and
amortization and approximately $0.4 million of which will be included as a
component of equity in earnings of KINNET. See "Certain Transactions --
Organizational Transactions." Prior to the issuance of SAB 97, most business
combinations similar to the acquisition of the Acquired Companies were
accounted for by combining the historical financial statements of the
respective companies without the revaluation of acquired assets and
liabilities and, therefore, did not result in the creation of "goodwill."
RESULTS OF OPERATIONS -- COMBINED
The combined results of operations of the Acquired Companies for the
periods presented do not represent combined results of operations presented
in accordance with generally accepted accounting principles because they are
only a summation of the revenues, cost of services, gross profit, selling,
general and administrative expenses and income from operations of the
individual Acquired Companies on a
33
<PAGE>
historical basis. The combined results exclude the effect of pro forma
adjustments and, therefore, may not be indicative of the Company's
post-combination results of operations for a number of reasons, including the
following: (i) the Acquired Companies were not under common control or
management during the periods presented, (ii) the Acquired Companies used
different tax structures ("S Corporations" or "C Corporations") during the
periods presented, (iii) the Company will incur incremental costs related to
its new corporate management, expanded business activities and the costs of
being a public company, (iv) the Company will use the purchase method of
accounting to record the acquisitions of the Acquired Companies, resulting in
the recording and amortization of approximately $2.6 million of goodwill per
year, (v) the combined data do not reflect the compensation differential or
the potential benefits and cost savings the Company expects to realize once
ACG and the Acquired Companies begin operating as a combined entity and (vi)
the combined data do not include the equity in earnings (loss) of a minority
owned affiliate (KINNET). See the separate discussions below of the results
of operations of each of the Founding Companies and KINNET in which separate
audited financial statements are included in this Prospectus. In addition,
during 1996 Great Western recognized $6.3 million of other income from a
favorable litigation settlement, which will not recur.
The following table sets forth certain combined results of operations data
of the Acquired Companies on a historical basis and such results as a
percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------- ---------------------------------------
1994(1) 1995(1) 1996(1) 1996 1997
------------------- ------------------- ------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Telecommunications
services........... $27,148 48.0% $36,038 49.7% $39,362 47.0% $19,743 43.7% $22,499 45.1%
Yellow page
publishing......... 29,407 52.0% 36,469 50.3% 44,324 53.0% 25,403 56.3% 27,366 54.9%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total............... 56,555 100.0% 72,507 100.0% 83,686 100.0% 45,146 100.0% 49,865 100.0%
Cost of services .... 33,633 59.5% 41,956 57.9% 46,435 55.5% 23,397 51.8% 26,082 52.3%
Depreciation and
amortization........ 1,134 2.0% 1,485 2.0% 1,610 1.9% 772 1.7% 603 1.2%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Gross profit......... 21,788 38.5% 29,066 40.1% 35,641 42.6% 20,977 46.5% 23,180 46.5%
Selling, general and
administrative
expenses............ 18,337 32.4% 22,646 31.2% 25,321 30.0% 13,895 30.8% 15,418 30.9%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Income from
operations.......... 3,451 6.1% 6,420 8.9% 10,320 12.3% 7,082 15.7% 7,762 15.6%
</TABLE>
- ------------
(1) All of the Acquired Companies and ACG, except Great Western Directories
(for fiscal 1994 and 1995), Long Distance Management of Kansas, Inc.
("LDM Kansas") and Long Distance Management II, Inc. ("LDM II") have
fiscal years which end on December 31. The combined data above for the
fiscal years ended December 31, 1994, 1995 and 1996 includes data for
LDM Kansas and LDM II for the twelve month periods then ended. The
combined data above also includes Great Western's fiscal years ended
January 31, 1995 and 1996 for the combined fiscal years ended 1994 and
1995. Because of the change in Great Western's fiscal year, revenues
for the month of January 1996 are included both in fiscal 1995 and
fiscal 1996.
Combined results for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996.
Revenues. Revenues increased $4.8 million, or 10.6%, from $45.1 million
for the six months ended June 30, 1996 to $49.9 million for the six months
ended June 30, 1997. Telecommunications services revenue increased $2.8
million, or 14.0%, from $19.7 million for the six months ended June 30, 1996
to $22.5 million for the six months ended June 30, 1997 as a result of an
overall increase in traffic for all Acquired Companies except Valu-Line,
whose revenues were relatively flat. For long distance traffic, total
domestic billed minutes increased 17.8% from 128.4 million for the six months
ended June 30, 1996 to 151.3 million for the six months ended June 30, 1997,
while average revenue per domestic billable minute decreased 7.2% from
$0.1450 to $0.1345. Yellow page publishing revenue increased $2.0 million, or
7.7%, from $25.4 million for the six months ended June 30, 1996 to $27.4
million for the six months ended June 30, 1997 primarily as a result of
increased sales of advertising space in the directory in Tulsa, Oklahoma and
in other established markets.
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Gross profit. Gross profit increased $2.2 million, or 10.5%, from $21.0
million for the six months ended June 30, 1996 to $23.2 million for the six
months ended June 30, 1997. Gross margin was flat at 46.5% for the six months
ended June 30, 1996 and 1997. Telecommunications services gross profit
increased $1.2 million, or 17.1%, from $6.9 million for the six months ended
June 30, 1996 to $8.1 million for the six months ended June 30, 1997.
Telecommunications services gross margin increased from 35.1% for the six
months ended June 30, 1996 to 35.9% for the six months ended June 30, 1997 as
a result of changes in product mix to lower cost services and scheduled
decreases in depreciation expense on equipment. For domestic long distance
traffic, average cost per billable minute decreased 11.1% from $0.773 for the
six months ended June 30, 1996 to $0.0687 for the six months ended June 30,
1997. Yellow page publishing gross profit increased $1.0 million, or 7.1%,
from $14.1 million for the six months ended June 30, 1996 to $15.1 million
for the six months ended June 30, 1997. Yellow page publishing gross margin
remained relatively stable at 55.3% for the six months ended June 30, 1996
and 55.1% for the six months ended June 30, 1997. Although certain variable
costs of services, such as commissions, increased at a more rapid rate than
revenues, due primarily to temporary changes in commission payment
methodology, certain other costs of services, such as printing and
distribution, which fluctuate with the number of directories published,
remained flat due to a competitive bidding process that resulted in the use
of alternative printing facilities and delivery services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.5 million, or 11.0%, from $13.9 million
for the six months ended June 30, 1996 to $15.4 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 30.8% for the six months ended June
30, 1996 to 30.9% for the six months ended June 30, 1997. Telecommunications
services selling, general and administrative expenses increased $1.0 million,
or 18.9%, from $5.2 million for the six months ended June 30, 1996 to $6.2
million for the six months ended June 30, 1997. As a percentage of revenues,
telecommunications services selling, general and administrative expenses
increased from 26.4% for the six months ended June 30, 1996 to 27.6% for the
six months ended June 30, 1997 as sales and administrative personnel were
augmented in anticipation of providing new or expanded services, primarily
local and cellular services. Yellow page publishing selling, general and
administrative expenses increased $0.5 million, or 5.7%, from $8.7 million
for the six months ended June 30, 1996 to $9.2 million for the six months
ended June 30, 1997. As a percentage of revenues, yellow page publishing
selling, general and administrative expenses decreased from 34.1% for the six
months ended June 30, 1996 to 33.7% for the six months ended June 30, 1997 as
a result of enhanced operational efficiency because of lower employee
turnover and improvements in production technology.
Combined results for fiscal 1996 compared to fiscal 1995.
Revenues. Revenues increased $11.2 million, or 15.4%, from $72.5 million
for fiscal 1995 to $83.7 million for fiscal 1996. Telecommunications services
revenue increased $3.4 million, or 9.4%, from $36.0 million for fiscal 1995
to $39.4 million for fiscal 1996 primarily as a result of successful
marketing efforts and expansion into new markets. These gains were partially
offset by a decrease in the volume of commercial long distance accounts at
Valu-Line resulting from technical difficulties experienced during an
equipment change. For long distance traffic, total domestic billed minutes
increased 10.9% from 238.3 million for fiscal 1995 to 264.3 million for
fiscal 1996, while average revenue per domestic billable minute decreased
2.3% from $0.1458 to $0.1425. Yellow page publishing revenue increased $7.8
million, or 21.5%, from $36.5 million for fiscal 1995 to $44.3 million for
fiscal 1996 primarily as a result of the first publication for revenue of the
Tulsa, Oklahoma directory in February 1996.
Gross profit. Gross profit increased $6.5 million, or 22.6%, from $29.1
million for fiscal 1995 to $35.6 million for fiscal 1996. Gross margin
increased from 40.1% for fiscal 1995 to 42.6% for fiscal 1996.
Telecommunications services gross profit increased $0.9 million, or 7.3%,
from $12.4 million for fiscal 1995 to $13.3 million for fiscal 1996.
Telecommunications services gross margin decreased from 34.4% for fiscal 1995
to 33.8% for fiscal 1996 as a result of changes in product mix to lower cost
services and implementation of a program to recycle surplus equipment. For
long distance traffic, average cost per domestic billable minute decreased
11.4% from $0.0877 for fiscal 1995 to $0.0777 for fiscal 1996. Yellow page
publishing gross profit increased $5.6 million, or 33.8%, from $16.7 million
for fiscal 1995 to $22.3 million for fiscal 1996. Yellow page publishing
gross margin increased from 45.7% for fiscal 1995 to
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50.3% for fiscal 1996 due primarily to the gross profit contribution of the
first sold year of the Tulsa, Oklahoma directory, a highly profitable market.
Also, certain costs of services did not increase proportionately with
revenues due to a competitive bidding process for printing. In addition,
Great Western was able to take advantage of an overall decrease in paper
prices.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.7 million, or 11.9%, from $22.6 million
for fiscal 1995 to $25.3 million for fiscal 1996. As a percentage of
revenues, selling, general and administrative expenses decreased from 31.2%
for fiscal 1995 to 30.0% for fiscal 1996. Telecommunications selling, general
and administrative expenses increased $0.7 million, or 7.0%, from $10.0
million for fiscal 1995 to $10.7 million for fiscal 1996. As a percentage of
revenues, telecommunications selling, general and administrative expenses
decreased from 27.9% for fiscal 1995 to 27.1% for fiscal 1996 as a result of
increased efficiencies achieved through higher levels of automation and
changes in compensation programs for sales personnel. These improvements were
partially offset by costs incurred by Valu-Line to accommodate customers'
service needs experienced when technical problems arose in connection with
the installation of a new switch. Yellow page publishing selling, general and
administrative expenses increased $1.9 million, or 15.6%, from $12.7 million
for fiscal 1995 to $14.6 million for fiscal 1996. As a percentage of
revenues, yellow page publishing selling, general and administrative expenses
decreased from 34.7% for fiscal 1995 to 33.0% for fiscal 1996 as a result of
the impact of the first publication for revenue of the Tulsa, Oklahoma
directory. While the sales for the first publication for revenue of the Tulsa
directory were included in fiscal 1996, the associated general and
administrative expenses were included in fiscal 1995. General and
administrative expenses for a given yellow page directory are generally
incurred prior to the generation and recognition of revenues and costs of
services.
Combined results for fiscal 1995 compared to fiscal 1994.
Revenues. Revenues increased $15.9 million, or 28.2%, from $56.6 million
for fiscal 1994 to $72.5 million for fiscal 1995. Telecommunications revenue
increased $8.9 million, or 32.8%, from $27.1 million for fiscal 1994 to $36.0
million for fiscal 1995 as a result of successful sales and marketing efforts
and penetration of new markets, partially offset as Valu-Line experienced a
slight decrease in revenues primarily due to new competition. For long
distance traffic, total domestic billed minutes increased 41.5% from 168.4
million for fiscal 1994 to 238.3 million for fiscal 1995, while average
revenue per domestic billable minute decreased 3.6% from $0.1512 to $0.1458.
Yellow page publishing revenue increased $7.1 million, or 24.0%, from $29.4
million for fiscal 1994 to $36.5 million for fiscal 1995 as a result of the
first publications for revenue of the Irving and Fort Worth, Texas,
directories in November, 1995. In addition, the Lawton, Oklahoma directory
was published for 1995 in February, 1995 and for 1996 in January, 1996;
consequently fiscal 1995 includes revenue for both directories, while fiscal
1994 includes no revenues related to Lawton, Oklahoma.
Gross profit. Gross profit increased $7.3 million, or 33.5%, from $21.8
million for fiscal 1994 to $29.1 million for fiscal 1995. Gross margin
increased from 38.5% for fiscal 1994 to 40.1% for fiscal 1995.
Telecommunications gross profit increased $2.0 million, or 19.2%, from $10.4
million for fiscal 1994 to $12.4 million for fiscal 1995. Telecommunications
gross margin decreased from 38.3% for fiscal 1994 to 34.4% for fiscal 1995 as
a result of one-time costs incurred to change dialing patterns in accordance
with industry requirements, and higher access charges imposed in areas of
service expansion. These costs were partially offset by decreased line costs
and improved efficiencies. For long distance traffic, average cost per
domestic billable minute decreased 7.7% from $0.0950 for fiscal 1994 to
$0.0877 for fiscal 1995. Yellow page publishing gross profit increased $5.3
million, or 46.5%, from $11.4 million for fiscal 1994 to $16.7 million for
fiscal 1995. Yellow page publishing gross margin increased from 38.8% for
fiscal 1994 to 45.7% for fiscal 1995 as a result of the $4.3 million cost of
producing three prototype directories which were published in fiscal 1994
resulting in minimal revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.3 million, or 23.5%, from $18.3 million
for fiscal 1994 to $22.6 million for fiscal 1995. As a percentage of
revenues, selling, general and administrative expenses decreased from 32.4%
for fiscal 1994 to 31.2% for fiscal 1995. Telecommunications selling, general
and administrative expenses increased $2.4 million, or 31.6%, from $7.6
million for fiscal 1994 to $10.0 million for fiscal 1995. As a percentage of
revenues, telecommunications selling, general and administrative expenses
remained relatively stable at 27.8% for fiscal 1994 and 27.7% for fiscal
1995. Yellow page publishing selling, general and administrative expenses
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increased $1.9 million, or 17.4%, from $10.8 million for fiscal 1994 to $12.7
million for fiscal 1995. As a percentage of revenues, yellow page publishing
selling, general and administrative expenses decreased from 36.7% for fiscal
1994 to 34.7% for fiscal 1995 as the impact of the first publications for
revenue of the Irving and Fort Worth, Texas directories. In order to support
the anticipated increase in volume, Great Western's infrastructure was
enhanced during fiscal 1994, when the Irving and Fort Worth, Texas
directories were prototyped.
Combined liquidity and capital resources
The Company expects to have the Proposed Credit Facility in place as a $20
million revolving credit facility to finance its anticipated working capital
requirements over the near term.
The $17.0 million of notes issued to stockholders of Great Western and
FirsTel in the Acquisitions will be subordinated to the first $50.0 million
of outstanding bank debt.
The Company expects to have capital expenditures in 1998 of approximately
$15.0 million to fund the expansion of the Company's switch network and data
processing capabilities. See "Use of Proceeds."
The Company generated $4.2 million in net cash from operating activities
for the six months ended June 30, 1997. Net cash used in investing activities
was approximately $0.5 million, principally for property and equipment
purchases. Net cash used in financing activities was $3.5 million,
representing $2.8 million in principal payments on long-term debt, capital
leases and other notes payable and $1.1 million in dividends and
distributions to shareholders, net of $0.4 million of proceeds from long-term
debt and other notes payable.
At June 30, 1997, the Company had working capital of $13.6 million and
total debt outstanding of $3.9 million.
The Company generated $9.0 million in net cash from operating activities
in the fiscal year ended December 31, 1996. Net cash used in investing
activities in the fiscal year ended December 31, 1996 was approximately $0.7
million, principally for property and equipment purchases, net of proceeds
from the sale of equipment. Net cash used in financing activities was $7.5
million, representing $6.5 million in principal payments on long-term debt,
capital leases and other notes payable and $1.2 million in dividends and
distributions to shareholders, net of $0.3 million of proceeds form long-term
debt and other notes payable and $0.1 net purchases of treasury stock.
At December 31, 1996, working capital was $10.7 million and total debt
outstanding was $6.3 million.
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INDUSTRY BACKGROUND AND OVERVIEW
GENERAL
The present U.S. telecommunications marketplace was shaped principally by
the court-directed divestiture (the "Divestiture") of the Bell System in
1984. In connection with the Divestiture, the United States was divided into
194 local regions known as Local Access Transport Areas ("LATAs") and the
Bell System was separated into a long distance carrier, AT&T Corp. ("AT&T"),
to provide long distance services, and seven RBOCs, including Southwestern
Bell and US WEST, to provide local telecommunications services. Long distance
services involve the carriage of telecommunications traffic between LATAs
(interexchange). Local services involve the carriage of telecommunications
traffic within LATAs (local exchange) and the provision of local network
access to the long distance carriers by the local exchange carriers ("LECs"),
including the RBOCs and independent entities, thereby allowing long distance
traffic to reach end users in a LATA (local access).
Both local and long distance telephony are switched services, meaning that
a customer's call travels over the public switched telephone network with
millions of possible routes and is switched (i.e., routed) to its intended
destination by a telecommunications service provider, such as the Company,
based on dialing information provided by the caller. A letter of
authorization from a customer permits a service provider to instruct the ILEC
to tag all calls from that customer with the service provider's
identification code. This code enables the service provider to bill such
customer directly for its local and long distance services. A second type of
telephony service is "dedicated" or non-switched service, which generally
involves the provision of service between two fixed points, such as between
two branch offices of a corporation or between a long distance carrier's
points of presence ("POPs") and the customer's private branch exchange
("PBX").
The long distance and local telecommunications markets are currently
undergoing substantial changes, including fundamental changes resulting from
the February 8, 1996 enactment of the Telecommunications Act, and the Company
believes that it is well positioned to take advantage of these developments.
LONG DISTANCE SERVICES
Until 1984, AT&T largely monopolized local and long distance telephone
services in the United States. Technological and regulatory developments
gradually enabled others to compete with AT&T in the long distance market.
Since the Divestiture in 1984, competition in the long distance market has
increased, service levels have improved, product offerings have increased and
prices for long distance services have generally declined, all of which has
resulted in increased consumer demand and significant market growth for long
distance services. One component of this growth has been the advent of a
number of long distance resellers (including some of the Acquired Companies),
which emerged as a result of procompetitive regulatory initiatives fostered
by the Divestiture. Typically, a reseller of long distance services enters
into interconnect agreements with one or more major long distance carriers
that allow the reseller to channel its customers' traffic over the major
carriers' networks at rates more favorable than those generally available to
individual customers.
A long distance telephone call between two LATAs consists of three
segments. Starting with the originating customer, the call is transmitted
along the ILEC's local network to a long distance carrier's POP in the
originating customer's LATA. At the POP, the call is sent along the long
distance carrier's network to the long distance carrier's POP in the LATA in
which the terminating customer is located. The call is then sent from this
POP along another local network to the terminating customer. Long distance
carriers provide only the connection between the two local networks, and pay
access charges for switched calls to both the originating and terminating
ILEC for traffic obtained from or terminated on their respective local
networks.
LOCAL SERVICES
While the Divestiture facilitated competition in the long distance segment
of the telecommunications market, each ILEC initially enjoyed a monopoly in
the provision of local telecommunications services in
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its respective service area. In the mid-1980s, however, there was a surge of
construction activity by entities building their own local networks and
providing local access and dedicated services designed to allow users to
bypass a portion of a particular ILEC's local network. The competitive access
providers ("CAPs") were the first providers of these access services and the
first competitors in the local telecommunications services market. The demand
for alternative local telecommunications services providers in the past has
been driven in large part by the significant charges levied by the ILECs
against the long distance carriers for access to such ILECs' local networks
(access charges). Access charges typically represent approximately 40% to 45%
of long distance carriers' long distance revenue. The CAPs' local networks
typically consist of fiber optic-based facilities connecting long distance
carriers' POPs within a metropolitan area, connecting end users (primarily
large businesses and government agencies) with long distance carriers' POPs
and connecting different locations of a particular customer. CAPs take
advantage of the substantial capacity and economies of scale inherent in
their networks to offer customers service that is generally less expensive
and of higher quality than that obtained from the ILECs. As CAPs have grown,
regulators in some states and at the federal level have issued rulings which
favored competition and allowed CAPs to offer a number of new services.
Several CAPs have emerged into full-fledged CLECs capable of providing an
entire range of switch-based local and long distance telephony services. The
Company believes that the trend toward increased competition and deregulation
of the telecommunications industry is continuing and accelerating.
The market for local exchange services consists of a number of distinct
service components. These service components are defined by specific
regulatory tariff classifications including: (i) local network services,
which generally include basic dial tone, enhanced calling features and data
services (dedicated point-to-point and frame relay service); (ii) network
access services, which consist of access provided by ILECs to long distance
network carriers; (iii) short-haul long distance network services, which
include intraLATA long distance calls; and (iv) other varied services,
including the publication of white page and yellow page telephone
directories. According to publicly available sources, the 1996 aggregate
revenues of all ILECs approximated $107.0 billion. Until recently, there was
virtually no competition in the local exchange markets.
Since the Divestiture in 1984, several factors have served to promote
competition in the local exchange market, including: (i) rapidly growing
customer demand for an alternative to the ILECs monopoly, spurred partly by
the development of competitive activities in the long distance market; (ii)
advances in the technology for transmission of data and video, which require
significant capacity and reliability levels; (iii) the development of fiber
optics and digital electronic technology, which reduced network construction
costs while increasing transmission speeds, capacity and reliability as
compared to traditional copper-based networks; (iv) the significant access
charges interexchange carriers are required to pay to ILECs to access the
ILECs' networks; and (v) a willingness on the part of legislators to enact
and regulators to enforce legislation and regulations permitting and
promoting competition in the local exchange market. In particular, the
Telecommunications Act requires all ILECs to "unbundle" their local network
offerings and allow other providers of telecommunications services to
interconnect with their facilities and equipment. Most significantly, the
incumbent local exchange carriers will be required to complete local calls
originated by the Company's customers and switched by the Company and to
deliver inbound local calls to the Company for termination to its customers,
assuring customers of unimpaired local calling ability. The Company expects
that it will be able to obtain access to incumbent carrier local "loop"
facilities (the transmission lines connecting customers' premises to the
public switched telephone network) on an unbundled basis at reasonable rates.
In addition, ILECs are obligated to provide local number portability and
dialing parity upon request and make their local services available for
resale by competitors. ILECs also are required to allow competitors
non-discriminatory access to local exchange carrier pole attachments, conduit
space and other rights-of-way. Moreover, states may not erect "barriers to
entry" of local competition, although they may regulate such competition. The
Company believes that, as a result of continued regulatory and technological
changes and competitive trends, competitive local telecommunications
companies have substantial opportunities for growth.
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BUSINESS
THE COMPANY
The Company was founded to create a regional CLEC that provides an
integrated portfolio of telecommunications services principally to business
customers in selected service areas of Southwestern Bell Telephone Company
and US WEST Communications, Inc. The Company offers long distance, local,
Internet, and cellular service primarily in Kansas, Nebraska, North Dakota,
South Dakota, Oklahoma and Texas and publishes yellow page directories
covering certain markets in Texas and Oklahoma. The Company seeks to offer a
bundle of "one stop" integrated telecommunications services tailored to its
customers' specific requirements and billed on a single monthly invoice. As
of September 30, 1997, the Company provided telecommunications services to
over 32,000 business customers and almost 10,000 residential customers in
small to mid-sized markets. The Company has recently experienced significant
growth in its base of local customers. The Company's customer access lines in
service have increased from approximately 1,000 at June 30, 1997 to more than
9,500 access lines at September 30, 1997. In fiscal year 1996, the Company
had pro forma combined revenues of $85.4 million and EBITDA of $11.9 million.
For the six months ended June 30, 1997, the Company had pro forma combined
revenues of $50.8 million and EBITDA of $8.1 million.
The Company operates seven digital tandem switches in Kansas, Oklahoma,
South Dakota and Texas. It also owns a 49% interest in KINNET, the owner or
operator of an approximately 900-route mile fiber optic network and a
Northern Telecom DMS 500 switch in Kansas. KINNET currently has one of the
largest fiber optic networks in the state of Kansas. As part of the KINNET
acquisition, the Company made a $10.0 million direct cash investment in
KINNET, $5.0 million of which KINNET has agreed to apply to the buildout in
1998 and 1999 of a 537-mile, $21.5 million network extension from Wichita,
Kansas to the greater Kansas City metropolitan area, with a leg to Tulsa,
Oklahoma, that will provide self-healing redundancy to its fiber optic
network. KINNET has advised the Company that it expects to finance the
balance of the expansion with loan proceeds from the RTFC.
The Company is also an independent publisher of yellow page directories,
and in the fiscal year ended December 31, 1996 published approximately three
million copies of its yellow page directories covering 20 markets in Texas
and Oklahoma. These directories contained advertisements for approximately
47,000 business customers, and the Company anticipates expanding its yellow
page operations into additional markets in the Region. The Company believes
that the advertisers in its yellow page directories provide a significant
opportunity to cross-sell its bundle of telecommunications services through
its direct sales force of approximately 240 persons. Through a strategic
relationship, the Company also has the opportunity to cross-sell its
telecommunications services to an additional 36,000 yellow page advertising
customers of Feist Publications, Inc., an affiliate of one of the Acquired
Companies.
ACG is pursuing a growth strategy that it believes will enable it to
minimize its initial capital expenditures relative to many other CLECs that
have constructed facilities-based networks at a very early stage in their
development. The Company currently utilizes its own network facilities
combined with the leased network facilities of several long distance
providers and ILECs within the Region, including Southwestern Bell and US
WEST. The Company will utilize its existing sales force to market its bundle
of services to new and existing customers within its target markets. By
reselling the local service of Southwestern Bell and US WEST, the Company has
achieved a rapid penetration of the local telephone markets in Wichita,
Kansas and Sioux Falls, South Dakota. Ultimately, the Company will only
construct significant local network infrastructure in those markets where a
critical mass of customers makes it economically justifiable to do so.
The Company has executed comprehensive local exchange resale agreements
with Southwestern Bell and US WEST in seven states within the Region.
Additionally, the Company has entered into agreements with several
interexchange carriers to provide "off net" switching and network
transmission services for its long distance traffic. The Company has also
entered into agreements to resell cellular service in selected areas in the
Region. These agreements allow the Company initially to offer a bundle of
telecommunications services without the necessity of substantial expenditures
for the construction of network facilities.
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The Telecommunications Act of 1996 has created significant opportunities
for telecommunications service providers, particularly regional CLECs.
According to publicly available estimates, in 1996 total revenues from local
and long distance telecommunications services in the United States were
approximately $192.0 billion, of which approximately $107.0 billion were
derived from local exchange services and approximately $85.0 billion from
long distance services. In recent years, these telecommunications service
revenues have grown approximately 6% per year. Although the U.S. long
distance and local exchange industries are dominated by a few companies,
including AT&T, MCI, Sprint, WorldCom and the RBOCs, there are over 1,000
additional providers of long distance, local and other
telecommunications-related services. In many of the small to mid-sized cities
that are the Company's primary target markets, there are independent
telecommunications companies which have significant market penetration, some
of which have extensive infrastructure. The Company believes that a number of
these represent attractive acquisition candidates.
The Company believes it has significant opportunities to increase its
revenues and reduce elements of its cost structure that were not available to
the Acquired Companies prior to the Acquisitions and the Offering. While the
Company intends to centralize selected areas of operations where it can
benefit from its larger size, it also intends to permit the strong management
teams of the Acquired Companies to conduct the customer sensitive aspects of
their operations on a decentralized basis. In order to increase the revenues
generated by its existing customer base, the Company plans to train its sales
force to cross-sell all of the Company's services, with an increased emphasis
on selling local services. The Company believes that a personalized approach
to sales and customer service will enhance its ability to attract and retain
customers who desire the convenience of a fully integrated product offering.
To further enhance its marketing efforts, the Company intends to establish
the "ACG" brand name through co-branding with the established names of the
Acquired Companies. As part of its integration process, the Company plans to
consolidate the purchasing of minutes over its leased network, and to
consolidate its management information, billing and other administrative
functions.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of integrated
telecommunications services primarily to businesses in Kansas, Nebraska,
North Dakota, South Dakota, Oklahoma and Texas. The Company is committed to
(i) increasing its market share in its target markets by expanding the range
of telecommunications services it offers to customers, (ii) reducing the cost
of providing those services through the utilization of its own network and
leased network facilities as appropriate and (iii) taking advantage of
consolidation efficiencies and purchasing economies. To achieve these goals,
the Company will:
o Provide an Integrated Portfolio of Telecommunications Services. The
Company believes that substantial demand exists among customers in its
target markets for a "one stop" integrated portfolio of telecommunications
services that meet all of their telecommunications needs. By bundling a
variety of telecommunications services and providing customers with a
single monthly invoice, the Company believes it will successfully
penetrate its target markets within the Region and rapidly expand its
customer base. The Company believes that the combination of its own
network switching and transport facilities, combined with its resale and
leasing agreements, will enable it to provide an attractively priced
alternative to customers' existing services. The Company believes that its
existing sales force of approximately 240 direct sales and 30
telemarketing agents will attract and retain customers by offering a
bundle of telecommunications services, competitive cross-product
discounts, and responsive customer service and support on a local level.
o Focus on Business Customers in Small and Mid-sized Markets. The Company
principally targets business customers in small and mid-sized markets,
primarily in Kansas, Nebraska, North Dakota, South Dakota, Oklahoma and
Texas. The Company expects to be among the first telecommunications
providers to offer a fully-integrated bundle of telecommunications
services in many of its target markets within the Region.
o Cross-sell Additional Services to Existing Customers. The Company believes
it can increase its revenues at a relatively minor incremental cost by
aggressively cross-selling its expanded range of
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services primarily to its long distance customers and to the yellow page
advertisers to which it has access. Because the Company only recently
began to offer additional telecommunications services to its long distance
customers, only a small portion of these customers has as yet subscribed
to the Company's local service, Internet access or cellular services. In
addition, the Company has not yet cross-sold its bundle of
telecommunications services to the 83,000 yellow page customers to which
the Company has access. The Company therefore believes that it has a
substantial reservoir of prospective business customers that is already
familiar with some aspects of the Company's services.
o Expand its Network Cost Effectively and Expeditiously. The Company
believes that many CLECs have expended substantial amounts of capital on
network infrastructure in the early stages of their development, a
strategy that has resulted in significant operating losses. Rather than
incur these expenditures, the Company intends initially to pursue
additional investments in and strategic relationships with regional fiber
optic network operators such as KINNET that have demonstrated their
economic viability. This will enhance the Company's margins by allowing it
to direct additional traffic at favorable transport prices on facilities
in which it owns an interest. As an intermediate step, the Company plans
to build selectively its own switch-based network and utilize the
unbundled facilities of other ILECs while it grows. Finally, the Company
will build its own fiber optic capacity only when it reaches a critical
mass of customers in a market that will justify such expenditures. This
strategy should enable the Company to expand more cost effectively and
expeditiously than if it immediately attempted to build its own
comprehensive network.
o Further Develop Effective Sales and Customer Care Organizations. The
Company expects to expand and enhance the effectiveness of its sales force
in several ways. During 1998, the Company plans to augment its sales force
of approximately 240 direct sales personnel and 30 telemarketing sales
personnel by adding approximately 150 direct sales personnel and 50
telemarketers. The Company also will train both its yellow page directory
and telecommunications sales forces to effectively market its entire
bundle of telecommunications services. The Company also believes that, by
emphasizing a "face-to-face", consultative sales approach, it will
establish successful, long-term relationships with business clients within
its target markets. The Company will also utilize its telemarketing sales
force to market its services to selected residential customers. Further,
by offering a portfolio of telecommunications services, the Company
believes it will enhance its ability to successfully cross-sell its
telecommunications services to potential customers.
o Explore Potential Acquisitions. While the Company expects to grow through
its expanded sales, service and cross marketing efforts, management
believes that there are a number of attractive acquisition candidates in
the Region. The Company initially intends to target leading local
companies whose customers can be added to the Company's existing network
without significant expenditures for infrastructure additions. By
aggregating the traffic of several companies onto its existing network,
the Company expects to enhance the utilization of equipment, consolidate
its buying power and increase its ability to negotiate more attractive
contracts with third-party suppliers of network services. The Company also
plans to acquire additional yellow page directory companies and
aggressively cross-sell its bundle of telecommunications services to
businesses that advertise in these companies' directories. In its
acquisitions, the Company expects to maintain its focus on business
customers in small to mid-sized cities where it believes competition is
less intense and which consequently provide more easily achievable
opportunities for profitable growth.
o Develop Strategic Relationships to Increase Access to New Customers. The
Company has a five-year strategic relationship with FPI, a 20-year
publisher of yellow page directories in 15 markets in the Region. The
Company's telecommunications sales force will have access to FPI's 36,000
yellow page advertisers in the Region. The Company intends to pursue
actively the formation of additional strategic alliances with other yellow
page publishers, utility companies or cooperatives and others in order to
create marketing alliances that give the Company access to large, stable
customer bases in its market areas to which it can sell its bundle of
telecommunications services.
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PRODUCTS AND SERVICES
The Company primarily provides retail telecommunications services
principally to business customers in the Region. Currently, the Company
offers long distance, local, Internet access, cellular and other enhanced
services to customers in Kansas, Nebraska, North Dakota, South Dakota,
Oklahoma and Texas. The Company currently provides its local services on a
resale basis through Southwestern Bell and US WEST. The Company's other
services include private lines, and the sale, installation and service of
telephone equipment. The Company also publishes yellow page directories
serving 23 market areas in Texas, Oklahoma and California.
Long Distance. The Company offered a full range of retail long distance
services, including traditional switched and private line long distance, toll
free (800/888), and operator services, to more than 32,000 business and
almost 10,000 residential customers in the Region as of September 30, 1997.
The Company's long distance service is generally accessed from the customer's
location using "1+" dialing, and the Company primarily targets business
customers because of the volume and relatively higher profitability of their
business. Residential customers are desirable, however, because they
frequently use the Company's network during off-peak hours. High volume
customers may lease dedicated access lines in order to reduce their costs of
service. Toll-free services are utilized by customers who have a substantial
number of incoming long distance calls.
Local Services. In early 1997, the Company began to resell the local
exchange services primarily of Southwestern Bell and US WEST. At September
30, 1997, the Company was providing local access over more than 9,500 lines
to customers in Kansas, North Dakota, South Dakota and Texas. The Company
plans to seek promptly authorization to resell such services in the remainder
of the Region. Once the Company generates a critical mass of customers in a
market area and outstanding regulatory issues are resolved, the Company may
expand its facilities to provide local service over its own network,
supplemented by other local exchange carriers' unbundled facilities.
Internet Access, Cellular and Other Enhanced Services. As of September 30,
1997 the Company provided Internet access services to approximately 100
customers, located primarily in South Dakota and Kansas, and cellular service
on a resale basis to more than 1,600 customers in Iowa, Nebraska, North
Dakota and South Dakota. The Company also offers voice mail and web site
design and other enhanced services.
Telephone Equipment and Maintenance Services. The Company sells and
installs customer premise equipment such as telephones, office switchboard
systems and, to a lesser extent, PBXs, manufactured by Toshiba America
Information Systems, Panasonic, Inc., Harris Corporation and others. As of
September 30, 1997 the Company serviced over 2,800 customers in the Wichita,
Kansas market. The Company intends to offer these services in additional
markets in the future, with the goals of enhancing and supporting the
Company's sale of local and long distance services and facilitating customer
retention.
Wholesale Services. The Company resells leased line capacity to other
carriers and owns a 49% interest in KINNET, a fiber optic network company in
Kansas. The Company's investment in KINNET is accounted for on the equity
method of accounting. See "--KINNET."
Yellow Page Publishing. The Company produces and distributes an aggregate
of over 3.0 million copies of 20 annual yellow page telephone directories in
Oklahoma and Texas, including many of the Company's target telecommunications
markets. These locations served include: Alvin/Friendswood/ Pearland,
Amarillo, Arlington, Baytown, Clear Lake City, Denton, Fort Worth, Grand
Prairie, Humble/ Kingwood, Irving, Killeen, Lufkin/Nacodoches, Northeast
Tarrant County, Pasadena, Temple/Belton, Waco, and Wichita Falls, Texas;
Enid, Lawton and Tulsa, Oklahoma. The Company has published six annual yellow
page directories in California, including Monterey Peninsula-Salinas, Santa
Cruz and Palo Alto, California. The Company will not continue to publish the
other three directories in California after 1997. The Company is at present
evaluating the publication of additional yellow page directories covering
other portions of the Region. The start-up costs associated with the
development of a new directory for a typical population center are
substantial. See "Annex M -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of Certain Acquired Companies
- -- Great Western
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Directories, Inc." Great Western derives its revenue primarily from the sale
of advertising space in its directories. It contracts with third parties for
the printing of its directories. The Company believes that the telephone
directories provide valuable marketing opportunities for its bundle of
telecommunications services. The Company intends to utilize Great Western's
sales force of more than 170 direct sales personnel to sell both advertising
space in Great Western's telephone directories and the Company's
telecommunications services.
NETWORK FACILITIES AND CARRIER AGREEMENTS
On-Net. The Company has an extensive communications network within the
Region and upon which the Company can transmit its customer's long distance
calls. The Company's "on-net" facilities consist of (i) the Company's
switches, (ii) leased access trunks that connect the Company's switches to
the ILECs' central offices, (iii) leased lines that connect the Company's
high volume business customers directly to its switches, and (iv) leased
lines and access trunks that connect the Company's switches to certain points
of presence and central offices in the Region. Once a long distance call
reaches one of the Company's switches, it can be routed "on-net" over the
Company's network of leased lines to a point of presence in the city of its
destination; or, if the Company does not have an "on-net" connection, the
call can be routed over the network of another carrier from which the Company
purchases access, generally on a usage basis, for the transmission of the
calls on that carrier's system. Transmissions on facilities owned by others
are referred to as "off-net" transmissions.
To provide its services, the Company offers various types of dedicated
fiber optic lines that operate at different speeds and handle varying amounts
of traffic to provide appropriate solutions to its customers' needs.
o DS-0 -- A dedicated line service that meets the requirements of everyday
business communications, with transmission capacity of up to 64 kilobits
of bandwidth per second (a voice grade equivalent circuit). This service
offers a basic low capacity dedicated digital channel for connecting
telephones, fax machines, personal computers and other telecommunications
equipment.
o T-1 or DS-1 -- A high speed channel typically linking high volume
customer locations to ILECs or other customer locations. Used for voice
transmissions as well as the interconnection of local area networks, T-1
or DS-1 service accommodates transmission speeds of up to 1.544 megabits
per second, the equivalent of 24 DS-0 circuits. The Company offers this
high-capacity service for customers who need a larger communications
pipeline.
o DS-3 -- This service provides a very high capacity digital channel with
transmission capacity of 45 megabits per second, which is equivalent to
28 DS-1 circuits or 672 DS-0 circuits. This is a digital service used by
ILECs for central office connections and by some large commercial users
to link multiple sites.
The Company owns seven digital switches: one Harris 2020LX digital tandem
and local switch located in Dallas, Texas; three Harris 2020 digital tandem
switches located in Sioux Falls, South Dakota; one Northern Telecom DMS 250
digital tandem switch located in Wichita, Kansas; and one Stromberg Carlson
DCO digital tandem switch located in Oklahoma City, Oklahoma. Further, KINNET
owns a Northern Telecom DMS 500 with local and long distance capability
located in Moundridge, Kansas.
Following the Offering the Company believes that it can enhance the
functionality and reduce the costs of its "on-net" facilities by (i)
centralizing network management in a single location, (ii) connecting its
various switches with leased high capacity fiber optic cables to increase
least cost routing flexibility, (iii) installing digital access cross
connects or other types of nodes that permit the Company to access local
exchange carriers' switches without installing a switch and (iv) leveraging
the higher traffic volume of the Acquired Companies to secure rate reductions
on the cost of usage-based leased lines because of materially increased
traffic volume available for transmission over such leased lines.
Off-net. MCI Communications Corporation ("MCI") and WorldCom, Inc.
("WorldCom"), large long distance companies with extensive long haul
transmission capabilities, provide the majority of the
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Company's long distance "off-net" transmission services. Except as noted
below, the Company's contracts with these companies contain terms and
conditions that are customary in the industry, do not impose unusual burdens
and can be readily replaced upon comparable terms and conditions by
arrangements with other carriers.
The Company has two off-net carrier agreements with one of the dominant
long distance carriers that expire in February 1998 and September 1999 and
provide for minimum monthly take-or-pay commitments of $225,000 and $200,000,
respectively. Since the inception of the agreements, the minimum usage levels
under these contracts have been met and the Company has not incurred any cash
payments in lieu of minimum usage requirements under these contracts.
FirstTel entered into a long distance resale agreement with Total Network
Services in July 1996 with an initial term of 24 months. This agreement
provides for a minimum monthly payment obligation of $75,000, rising to
$100,000 per month in the last six months of the agreement. The minimum usage
levels under this contract prior to October 1, 1997 have been waived and
subsequent levels have been reduced to $25,000 per month to the end of the
contract. Through an acquisition, FirsTel has also recently assumed a
take-or-pay contract with WorldCom with a $25,000 per month minimum through
July 1999. The Company has no other take-or-pay contracts.
The Company believes that the aggregate traffic volume of the Acquired
Companies will enable the Company to negotiate more favorable "off-net"
carrier agreements than any individual Acquired Company could negotiate based
upon its individual traffic volume.
KINNET. The Company owns 49% of the outstanding capital stock of KINNET,
the operator of an extensive city-to-city fiber optic network in Kansas.
KINNET is a carriers' carrier and currently serves 26 counties, 105
communities and over 60,000 end users primarily in rural Kansas. It also
sells private line services of DS-1 and DS-3 capacity to interexchange
companies, cellular telephone companies, independent local telephone
companies, business and government accounts and other long distance telephone
service providers such as the Company. KINNET operates a Northern Telecom DMS
500 switch located in Moundridge, Kansas. In 1996, this switch provided
approximately 104 million minutes of equal access time or "1+" dialing
services for approximately 18 independent local telephone companies in
Kansas. KINNET also provides wholesale termination services for other long
distance telephone companies. Feist Long Distance, one of the Acquired
Companies, intends to transfer its entire customer base of switched long
distance minutes to the KINNET switch after the Offering. KINNET has agreed
to apply $5.0 million of the $10.0 million direct cash investment by the
Company to the buildout in 1998 and 1999 of a 537-mile, $21.5 million network
extension from Wichita, Kansas to the greater Kansas City metropolitan area
with a leg to Tulsa, Oklahoma that will provide self-healing redundancy to
its fiber optic network. KINNET has advised the Company that it expects to
finance the balance of the expansion with loan proceeds from the RTFC. In
1996, the KINNET network operated at 99.9% reliability. The network is
regularly tested and serviced and is monitored 24 hours per day.
The remaining 51% of KINNET is owned by Liberty Cellular, Inc.
("Liberty"), and the shares owned by Liberty and ACG are subject to a 10-year
stockholders' agreement. Under that agreement ACG is entitled to elect four
directors and Liberty is entitled to elect five directors. After the
Offering, KINI, L.C. will continue to manage KINNET pursuant to a management
agreement. KINI, L.C. is owned by, among others, independent Kansas telephone
companies that are significant customers of KINNET. E. Clarke Garnett,
President of KINNET, KINI, L.C. and Liberty, has agreed to become a director
of ACG effective upon the Offering.
SALES AND MARKETING
The Company intends to focus its sales efforts primarily on business
customers in the Region. The Company's marketing strategy is built upon the
belief that small to mid-sized business customers prefer one supplier for all
of their telecommunications services. The Company believes that it can
effectively compete for business customers based upon price, accurate billing
of a bundle of services on a single invoice, quality of service, and existing
relationships with yellow page advertisers of the Company or one of its
strategic partners. The Company's management believes that high quality
training is a prerequisite
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for customer focused selling and superior customer service, and as a result
the Company intends to initiate an intensive training program for each member
of the Company's sales force.
Sales and marketing of the Company's telecommunications services are
currently conducted by approximately 65 direct sales personnel located in six
sales offices in the Region, 14 telemarketing sales personnel and 15 outside
sales agents. Advertising space in the Company's yellow page directories is
sold by Great Western's more than 170 person direct sales force which the
Company plans to train to cross-sell the Company's telecommunications
services in conjunction with the sale of advertising space in its
directories. The Company intends in 1998 to increase its direct sales force
by approximately 150 new direct sales personnel as well as expand its staff
of telemarketers and independent sales agents. Additional directory sales
personnel will be needed to expand into new markets and also to call on
existing customers, since the marketing of telecommunications services will
increase the length of time of each sales call. The Company's expanded direct
sales force will focus on increasing revenues from existing business
customers by offering an enhanced bundle of telecommunications services and
emphasizing the provision of local service to customers who have not
previously been offered this service.
The Company believes the addition of Great Western's sales force in
selling telecommunications services will greatly enhance the Company's sales
and marketing efforts. It will provide the Company with an immediate presence
in Great Western's markets where it does not yet provide integrated
telecommunications services, but where the Company expects to do so in the
future. The Company's sales force will begin marketing telecommunications
services to existing directory customers in Great Western's current markets,
and as Great Western enters new markets, the sales force will jointly market
directory advertising and telecommunications services. The directories will
contain detailed descriptions of the Company's services, and instructions on
how to order the Company's bundle of services. In effect, the directories
will serve as advertising for the Company's telecommunications services. The
Company believes that directories are commonly used sources of information
that will provide the Company with a long-term marketing presence in the
businesses and residences that receive and review the Great Western
directories.
COMPETITION
Telecommunications
The telecommunications industry is highly competitive. The Company
competes primarily on the basis of pricing, accurate billing of a bundle of
services on a single invoice, quality of service and customer dissatisfaction
with the service provided by existing carriers. The ability of the Company to
compete effectively will depend on its ability to maintain high quality
services at prices generally equal to or below those charged by its
competitors. In particular, price competition in the long distance market has
generally been intense and is expected to increase. Many of the Company's
competitors (such as the Dominant Long Distance Carriers on an interexchange
basis and Southwestern Bell and US WEST on an intraLATA basis) have
substantially greater financial, personnel, technical, marketing and other
resources, significantly larger numbers of established customers and more
prominent name recognition than the Company and utilize extensive
transmission networks. Certain of the Company's competitors may have lower
overhead cost structures and, consequently, may be able to provide their
services at lower rates than the Company. In addition, the Company will also
increasingly face competition in the long distance market from local exchange
carriers, switchless resellers and satellite carriers and may eventually
compete with public utilities and cable companies. In particular, RBOCs such
as Southwestern Bell and US WEST are now allowed to provide interLATA long
distance services outside their home regions, as well as interLATA mobile
services within their regions. They will be allowed to provide interLATA long
distance services within their regions after meeting certain requirements of
the Telecommunications Act intended to foster opportunities for local
telephone competition. The RBOC's already have extensive fiber optic cable,
switching, and other network facilities in their respective regions that can
be used for their long distance services.
The Company's principal competitor for local exchange services will be the
ILEC in the particular market, including Southwestern Bell and US WEST in
virtually all of the Company's initial market areas.
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The ILECs will enjoy substantial competitive advantages arising from their
historical monopoly position in the local telephone market, including their
preexisting customer relationship with all or virtually all end users.
Furthermore, the Company will be highly dependent on the competing ILEC for
local network facilities and wholesale services required in order for the
Company to assemble its own local retail products. The Company will also face
competition from CLECs, some of whom have already established local
operations in the Company's target markets. See "Risk Factors --Dependence on
Incumbent Local Exchange Carriers."
The Company generally prices its services at a discount to the primary
carrier (or carriers) in each of its target markets. The Company has
experienced, and expects to continue experiencing, declining revenue per
minute in many of its markets as a result of increased competition, although
due to technological innovation and substantial available transmission
capacity, transmission costs in the industry have historically declined at a
more rapid rate than prices. There can be no assurance that this cost trend
will continue. Some industry observers have predicted that, early in the next
decade, telephone charges will no longer be based on the distance a call is
carried and hence the Company's results of operations may be adversely
affected. See "Management's Discussion and Analysis of Combined Financial
Condition and Results of Operations -- Introduction -- Overview of the
Company's Business."
Large long distance carriers, such as some of the Dominant Long Distance
Carriers, have begun to offer both local and long distance telecommunications
services. In addition, ILECs are expected to compete in each other's markets
in some cases. For example, in the future RBOCs may provide local services
within their respective geographic regions in competition with independent
telephone companies, as well as outside their regions. Wireless
telecommunications providers may develop into effective substitutes for
wireline local telephone service. Certain long distance companies are also
considering using this strategy. In addition, if local access carriers expand
their toll free calling areas, traffic which might otherwise have been
carried by the Company as long distance traffic may be carried by the Company
as local traffic, or carried by the other carrier. Utilities companies are
also entering into the telecommunications business. The Company also competes
with numerous direct marketers and telemarketers and equipment vendors and
installers with respect to certain portions of its business.
Yellow Page Directories
Great Western competes for advertising dollars to finance the publication
of its yellow pages directories with the RBOCs, other ILECs and independent
publishers of yellow page directories, many of whom have substantially
greater resources than the Company. Based upon independent surveys, Great
Western believes that between 40% and 60% of the users of yellow page
directories in most of its market areas generally use Great Western's
publications when they consult yellow page directories. The Company believes
that Great Western is among the four largest publishers of independent yellow
page directories in the United States. Southwestern Bell is Great Western's
principal competitor in its market areas.
REGULATION
Overview. The Company's services are subject to federal, state and local
regulation. The Company, through its wholly owned subsidiaries, holds various
federal and state regulatory authorizations. The FCC exercises jurisdiction
over telecommunications common carriers to the extent they provide, originate
or terminate interstate or international communications. The FCC also
establishes rules and has other authority over certain issues related to
local telephone competition. State regulatory commissions retain jurisdiction
over telecommunications carriers to the extent they provide, originate or
terminate intrastate communications. Local governments may require the
Company to obtain licenses, permits or franchises in order to use the public
rights-of-way necessary to install and operate portions of its networks.
Federal Regulation. The Company is categorized as a non-dominant carrier
by the FCC, and as a result is subject to relatively limited regulation of
its interstate and international services. Certain general policies and rules
apply (such as a requirement for the filing of tariffs), as well as certain
reporting requirements, but the Company's rates and practices are not
routinely reviewed. The Company is seeking
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all authority required by the FCC to conduct its long distance business and
expects to have all authority, the lack of which would be material, prior to
the consummation of the Offering. As a non-dominant carrier, the Company may
install and operate wireline facilities for the transmission of domestic
interstate communications without prior FCC authorization.
The FCC also imposes prior approval requirements on transfers of control
of regulated companies and assignments of operating authorizations. The FCC
has the authority generally to condition, modify, cancel, terminate or revoke
operating authority for failure to comply with federal laws or the rules,
regulations and policies of the FCC. Fines or other penalties also may be
imposed for such violations. There can be no assurance that the FCC or third
parties will not raise issues with regard to the Company's compliance with
applicable laws and regulations.
Under the Communications Act of 1934 as amended, and the rules,
regulations and policies of the FCC, the Company is required to provide its
services pursuant to just, reasonable and non-discriminatory rates and
practices. This includes the requirement that the Company's rates to rural
and high cost areas be the same as that charged to urban areas and that the
same rates for the same service be applied in every state in which the
Company offers interstate communications services. In addition, as a
communications common carrier engaged in the provision of interstate
communications, the Company is required to pay annual regulatory fees to the
FCC (in an amount based on its proportionate share of gross interstate
revenues), provide Telecommunications Relay Service ("TRS") for the hearing
and speech impaired in its operating areas (either directly, through
designees, or in concert with other carriers), and make an annual
contribution to the TRS Fund (also based upon the Company's share of gross
interstate revenues).
The FCC also regulates the interstate access rates charged by ILECs for
the origination and termination of interstate long distance traffic. Those
access rates make up a significant portion of the cost of providing long
distance service. The FCC has recently announced changes to its interstate
access rules that will result in restructuring of the access charge system
and changes in access charge rate levels. These changes will reduce
per-minute access charges and substitute new per-line flat-rate monthly
charges. These actions are expected to reduce access rates, and hence the
cost of providing long distance service, especially to business customers.
However, the full impact of the FCC's new decisions will not be known until
those decisions are implemented over the next several years, during which
time parties may ask the FCC to reconsider its decision. AT&T has committed
to reduce its long distance rates to reflect access cost reductions, and
other competitors of the Company are likely to make similar reductions. In
such event, the Company may need to reduce its rates in response to
competitive pressures. In a related proceeding, the FCC has adopted changes
to the methodology by which access has been used in part to subsidize
universal telephone service and other public policy goals.
The Telecommunications Act also gives the FCC a substantial role in
establishing rules for the implementation of local telephone competition. The
Telecommunications Act imposes a variety of new duties on ILECs in order to
promote competition in local exchange and access services, and the FCC has
authority to develop rules to implement these duties. Some smaller
independent ILECs may seek suspension or modification of these obligations,
and some companies serving rural areas are exempt from them.
In that regard, on August 8, 1996, the FCC adopted the Interconnection
Decision to implement the interconnection, resale and number portability
provisions of the Telecommunications Act. The Interconnection Decision
establishes rules pursuant to which ILECs interconnect their networks with
the networks of CLECs on the basis of rates that are reasonable and
non-discriminatory. The Interconnection Decision also establishes rules
governing the rights of CLECs to obtain and use elements of the ILECs
networks at cost-based rates either to supplement or substitute for
alternative local network facilities that the CLEC would otherwise be
required to install. The Interconnection Decision sets rules governing a
CLEC's access to wholesale versions of the ILECs retail local services for
resale. The ILECs are required to establish administrative support systems so
that these services and functionalities can be made available to other
carriers on a nondiscriminatory basis. The Interconnection Decision also
created rules to deal with reciprocal compensation for the transport and
termination of local telecommunications, non-discriminatory access to rights
of way, and related matters. A related FCC order adopted the same day
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established rules implementing the Telecommunications Act with respect to
local and toll dialing parity among competitors; nondiscriminatory access to
telephone numbers, operator services, directory assistance and listings,
network information; and reform of numbering administration.
These various rules remain to be fully implemented. The Telecommunications
Act provides that the ILECs and other carriers will attempt to negotiate
interconnection agreements pursuant to the rules developed by the FCC. Where
those negotiations are not successful, state public utility commissions
("PUCs") act as arbitrators, subject to the rights of the parties to seek
further appeals. To date a number of interconnection agreements have been
negotiated or arbitrated, but nevertheless important pricing and operational
issues remain to be resolved in future proceedings. The Company has
negotiated such interconnect agreements with Southwestern Bell and US WEST.
In addition, the ILECs have sought judicial appeal of many of the more
important FCC rules, particularly those governing the rates that the ILECs
may charge for use of their network elements and services. The U.S. Court of
Appeals for the Eighth Circuit had initially granted a stay of certain
provisions of the Interconnection Decision, including the pricing rules and
rules that would have permitted new entrants to "pick and choose" among
various provisions of existing interconnection agreements. All other
provisions of the Interconnection Decision and related FCC orders were to
remain in effect pending resolution of the appeal on the merits. Although the
judicial stay of the Interconnection Decision did not prevent the Company
from attempting to negotiate other interconnection agreements with local
exchange carriers, it did create uncertainty about the rules governing
pricing, terms and conditions of interconnection agreements, and could make
negotiating such agreements more difficult and protracted. Although the FCC
had applied to the U.S. Supreme Court to vacate the judicial stay, on July
18, 1997, the U.S. Eighth Circuit Court of Appeals issued an opinion which,
among other things, held that the stay had expired. The decision also
invalidated key elements of the Interconnection Decision and stated that the
law grants the state commissions, not the FCC, the authority to determine
rates involved in the implementation of the local competition provisions of
the Telecommunications Act. More specifically, the court overturned the FCC's
pricing guidelines, the "pick and choose" provisions, and some portions of
the FCC unbundling rules, although it upheld the FCC's list of network
elements that LEC's must unbundle and other aspects of the Interconnection
Decision. Several interexchange carriers (including AT&T, MCI and Sprint)
have filed a petition for rehearing with the Eighth Circuit requesting the
court to reinstate certain of the FCC rules found unlawful. In another more
recent decision, the Eighth Circuit has also held that the FCC exceeded the
scope of its jurisdiction by issuing rules concerning dialing parity that
affect purely intrastate services. There can be no assurance that the Company
will be able to obtain interconnection agreements on terms acceptable to the
Company.
There can be no assurance that the stricken portions of the FCC's rules
will be reinstated on further appeal, or that the FCC's rules will prove
sufficient, as implemented in the negotiation and arbitration process, to
permit local telephone competition to develop as a general matter. In this
connection, on July 2, 1997, SBC Communications Inc. ("SBC"), the parent of
Southwestern Bell, filed suit in U.S. District Court, Northern District of
Texas (Wichita Falls) challenging the constitutionality of the
Telecommunications Act. SBC alleged that Sections 271-275 of the Act, which
govern the entry by a regional holding company ("RHC") into long distance
markets, are unconstitutional in four ways: (i) the sections deny a RHC's
First Amendment free speech rights by imposing a four-year separate
subsidiary requirement for entry into electronic publishing; (ii) the
provisions violate the separation of powers clause by revoking the legally
protected monopolies that were established in the Divestiture; (iii) the
sections infringe on the equal protection clause of the Fifth Amendment by
restricting long distance entry for RBOCs and not their competitors; and (iv)
the provisions violate the "Bill of Attainder" clause by employing
legislative means to tread on judicial boundaries and bring about a loss of
civil rights and business opportunities. SBC filed a motion for summary
judgment with the Court on July 30, 1997. SBC's motion alleged that the Act
is "causing irreparable harm, including denial of significant business
opportunities, the loss of customer goodwill and infringement of First
Amendment rights."
The Company has entered into Resale Agreements covering Kansas, Minnesota,
Nebraska, North Dakota, South Dakota, Texas and Wyoming pursuant to which it
obtains wholesale local telephone services. These agreements do not
completely resolve all pricing and operational issues for the resale of
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local services or access to the unbundled network elements. Some of such
terms may be affected by legal proceedings regarding FCC regulatory
requirements, the outcome of which will apply to the industry as a whole.
However, the Company believes that these agreements represent a reasonable
initial step in the process of establishing local service on a commercial
basis.
The Company expects to negotiate similar agreements with other ILECs.
However, other carriers who have preceded the Company in the negotiation
process have expressed dissatisfaction with some of the terms of their
agreements, or with the operational support systems by which they obtain the
interconnection they require to provide local services to end users. No
assurance is possible regarding how quickly or how adequately the Company
will be able to take advantage of the opportunities created by the
Telecommunications Act. The Company could be adversely affected if the court
decision reversing some of the new FCC rules, or problems in the related
arbitration and negotiation process, result in increasing the cost of using
ILEC network elements or services, or if such actions otherwise resulted in
delays in the implementation of the Telecommunications Act.
The Telecommunications Act also imposes certain duties on non-ILECs, such
as the Company. These duties include the obligation to complete calls
originated by competing carriers under reciprocal arrangements or through
mutual exchange of traffic without explicit payment; the obligation to permit
resale of their telecommunications services without unreasonable restrictions
or conditions; and the duty to provide dialing parity, number portability,
and access to rights of way. The Company does not anticipate that these
obligations will impose a material burden on its operations. However, given
that local telephone competition is still in its infancy and implementation
of the Telecommunications Act has just begun, there can be no assurance in
this regard.
The Telecommunications Act also establishes the foundation for substantial
additional competition to the Company's long distance operations through
elimination or modification of previous prohibitions on the provision of
interLATA long distance services by the RBOCs and General Telephone Operating
Companies. The RBOCs are now permitted to provide interLATA long distance
service outside those states in which they provide local exchange service
("out-of-region long distance service") upon receipt of any necessary state
or federal regulatory approvals that are otherwise applicable to the
provision of intrastate or interstate long distance service. They also are
allowed to provide long distance services for their cellular and other mobile
services within the regions in which they also provide local exchange service
("in-region service"). The RBOCs will be allowed to provide wireline
in-region service upon specific approval of the FCC and satisfaction of other
conditions, including a checklist of interconnection requirements. The
General Telephone Operating Companies are permitted to enter the long
distance market without regard to limitations by region. The General
Telephone Operating Companies are also subject to the provisions of the
Telecommunications Act that impose interconnection and other requirements on
local exchange carriers.
The FCC has granted ILECs certain flexibility in pricing their interstate
special and switched access services. Under this pricing scheme, local
exchange carriers may establish pricing zones based on access traffic density
and charge different prices for access provided in each zone. The Company
anticipates that the FCC will grant ILECs increasing pricing flexibility as
the number of interconnection agreement and competitors increases. In a
pending rulemaking proceeding scheduled for completion soon, the FCC is
expected to announce new and more specific policies regarding the conditions
and timing under which ILECs will be eligible for such increased pricing
flexibility. There can be no assurance that such pricing flexibility will not
place the Company at a competitive disadvantage, either as a purchaser of
access for its long distance operations, or as a vendor of access to other
carriers or end user customers.
Effective January 1, 1998 ILECs are entitled to assess PICC charges upon
switching a customer's service from one provider to another. At the present
time, the Company expects to pay an approximately $5.00 per customer PICC
charge. Unless all interexchange carriers elect to pass these changes along
to their customers, those carriers that elect to absorb the PICC charge will
enjoy a competitive advantage over those that attempt to pass the charge
along to their customers. The Company believes that larger carriers will be
better able to absorb the PICC charges over the short term, and hence will
enjoy a competitive advantage until market conditions drive the cost of the
PICC charge to lower levels. The
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<PAGE>
Company will determine whether to absorb or pass along the PICC charge once
it assesses the action taken by its competitors. Absorption of the PICC
charge would increase the Company's cost of providing telecommunication
services and consequently would adversely impact the Company's results of
operations.
State Regulation. The Company is also subject to various state laws and
regulations. Most PUCs require providers such as the Company to obtain
authority from the commission prior to the initiation of service. In most
states, including Texas, Kansas, Oklahoma, North Dakota, South Dakota and
Nebraska, the Company also is required to file tariffs setting forth the
terms, conditions and prices for services that are classified as intrastate.
The Company also is required to update or amend its tariffs when it adjusts
its rates or adds new products, and is subject to various reporting and
record-keeping requirements.
Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply
with state law or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such
violations. There can be no assurance that state utilities commissions or
third parties will not raise issues with regard to the Company's compliance
with applicable laws or regulations.
The Company initially will provide CLEC services in the Region through
resale of the retail local services of the respective ILECs. Certain of the
Acquired Companies have obtained CLEC certification in Texas, Kansas, North
Dakota, South Dakota, Minnesota, Nebraska and Wyoming and are currently
reselling local services in portions of the first four states. ACG has
initiated proceedings to secure regulatory approvals for the Acquisitions,
and expects to have all approvals the absence of which would be material
prior to the consummation of the Offering. The Company intends to seek CLEC
certification in other states throughout the Region.
Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecommunications
Act preempts the ability of states to forbid local service competition, it
preserves the ability of states to impose reasonable terms and conditions of
service and other regulatory requirements. However, these statutes and
related questions arising from the Telecommunications Act will be elaborated
further through rules and policy decisions made by PUCs in the process of
addressing local service competition issues.
The Company also will be heavily affected by state PUC decisions related
to the ILECs. For example, PUCs have significant responsibility under the
Telecommunications Act to oversee relationships between ILECs and their new
competitors with respect to such competitors' use of the ILECs' network
elements and wholesale local services. PUCs arbitrate interconnection
agreements between the ILECs and new competitors such as the Company when
necessary. PUCs are considering ILEC pricing issues in major proceedings now
underway. PUCs will also determine how competitors can take advantage of the
terms and conditions of interconnection agreements that ILECs reach with
other carriers. It is too early to evaluate how these matters will be
resolved, or their impact on the ability of the Company to pursue its
business plan.
States also regulate the intrastate carrier access services of the ILECs.
The Company is required to pay such access charges to such carriers that
originate and terminate its intrastate long distance traffic. The Company
could be adversely affected by high access charges, particularly to the
extent that the ILECs do not incur the same level of costs with respect to
their own intrastate long distance services. A related issue is used by
certain ILECs, with the approval of PUCs, of extended local area calling that
converts otherwise competitive intrastate toll service to local service.
States also are or will be addressing various intraLATA dialing parity issues
that may affect competition. It is unclear whether state utility commissions
will adopt changes in their rules governing intrastate access charges similar
to those recently approved by the FCC for interstate access. The Company's
business could be adversely affected by such changes.
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<PAGE>
The Company also will be affected by how states regulate the retail prices
of the ILECs with which it competes. The Company believes that, as the degree
of intrastate competition increases, the states will offer the local exchange
carriers increasing pricing flexibility. This flexibility may present the
local exchange carriers with an opportunity to subsidize services that
compete with the Company's services with revenues generated from
non-competitive services, thereby allowing ILECs to offer competitive
services at lower prices than they otherwise could. The Company cannot
predict the extent to which this may occur or its impact on the Company's
business.
Local Government Authorizations. In the event the Company determines to
construct any portion of its network, it will be required to obtain
easements, street use and construction permits and licenses and/or franchises
to install its network using municipal rights-of-way. In some municipalities
where the Company might elect to construct a network, it might be required to
pay license or franchise fees based on a percentage of gross revenues or on a
per linear foot basis. In many markets, the ILECs do not pay such franchise
fees or pay fees that are substantially less than those that might be
required to be paid by the Company, although the Telecommunications Act
requires that in the future such fees be applied in a competitively neutral
manner. To the extent that, notwithstanding the Telecommunications Act,
competitors do not pay the same level of fees as the Company, the Company
could be at a competitive disadvantage.
General. The telecommunications market is in a period of substantial
change and uncertainty. As the Telecommunications Act and related FCC and
state actions are implemented, new issues are likely to arise that can affect
the Company and its business plan. No assurance can be given that future
regulatory developments will not have a materially adverse impact on the
Company.
REAL PROPERTY AND LEASES
The Company leases its corporate headquarters space in Houston, Texas from
an unaffiliated third party on a month-to-month basis.
The Company owns office buildings in Amarillo and Longview, Texas and
leases office space and facilities in Dallas, Texas, Oklahoma City, Oklahoma,
Wichita, Kansas, Moundridge, Kansas and twelve other locations. The leases
for these offices expire at various times through January 2002.
The Company may lease or purchase additional office space and switching
and other network facilities in connection with an expansion of its business.
EMPLOYEES
As of September 30, 1997, the Company had over 560 full-time employees,
none of whom is represented by a union or covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good.
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<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information concerning each of
ACG's directors and officers (ages as of August 31, 1997). The Board of
Directors (the "Board") will consist of nine directors, divided into three
classes of directors serving staggered terms. Directors and executive
officers of ACG are elected to serve until they resign or are removed, or are
otherwise disqualified to serve, or until their successors are elected and
qualified. Directors of ACG are elected at the annual meeting of the
stockholders. Officers of ACG generally are appointed by the Board shortly
after each annual meeting of stockholders.
<TABLE>
<CAPTION>
TERM
AS
DIRECTOR
NAME AGE(1) POSITION(S) WITH COMPANY EXPIRES
- ------------------------------ ------ ------------------------------------------------- ----------
<S> <C> <C> <C>
Rod K. Cutsinger .............. 54 Chairman of the Board and Chief Executive Officer 2000
G. Edward Powell .............. 60 Executive Vice President, Chief Financial Officer 1999
and Director
Richard O'Neal(2)(3) .......... 57 President--Directory Services Group and Director 1999
Fred L. Thurman(2) ............ 47 President--Telecommunication Services Group and 2000
Director
Brad Van Leur(2) .............. 41 Vice President--Marketing/Telecommunication --
Services Group
Donald R. Sarchet(2) .......... 48 Vice President--Networks/Telecommunication --
Services Group
Todd J. Feist(2) .............. 33 Vice President--Kansas/Telecommunication 1999
Services Group and Director
Bill Rhodes(2) ................ 49 Vice President--Texas/Telecommunication Services --
Group
Earle Brown(2) ................ 40 Vice President--Interconnect/Telecommunication --
Services Group
Larry Baldwin(2) .............. 52 Vice President--Operations/Directory --
Services Group
Mark Fields(2) ................ 32 Vice President--Finance/Directory Services Group --
Max Andrews(2) ................ 39 Vice President--Marketing/Directory --
Services Group
Brad K. Cutsinger ............. 26 Vice President and Secretary --
Frank Bango(4) ................ 48 Director 1998
Fentress Bracewell(2)(3)(4) .. 76 Director 2000
E. Clarke Garnett(2)(3)(5)(6) 37 Director 1998
David M. Mitchell(2)(5)(6) ... 49 Director 1998
</TABLE>
- ------------
(1) No person shall be nominated for election, nor elected, as a director
of ACG if such person (i) has attained the age of 80 as of such
nomination or election, or (ii) will attain the age of 80 prior to the
expiration of the term of office for which he is being nominated or
elected.
(2) Election will become effective on the closing of the Offering and the
biographical information set forth herein assumes the consummation of
the Offering.
(3) Member of the Nominating Committee.
(4) Member of the Compensation Committee.
(5) Member of the Audit Committee.
(6) Elected pursuant to an agreement with ACG or certain stockholders. See
"Certain Transactions -- Voting Arrangements."
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<PAGE>
Rod K. Cutsinger has been Chairman and Chief Executive Officer of ACG or
its predecessor since the organization of its predecessor in June 1996. Mr.
Cutsinger has been active in the consolidation of companies in fragmented
industries since the early 1970s. In early 1983 Mr. Cutsinger founded
Advanced Telecommunications Corporation ("ATC") and by the end of that year
ATC had acquired six companies and completed an initial public offering.
After selling his interest in ATC, in 1986 Mr. Cutsinger founded American
Funeral Services, Inc. ("AFS"), a publicly held death care consolidator
headquartered in Houston, Texas. In late 1992 AFS was acquired by Service
Corporation International ("SCI"). Thereafter, Mr. Cutsinger founded and
served as the principal officer of Vadacom, Inc., a switched based long
distance company headquartered in Houston, that sold substantially all its
assets in 1995. Mr. Cutsinger is also an executive officer, director and
equity interest owner of CPFF and Consolidation Partners.
G. Edward Powell was elected Executive Vice President and Chief Financial
Officer of the predecessor of ACG in July 1997, after having served as a
consultant to and a director of that company since September 1996. Mr. Powell
joined the accounting firm of Price Waterhouse LLP in 1959 and served as
managing partner of that firm's Houston office between 1982 and his
retirement in 1994. Since his retirement, Mr. Powell has served as a director
of and consultant to five emerging high technology companies in addition to
his involvement with the Company. Following the Offering, Mr. Powell will
continue to serve as Chief Financial Officer on a full time basis until his
successor is identified and employed. Thereafter, Mr. Powell intends to
refocus his efforts on acquisitions for the Company and CPFF, in which he
owns an equity interest. He will continue to serve as a director of ACG.
Richard O'Neal is President -- Directory Services Group and a director of
ACG. He founded Great Western in 1984 and has served as its President since
that time. Mr. O'Neal also has served as an officer and director of several
publishing organizations such as the Yellow Page Publishers Association and
the Association of Directory Publishers, two of the largest organizations in
that industry.
Fred L. Thurman is President -- Telecommunication Services Group and a
director of ACG. He has been President of FirsTel since April 1994. Prior to
that time he served as a consultant to FirstTel for about one year. Between
1984 and 1993, he acted as the certified public accountant for DialNet, Inc.,
a long distance telephone company, until it was acquired by LDDS, Inc. Since
1979 Mr. Thurman has also been a partner in Thurman, Comes, Foley & Co. LLC,
a public accounting firm in Sioux Falls, South Dakota.
Brad Van Leur is Vice President -- Marketing/Telecommunication Services
Group of ACG. Mr. Van Leur has been Vice President Sales & Marketing for
FirsTel since 1995, and between 1993 and 1995 served as FirsTel's consultant
for long distance. From 1989 to 1993, he served as regional sales manager for
North Dakota, South Dakota, Minnesota, Iowa and Nebraska for Dial Net, and in
1993 he also served as Director of Operations in South Dakota for
LDDS/WorldCom. From 1987 to 1989 he was Sales Manager for South Dakota for
Computel, a long distance and interconnect company, which was acquired by
Dial Net in 1989. From 1985 to 1987 he served in various positions for Long
Line/Teletech, a long distance company.
Donald R. Sarchet is Vice President -- Networks/Telecommunication Services
Group of ACG. Since 1992, Mr. Sarchet has been Vice President, Network
Operations of Valu-Line. Between 1989 and 1992, he served as Area Manager --
Field Operations -- North of ATC. From 1984 to 1989, Mr. Sarchet served in
various positions with Clay Desta Digital Corporation. Clay Desta was
acquired by ATC in 1989. Prior to that time, from 1966 to 1982, Mr. Sarchet
served in various positions with Southwestern Bell, including as Network
Service Supervisor in several locations.
Todd J. Feist is Vice President -- Kansas/Telecommunication Services Group
and a Director of ACG. He has been President of Feist Long Distance since
February 2, 1996. Prior to that time he had been Network Manager for Feist
Long Distance since April 1, 1994 and before that date had been Distribution
Manager of FPI in Lubbock, Texas since 1987.
Bill Rhodes is Vice President -- Texas/Telecommunication Services Group.
He has been President of Valu-Line since April 1996. Prior to that time, Mr.
Rhodes was employed by Rockwell International, Inc. for more than 20 years in
various engineering, program management, marketing and business development
executive capacities.
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<PAGE>
Earle Brown is Vice President -- Interconnect/Telecommunication Services
Group. He has served as President of Tele-Systems since January 1995 and
prior to that time had served as Vice President-Operations of Tele-Systems
since November 1989.
Larry Baldwin is Vice President -- Operations/Directory Services Group.
Mr. Baldwin has served as Great Western's Executive Vice President, Secretary
and Treasurer since its inception in 1984. Prior to that time he was involved
in instant printing operations in Amarillo, Texas.
Mark Fields is Vice President -- Finance/Directory Services Group. Mr.
Fields has been Controller of Great Western since December 1994. From August
1990 until December 1994, he was a Manager with KPMG Peat Marwick LLP.
Between August 1987 and August 1990, he was a Senior Auditor for Deloitte &
Touche.
Max Andrews is Vice President -- Marketing/Directory Services Group. Mr.
Andrews, whose sales experience dates back to 1982, has been a sales manager
with Great Western since January 1994; most recently having served as the
General Sales Manager for Texas and Oklahoma. From January 1989 to December
1993, he was a district sales manager for Dun & Bradstreet/Donnelley
Information Publishing in San Diego, California.
Brad K. Cutsinger was elected Secretary of ACG's predecessor in June 1996
and one of its Vice Presidents in July 1997. For the five years prior to that
time, Mr. Cutsinger was a student. Mr. Cutsinger owns an equity interest in
and is a Manager of CPFF, and a trust for his benefit owns 15% of the equity
interests in Consolidation Partners. Brad K. Cutsinger is the son of Rod K.
Cutsinger.
Frank Bango was elected as a director of ACG's predecessor in September
1996. Until his recent election as President--South Florida Region of SCI,
Mr. Bango had served as the Southeast Regional President of SCI since 1992.
Mr. Bango joined SCI in 1992 following SCI's acquisition of AFS. Since 1987
Mr. Bango had served in various executive positions at AFS, after spending
ten years at General Electric Credit Corporation.
Fentress Bracewell is primarily engaged in managing his personal
investments in Houston. Prior to his retirement in 1991, Mr. Bracewell was a
Senior Partner in the law firm of Bracewell & Patterson, L.L.P., having been
one of the founders of that firm in 1945. Mr. Bracewell remains a Founding
Partner and Special Counsel of Bracewell & Patterson, L.L.P., although he has
no continuing equity participation in that firm. He also serves as a director
of First Investors Financial Services, Inc., an automobile finance company.
E. Clarke Garnett has served as President of KINNET, KINI and Liberty,
(the owner of 51%, after the Offering and prior owner of 100% of the
outstanding capital stock of KINNET), since November 1996. Prior to that
time, he had served as an Executive Vice President of these three companies
since May 1994 and as Executive Director since September 1992. Between 1990
and 1992, Mr. Garnett was the General Manager, Western Region, of CommNet
Cellular, Inc.
David M. Mitchell has been engaged primarily as an investor in the
telephone business since 1982 when he founded National Telephone Exchange of
Temple, Texas. Mr. Mitchell sold this and two other telephone companies in
1991 to U.S. Long Distance. Mr. Mitchell owned a 50% interest in Valu-Line at
the time Valu-Line was acquired by the Company.
DIRECTOR COMPENSATION
Directors of ACG who are also employees of the Company receive no
directors' fees but are eligible to receive, and have received, grants of
stock options under the Company's 1997 Stock Awards Plan. Non-employee
directors receive fees of $1,000 for each board meeting in which they
participate, are reimbursed for reasonable out-of-pocket travel expenditures
incurred and receive options to purchase shares of Common Stock pursuant to
the Directors' Plan upon election to the Board.
In September 1997 ACG adopted the Directors' Plan. The Directors' Plan
provides for the grant of stock options to non-employee directors of the
Company. The Directors' Plan is administered by the Board of Directors and
authorizes the grant of options to purchase up to 300,000 shares of Common
Stock
55
<PAGE>
for issuance as nonqualified options. Each director of the Company who is not
an employee of the Company or any of the Company's subsidiaries (an "Eligible
Director"), is granted options to acquire 15,000 shares of Common Stock on
the date of such director's first election to the Board. Additional options
to acquire 5,000 shares of Common Stock will thereafter be awarded to each
Eligible Director on the date of the annual meeting of stockholders at which
he or she is reelected to serve an additional three-year term as a Director
of the Company. As of the date of the consummation of the Offering, each of
Messrs. Frank Bango, Fentress Bracewell, E. Clarke Garnett and David M.
Mitchell will be granted options to purchase 15,000 shares of Common Stock
pursuant to the Directors' Plan at the initial public offering price. The
option will vest in equal annual installments on the first, second and third
anniversaries of the consummation of the Offering.
EXECUTIVE COMPENSATION
Neither ACG nor its predecessor has not conducted any operations other
than related to the Acquisitions and the Offering, and ACG's predecessor did
not pay any compensation prior to June 1996. The Company anticipates that
during 1997 its most highly compensated executive officers and their
annualized base salaries will be: Mr. Rod K. Cutsinger -- $300,000; and Mr.
Brad K. Cutsinger -- $60,000. In lieu of cash compensation from the Company,
Mr. G. Edward Powell was afforded the opportunity to purchase an aggregate of
100,000 shares of common stock of the Company's predecessor in October 1996
and January 1997 for an aggregate cash consideration of $5,000. Following the
Offering, Mr. Powell will be compensated at an annual rate of $175,000 until
his successor is identified and employed. Each of Messrs. Rod Cutsinger,
Powell and Brad Cutsinger are eligible to receive cash bonuses, at the
discretion of the Compensation Committee of the Board of Directors, in
respect of 1998 in the amount of 100% of their base salaries. In addition,
Messrs. Rod Cutsinger, Powell and Brad Cutsinger each will receive a cash
bonus in the amount of $300,000, $125,000 and $125,000 respectively, upon
consummation of the Offering. No executive officer of ACG's predecessor
received perquisites in 1996, the value of which exceeded the lesser of
$50,000 or 10% of the salary and bonus of such executive.
The persons expected to be the five most highly compensated executive
officers of ACG in 1998 and their expected base salaries are:
<TABLE>
<CAPTION>
EXPECTED
NAME TITLE BASE SALARY
- ----------------- -------------------------------------------- -------------
<S> <C> <C>
Rod K. Cutsinger Chairman $300,000
Richard O'Neal .. President--Directory Services Group 300,000
Fred L. Thurman . President--Telecommunication Services Group 175,000
G. Edward Powell Executive Vice President and Chief Financial 175,000
Officer
Larry Baldwin..... Vice President--Operations/Directory 175,000
Services Group
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Rod K. Cutsinger has entered into an amended employment agreement with
the Company providing for an annual base salary of $300,000 and a bonus
potential equal to 100% of base salary. The employment agreement which
commenced with the Company's predecessor as of July 15, 1996 has a term of
five years, and unless terminated or not renewed by the Company or the
employee, the term will continue thereafter on a year-to-year basis on the
same terms and conditions existing at the time of renewal. Under this
agreement, Mr. Cutsinger has agreed to devote reasonable time and energies to
the business of the Company and has agreed not to engage in any business
activity that would prevent him from carrying out his duties under the
employment agreement. He has reserved the right to pursue consolidating
transactions through CPFF, manage the business affairs of Consolidation
Partners and invest and manage his personal assets. This agreement provides
that, in the event of a termination of employment by the Company without
cause, the employee will be entitled to receive the continuation of his
salary for a period of 24 months. In the event that the Company terminates
the employee (other than for cause) after a change in control of the Company
(as defined in the agreement) or if the employee resigns for good reason (as
defined in the agreement) after a change in control of the Company, the
56
<PAGE>
employee shall receive a continuation of his salary for a period of 36
months. In the event that Mr. Cutsinger becomes disabled during the term of
the agreement, he will be entitled to receive 75% of his base salary through
July 15, 2001, as reduced by any amount paid to Mr. Cutsinger under any
disability policy maintained by the Company on his behalf. Any termination
payments made to the employee that would be subjected to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), shall be "grossed-up" to mitigate the impact of such tax on the
employee. Mr. Cutsinger's employment agreement does not contain a non-compete
provision. Under the employment agreement, the Company agreed to secure a
$1,000,000 term policy on the life of Mr. Cutsinger for the benefit of his
spouse and to provide Mr. Cutsinger with a $500 per month automobile
allowance, $5,000 in annual financial and tax planning services and a
secretary who may devote 25% of her normal time to non-profit organizations
designated by the employee.
In addition, Messrs. O'Neal, Baldwin, Feist and Thurman have entered into
three, three, five and five-year employment agreements with the respective
Acquired Companies of which they are president that provide for base salaries
of $300,000, $175,000, $110,000, and $175,000, respectively, and a bonus
potential ranging from 50% to 63% of base salary. In the event that the
Company terminates Mr. O'Neal's employment other than for cause (as defined
in the agreement) or in the event that Mr. O'Neal resigns under circumstances
that he reasonably believes were contrived by Great Western to force his
resignation, or after a change in control of the Company, Mr. O'Neal shall be
entitled to continue to receive his base salary until the scheduled
expiration date of his employment agreement. Mr. Thurman shall be entitled to
receive one year's salary in the event his employer terminates him for a
reason other than with cause (as defined in his agreement) and two years'
salary in the event that he resigns following a change in control of his
employer. Both Mr. Baldwin and Mr. Feist shall be entitled to receive six
months salary in the event his employer terminates him for a reason other
than with cause (as defined in his agreement) and one year's salary in the
event that he resigns following a change in control of his employer. These
agreements contain three-year noncompetition covenants and otherwise are
generally comparable to the employment agreements referred to in the
preceding paragraph. Mr. Feist is also entitled to receive a bonus of $50,000
upon consummation of the Offering.
Brad K. Cutsinger has entered into an employment agreement with the
Company providing for an annual base salary of $60,000 and a bonus potential
equal to 100% of base salary. This employment agreement has a term of five
years, and unless terminated or not renewed by the Company or the employee,
the term will continue thereafter on a year-to-year basis on the same terms
and conditions existing at the time of renewal. This agreement provides that,
in the event of a termination of employment by the Company without cause, the
employee will be entitled to receive from the Company a lump sum amount equal
to two year's salary (or an annuity in lieu thereof). In the event the
employee is terminated after the occurrence of a change in control of the
Company (as defined in the agreement) or if the employee resigns for good
cause (as defined in the agreement) after a change of control, the employee
will be entitled to receive a lump sum payment (or an annuity in lieu
thereof) equal to three times his base salary, and all his unvested options
and other benefits will be vested. In addition, Mr. Cutsinger is entitled to
receive a three-year term life insurance policy in the amount of $250,000.
The employment agreement contains a non-solicitation agreement for a period
of three years immediately following the date of termination. Under the
agreement, Mr. Cutsinger is entitled to participate in all benefits made
available generally to the other officers of the Company.
See "Option Grants" for information relating to stock options awarded to
Messrs. O'Neal, Baldwin, Feist, Thurman and Brad K. Cutsinger.
1997 STOCK AWARDS PLAN
The predecessor of the Company recently adopted the Advanced
Communications Group, Inc. 1997 Stock Awards Plan (the "Plan"). The Plan is
intended to provide key employees with an opportunity to acquire a
proprietary interest in the Company and additional incentive and reward
opportunities based on the profitable growth of the Company and to aid the
Company in attracting and retaining outstanding personnel. The Plan provides
for the granting of options (either incentive stock options within the
meaning of Section 422(b) of the Code, or options that do not constitute
incentive stock options
57
<PAGE>
("nonqualified stock options")), restricted stock awards, stock appreciation
rights, performance awards, and phantom stock awards, or any combination
thereof. The Plan covers an aggregate of 3,500,000 shares of Common Stock
(subject to certain adjustments in the event of stock dividends, stock splits
and certain other events).
Administration. The Plan was administered by the entire Board prior to the
closing of the Offering and will be administered by the Compensation
Committee of the Board thereafter. The Compensation Committee has the power
to determine which employees will receive an award, the time or times when
such award will be made, the type of the award and the number of shares of
Common Stock to be issued under the award or the value of the award. Only
persons who at the time of the award are key employees of the Company or of
any subsidiary of the Company are eligible to receive an award under the
Plan.
Options. The Plan provides for two types of options: incentive stock
options and nonqualified stock options. The Compensation Committee will
designate the key employees to receive the options, the number of shares
subject to the options, and the terms and conditions of each option granted
under the Plan. The term of any option granted under the Plan shall be
determined by the Compensation Committee; provided, however, that the term of
any incentive stock option cannot exceed ten years from the date of the grant
and any incentive stock option granted to an employee who possesses more than
10% of the total combined voting power of all classes of stock of the Company
or of its subsidiary within the meaning of Section 422(b)(6) of the Code must
not be exercisable after the expiration of five years from the date of grant.
No option may be exercised earlier than six months from the date of grant.
The exercise price per share of Common Stock of options granted under the
Plan will be determined by the Compensation Committee; provided, however,
that an incentive stock option exercise price cannot be less than the fair
market value of a share of Common Stock on the date such option is granted
(subject to adjustments). Further, the exercise price of any incentive stock
option granted to an employee who possesses more than 10% of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries within the meaning of Section 422(b)(6) of the Code must be at
least 110% of the fair market value of the share at the time such option is
granted. The exercise price of options granted under the Plan will be paid in
full in a manner prescribed by the Compensation Committee.
Restricted Stock Awards. Pursuant to a restricted stock award, shares of
Common Stock may be issued to employees without any cash payment to the
Company, except to the extent otherwise provided by the Compensation
Committee or required by law; provided, however, that such shares will be
subject to certain restrictions on the disposition thereof and certain
obligations to forfeit such shares to the Company as may be determined in the
discretion of the Compensation Committee. The restrictions on disposition may
lapse based upon (a) the Company's attainment of specific performance targets
established by the Compensation Committee that are based on (i) the price of
a share of Common Stock, (ii) the Company's earnings per share, (iii) the
Company's revenue, (iv) the revenue of a business unit of the Company
designated by the Committee, (v) the return on stockholders' equity achieved
by the Company, or (vi) the Company's pre-tax cash flow from operations, (b)
the grantee's tenure with the Company, or (c) a combination of both factors.
The Company retains custody of the shares of Common Stock issued pursuant to
a restricted stock award until the disposition restrictions lapse. An
employee may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of such shares until the expiration of the restriction period.
However, upon the issuance to the employee of shares of Common Stock pursuant
to a restricted stock award, except for the foregoing restrictions, such
employee will have all the rights of a stockholder of the Company with
respect to such shares, including the right to vote such shares and to
receive all dividends and other distributions paid with respect to such
shares.
Stock Appreciation Rights. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination
thereof) equal to the number of stock appreciation rights exercised by the
holder multiplied by the excess of the fair market value of Common Stock on
the exercise date over the stock appreciation rights' exercise price
(generally the fair market value of the Common Stock on the date of grant).
Stock appreciation rights may or may not be granted in connection with the
grant of an option and no stock appreciation right may be exercised earlier
than six months from the date of grant. A stock appreciation right may be
exercised in whole or in such installments and at such time as determined by
the Compensation Committee.
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Performance and Phantom Stock Awards. The Plan permits grants of
performance awards and phantom stock awards, which may be paid in cash,
Common Stock, or a combination thereof as determined by the Compensation
Committee. Performance awards granted under the Plan will have a maximum
value established by the Compensation Committee at the time of the grant. A
grantee's receipt of such amount will be contingent upon satisfaction by the
Company, or any subsidiary, division or department thereof, of future
performance conditions established by the Compensation Committee prior to the
beginning of the performance period. Such performance awards, however, are
subject to later revisions as the Compensation Committee deems appropriate to
reflect significant unforeseen events or changes. A performance award will
terminate if the grantee's employment with the Company terminates during the
applicable performance period except as otherwise provided by the
Compensation Committee at the time of grant. Phantom stock awards granted
under the Plan are awards of Common Stock or rights to receive amounts equal
to share appreciation over a specific period of time. Such awards vest over a
period of time or upon the occurrence of a specific event(s) (including,
without limitation, a change of control ) established by the Compensation
Committee, without payment of any amounts by the holder thereof (except to
the extent required by law) or satisfaction of any performance criteria or
objectives. A phantom stock award will terminate if the grantee's employment
with the Company terminates during the applicable vesting period or, if
applicable, the occurrence of a specific event(s), except as otherwise
provided by the Compensation Committee at the time of grant. In determining
the value of performance awards or phantom stock awards, the Compensation
Committee must take into account the employee's responsibility level,
performance, potential, other awards under the Plan, and other such
consideration as it deems appropriate. Such payment may be made in a lump sum
or in installments as prescribed by the Compensation Committee. Any payment
made in Common Stock will be based upon the fair market value of the Common
Stock on the payment date.
Option Grants. On June 16, 1997, the Board of Directors of the Company's
predecessor granted ten-year options to purchase 350,000 shares and 175,000
shares of its common stock to Messrs. G. Edward Powell and Brad K. Cutsinger,
respectively, at an exercise price of $2.50 per share. One-third of these
options vested immediately and the balance will vest in equal increments on
the first and second anniversaries of the date of grant and are accelerated
in the event of a change in control of the Company. On June 12, 1997, the
Board of the Company's predecessor granted an option having essentially
similar terms to Todd J. Feist covering 250,000 shares of its common stock
upon his employment by an acquisition subsidiary of the Company.
Contemporaneously with the closing of the Offering, the Board intends to
grant (i) five year options to purchase 150,000 shares, 100,000 shares and
87,000 shares, respectively, to Richard O'Neal, Fred L. Thurman and Larry
Baldwin, and (ii) an aggregate of approximately 500,000, shares of Common
Stock to the other officers and employees of various Acquired Companies at an
exercise equal to the initial public offering price per share. These options
will vest in equal increments over three to five year periods from the date
of grant.
COMPREHENSIVE REVIEW OF BENEFITS PLAN
Following the Offering, the Compensation Committee will engage a qualified
executive compensation consulting firm to evaluate the Company's overall
compensation program for officers and directors and assist that committee in
developing and implementing a program that properly motivates and rewards the
program participants in a manner that is consistent with prevailing industry
standards.
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CERTAIN TRANSACTIONS
THE ACQUISITIONS
Simultaneously with the consummation of the Offering, ACG will acquire by
merger, stock purchase or asset acquisition a 49% interest in KINNET and all
of the issued and outstanding stock (or in four cases, substantially all of
the assets) of the Acquired Companies and its predecessor, at which time each
Acquired Company and ACG's predecessor will become a wholly-owned subsidiary
of the Company. The aggregate consideration to be paid by ACG in the
Acquisitions includes approximately $86.8 million in cash, shares of
Common Stock (assuming an initial public offering price of $ per share),
$17.4 million in promissory notes and 2,637,135 warrants or options to
purchase Common Stock. Of the aggregate consideration, $30.8 million, $1.0
million, $3.3 million, $1.4 million and $13.8 million in cash, will be paid
to Messrs. O'Neal, Feist, Mitchell, Thurman and Baldwin, respectively, ,
, , and shares of Common Stock will be issued to Messrs. O'Neal,
Feist, Mitchell, Baldwin and Thurman, respectively, $8.4 million and $3.8
million in subordinated notes will be issued to Mr. O'Neal and Mr. Baldwin,
respectively, $552,983 in convertible subordinated notes will be issued to
Mr. Thurman, and 280,000, 13,512 and 125,000 five-year non-transferable
warrants to purchase Common Stock at the initial public offering price will
be issued to Mr. O'Neal, Mr. Thurman and Mr. Baldwin, respectively.
As part of this consideration, on June 16, 1997, ACG's predecessor issued
to the five stockholders of Great Western, as consideration for their
execution of a definitive acquisition agreement, three series of
non-transferable, ten-year warrants to purchase an aggregate of 2,000,000
shares of Common Stock at an exercise price of $2.50 per share, subject to
adjustment to protect against dilution. The warrants of each series become
exercisable upon the first, second and third anniversary dates of the
consummation of the Offering. Of these, Mr. O'Neal and Mr. Baldwin received
warrants to purchase an aggregate of 1.5 million shares and 300,000 shares of
Common Stock, respectively.
For a description of the terms of the Acquisitions, the consideration
payable and certain other matters, see "The Company -- Summary of Terms of
the Acquisitions."
OTHER ORGANIZATIONAL MATTERS
CPFF was organized in June 1996 with a five-year term for the purpose of
financing consolidating transactions identified by Rod K. Cutsinger,
including a possible transaction in the telecommunications industry. CPFF has
two classes of equity interests: Class A interests and Class B interests. The
holders of the Class A interests have no right to vote for the election and
management of CPFF, such rights having been vested in the holders of the
Class B Interests. CPFF was capitalized in September 1996 upon (i) the sale
of an aggregate of $1,520,000 in Class A interests for cash to a limited
number of investors, including $50,000 in Class A interests to G. Edward
Powell, (ii) the issuance of $350,000 in Class A interests to Rod K.
Cutsinger in exchange for his contribution of certain intangible personal
property, including business plans, confidentiality agreements,
organizational documents and economic projections relating to several
consolidating company opportunities, (iii) the issuance of $250,000 in Class
A interests to Rod K. Cutsinger in exchange for $5,000 in cash and a
promissory note in the principal amount of $245,000, (iv) the issuance of
$100,000 in Class A interests to Brad K. Cutsinger in exchange for $5,000 in
cash and a promissory note in the principal amount of $95,000 and (v) the
sale of 100% of the Class B interests to Consolidation Partners for $22,200
in cash. See "Risk Factors -- Dependence on Key Personnel; New Management
Team." The promissory notes issued by Messrs. Rod and Brad Cutsinger bear
interest at 8% per annum, are payable upon the first to occur of the
consummation of the Offering or December 31, 1998 and are secured by a pledge
of the acquired interests. At September 30, 1997, the outstanding principal
balances of the promissory notes of Rod Cutsinger and Brad Cutsinger had
declined to $3,537 and $37,732, respectively, as a result of the application
of salaries from CPFF to which they were otherwise entitled to the reduction
of the principal balances of these notes. CPFF used a portion of the proceeds
of its initial capitalization to make loans to ACG in the amount of $1.2
millon.
In September 1997, CPFF issued an additional $830,000 of Class A Interests
to certain existing Class A Interest owners. At the same time, the holders of
the Class B Interests contributed an additional $8,384 to the capital of
CPFF. In consideration for the agreements of three existing Class A Interest
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owners to subscribe for $300,000, $126,100 and $100,000, respectively, of
these Class A Interests, Rod K. Cutsinger transferred to such persons for
nominal consideration 150,000, 47,250 and 37,500 shares of his common stock
of the Company's predecessor. Additionally, in consideration for the
subscription of three other existing Class A Interest owners for an aggregate
of $200,000 of Class A Interests, Rod K. Cutsinger transferred to such
persons for nominal consideration an aggregate of $44,400 of his Class A
Interests. CPFF used the proceeds of the issuance of these additional Class A
Interests to increase its loan to ACG to approximately $2.2 million.
Under the terms of the corporate regulations of CPFF, CPFF is obligated to
distribute shares in a consolidating company such as ACG as soon as
practicable after the consummation of that company's initial public offering.
Shares of Common Stock in ACG will be distributed to the holders of the Class
A and Class B Interests on a fifty-fifty basis until the holders of the Class
A Interests have received shares of Common Stock of ACG (valued at the
initial public offering price) equal to three times their aggregate
investment in CPFF, or $9,150,000. Thereafter, the balance of the shares of
Common Stock held by ACG will be distributed 25% to the holders of the Class
A Interests and 75% to the holders of the Class B Interests. Accordingly,
promptly following the Offering, CPFF will distribute shares of Common Stock
to the holders of the Class A Interests (including shares to Messrs. Rod K.
Cutsinger, Brad K. Cutsinger and G. Edward Powell, respectively) and shares
of Common Stock to Consolidation Partners in respect of its Class B
Interests. Rod K. Cutsinger and his wife own 80% of the beneficial interests
of Consolidation Partners, and the remaining interests are owned by trusts
for the benefit of their children, including Brad K. Cutsinger. See
"Principal Stockholders." The shares of Common Stock distributed by CPFF will
be entitled to certain registration rights and subject to certain lock-up
arrangements with the Underwriters. See "Underwriting."
INITIAL CAPITALIZATION
In connection with its initial capitalization on September 17, 1996, ACG's
predecessor issued and sold an aggregate of 21,764,250 (net of subsequent
repurchases) shares of its common stock, of which 20,000,000 shares,
1,000,000 shares, 125,000 shares, 250,000 shares, 20,000 shares and 5,000
shares were acquired by CPFF, Rod K. Cutsinger, Brad K. Cutsinger, Frank
Bango, G. Edward Powell and Fentress Bracewell for $1,000, $10,000, $1,250,
$2,500, $200 and $50, respectively. At the same time CPFF agreed to loan the
Company $1.2 million (subsequently increased to $2.2 million in September
1997) pursuant to an 8% promissory note payable upon the earlier of the
effectuation of an initial public offering by ACG or December 31, 1998. This
promissory note, together with accrued interest thereon, will be repaid from
the net proceeds of the Offering.
Between October 14, 1996 and January 3, 1997, ACG's predecessor issued and
sold 105,000 shares of common stock at $0.05 per share, of which 100,000
shares were sold to G. Edward Powell for an aggregate of $5,000.
Additionally, on May 2, 1997 ACG's predecessor issued to Joseph C. Cook a
ten-year non-transferrable warrant to purchase 20,000 shares of its common
stock at $1.00 per share, subject to adjustment to protect against dilution.
These warrants were issued to Mr. Cook in consideration for consulting
services rendered to the Company. With respect to certain option grants, see
"Management -- 1997 Stock Awards Plan -- Option Grants."
VOTING ARRANGEMENTS
In the acquisition agreement relating to the investment in KINNET, Liberty
agreed, until the tenth anniversary date of the consummation of the Offering,
to be present in person or by proxy at all meetings of stockholders of ACG
for quorum purposes. Additionally, Liberty has agreed, among other things,
not to initiate or solicit stockholders to become participants in any proxy
solicitation or induce or attempt to induce others to initiate a tender
offer, exchange offer or other change in control of ACG. ACG's Board has also
agreed, subject to its fiduciary obligations, to nominate as a director an
individual designated by Liberty that is reasonably qualified to serve on the
board of directors of a publicly held corporation. This obligation expires on
the first to occur of the tenth anniversary of the closing of the
consummation of the Offering or the reduction of Liberty's ownership of
Common Stock below 100,000 shares. Mr. Rod K. Cutsinger has agreed to vote
his shares of Common Stock in favor of Liberty's designee nominated by the
Board. Mr. Garnett has been designated by Liberty as its initial director
nominee.
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In the acquisition agreement relating to Valu-Line, ACG's Board, subject
to its fiduciary obligations, agreed to place David M. Mitchell on its Board
and renominate Mr. Mitchell as a director from time to time as long as he
owns at least 100,000 shares of Common Stock at the time of such
renomination.
OTHER TRANSACTIONS
Richard O'Neal is an officer, director and owner of 50% of the outstanding
voting securities of Big Stuff, Inc. ("BSI"), a corporation that markets
Internet home page development services to business customers and provides
high quality yellow page colorizing services to Great Western and other
yellow page publishers. During the two fiscal years ended January 31, 1995
and 1996 and the year ended December 31, 1996, Great Western paid BSI
approximately $94,000, $578,000 and $1.1 million, respectively, for such
services. Great Western and BSI have entered into a Sales Agreement pursuant
to which BSI expects to continue to render the foregoing services to Great
Western after the Offering upon terms and conditions that the Company
considers reasonable under the circumstances.
KINI renders management services to KINNET pursuant to an evergreen
Management Agreement dated January 1, 1997 ("Management Agreement") which is
terminable at any time upon six months advance notice of termination. Under
the Management Agreement, KINI receives a monthly payment equal to 100% of
employee, equipment and other direct costs associated with its management of
KINNET for the period plus 15% of such amount. During the three years in the
period ended December 31, 1996, KINNET paid KINI, L.C. approximately $1.6
million, $1.9 million and $2.4 million, respectively, pursuant to the
Management Agreement. ACG does not own any outstanding voting securities of
KINI, L.C. KINI, L.C. also renders management services to Liberty under a
similar arrangement. E. Clarke Garnett is the President of KINI, KINNET and
Liberty.
Pursuant to a network services agreement, Feist Long Distance transports
traffic on KINNET's network. During the three years in the period ended
December 31, 1996, Feist Long Distance paid KINNET approximately $46,300,
$120,000 and $136,300, respectively, for such services. The Company expects
that Feist Long Distance's payments to KINNET will increase after the
Offering because Feist Long Distance intends to transfer additional traffic
to the KINNET network. The Company also intends when practicable and economic
to transport the long distance traffic of its other telecommunications
subsidiaries over the KINNET network.
COMPANY POLICY
Except as noted herein, any future transactions with directors, officers,
employees or affiliates of the Company are anticipated to be minimal and
will, in any case, be approved in advance by a majority of the Board of
Directors, including a majority of disinterested members of the Board of
Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 10, 1997 and
as adjusted to reflect the shares of Common Stock, options and warrants to be
issued in the Acquisitions and the distribution of the shares of Common
Stock owned by CPFF to the beneficial owners of CPFF's outstanding equity
interests (assuming an initial public offering price of $ per share, the
midpoint of the initial public offering price range) and the sale of the
shares of Common Stock in the Offering, by (a) each of the executive officers
of the Company, (b) each of the Company's directors (including persons who
will become directors upon consummation of the Offering), (c) all executive
officers and directors of the Company as a group, and (d) each other person
(or group of affiliated persons) who is known by the Company to own
beneficially 5% or more of the Company's Common Stock. See "Certain
Transactions."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
SHARES BENEFICIALLY OWNED AFTER OFFERING, AS
PRIOR TO OFFERING ADJUSTED
--------------------------- ----------------------
NAME(1) NUMBER(2) PERCENT(2)(3) NUMBER(2) PERCENT(2)(3)
- ------------------------------------------- -------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Rod K. Cutsinger ........................... 20,765,250(4) 95.4% (5)
G. Edward Powell ........................... 236,667(6) 1.1 (6)
Richard O'Neal ............................. -- -- (7)
Fred L. Thurman ............................ -- --
Brad Van Leur .............................. -- --
Donald R. Sarchet .......................... -- --
Todd J. Feist .............................. -- --
Bill Rhodes ................................ -- --
Earle Brown ................................ -- --
Mark Fields ................................ -- --
Max Andrews ................................ -- --
Brad K. Cutsinger .......................... 183,333(8) * (9)
Frank Bango ................................ 250,000 1.1
Fentress Bracewell ......................... 5,000 *
E. Clarke Garnett .......................... -- -- (10)
David M. Mitchell .......................... -- --
CPFF ....................................... 20,000,000 91.9
Consolidation Partners ..................... 20,000,000(11) 91.9
Executive officers and directors as a group
(4 persons and persons, respectively) ..... 21,440,250(12) 96.6
</TABLE>
- ------------
* Percentage of shares beneficially owned is less than 1.0%.
(1) The address of all executive officers, directors, CPFF and
Consolidation Partners is in care of the Company, 3355 West Alabama,
Suite 580, Houston, Texas 77098.
(2) Beneficial ownership includes shares of Common Stock subject to
options, warrants, rights, conversion privileges or similar
obligations exercisable within 60 days for purposes of computing the
ownership percentage of the person or group holding such options,
warrants, rights, privileges or other obligations. Except as noted,
each stockholder has sole voting and dispositive power with respect
to all shares beneficially owned by such stockholder.
(3) The number of shares of Common Stock deemed outstanding after the
Offering consists of shares outstanding as of October 10, 1997 (
as adjusted for the shares of Common Stock issuable in the
Acquisitions and the shares of Common Stock being offered for sale
by the Company in the Offering (including shares issuable upon
the exercise of the over-allotment option granted by the Company to
the Underwriters)).
(4) Includes 20,000,000 shares of Common Stock owned by CPFF. Because
all of such shares will be distributed by CPFF to the holders of its
Class A and Class B Interests after the Offering, Mr. Cutsinger
disclaims beneficial ownership of all such shares except those which
be will receive by reason of his ownership of approximately 18.3% of
the Class A Interests in CPFF and those which will be received by
Consolidation Partners by reason of its ownership of all of the
Class B Interests.
(5) Includes shares of Common Stock owned by Consolidation
Partners, a limited liability company in which Rod K. Cutsinger and
his wife beneficially own of record 80% of the interests. The
remaining interests are owned by trusts for the benefit of the
Cutsingers' two children, including Brad K. Cutsinger, over which
Rod K. Cutsinger has sole voting and dispositive power.
(Footnotes continued on following page)
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(6) Includes 116,667 shares of Common Stock which Mr. Powell has the
right to acquire upon the exercise of options which are exercisable.
(7) A trustee for Mr. O'Neal's children owns non-transferable, ten-year
warrants to purchase 1.5 million shares of Common Stock, one-third
of which warrants become exercisable on the first, second and third
anniversaries of the consummation of the Offering. Also includes
shares of Common Stock as to which Mr. O'Neal holds options or
warrants that are exercisable.
(8) Includes 58,333 shares of Common Stock which Mr. Cutsinger has the
right to acquire upon the exercise of options which are exercisable.
(9) Excludes shares of Common Stock owned by Consolidation
Partners, a limited liability company in which a trust of which Brad
K. Cutsinger is a beneficiary owns a 15% interest, but as to which
Brad K. Cutsinger disclaims beneficial ownership. Includes
shares of Common Stock as to which Mr. Cutsinger holds options or
warrants that are exercisable.
(10) Includes shares of Common Stock owned by Liberty, the owner of
51% of KINNET, after the Offering, as to which E. Clarke Garnett
disclaims any beneficial interest.
(11) Includes 20,000,000 shares of Common Stock owned by CPFF. Because
all of such shares will be distributed by CPFF to the holders of its
Class A and Class B Interests after the Offering, Consolidation
Partners disclaims beneficial ownership of all such shares except
those which it will receive by reason of its ownership of all of the
Class B Interests.
(12) Includes 175,000 shares of Common Stock which such persons will have
the right to acquire upon the exercise of options which are
exercisable.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
At the date of this Prospectus, the authorized capital stock of the
Company is 200,000,000 shares, consisting of 180,000,000 shares of Common
Stock, par value $0.0001 per share, and 20,000,000 shares of Preferred Stock,
par value $0.0001 per share ("Preferred Stock"). The following summary is
qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation (the "Charter"), a copy of which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.
Common Stock. The holders of Common Stock are entitled to dividends in
such amounts and at such times as may be declared by the Board of Directors
out of funds legally available therefor. See "Dividend Policy." Holders of
the Common Stock are entitled to one vote per share for the election of
directors and other corporate matters. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share ratably in all assets of the Company available for
distribution to the holders of Common Stock. The Common Stock carries no
preemptive rights. All outstanding shares of Common Stock are, and the shares
of Common Stock to be sold by the Company in the Offering when issued will
be, duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock. The Board is authorized to issue from time to time,
without stockholder authorization, in one or more designated series,
20,000,000 shares of Preferred Stock with such dividend, redemption,
conversion and exchange provisions as are provided in the particular series.
Except as by law expressly provided, or except as may be provided by
resolution of the Board, the Preferred Stock shall have no right or power to
vote on any question or in any proceeding or to be represented at, or to
receive notice of, any meeting of stockholders of the Company. The issuance
of Preferred Stock, or the perception that such an issuance might occur,
could have the effect of delaying or preventing a change in control of the
Company. No shares of preferred stock are issued or outstanding and the Board
of Directors has no present plans to issue any of the Preferred Stock.
POSSIBLE ANTI-TAKEOVER EFFECTS
General. Certain provisions of the Company's charter, as well as the
concentration of ownership of the Common Stock, the Company's employment
agreements with certain of its senior officers, and the Company's ability to
issue up to 20 million shares of "blank check" Preferred Stock and the
anticipated terms of Proposed Credit Facility, may have the effect of
discouraging a change in control of the Company, including transactions in
which stockholders might receive a premium price for their Common Stock.
Statutory Provisions. Section 203 ("Section 203") of the DGCL restricts
certain transactions between a corporation organized under Delaware law (or
its majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203
generally prohibits a publicly held Delaware corporation from engaging in the
following transactions with an Interested Stockholder, for a period of three
years from the date the stockholder becomes an Interested Stockholder (unless
certain conditions, described below, are met): (i) all mergers or
consolidations, (ii) sales, leases, exchanges or other transfers of 10% or
more of the aggregate assets of the corporation, (iii) issuances or transfers
by the corporation of any stock of the corporation which would have the
effect of increasing the Interested Stockholder's proportionate share of the
stock of any class or series of the corporation, (iv) any other transaction
which has the effect of increasing the proportionate share of the stock of
any class or series of the corporation which is owned by the Interested
Stockholder, and (v) receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder) of loans, advances, guarantees,
pledges or other financial benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or
the transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an
Interested Stockholder, the stockholder owns at least 85% of the
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outstanding voting stock of the corporation without regard to those shares
owned by the corporation's officers and directors or certain employee stock
plans. Business combinations are also permitted within the three-year period
if approved by the board of directors and authorized at an annual or special
meeting of stockholders, by the holders of at least 66% of the outstanding
voting stock not owned by the Interested Stockholder. In addition, any
transaction is exempt from the statutory ban if it is proposed at a time when
the corporation has proposed, and a majority of certain continuing directors
of the corporation have approved, a transaction with a party which is not an
Interested Stockholder of the corporation (or who becomes such with board
approval) if the proposed transaction involves (i) certain mergers or
consolidations involving the corporation, (ii) a sale or other transfer of
over 50% of the aggregate assets of the corporation, or (iii) a tender or
exchange offer for 50% or more of the outstanding voting stock of the
corporation.
Prior to the effective date of Section 203, a corporation, by action of
its board of directors, had the option of electing to exclude itself from the
coverage of Section 203. Since the effective date of such section, a
corporation may, at its option, exclude itself from the coverage of Section
203 by amending its certificate of incorporation or bylaws by action of its
stockholders to exempt itself from coverage, provided that such charter or
bylaw amendment shall not become effective until 12 months after the date it
is adopted. The Company has not adopted such a charter or bylaw amendment.
Charter Provisions. The Board is divided into three classes. Each class of
directors consists, as nearly as possible, of one-third of the total number
of directors constituting the entire Board. The Charter provides that,
subject to the rights of the holders of any series of Preferred Stock, the
number of directors may be fixed from time to time by resolution of the
Board, but will consist of not less than three nor more than 12 members. The
term for directors in the first class expires at the annual meeting of
stockholders to be held in 1998; the initial term for directors in the second
class expires at the annual meeting of stockholders to be held in 1999; and
the initial term for directors in the third class expires at the annual
meeting of stockholders to be held in 2000. A director of the Company may be
removed only for cause and only upon the affirmative vote of the holders of a
majority of the outstanding capital stock entitled to vote at an election of
directors.
The Charter provides that the Company may, by action of its Board, provide
for a sinking fund for the purchase or redemption of shares of any series of
Preferred Stock and specify the terms and conditions governing the operations
of any such fund. The Company does not currently have any such fund.
The Charter provides that the Board shall fix the number of directors
within the range specified by the Charter, and number of directors has been
currently fixed at nine. A stockholder may nominate directors only if written
notice is delivered to the Company by such stockholder not less than 30 days
nor more than 60 days prior to the meeting or no later than ten days after
the date of notice by the Company of such meeting if such notice is given
less than 90 days in advance of the meeting. The Charter also provides that
any newly created directorship resulting from an increase in the number of
directors or a vacancy on the Board shall be filled by vote of a majority of
the remaining directors then in office, even though less than a quorum. The
Charter also provides that special meetings of the stockholders may only be
called by the Chairman of the Board or the Board, subject to the rights of
the holders of any series of Preferred Stock, and that the stockholders may
not act by written consent. The Charter provides that certain of these
provisions of the Charter may not be amended without the approval of at least
80% of the voting power of all shares of the Company entitled to vote
generally in the election of directors, voting together as a single class.
The foregoing provisions of the Charter and of Section 203, together with
the ability of the Board to issue Preferred Stock without further stockholder
action, could delay or frustrate the removal of incumbent directors or the
assumption of control by the holder of a large block of Common Stock even if
such removal or assumption would be beneficial, in the short term, to
stockholders of the Company. The provisions could also discourage or make
more difficult a merger, tender offer or proxy contest even if such event
would be favorable to the interests of stockholders.
66
<PAGE>
LIMITATION ON DIRECTORS AND OFFICERS LIABILITY
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting gross negligence in the
exercise of their duty of care. Although the DGCL does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Charter limits the liability
of the Company's directors to the Company or its stockholders (in their
capacity as directors but not in their capacity as officers) to the fullest
extent permitted by the DGCL. Specifically, directors of the Company will not
be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders.
TRANSFER AGENT
The Transfer Agent for the Common Stock is .
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be shares of Common
Stock outstanding. All of the shares purchased in the Offering (
shares if the Underwriters' over-allotment option is exercised in full) will
be freely tradeable without registration or other restriction under the
Securities Act, except for any shares purchased by an affiliate of the
Company. All of the remaining shares of Common Stock outstanding (the
"Restricted Shares") may be sold only pursuant to an effective registration
statement filed by the Company or pursuant to an applicable exemption,
including an exemption under Rule 144 under the Securities Act. In this
regard, after giving effect to the application of the proceeds from the
Offering as described under "Use of Proceeds," approximately of the
currently outstanding shares of Common Stock will be eligible for resale
pursuant to Rule 144 after 90 days from the date of this Prospectus and the
remaining shares of the shares of Common Stock currently outstanding or
issued in the Acquisitions will be eligible for resale pursuant to Rule 144
no later than one year following the consummation of this offering.
In general, Rule 144 provides that if a person (including an affiliate)
holds Restricted Shares (regardless of whether such person is the initial
holder or a subsequent holder of such shares), and if at least one year has
elapsed since the later of the date on which the Restricted Shares were
issued or the date that they were acquired from an affiliate, then such
person is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of such stock during the
four calendar weeks preceding the sale. After Restricted Shares are held for
two years, a person who is not deemed an "affiliate" of the Company would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
The holders of shares of Common Stock and warrants to purchase an
additional shares of Common Stock, have certain rights to require the
Company but may not exercise such registration rights for a period of one
year following the closing of the Offering to register sales of such shares,
or shares acquired pursuant to such warrants, under the Securities Act. If,
subsequent to the consummation of the Offering, the Company proposes to
register any of its securities under the Securities Act, such holders are
entitled to notice of such registration and to include their shares in such
registration with their expenses borne by the Company, subject to the right
of an underwriter participating in the offering to limit the number of shares
included in such registration. In addition, the holders of a majority of such
shares of Common Stock have the right to demand after one year from the
closing of the Acquisitions, subject to certain limitations, that the Company
file one registration statement covering sales of their respective shares,
and the Company is obligated to pay the expenses of such registration.
The Company's directors, its executive officers, all persons acquiring
Common Stock in the Acquisitions (including those holders with registration
rights described above) and CPFF have agreed that, during the one-year
Lock-up Period they will not, and the Company has agreed that for a period of
180 days following the date of this Prospectus it will not, without the prior
written consent of PaineWebber Incorporated, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities
convertible into, or exercisable or exchangeable for, Common Stock, except
that the Company may grant options under the Company's stock option and
purchase plans, and may issue shares of Common Stock (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the
Company's stock option and purchase plans or (iii) pursuant to the exercise
of options and warrants outstanding as of the closing of the Offering. In
addition, Rod K. Cutsinger has agreed not to offer or sell any of his shares
of Common Stock for a period ending on March 31, 1999, subject to certain
exceptions, in each case without the prior written consent of PaineWebber
Incorporated.
The effect, if any, that future market sales of shares or the availability
of shares for sale will have on the prevailing market prices for the Common
Stock cannot be predicted. Nevertheless, sales of a substantial number of
shares in the public market could adversely affect prevailing market prices
for the Common Stock.
68
<PAGE>
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
Oppenheimer & Co., Inc. (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement
by and among the Company and the Representatives (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell
to the Underwriters, the number of shares of Common Stock set forth opposite
the name of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------- -------------
<S> <C>
PaineWebber Incorporated ....
Oppenheimer & Co., Inc. .....
-------------
-------------
Total ......................
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Shares listed above are subject to certain
conditions. The Underwriting Agreement also provides that the Underwriters
are committed to purchase, and the Company is obligated to sell, all of the
Shares offered by this Prospectus, if any of the Shares being sold pursuant
to the Underwriting Agreement are purchased (without consideration of any
shares that may be purchased through the exercise of the Underwriters'
over-allotment option).
The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession to other dealers not in
excess of $ per share. After the initial public offering of the Shares,
the public offering price, the concessions to selected dealers and the
reallowance to other dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less underwriting discounts
and commissions. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in the sale of Shares. To the extent the
Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase such percentage of such
additional shares of Common Stock as is approximately equal to the percentage
of Shares that it is obligated to purchase as shown in the table set forth
above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary
authority.
A Managing Director of Oppenheimer & Co., Inc. acquired $70,000, in Class
A interests upon the capitalization and subsequent private placement of CPFF.
These interests will entitle such person to receive shares of Common
Stock (based upon an initial offering price of $ ) upon the distribution
of ACG shares held by CPFF to CPFF's interest holders. In addition, such
Managing Director of Oppenheimer & Co., Inc., acquired 5,000 shares of Common
Stock for $50.00 upon the capitalization of ACG. Oppenheimer & Co., Inc. is
one of the Representatives.
69
<PAGE>
The Company's executive officers and directors, all persons who are
acquiring Common Stock in the Acquisitions, and CPFF have agreed that, during
the one-year Lock-up Period they will not, and the Company has agreed that
for a period of 180 days following the date of this Prospectus, it will not,
without the prior written consent of PaineWebber Incorporated, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, or any
securities convertible into, or exerciseable or exchangeable for, Common
Stock, except that the Company may grant options under the Company's stock
option and purchase plans, and may issue shares of Common Stock (i) in
connection with acquisitions, (ii) pursuant to the exercise of options
granted under the Company's stock option and purchase plans or (iii) pursuant
to the exercise of options and warrants outstanding as of the closing of the
Offering. In addition, Rod K. Cutsinger has agreed not to offer or sell any
of his shares of Common Stock for a period ending on March 31, 1999, subject
to certain exceptions, without the prior written consent of PaineWebber
Incorporated.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price was determined
pursuant to negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price, in
addition to prevailing market conditions, were certain financial information
of the Company, the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the prospects for, and timing of, future
revenues of the Company, the present state of the Company's development, and
the above factors in relation to market values and various valuation measures
of other companies engaged in activities similar to the Company. The initial
public offering price set forth on the cover page of this Prospectus should
not, however, be considered an indication of the actual value of the Common
Stock. Such price is subject to change as a result of market conditions and
other factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the
public market subsequent to the Offering at or above the initial public
offering price.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
than they are committed to purchase from the Company, and in such case may
purchase Common Stock in the open market following completion of the Offering
to cover all or a portion of such short position. The Underwriters may also
cover all or a portion of such short position, up to shares of Common
Stock, by exercising the Underwriters' over-allotment option referred to
above. In addition, PaineWebber Incorporated, on behalf of the Underwriters,
may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in
the open market. Any transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they
may be discontinued at any time.
The Company is making application to list the Common Stock on the New York
Stock Exchange.
70
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for
the Company by Bracewell & Patterson, L.L.P., Houston, Texas, and for the
Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements of Advanced Communications Group, Inc. and Feist
Long Distance Service, Inc. as of and for the year ended December 31, 1996
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The audited financial statements of Great Western Directories, Inc.
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Clifton Gunderson P.L.L.C., independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The audited financial statements of FirsTel, Inc. included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Charles Bailly & Company P.L.L.P., independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm or expends in giving said report.
The audited financial statements of Valu-Line of Longview, Inc. and
Related Companies included in this Prospectus and elsewhere in the
Registration Statement have been audited by Hein + Associates LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
The audited financial statements of KIN Network, Inc. included in this
Prospectus and elsewhere in the Registration Statement as of and for the year
ended December 31, 1996, have been audited by Sartain Fischbein & Co.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports. The audited financial statements of KIN
Network, Inc. included in this Prospectus and elsewhere in the Registration
Statement as of and for the years ended December 31, 1994 and 1995, have been
audited by Kennedy and Coe LLC, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement (which term shall
include any amendments thereto) on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto, copies of which may be examined without
charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at
7 World Trade Center, New York, New York 10048 and 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates,
or on the Internet at http://www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.
71
<PAGE>
Advanced Communications Group, Inc. is a Delaware corporation,
incorporated as a subsidiary of its predecessor in September 1997, with
principal executive offices located at 3355 West Alabama, Suite 580, Houston,
Texas 77098. Its telephone number at that address is (713) 622-9600. The
Company intends to furnish its stockholders annual reports containing
consolidated financial statements examined by an independent public
accounting firm.
72
<PAGE>
GLOSSARY
Access -telecommunications services that permit long distance carriers
to use local exchange facilities to originate and/or terminate long distance
service.
Access Charges -- The fees paid by long distance carriers to local
exchange carriers for originating and terminating long distance calls on
their local network.
AT&T -- AT&T Corp.
CAP (competitive access provider) -- A company that provides its customers
with an alternative to the local telephone company for local transport of
private line, special access and interstate transport of switched access
telecommunications services.
CLEC --A competitive local exchange carrier.
Collocation -- The ability of a CAP to connect its network to the LECs
central office. Physical collocation occurs when a CAP places its network
connection equipment inside the local exchange company's central offices.
Virtual collocation is an alternative to physical collocation pursuant to
which the local exchange company permits a CAP to connect its network to the
local exchange company's central offices on comparable terms, even though the
CAP's network connection equipment is not physically located inside the
central offices.
Dedicated Lines -- Local telecommunications lines reserved for use by
particular customers, generally for connection between the customer's
location and on interexchange carrier POP.
Dialing Parity -- The ability of a competing local or toll service
provider to provide telecommunications services in such a manner that
customers have the ability to route automatically, without the use of any
access code, their telecommunications to the service provider of the
customer's designation.
Digital -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ
a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. The precise digital numbers minimize
distortion (such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission).
DS-0, DS-1, DS-3 -- Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits
(0 and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits
per second, DS-1 service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 45 megabits per second.
FCC -- Federal Communications Commission.
Feist Long Distance -- Feist Long Distance Service, Inc.
Fiber mile -- The number of route miles installed along a
telecommunications path multiplied by the number of fibers along that path.
FirsTel -- FirsTel, Inc.
General Telephone Operating Companies -- Local exchange carriers
affiliated with GTE Corporation.
Great Western -- Great Western Directories, Inc.
ILEC -- An incumbent local exchange carrier.
Interconnection -- Interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.
Interconnection Decision -- The August 1996 order issued by the FCC
implementing the interconnection provisions of the Telecommunications Act.
Portions of this order have been reversed by the U.S. Eighth Circuit Court of
Appeals.
G-1
<PAGE>
InterLATA -- Telecommunications services originating in a LATA and
terminating outside of that LATA.
IntraLATA -- Telecommunications services originating and terminating in
the same LATA.
KINNET -- KIN Network, Inc.
LATA (local access and transport area) -- A geographic area composed of
contiguous local exchanges, usually but not always within a single state.
There are approximately 200 LATAs in the United States.
Local exchange area -- A geographic area determined by the appropriate
state regulatory authority in which calls generally are transmitted without
toll charges to the calling or called party.
LEC (local exchange carrier) -- A company providing local telephone
services.
Long distance carriers or IXCs (Interexchange carriers) -- Long distance
carriers provide services between local exchanges on an interstate or
intrastate basis. A long distance carrier may offer services over its own or
another carriers' facilities.
MCI -- MCI Communications Corporation.
Number portability -- The ability of an end user to change local exchange
carriers while retaining the same telephone number.
Off-net -a customer that is not physically connected to one of the
Company's networks but who is accessed through interconnection with a LEC
network.
On-net -a customer that is physically connected to one of the Company's
networks.
Other Acquired Companies -- Long Distance Management II, Inc., Long
Distance Management of Kansas, Inc., The Switchboard of Oklahoma City, Inc.,
Tele-Systems, Inc. and National Telecom, a sole proprietorship.
POPs (points of presence) -- Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
Private line -- A dedicated telecommunications connection between end user
locations.
Public switched network -- That portion of a local exchange company's
network available to all users generally on a shared basis (i.e., not
dedicated to a particular user). Traffic along the public switched network is
generally switched at the local exchange company's central offices.
"PUC" or Public Utilities Commission -- A state regulatory body,
established in most states, which regulates utilities, including telephone
companies providing intrastate services.
Reciprocal compensation -- The same compensation of a new competitive
local exchange carrier for termination of a local call by the local exchange
carrier on its network, as the new competitor pays the local exchange carrier
for termination of local calls on the local exchange carrier network.
Resale -- Resale by a provider of telecommunications services (such as a
local exchange carrier) of such services to other providers or carriers on a
wholesale or a retail basis.
Route mile -- The number of miles of the telecommunications path in which
fiber optic cables are installed as it would appear on a network map.
Self-healing ring -- A self-healing ring is a network design in which the
network backbone consists of a continuous ring connecting a central hub
facility with one or more network nodes (such as customer premises). Traffic
is routed between the hub and each of the nodes simultaneously in both a
clockwise and a counterclockwise direction. In the event of a cable cut or
component failure along one of these paths, traffic will continue to flow
along the alternate path so no traffic is lost. In the event of a
catastrophic node failure, other nodes will be unaffected because traffic
will continue to flow along whichever path (primary or alternate) does not
pass through the affected node. The switch from the primary to the alternate
path will be imperceptible to most users.
G-2
<PAGE>
Special access services -- The lease of private, dedicated
telecommunications lines or "circuits" along the network of a local exchange
company or a CAP, which lines or circuits run to or from the long distance
carrier POPs. Examples of special access services are telecommunications
lines running between POPs of a single long distance carrier, from one long
distance carrier POP to the POP of another long distance carrier or from an
end user to a long distance carrier POP.
SPRINT -- Sprint Corporation.
Switch -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process
of interconnecting circuits to form a transmission path between users.
Switched access transport services -- Transportation of switched traffic
along dedicated lines between the local exchange company central offices and
long distance carrier POPs.
Switched traffic -- Telecommunications traffic along the public switched
network. This traffic is generally switched at the local exchange company's
central offices.
Tele-Systems -- Tele-Systems, Inc.
Unbundled Access -- Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment,
features, functions and capabilities, at any technically feasible point
within such network.
US WEST -- US WEST Communications, Inc.
Valu-Line -- Valu-Line of Longview, Inc.
WorldCom -- WorldCom, Inc.
G-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ADVANCED COMMUNICATIONS GROUP, INC. UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation of Unaudited Pro Forma Combined Financial Statements ............. F-3
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997.......................... F-4
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1996 and the six months ended June 30, 1997............................... F-5
Notes to Pro Forma Combined Financial Statements........................................ F-7
ADVANCED COMMUNICATIONS GROUP, INC.
Report of Independent Auditors.......................................................... F-13
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ...... F-14
Consolidated Statements of Operations for the period from inception to December 31,
1996 and the six months ended June 30, 1997 (unaudited)................................ F-15
Consolidated Statements of Stockholders' Deficit........................................ F-16
Consolidated Statements of Cash Flows for the period from inception to December 31,
1996 and the six months ended June 30, 1997 (unaudited)................................ F-17
Notes to Consolidated Financial Statements.............................................. F-18
GREAT WESTERN DIRECTORIES, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-22
Balance Sheets as of January 31, 1996, December 31, 1996 and June 30, 1997 (unaudited) . F-23
Statements of Operations for the two years ended January 31, 1995 and 1996, the year
ended December 31, 1996, and the six months ended June 30, 1996 and 1997 (unaudited) .. F-24
Statements of Stockholders' Equity for the two years ended January 31, 1995 and 1996,
the eleven months ended December 31, 1996, and the six months ended June 30, 1997
(unaudited)............................................................................ F-25
Statements of Cash Flows for the two years ended January 31, 1995 and 1996, the year
ended December 31, 1996, and the six months ended June 30, 1996 and 1997 (unaudited) .. F-26
Summary of Significant Accounting Policies.............................................. F-27
Notes to Financial Statements........................................................... F-29
VALU-LINE OF LONGVIEW, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-33
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited) . F-34
Combined Statements of Income for the three years ended December 31, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-35
Combined Statements of Stockholders' Equity for the three years ended December 31,
1994, 1995 and 1996, and the six months ended June 30, 1997 (unaudited) ............... F-36
Combined Statements of Cash Flows for the three years ended December 31, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-37
Notes to Combined Financial Statements.................................................. F-38
F-1
<PAGE>
PAGE
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FEIST LONG DISTANCE SERVICE, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-42
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited).................... F-43
Statements of Operations for the year ended December 31, 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)..................................................... F-44
Statements of Stockholders' Equity for the year ended December 31, 1996, and the six
months ended June 30, 1997 (unaudited)................................................. F-45
Statements of Cash Flows for the year ended December 31, 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)..................................................... F-46
Notes to Financial Statements........................................................... F-47
FIRSTEL, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-50
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997
(unaudited)............................................................................ F-51
Statements of Operations for the three years ended December 31, 1994 (unaudited), 1995
and 1996, and the six months ended June 30, 1996 and 1997 (unaudited).................. F-52
Statements of Stockholders' Deficit for the three years ended December 31, 1994
(unaudited), 1995 and 1996, and the six months ended June 30, 1997..................... F-53
Statements of Cash Flows for the three years ended December 31, 1994 (unaudited), 1995
and 1996, and the six months ended June 30, 1996 and 1997 (unaudited).................. F-54
Notes to Financial Statements........................................................... F-55
KIN NETWORK, INC. FINANCIAL STATEMENTS
Reports of Independent Auditors......................................................... F-60
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1996 and 1997 (unaudited) . F-62
Statements of Operations for the three years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)............................ F-63
Statements of Stockholders' Equity for the three years ended December 31, 1994, 1995
and 1996, and the six months ended June 30, 1997 (unaudited)........................... F-64
Statements of Cash Flows for the three years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)............................ F-65
Notes to Financial Statements........................................................... F-67
</TABLE>
F-2
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give
effect to the acquisitions by Advanced Communications Group, Inc.
(collectively with its predecessor, which it is acquiring in conjunction with
the acquisitions described below, "ACG") of the outstanding capital stock or,
in certain cases, the assets of Great Western Directories, Inc. ("Great
Western"), Valu-Line of Longview, Inc. and Related Companies ("Valu-Line"),
Feist Long Distance Service, Inc. ("Feist Long Distance"), FirsTel, Inc.
("FirsTel"), Long Distance Management II, Inc. and Long Distance Management
of Kansas, Inc. (collectively, "LDM"), The Switchboard of Oklahoma City, Inc.
("Switchboard"), Tele-Systems, Inc. ("Tele-Systems"), and National Telecom
("National Telecom") and ACG's acquisition of 49% of the outstanding shares
of KIN Network, Inc. ("KINNET") (Great Western, Valu-Line, Feist Long
Distance, FirsTel, LDM, Switchboard, Tele-Systems and National Telecom
collectively, the "Acquired Companies", and LDM, Switchboard, Tele-Systems
and National Telecom collectively, the "Other Acquired Companies"). These
acquisitions (the "Acquisitions") will occur concurrently with and are
conditioned upon the closing of the Offering. The Acquisitions are accounted
for using the purchase method of accounting. With respect to the
Acquisitions, ACG is identified as the accounting acquirer for financial
statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations for the year ended
December 31, 1996, and for the six months ended June 30, 1997, give effect to
these transactions as if they had occurred on January 1, 1996.
ACG has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries and certain benefits to the owners of the
Acquired Companies. To the extent the owners of the Acquired Companies have
agreed prospectively to reductions in salary, bonuses and benefits, these
reductions have been reflected in the unaudited pro forma combined statements
of operations. Other potential cost savings have not been and will not be
quantified until completion of the Acquisitions and the Offering. It is
anticipated that these savings will be offset by costs related to ACG's new
corporate management and by costs associated with being a public company.
Because these cost offsets and additional corporate costs cannot be
accurately quantified at this time, they have not been included in the pro
forma financial information of ACG.
The pro forma adjustments are based on estimates, available information
and certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
ACG's financial position or results of operations would actually have been if
such transactions in fact had occurred on the dates stated above and are not
necessarily representative of ACG's financial position or results of
operations for any future period. Since the Acquired Companies were not under
common control or management, historical combined results of operations may
not be comparable to, or indicative of, future performance. The unaudited pro
forma combined financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Risk Factors" included elsewhere herein.
F-3
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
OTHER
GREAT FEIST LONG ACQUIRED
WESTERN VALU-LINE DISTANCE FIRSTEL COMPANIES
------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 798 $ 215 $ 106 $ 104 $ 338
Accounts receivable................... 26,746 1,363 1,534 934 1,182
Less allowance...................... (9,941) (25) (126) (18 ) --
------- --------- ---------- ------- ---------
Accounts receivable, net ............. 16,805 1,338 1,408 916 1,182
Deferred costs........................ 2,208 -- -- -- --
Prepaid expenses and other............ 424 -- 18 731 231
------- --------- ---------- ------- ---------
Total current assets................ 20,235 1,553 1,532 1,751 1,751
Property and equipment, net .......... 1,218 1,398 389 924 276
Goodwill, net......................... -- -- -- -- 67
Equity investment in KINNET........... -- -- -- -- --
Other noncurrent assets............... 13 7 -- 66 2
------- --------- ---------- ------- ---------
Total assets........................ $21,466 $2,958 $1,921 $2,741 $2,096
======= ========= ========== ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term $
debt................................. -- $ 397 $ 22 $ 71 $ 25
Accounts payable and accrued
expenses............................. 2,734 1,101 862 1,518 423
Current portion of notes payable to
related parties...................... 457 -- 660 1,040 177
Obligation for cash portion of
consideration for the Acquisitions .. -- -- -- -- --
Other................................. 1,850 -- -- 31 --
------- --------- ---------- ------- ---------
Total current liabilities........... 5,041 1,498 1,544 2,660 625
Long-term debt, net of current
maturities........................... -- 1,178 -- 110 279
Notes payable to related parties, net
of current maturities................ -- -- -- -- --
------- --------- ---------- ------- ---------
Total liabilities................... 5,041 2,676 1,544 2,770 904
------- --------- ---------- ------- ---------
Stockholders' equity:
Common stock......................... 1 3 100 1 353
Additional paid-in capital........... -- -- 939 -- --
Retained earnings.................... 16,424 279 (662) (30 ) 839
------- --------- ---------- ------- ---------
Total stockholders' equity.......... 16,425 282 377 (29 ) 1,192
------- --------- ---------- ------- ---------
Total liabilities and stockholders'
equity............................. $21,466 $2,958 $1,921 $2,741 $2,096
======= ========= ========== ======= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST
HISTORICAL PRO FORMA PRO ACQUISITION
BASIS ADJUSTMENTS FORMA ADJUSTMENTS AS
ACG COMBINED (SEE NOTE 3) COMBINED (SEE NOTE 3) ADJUSTED
------- ---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 3 $ 1,564 $ (1,057) $ 507 $ 18,878 $ 19,385
Accounts receivable................... -- 31,759 190 31,949 -- 31,949
Less allowance...................... -- (10,110) -- (10,110 ) -- (10,110)
------- ---------- ----------- --------- ----------- --------
Accounts receivable, net ............. -- 21,649 190 21,839 -- 21,839
Deferred costs........................ -- 2,208 -- 2,208 (16) 2,192
Prepaid expenses and other............ 5 1,409 62 1,471 -- 1,471
------- ---------- ----------- --------- ----------- --------
Total current assets................ 8 26,830 (805) 26,025 18,862 44,887
Property and equipment, net .......... 7 4,212 49 4,261 -- 4,261
Goodwill, net......................... -- 67 104,007 104,074 -- 104,074
Equity investment in KINNET........... -- -- 17,535 17,535 -- 17,535
Other noncurrent assets............... 511 599 (489) 110 -- 110
------- ---------- ----------- --------- ----------- --------
Total assets........................ $ 526 $ 31,708 $120,297 $152,005 $ 18,862 $170,867
======= ========== =========== ========= =========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term $ $
debt................................. -- $ 515 $ 230 $ 745 $ (745) --
Accounts payable and accrued
expenses............................. 559 7,197 301 7,498 (645) 6,853
Current portion of notes payable to
related parties...................... 1,295 3,629 (1,583) 2,046 (1,929) 117
Obligation for cash portion of
consideration for the Acquisitions .. -- -- 86,836 86,836 (86,836) --
Other................................. -- 1,881 -- 1,881 -- 1,881
------- ---------- ----------- --------- ----------- --------
Total current liabilities........... 1,854 13,222 85,784 99,006 (90,155) 8,851
Long-term debt, net of current
maturities........................... -- 1,567 -- 1,567 (1,567) --
Notes payable to related parties, net
of current maturities................ -- -- 17,233 17,233 -- 17,233
------- ---------- ----------- --------- ----------- --------
Total liabilities................... 1,854 14,789 103,017 117,806 (91,722) 26,084
------- ---------- ----------- --------- ----------- --------
Stockholders' equity:
Common stock......................... -- 458 (458) -- -- --
Additional paid-in capital........... 5,582 6,521 34,588 41,109 110,584 151,693
Retained earnings.................... (6,910) 9,940 (16,850) (6,910 ) -- (6,910)
------- ---------- ----------- --------- ----------- --------
Total stockholders' equity.......... (1,328) 16,919 17,280 34,199 110,584 144,783
------- ---------- ----------- --------- ----------- --------
Total liabilities and stockholders'
equity............................. $ 526 $ 31,708 $120,297 $152,005 $ 18,862 $170,867
======= ========== =========== ========= =========== ========
</TABLE>
F-5
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
(In thousands, except shares and per share data)
<TABLE>
<CAPTION>
GREAT FEIST LONG
WESTERN VALU-LINE DISTANCE FIRSTEL
--------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
$
Telecommunications services ...... -- $11,181 $10,028 $10,355
Yellow page publishing............ 44,324 -- -- --
--------- ----------- ------------ ---------
Total revenues.................. 44,324 11,181 10,028 10,355
Cost of services.................... 21,785 6,036 6,854 7,067
Depreciation and amortization ...... 223 819 237 247
--------- ----------- ------------ ---------
Gross profit...................... 22,316 4,326 2,937 3,041
Selling, general and administrative
expenses........................... 14,648 3,572 2,470 2,147
--------- ----------- ------------ ---------
Income (loss) from operations .... 7,668 754 467 894
Other income (expense):
Other income and expense, net .... 6,375 73 (2) 35
Interest expense.................. (504) (186) (60) (191)
Equity in earnings (loss) of
KINNET........................... -- -- -- --
--------- ----------- ------------ ---------
Income (loss) before income taxes .. 13,539 641 405 738
Provision for income taxes.......... 5,221 -- -- --
--------- ----------- ------------ ---------
Net income (loss)................... $ 8,318 $ 641 $ 405 $ 738
========= =========== ============ =========
Net income per share................
Shares used in computing pro forma
net income per share ..............
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OTHER HISTORICAL PRO FORMA
ACQUIRED BASIS ADJUSTMENTS PRO FORMA
COMPANIES ACG(1) COMBINED (SEE NOTE 4) COMBINED
----------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications services ...... $7,798 -- $39,362 $ 1,728 $41,090
Yellow page publishing............ -- -- 44,324 -- 44,324
----------- -------- ------------ ------------- -----------
Total revenues.................. 7,798 -- 83,686 1,728 85,414
Cost of services.................... 4,693 -- 46,435 1,044 47,479
Depreciation and amortization ...... 84 -- 1,610 2,643 4,253
----------- -------- ------------ ------------- -----------
Gross profit...................... 3,021 -- 35,641 (1,959) 33,682
Selling, general and administrative
expenses........................... 2,484 649 25,970 212 26,182
----------- -------- ------------ ------------- -----------
Income (loss) from operations .... 537 (649) 9,671 (2,171) 7,500
Other income (expense):
Other income and expense, net .... (30) -- 6,451 (3) 6,448
Interest expense.................. (44) (10) (995) 21 (974)
Equity in earnings (loss) of
KINNET........................... -- -- -- (814) (814)
----------- -------- ------------ ------------- -----------
Income (loss) before income taxes .. 463 (659) 15,127 (2,967) 12,160
Provision for income taxes.......... 36 -- 5,257 662 5,919
----------- -------- ------------ ------------- -----------
Net income (loss)................... $ 427 $(659) $ 9,870 $(3,629) $ 6,241
=========== ======== ============ ============= ===========
Net income per share................ $
===========
Shares used in computing pro forma
net income per share ..............
</TABLE>
- ------------
(1) For the period from inception (June 6, 1996) through December 31,
1996.
F-5
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1997
(In thousands, except shares and per share data)
<TABLE>
<CAPTION>
GREAT FEIST LONG
WESTERN VALU-LINE DISTANCE FIRSTEL
--------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
$
Telecommunications services ...... -- $5,903 $5,741 $6,070
Yellow page publishing............ 27,366 -- -- --
--------- ----------- ------------ ---------
Total revenues.................. 27,366 5,903 5,741 6,070
Cost of services.................... 12,172 3,363 3,872 4,298
Depreciation and amortization ...... 102 264 90 132
--------- ----------- ------------ ---------
Gross profit...................... 15,092 2,276 1,779 1,640
Selling, general and administrative
expenses........................... 9,212 1,955 1,422 1,303
--------- ----------- ------------ ---------
Income (loss) from operations .... 5,880 321 357 337
Other income (expense):
Other income and expense, net .... 35 45 1 18
Interest expense.................. (50) (70) (22) (39)
Equity in earnings (loss) of
KINNET........................... -- -- -- --
--------- ----------- ------------ ---------
Income (loss) before income taxes .. 5,865 296 336 316
Provision for income taxes.......... 1,384 -- -- --
--------- ----------- ------------ ---------
Net income (loss)................... $ 4,481 $ 296 $ 336 $ 316
========= =========== ============ =========
Net income per share ...............
Shares used in computing pro forma
net income per share...............
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OTHER HISTORICAL PRO FORMA
ACQUIRED BASIS ADJUSTMENTS PRO FORMA
COMPANIES ACG COMBINED (SEE NOTE 4) COMBINED
----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
$
Telecommunications services ...... $4,785 -- $22,499 $ 947 $23,446
Yellow page publishing............ -- -- 27,366 -- 27,366
----------- ---------- ------------ ------------- -----------
Total revenues.................. 4,785 -- 49,865 947 50,812
Cost of services.................... 2,377 -- 26,082 610 26,692
Depreciation and amortization ...... 15 2 605 1,321 1,926
----------- ---------- ------------ ------------- -----------
Gross profit...................... 2,393 (2) 23,178 (984) 22,194
Selling, general and administrative
expenses........................... 1,526 6,182 21,600 (5,456) 16,144
----------- ---------- ------------ ------------- -----------
Income (loss) from operations .... 867 (6,184) 1,578 4,472 6,050
Other income (expense):
Other income and expense, net .... 72 -- 171 -- 171
Interest expense.................. (16) (68) (265) (222) (487)
Equity in earnings (loss) of
KINNET........................... -- -- -- (366) (366)
----------- ---------- ------------ ------------- -----------
Income (loss) before income taxes .. 923 (6,252) 1,484 3,884 5,368
Provision for income taxes.......... 49 -- 1,433 1,380 2,813
----------- ---------- ------------ ------------- -----------
Net income (loss)................... $ 874 $(6,252) $ 51 $ 2,504 $ 2,555
=========== ========== ============ ============= ===========
Net income per share ............... $
===========
Shares used in computing pro forma
net income per share...............
===========
</TABLE>
F-6
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
ACG was founded to create a regional competitive local exchange carrier
that primarily provides an extensive portfolio of telecommunications services
primarily to business customers in selected service areas of Southwestern
Bell and US WEST and publishes yellow page directories in selected markets in
the Region. ACG has conducted no operations to date and will consummate the
Acquisitions concurrently with and as a condition to the closing of this
Offering.
The historical financial statements reflect the financial position and
results of operations of the Acquired Companies and were derived from the
respective Acquired Companies' financial statements. The acquisition of the
interest in KINNET is accounted for under the equity method of accounting,
and the information with respect to KINNET was derived from its financial
statements. The periods included in these pro forma financial statements for
the individual Acquired Companies and KINNET are for the six months ended
June 30, 1997, and for the year ended December 31, 1996. The audited
historical financial statements included elsewhere in this Prospectus have
been included in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 80.
2. ACQUISITION OF ACQUIRED COMPANIES:
Concurrently with and as a condition to the closing of the Offering, ACG
will acquire all of the outstanding capital stock of Great Western,
Valu-Line, Feist Long Distance, FirsTel and Tele-Systems, substantially all
of the assets of LDM, Switchboard and National Telecom, and 49% of the
outstanding capital stock of KINNET pursuant to the Acquisitions. The
Acquisitions (other than that of the interest in KINNET) are accounted for
using the purchase method of accounting with ACG being treated as the
accounting acquirer. The acquisition by ACG of 49% of the outstanding capital
stock of KINNET is accounted for using the equity method of accounting with
ACG treated as the accounting acquirer.
F-7
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The consideration to be paid in the Acquisitions includes (a) cash, (b)
Common Stock, (c) promissory notes, (d) a payable for reimbursement of cash
paid to purchase two companies in September 1997, and (e) options and
warrants to purchase shares of Common Stock. The number of shares of Common
Stock to be issued in the Acquisitions will be determined by dividing the
agreed aggregate amount of $47.4 million by the initial public offering price
of the Common Stock. Therefore the actual number of shares of Common Stock so
issuable will be determinable only after the determination of the initial
public offering price. In determining the amount to be recorded for
accounting purposes for the component of the purchase price attributable to
the shares of Common Stock issuable in the Acquisitions, the value of such
shares was determined to be $35.6 million, which represents a discount of
twenty-five percent due to restrictions on the sale and transferability of
the shares issued.
The promissory notes issued in the Acquisitions consist of (a) $15.0
million in notes payable two years from the closing of the Acquisitions and
bearing an annual rate of interest of five percent (5%), which notes may be
prepaid at any time and are subordinated to the Company's senior debt (as
defined), (b) $2.0 million in notes convertible into shares of Common Stock
at the initial public offering price, payable two years from the closing of
the Acquisitions and bearing an annual rate of interest of ten percent (10%),
which notes may be prepaid at any time and are subordinated to the Company's
senior debt (as defined), and (c) a $350,000 promissory note payable in three
equal annual installments and bearing an annual interest rate of seven
percent (7%), which note may be prepaid at any time. Pursuant to the terms of
the notes discussed in (a) and (b) above, an event of default would exist if
the Company's senior debt (as defined) exceeds $50.0 million.
The Company has agreed to further purchase consideration for the
Acquisitions in the form of options and warrants which are exercisable for a
total of 2,637,135 shares of Common Stock. As substantially all of these
options and warrants are exercisable at the estimated fair value of a share
of Common Stock at the date they were or are to be issued, no value has been
attributed to them.
The total estimated purchase price for the Acquisitions of $139.8 million
and the related allocations of the excess purchase price are based upon
preliminary estimates and are subject to certain purchase price adjustments
at and following the closing of the Acquisitions. The table does not reflect
the distributions totaling $1.3 million representing substantially all of the
undistributed earnings of the Acquired Companies that are S corporations
previously taxed to their stockholders (or in certain cases, amounts equal to
the tax payable by the stockholders on those earnings) and distributable
under the relevant acquisition agreements as of June 30, 1997 (the "S
Corporation Distributions"). However, these amounts are reflected in the pro
forma adjustments as further described in Note 3.
<TABLE>
<CAPTION>
OPTIONS AND
WARRANTS
VALUE OF EXERCISABLE
COMMON PROMISSORY FOR COMMON
ACQUISITION CASH STOCK NOTES OTHER STOCK
- ----------------------------- --------- ---------- ------------ ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Great Western................. $55,000 $ 7,500 $15,000 $-- 2,500,000
Valu-Line..................... 6,600 3,900 -- --
FirsTel....................... 5,000 8,323 2,000 101 50,000
Feist Long Distance........... 5,000 7,500 -- -- --
Minority investment in
KINNET....................... 10,000 7,500 -- -- --
--------- ---------- ------------ ------- -------------
Subtotal...................... 81,600 34,723 17,000 101 2,550,000
--------- ---------- ------------ ------- -------------
OTHER ACQUIRED COMPANIES:
LDM........................... 3,475 -- -- -- --
Switchboard................... 1,631 -- -- -- 38,635
Telesystems................... -- 900 -- -- 36,000
National Telecom.............. 130 -- 350 -- 12,500
--------- ---------- ------------ ------- -------------
Subtotal.................... 5,236 900 350 -- 87,135
--------- ---------- ------------ ------- -------------
Total......................... $86,836 $35,623 $17,350 $101 2,637,135
========= ========== ============ ======= =============
</TABLE>
F-8
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
a. Records the estimated S Corporation Distributions of $1.3 million
which are expected to be paid to the stockholders of certain of
the Acquired Companies using $1.1 million of cash on hand and $0.2
million of borrowed funds.
b. Records the related party debt of $660,000 and $1,040,000 that
will be acquired by ACG in connection with the acquisitions of
Feist Long Distance and FirsTel, respectively, and which, as
intercompany debt, will not appear on the Company's consolidated
financial statements.
c. Records assets, liabilities and equity of two companies acquired
by FirsTel in September 1997.
d. Records the purchase by ACG of the outstanding capital stock or
substantially all of the assets of the Acquired Companies and the
purchase of 49% of the outstanding capital stock of KINNET, for
consideration consisting of $86.8 million payable in cash, shares
of Common Stock valued for purposes of computing the estimated
purchase price for accounting purposes at $35.6 million,
promissory notes for $17.4 million, and other payables for
reimbursement of cash paid to purchase two companies by FirsTel in
September 1997 amounting to $0.1 million for a total estimated
purchase price of $139.8 million. This purchase price will result
in an excess purchase price of $121.1 million (including $0.5
million of deferred acquisition costs incurred by ACG) over the
fair value of the net assets acquired of $19.2 million. Of this
$121.1 million, $104.0 million relates to the Acquired Companies
and $17.0 million relates to KINNET. The $104.0 million will be
recorded as "goodwill" on the balance sheet and amortized over 40
years. This $17.0 million attributable to KINNET will be amortized
against the Company's equity in earnings or losses of KINNET.
e. Records assumed cash proceeds of $120 million from the issuance of
shares of ACG Common Stock net of estimated offering costs of
$12.1 million including amounts deferred and payable by ACG at
June 30, 1997. Offering costs primarily consist of underwriting
discounts and commissions, accounting fees, legal fees and
printing expenses.
f. Records the payment of the cash portion of the total consideration
($86.8 million).
g. Records the payment of debt of ACG and the Acquired Companies
which is expected to be paid from the proceeds of the Offering.
F-9
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma and
post-acquisition combined balance sheet adjustments at June 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
---------- --------- ------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $(1,057) $ -- $--
Accounts receivable................... -- -- 190
Deferred costs........................ -- -- --
Prepaid expenses and other............ -- -- 62
---------- --------- ------
Total current assets................ (1,057) -- 252
Property and equipment, net........... -- -- 49
Goodwill, net......................... -- -- --
Equity investment in unconsolidated
subsidiary........................... -- -- --
Other noncurrent assets............... -- -- --
---------- --------- ------
Total assets........................ $(1,057) $ -- $301
========== ========= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term debt . $ 230 $ -- $--
Accounts payable and accrued
expenses............................. -- -- 200
Current portion of notes payable to
related parties...................... -- (1,700) --
Obligation for cash portion of --
consideration in the Acquisitions ... -- --
---------- --------- ------
Total current liabilities........... 230 (1,700) 200
Notes payable to related parties, net
of current maturities................
Long-term debt, net of current
maturities........................... -- -- --
---------- --------- ------
Total liabilities................... 230 (1,700) 200
---------- --------- ------
Stockholders' equity
Common stock........................ -- -- --
Additional paid-in-capital.......... -- 1,700 101
Retained earnings................... (1,287) -- --
---------- --------- ------
(1,287) 1,700 101
---------- --------- ------
Total liabilities and stockholders'
equity............................... $(1,057) $ -- $301
========== ========= ======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
TOTAL POST-
PRO FORMA ACQUISITION
(D) ADJUSTMENTS (E) (F) (G) ADJUSTMENTS
---------- ------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ -- $ (1,057) $110,056 $(86,836) $(4,342) $ 18,878
Accounts receivable................... -- 190 -- -- -- --
Deferred costs........................ -- -- (16) -- -- (16)
Prepaid expenses and other............ -- 62 -- -- -- --
---------- ------------- ---------- ----------- ---------- -------------
Total current assets................ -- (805) 110,040 (86,836) (4,342) 18,862
Property and equipment, net........... -- 49 -- -- -- --
Goodwill, net......................... 104,007 104,007 -- -- -- --
Equity investment in unconsolidated
subsidiary........................... 17,535 17,535 -- -- -- --
Other noncurrent assets............... (489) (489) -- -- -- --
---------- ------------- ---------- ----------- ---------- -------------
Total assets........................ $121,053 $120,297 $110,040 $(86,836) $(4,342) $ 18,862
========== ============= ========== =========== ========== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term debt . $ -- $ 230 $ -- $ -- $ (745) $ (745)
Accounts payable and accrued
expenses............................. 101 301 (544) -- (101) (645)
Current portion of notes payable to
related parties...................... 117 (1,583) -- -- (1,929) (1,929)
Obligation for cash portion of
consideration in the Acquisitions ... 86,836 86,836 -- (86,836) -- (86,836)
---------- ------------- ---------- ----------- ---------- -------------
Total current liabilities........... 87,054 85,784 (544) (86,836) (2,775) (90,155)
Notes payable to related parties, net
of current maturities................ 17,233 17,233
Long-term debt, net of current
maturities........................... -- -- -- -- (1,567) (1,567)
---------- ------------- ---------- ----------- ---------- -------------
Total liabilities................... 104,287 103,017 (544) (86,836) (4,342) (91,722)
---------- ------------- ---------- ----------- ---------- -------------
Stockholders' equity
Common stock........................ (458) (458) -- -- -- --
Additional paid-in-capital.......... 32,787 34,588 110,584 -- -- 110,584
Retained earnings................... (15,563) (16,850) -- -- -- --
---------- ------------- ---------- ----------- ---------- -------------
16,766 17,280 110,584 -- -- 110,584
---------- ------------- ---------- ----------- ---------- -------------
Total liabilities and stockholders'
equity............................... $121,053 $120,297 $110,040 $(86,836) $(4,342) $ 18,862
========== ============= ========== =========== ========== =============
</TABLE>
F-10
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
ADJUSTMENTS:
Year Ended December 31, 1996
(a) Reflects the reduction in salaries, bonuses and benefits of
approximately $445,000 to the owners of the Acquired Companies to
which they have agreed prospectively. These reductions in
salaries, bonuses and benefits are in accordance with the terms of
employment agreements. Such employment agreements are generally
for three to five years, contain restrictions related to
competition and provide severance for termination of employment in
certain circumstances.
(b) Reflects the amortization of excess purchase price to be recorded
over a 40-year estimated life as a result of the Acquisitions.
(c) Reflects the equity in losses of KINNET of $388,000 and the
amortization of $426,000 of related excess purchase price to be
recorded over a 40-year estimated life.
(d) Reflects an increase of $974,000 of interest expense attributable
to debt issued as consideration for the Acquisitions, net of a
reduction of $995,000 in interest expense on debt of the Acquired
Companies which is to be repaid from the proceeds of the Offering.
(e) Reflects the revenue and expenses of two companies acquired by
FirsTel in September 1997.
(f) Reflects the incremental provisions for federal and state income
taxes relating to the other pro forma adjustments and for income
taxes on heretofore S Corporation income.
The following table summarizes unaudited pro forma combined statement of
operations adjustments for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
------- ---------- --------
<S> <C> <C> <C>
Revenues--Telecommunications
services........................... $ -- $ -- $ --
Cost of services.................... -- -- --
--
Depreciation and amortization ...... 2,600 --
------- ---------- --------
Gross profit...................... -- (2,600) --
Selling, general and administrative
expenses........................... (445) -- --
------- ---------- --------
Income (loss) from operations .... 445 (2,600) --
Other income (expense):
Other income and expense, net .... -- -- --
Interest expense.................. -- -- --
Equity in earnings of KINNET ..... -- -- (814)
------- ---------- --------
Income (loss) before income taxes .. 445 (2,600) (814)
Provision for income taxes.......... -- -- --
------- ---------- --------
Net income (loss)................... $ 445 $(2,600) $(814)
======= ========== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(D) (E) (F) ADJUSTMENTS
------ -------- -------- -------------
<S> <C> <C> <C> <C>
Revenues--Telecommunications
services........................... $-- $1,728 $ -- $ 1,728
Cost of services.................... -- 1,044 -- 1,044
Depreciation and amortization ...... -- 43 -- 2,643
------ -------- -------- -------------
Gross profit...................... -- 641 -- (1,959)
Selling, general and administrative
expenses........................... -- 657 -- 212
------ -------- -------- -------------
Income (loss) from operations .... -- (16) -- (2,171)
Other income (expense):
Other income and expense, net .... -- (3) -- (3)
Interest expense.................. 21 -- -- 21
Equity in earnings of KINNET ..... -- -- -- (814)
------ -------- -------- -------------
Income (loss) before income taxes .. 21 (19) -- (2,967)
Provision for income taxes.......... -- -- 662 662
------ -------- -------- -------------
Net income (loss)................... $21 $ (19) $(662) $(3,629)
====== ======== ======== =============
</TABLE>
F-11
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Six Months Ended June 30, 1997
(a) Reflects the reduction in salaries, bonuses and benefits of
approximately $223,000 to the owners of the Acquired Companies to
which they have agreed prospectively. These reductions in
salaries, bonuses and benefits are in accordance with the terms of
employment agreements. Such employment agreements are generally
for three to five years, contain restrictions related to
competition and provide severance for termination of employment in
certain circumstances. The Company will recognize compensation
expense in the amount of $600,000 in the period subsequent to the
initial public offering in regards to bonuses paid to certain
directors and officers.
(b) Reflects the amortization of goodwill to be recorded over a
40-year estimated life as a result of the Acquisitions.
(c) Reflects the equity in losses of KINNET of $153,000 and the
amortization of $213,000 of related excess purchase price to be
recorded over a 40-year estimated life.
(d) Reflects an increase of $487,000 of interest expense attributable
to debt issued as consideration for the Acquisitions, net of a
reduction of $265,000 in interest expense on debt of the Acquired
Companies which is to be repaid from the proceeds of the Offering.
(e) Reflects the reversal of the non-recurring, non-cash compensation
charge of $5.6 million recorded by ACG during the six months ended
June 30, 1997 related to common stock options issued to
management.
(f) Reflects the revenue and expense of two companies acquired by
FirsTel in September 1997.
(g) Reflects the incremental provisions for federal and state income
taxes relating to the other pro forma adjustments and for income
taxes on heretofore S Corporation income.
The following table summarizes unaudited pro forma combined income
statement adjustments for the six months ended June 30, 1997 (in thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
------- ---------- --------
<S> <C> <C> <C>
Revenues--
Telecommunications services .. $ -- $ -- $ --
Cost of services.............. -- -- --
Depreciation and
amortization................. -- 1,300 --
------- ---------- --------
Gross profit................ -- (1,300) --
Selling, general and
administrative expenses...... (223) -- --
------- ---------- --------
Income (loss) from
operations................. 223 (1,300) --
Other income (expense):
Other income and expense,
net........................ -- -- --
Interest expense............ -- -- --
Equity in earnings of
KINNET..................... -- -- (366)
------- ---------- --------
Income (loss) before income
taxes........................ 223 (1,300) (366)
Provision for income taxes ... -- -- --
------- ---------- --------
Net income (loss)............. $ 223 $(1,300) $(366)
======= ========== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(D) (E) (F) (G) ADJUSTMENTS
-------- --------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues--
Telecommunications services . $ -- $ -- $947 $ -- $ 947
Cost of services.............. -- -- 610 -- 610
Depreciation and
amortization................. -- -- 21 -- 1,321
-------- --------- ------ ---------- -------------
Gross profit................ -- -- 316 -- (984)
Selling, general and
administrative expenses...... -- (5,555) 322 -- (5,456)
-------- --------- ------ ---------- -------------
Income (loss) from
operations................. -- 5,555 (6) -- 4,472
Other income (expense):
Other income and expense,
net........................ -- -- -- -- --
Interest expense............ (222) -- -- -- (222)
Equity in earnings of
KINNET..................... -- -- -- -- (366)
-------- --------- ------ ---------- -------------
Income (loss) before income
taxes........................ (222) 5,555 (6) -- 3,884
Provision for income taxes ... -- -- -- 1,380 1,380
-------- --------- ------ ---------- -------------
Net income (loss)............. $(222) $ 5,555 $ (6) $(1,380) $ 2,504
======== ========= ====== ========== =============
</TABLE>
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Advanced Communications Group, Inc.:
We have audited the accompanying consolidated balance sheet of Advanced
Communications Group, Inc. as of December 31, 1996, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Communications Group, Inc. as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
September 15, 1997
F-13
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 33,450 $ 2,911
Employee advances........................................ 1,388 --
Other current assets..................................... -- 5,358
-------------- -------------
Total current assets................................... 34,838 8,269
Office furniture and equipment, net....................... 8,252 7,065
Other non-current assets.................................. 48,480 510,218
-------------- -------------
Total assets........................................... $ 91,570 $ 525,552
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to stockholder.............................. $ 565,047 $ 1,217,413
Accrued interest payable to stockholder.................. 9,890 77,633
Accounts payable and accrued expenses.................... 148,653 558,664
-------------- -------------
Total current liabilities.............................. 723,590 1,853,710
Stockholders' deficit:
Common stock, $.00001 par, 180,000,000 shares
authorized,
21,764,250 shares issued and outstanding................ 218 218
Additional paid-in capital .............................. 26,582 5,581,832
Accumulated deficit ..................................... (658,820) (6,910,208)
-------------- -------------
Total stockholders' deficit............................ (632,020) (1,328,158)
-------------- -------------
Total liabilities and stockholders' deficit................ $ 91,570 $ 525,552
============== =============
</TABLE>
See accompanying notes to the financial statements.
F-14
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 6, 1996) FOR THE SIX
THROUGH MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues............................ $ -- $ --
General and administrative
expenses........................... 648,930 6,181,888
Depreciation and amortization ...... 1,685
Interest expense.................... 9,890 67,815
Other (income) loss................. -- --
----------------- ---------------
Loss before income tax benefit ... 658,820 6,251,388
Income tax benefit.................. -- --
----------------- ---------------
Net loss.......................... $658,820 $6,251,388
================= ===============
Net loss per share................ $ .03 $ .29
================= ===============
</TABLE>
See accompanying notes to the financial statements.
F-15
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period From Inception (June 6, 1996) Through June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ -------- ----------- -------------- ---------------
$
<S> <C> <C> <C> <C> <C>
Initial capitalization ..... 21,764,250 $218 $ 26,582 -- $ 26,800
Net loss.................... -- -- -- (658,820) (658,820)
------------ -------- ------------ --------------- ---------------
BALANCES, December 31,
1996....................... 21,764,250 218 26,582 (658,820) (632,020)
Issuance of stock options
(unaudited)................ -- -- 5,555,250 -- 5,555,250
Net loss (unaudited)........ -- -- -- (6,251,388) (6,251,388)
------------ -------- ------------ --------------- ---------------
BALANCES, June 30, 1997
(unaudited)................ 21,764,250 $218 $5,581,832 $ (6,910,208) $(1,328,158)
============ ======== ============ =============== ===============
</TABLE>
See accompanying notes to the financial statements.
F-16
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 6, 1996) FOR THE SIX
THROUGH MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $(658,820) $(6,251,388)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization.................................... -- 1,685
Stock-based compensation expense................................. -- 5,555,250
Changes in assets and liabilities:
(Increase) decrease in employee advances........................ (1,388) 1,388
Increase in other current assets................................ -- (5,358)
Increase in property and equipment.............................. (8,252) --
Increase in other non-current assets............................ (48,480) (462,236)
Increase in accounts payable and accrued expenses............... 148,653 410,011
----------------- ---------------
Net cash provided by operating activities...................... (568,287) (750,648)
----------------- ---------------
Cash flows from financing activities
Increase in note payable to stockholder.......................... 565,047 652,366
Increase in accrued interest payable to stockholder ............. 9,890 67,743
Issuance of common stock......................................... 26,800 --
----------------- ---------------
Net cash provided by financing activities...................... 601,737 720,109
----------------- ---------------
Net increase (decrease) in cash and cash equivalents............... 33,450 (30,539)
Cash and cash equivalents:
Beginning of period.............................................. -- 33,450
----------------- ---------------
End of period.................................................... $ 33,450 $ 2,911
================= ===============
</TABLE>
See accompanying notes to the financial statements.
F-17
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1997 (Unaudited)
1. ORGANIZATION AND BUSINESS:
Advanced Communications Group, Inc. (the "Company") (formerly 1+USA, Inc.)
was incorporated in the State of Delaware in June 1996 to create a regional
competitive local exchange carrier that provides an integrated portfolio of
telecommunications services principally to businesses customers in selected
service areas of Southwestern Bell and US WEST. As of June 30, 1997, the
Company intended to acquire the stock or assets of nine operating companies
(the "Acquired Companies") and a 49% interest in another operating company
(collectively, the "Acquisitions") and complete an initial public offering of
its common stock. The Company has not conducted any operations, and all
activities to date have related to the Offering and the Acquisitions.
The Company is dependent upon the public offering to complete the
Acquisitions and to repay an obligation it has incurred under a promissory
note made in favor of its major stockholder, Consolidation Partners Founding
Fund, L.L.C. ("CPFF"). There can be no assurance that the Acquisitions will
be completed or that the Company will be able to generate future operating
revenues.
2. ACQUISITIONS OF THE ACQUIRED COMPANIES:
Prior to September 1997, the Company signed definitive agreements pursuant
to which it agreed to acquire in mergers, stock purchases or asset purchases,
all of the outstanding capital stock of Great Western Directories, Inc.,
Valu-Line of Longview, Inc., Feist Long Distance Service, Inc. and
Tele-Systems, Inc., substantially all of the assets of Long Distance
Management II, Inc., Long Distance Management of Kansas, Inc., The
Switchboard of Oklahoma City, Inc., and National Telecom, a proprietorship,
and 49% of the outstanding capital stock of KIN Network, Inc. and was
negotiating with respect to the acquisition of FirsTel, Inc. The
consideration to be paid by the Company in the Acquisitions was to include
cash, common stock of the Company, notes, and options or warrants to purchase
common stock of the Company and the assumption of debt in the case of two
companies.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Unaudited interim periods -- The interim consolidated financial statements
as of June 30, 1997, and for the six months then ended are unaudited. These
interim consolidated financial statements have been prepared on the same
basis as the annual financial statements included herewith. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the consolidated balance sheets, results of
operations and cash flows with respect to the interim financial statements,
have been included. The results of operations for the interim period are not
necessarily indicative of the results for the entire fiscal year.
Principles of consolidation -- The consolidated financial statements
include the accounts of Advanced Communications Group, Inc. and its
wholly-owned subsidiaries which were formed for the sole purpose of acquiring
the stock or assets of the Acquired Companies.
Deferred acquisition and deferred offering costs -- The Company has
deferred certain legal, accounting, appraisal and other costs incurred in
connection with the Acquisitions and the Offering. At December 31, 1996 and
June 30, 1997, deferred acquisition costs amounted to approximately $40,900
and $489,000, respectively, and deferred offering costs amounted to $2,700
and $16,400, respectively. At such time as the Company completes the
Acquisitions, deferred acquisition costs will be included in the
determination of excess purchase price. Deferred offering costs will be
charged to additional paid-in capital upon the closing of the Offering.
F-18
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Office furniture and equipment -- Office furniture and equipment are
stated at cost. Depreciation is computed using the straight-line method over
the respective lives of the assets. The estimated useful lives are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures.............. 7 years
Computer equipment and software .... 3 years
</TABLE>
Income taxes -- No provision for Federal, state and local income taxes has
been made because the Company has sustained cumulative losses since its
inception in June 1996. For the year ended December 31, 1996, the Company had
a net operating loss carryforward of approximately $659,000.
Net Loss Per Share -- Net loss per share is computed using the weighted
average number of shares outstanding. The weighted average shares outstanding
were 21,764,250 for the period from inception (June 6, 1996) through December
31, 1996 and for the six months ended June 30, 1997.
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
New Accounting Pronouncements -- Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," allows
entities to choose between a new fair value based method of accounting for
employee stock options or similar equity instruments and the current
intrinsic, value-based method of accounting required by Accounting Principles
Board Opinion No. 25 ("APB No. 25"). Entities electing to remain with the
accounting in APB No. 25 must make pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been
applied. No employee stock options or similar equity instruments were issued
by the Company prior to January 1, 1997. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable in the notes
to future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". For the Company, SFAS No. 128 will be effective
for the year ended December 31, 1997, but not for any periods ended prior to
that time. SFAS No. 128 simplifies the standards required under current
accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per
share with a presentation of basic earnings per share ("basic EPS") and
diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and
is determined by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities
and other contracts to issue common stock were exercised or converted into
common stock. Diluted EPS is computed similarly to full diluted earnings per
share under current accounting rules. The implementation of SFAS No. 128 is
not expected to have a material effect on the Company's earnings per share as
determined under current accounting rules.
4. TRANSACTIONS WITH RELATED PARTIES:
COMMON OWNERSHIP AND MANAGEMENT
At December 31, 1996 and June 30, 1997, a total of 21,125,000 shares of
the Company's common stock was owned by CPFF and by two individuals who then
served as directors and officers of both the Company and CPFF and who own the
controlling interest in CPFF. In July 1996, the Company entered into separate
five-year employment contracts with these individuals pursuant to which
minimum annual salaries aggregating $360,000 are payable. The Company has
also agreed to pay certain directors and officers, including these two
individuals, an aggregate of $600,000 upon completion of the Company of an
initial public offering of its common stock.
F-19
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUBORDINATED PROMISSORY NOTE IN FAVOR OF CPFF
The Company's activities have been financed through a subordinated note
agreement with CPFF. In September 1996, the Company executed a Subordinated
Promissory Note (the "Note") in favor of CPFF in the principal amount of
$1,200,000 and bearing an annual interest rate of eight (8%) percent. Under
its original terms, the principal and accrued interest under the Note were to
be paid in full on the earlier of September 15, 1997, or the date on which
the Company's common stock becomes listed or quoted on a national basis.
During the year ended December 31, 1996 and the six months ended June 30,
1997, the Company incurred interest expense of $9,890 and $67,615,
respectively, under the Note. In September 1997, the Company and CPFF amended
the terms of the Note to provide for an increase in the principal balance
from $1.2 million to $2.2 million, and to extend the maturity of the Note to
the earlier of December 31, 1998 or the consummation of the Offering.
LONG-TERM INCENTIVE PLAN
In June 1997, the Company's Board of Directors approved a Stock Awards
Plan (the "Plan") which provides for the granting or awarding of incentive or
non-qualified stock options, stock appreciation rights, restricted or
deferred stock, dividend equivalents and other incentive awards to directors,
officers, and key employees of the Company. The number of shares of common
stock authorized and reserved for issuance under the Plan is 3,500,000
shares.
In June 1997, the Company granted options for the purchase of 1,088,000
shares of the Company's common stock to four individuals, all of whom were
stockholders, directors and officers of the Company and one of whom owned a
controlling interest in CPFF at December 31, 1996 and June 30, 1997. In the
case of three of these individuals, the options are exercisable at a price
that is lower than the initial public offering price, specifically at a price
of $2.50 per share of common stock. One third of the options vested on the
date of grant, and one third of the remaining options will vest on the first
and second anniversaries, respectively, of the date of grant. In addition, in
May 1997 the Company granted to one of its consultants a warrant for the
purchase of 20,000 shares of common stock at an exercise price of $1.00 per
share. This warrant is exercisable in whole or in part at any time up to its
expiration date in May 2007. At June 30, 1997, the Company recorded a
non-recurring, non-cash compensation expense of $5.6 million (unaudited)
reflecting the difference between the exercise price for the shares and the
estimated fair value of the shares as of the date of the Company's initial
public offering.
In the aggregate, at December 31, 1996 and at June 30, 1997, these
individuals owned 495,000 shares of the Company's common stock.
OPERATING LEASE AGREEMENT
In January 1997, the Company entered into a four year lease agreement with
CPFF pursuant to which the Company leases furniture and office equipment.
Under this agreement the Company is obligated to make monthly rental payments
to CPFF of $1,163. For the six months ended June 30, 1997, the Company
recognized approximately $7,000 of rental expense related to this lease
agreement.
5. SUBSEQUENT EVENT (Unaudited)
On September 29, 1997, the Company incorporated a new wholly owned
subsidiary under the laws of the State of Delaware. On October 6, 1997, the
Company changed its name to Advanced Communications Corp. and subsequently
the new subsidiary changed its name to Advanced Communications Group, Inc.
("ACG"). As of October 6, 1997 and in order to facilitate securing requisite
regulatory permits, ACG entered into new definitive agreements to acquire the
stock or assets of the Acquired Companies and a 49% interest in a fiber optic
network company that replaced the various definitive agreements that had been
entered into earlier with the Acquired Companies. In the aggregate,
F-20
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the consideration to be paid by ACG in the Acquisitions includes $86.8
million in cash, shares of ACG's Common Stock valued for purposes of
computing the estimated purchase price for accounting purposes at $35.6
million, $17.4 million in promissory notes, and options and warrants to
purchase 2,637,135 shares of ACG's Common Stock.
Also as of October 6, 1997, the Company, ACG and a wholly owned subsidiary
of ACG entered into an Agreement of Merger pursuant to which, after the
consummation of an approximately one-for-two reverse stock split and
concurrently with the closing of the Acquisitions, the Company will be merged
with the subsidiary of ACG, with the Company as the surviving corporation. In
the merger, each share of common stock of the Company will be converted into
one share of Common Stock of ACG, ACG will succeed to all options and
warrants of the Company, and the Company will become a wholly owned
subsidiary of ACG.
On October 10, 1997, ACG filed with the Securities and Exchange Commission
a Registration Statement on Form S-1 relating to the initial public offering
of its Common Stock, and the Company no longer plans to have a public
offering of its common stock. The closing of the Acquisitions and the merger
of the Company with the subsidiary of ACG will occur concurrently with, and
are a condition to, the closing of that offering. A portion of the proceeds
of that offering will be used to pay the cash portion of the consideration in
the Acquisitions. ACG has not conducted any operations, and all of its
activities to date have related to the public offering and the Acquisitions.
ACG is dependent on the public offering to complete the Acquisitions and
to repay an obligation of the Company to CPFF. There can be no assurance that
the Acquisitions will be completed or that ACG will be able to generate
future operating revenues.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Great Western Directories, Inc.
Amarillo, Texas
We have audited the accompanying balance sheets of Great Western
Directories, Inc. as of January 31, 1996 and December 31, 1996, and the
related statements of operations, and cash flows for the years ended January
31, 1995 and 1996 and December 31, 1996, and the related statements of
stockholders' equity for the years ended January 31, 1995 and 1996 and the
eleven months ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great Western
Directories, Inc. as of January 31, 1996 and December 31, 1996, and the
results of its operations and its cash flows for the years ended January 31,
1995 and 1996 and December 31, 1996 in conformity with generally accepted
accounting principles.
CLIFTON GUNDERSON P.L.L.C.
Amarillo, Texas
August 22, 1997
F-22
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
BALANCE SHEETS
January 31, 1996, December 31, 1996 and June 30, 1997
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, JUNE 30,
1996 1996 1997
------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................... $ 31,693 $ 719,268 $ 797,820
Accounts receivable..................................... 17,678,787 21,607,728 26,746,356
Less: Allowance for doubtful accounts................... (6,590,847) (8,282,945) (9,941,157)
------------- -------------- -------------
Net accounts receivable............................. 11,087,940 13,324,783 16,805,199
------------- -------------- -------------
Federal income tax receivable........................... 951,136 398,527 398,527
Deferred directory costs................................ 3,436,346 3,052,944 2,208,024
Deferred income taxes................................... 1,033,996 1,384,178 --
Other current assets.................................... 423,400 377,275 25,156
------------- -------------- -------------
Total current assets................................ 16,964,511 19,256,975 20,234,726
------------- -------------- -------------
PROPERTY AND EQUIPMENT
Land.................................................... 79,900 79,900 79,900
Building and improvements............................... 640,059 644,061 654,312
Furniture, fixtures and equipment....................... 1,722,500 1,991,215 2,183,134
------------- -------------- -------------
2,442,459 2,715,176 2,917,346
Less: Accumulated depreciation.......................... (1,400,578) (1,597,008) (1,699,212)
------------- -------------- -------------
Net property and equipment.......................... 1,041,881 1,118,168 1,218,134
------------- -------------- -------------
OTHER ASSETS.............................................. 2,391 4,607 13,283
------------- -------------- -------------
TOTAL ASSETS.............................................. $18,008,783 $20,379,750 $21,466,143
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft.......................................... $ 33,114 $ -- $ --
Accounts payable........................................ 1,378,318 1,393,021 1,771,322
Payable to related parties.............................. 270,246 483,311 457,230
Accrued liabilities..................................... 467,530 938,730 962,107
Note payable to bank.................................... 2,100,000 -- --
Current maturities of long-term debt.................... 2,109,740 1,849,309 --
Prepayments on directory advertising.................... 3,690,261 3,170,840 1,849,886
------------- -------------- -------------
Total current liabilities........................... 10,049,209 7,835,211 5,040,545
LONG-TERM DEBT, less current maturities................... 3,531,051 -- --
------------- -------------- -------------
Total liabilities................................... 13,580,260 7,835,211 5,040,545
------------- -------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized shares of
10,000, 1,250 shares issued and outstanding............ 1,250 1,250 1,250
Additional paid-in capital.............................. 5 5 5
Retained earnings....................................... 4,427,268 12,543,284 16,424,343
------------- -------------- -------------
Total stockholders' equity.......................... 4,428,523 12,544,539 16,425,598
------------- -------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................................... $18,008,783 $20,379,750 $21,466,143
============= ============== =============
</TABLE>
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to the
financial statements
F-23
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended January 31, 1995 and 1996 and December 31, 1996
and Six Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
YEARS ENDED YEAR ENDED SIX MONTHS ENDED
JANUARY 31, DECEMBER 31, JUNE 30,
---------------------------- -------------- ----------------------------
1995 1996 1996 1996 1997
------------- ------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ADVERTISING REVENUES............... $29,406,843 $36,469,094 $44,324,097 $25,403,026 $27,366,452
COST OF REVENUES
Commissions and other sales
expenses........................ 7,443,762 8,784,336 9,935,146 4,983,198 5,983,000
Publishing, related party........ 94,448 578,223 1,077,795 474,738 536,096
Publishing, other................ 8,807,084 8,944,754 9,333,705 5,110,946 4,926,116
Distribution, related party ..... 558,885 697,250 815,566 210,417 159,170
Distribution, other.............. 828,892 563,362 622,820 454,540 567,878
Depreciation and amortization ... 272,296 228,324 223,434 114,162 102,204
------------- ------------- -------------- ------------- -------------
Total cost of revenues......... 18,005,367 19,796,249 22,008,466 11,348,001 12,274,464
------------- ------------- -------------- ------------- -------------
Gross margin................... 11,401,476 16,672,845 22,315,631 14,055,025 15,091,988
GENERAL AND ADMINISTRATIVE
EXPENSES
Salaries and payroll taxes ...... 4,672,222 5,953,869 5,928,876 3,242,215 3,728,016
Provision for bad debts.......... 2,907,720 3,249,165 4,650,918 3,003,731 3,008,330
Other............................ 3,204,938 3,457,492 4,067,782 2,429,316 2,475,478
------------- ------------- -------------- ------------- -------------
Total general and
administrative expenses....... 10,784,880 12,660,526 14,647,576 8,675,262 9,211,824
------------- ------------- -------------- ------------- -------------
Total operating income......... 616,596 4,012,319 7,668,055 5,379,763 5,880,164
------------- ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense................. (216,228) (602,100) (503,768) (311,491) (49,751)
Settlement of litigation, net of
expenses of $318,496............ -- -- 6,281,504 -- --
Other, net....................... 80,520 66,857 93,587 54,062 34,824
------------- ------------- -------------- ------------- -------------
Total other income (expense) .. (135,708) (535,243) 5,871,323 (257,429) (14,927)
------------- ------------- -------------- ------------- -------------
Income before income taxes .... 480,888 3,477,076 13,539,378 5,122,334 5,865,237
PROVISION FOR INCOME TAXES......... 211,693 1,307,290 5,220,602 1,785,946 1,384,178
------------- ------------- -------------- ------------- -------------
NET INCOME......................... $ 269,195 $ 2,169,786 $ 8,318,776 $ 3,336,388 $ 4,481,059
============= ============= ============== ============= =============
NET INCOME PER SHARE............... $ 215.36 $ 1,735.83 $ 6,655.02 $ 2,669.11 $ 3,584.85
============= ============= ============== ============= =============
</TABLE>
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies and notes to the
financial statements
F-24
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended January 31, 1995 and 1996,
Eleven Months Ended December 31, 1996
and Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1994................ $1,250 $5 $ 2,080,787 $ 2,082,042
Cash dividends ($37 per share)............. -- -- (46,250) (46,250)
Net income................................. -- -- 269,195 269,195
-------- ------------ ------------- ------------
BALANCE AT JANUARY 31, 1995................ 1,250 5 2,303,732 2,304,987
Cash dividends ($37 per share)............. -- -- (46,250) (46,250)
Net income................................. -- -- 2,169,786 2,169,786
-------- ------------ ------------- ------------
BALANCE AT JANUARY 31, 1996................ 1,250 5 4,427,268 4,428,523
Cash dividends ($37 per share)............. -- -- (46,250) (46,250)
Net income (eleven months)................. -- -- 8,162,266 8,162,266
-------- ------------ ------------- ------------
BALANCE AT DECEMBER 31, 1996............... 1,250 5 12,543,284 12,544,539
Cash dividends ($480 per share,
unaudited)................................ -- -- (600,000) (600,000)
Net income (unaudited)..................... -- -- 4,481,059 4,481,059
-------- ------------ ------------- ------------
BALANCE AT JUNE 30, 1997 (UNAUDITED) ..... $1,250 $5 $16,424,343 $16,425,598
======== ============ ============= ============
</TABLE>
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to the
financial statements
F-25
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31, 1995 and 1996 and December 31, 1996
and Six Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
YEARS ENDED YEAR ENDED SIX MONTHS
JANUARY 31, DECEMBER 31, ENDED JUNE 30,
---------------------------- -------------- ----------------------------
1995 1996 1996 1996 1997
------------- ------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 269,195 $ 2,169,786 $ 8,318,776 $ 3,336,388 $ 4,481,059
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization............ 272,296 228,324 223,434 114,162 102,204
Loss on disposal of assets............... -- 72,000 -- -- --
Provision for bad debts.................. 2,907,720 3,249,165 4,650,918 3,003,731 3,008,330
Deferred income taxes.................... (434,866) (92,415) (378,354) (532,979) 1,384,178
Changes in:
Accounts receivable..................... (5,630,561) (7,505,966) (6,707,225) (6,028,915) (6,488,746)
Deferred directory costs................ (402,971) (1,159,636) (696,008) 650,667 844,920
Federal income taxes receivable ........ 577,536 (730,635) 700,392 1,098,919 --
Accounts payable........................ (84,661) (708,179) (569,983) (902,146) 352,220
Accrued liabilities..................... (471,403) 85,664 686,520 162,418 23,377
Prepayments on directory
advertising............................ (198,306) 825,617 (352,931) (1,649,549) (1,320,954)
Federal income taxes payable............ -- -- -- 1,247,642 --
Other, net............................... (622,044) 611,754 74,221 31,358 343,443
------------- ------------- -------------- ------------- -------------
Net cash provided (used) by
operating activities................. (3,818,065) (2,954,521) 5,949,760 531,696 2,730,031
------------- ------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ....... (279,140) (116,288) (300,125) (51,634) (202,170)
------------- ------------- -------------- ------------- -------------
Net cash used by investing
activities................................. (279,140) (116,288) (300,125) (51,634) (202,170)
------------- ------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank overdraft.................... -- 33,114 (169,011) (169,011) --
Net borrowings (payments) under note
payable to bank........................ (500,000) 1,800,000 -- 1,350,000 --
Advances under long-term debt............ 4,500,000 3,000,000 -- -- --
Principal payments under long-term debt . (33,275) (2,037,364) (4,708,019) (1,156,581) (1,849,309)
Cash dividends paid...................... (46,250) (46,250) (92,500) (46,250) (600,000)
------------- ------------- -------------- ------------- -------------
Net cash provided (used) by
financing activities................. 3,920,475 2,749,500 (4,969,530) (21,842) (2,449,309)
------------- ------------- -------------- ------------- -------------
Net increase (decrease) in
cash................................. (176,730) (321,309) 680,105 458,220 78,552
CASH AT BEGINNING OF PERIOD.................. 529,732 353,002 39,163 39,163 719,268
------------- ------------- -------------- ------------- -------------
CASH AT END OF PERIOD........................ $ 353,002 $ 31,693 $ 719,268 $ 497,383 $ 797,820
============= ============= ============== ============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest .... $ 216,228 $ 602,100 $ 503,768 $ 311,491 $ 49,751
============= ============= ============== ============= =============
Cash paid during the period for income $ $ $
taxes....................................... -- $ 2,017,092 $ 4,350,000 -- --
============= ============= ============== ============= =============
</TABLE>
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to the
financial statements
F-26
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
January 31, 1995 and 1996, December 31, 1996
and June 30, 1996 and 1997
NATURE OF OPERATIONS AND GENERAL
Great Western Directories, Inc. (the Company) is an independent telephone
directory publisher that publishes telephone directories in Texas, Oklahoma
and California. Revenues are primarily derived from the sale of advertising
space in the telephone directories. During 1996, the Company changed its
fiscal year from January 31 to December 31. However, the year ended rather
than the eleven months ended December 31, 1996 is presented in the statement
of operations and the statement of cash flows for comparative purposes. As
discussed in note 3, the Company changed from a Subchapter C Corporation for
income tax purposes to a Subchapter S Corporation effective January 1, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based on
management's estimate of the collectibility of all accounts receivable. The
allowance for doubtful accounts is established through a provision for
doubtful accounts charged to expense. Accounts receivable are charged against
the allowance when management believes that the collectibility of the
receivable is unlikely. Recoveries of amounts previously charged off are
credited to the allowance. The Company's accounts receivable are unsecured.
The allowance is subjective in nature and may be adjusted in the near term
because of changes in economic conditions.
REVENUE AND COST RECOGNITION
Advertising revenues are derived from the sale of advertising space in
telephone directories and are recognized when the advertising occurs and the
directory is published. If the estimate of total directory costs exceeds
advertising revenues for a specific telephone directory, a provision is made
for the entire amount of such estimated loss. No provision for estimated
losses was included in the financial statements for the years ended January
31, 1995 and 1996 or December 31, 1996.
Directory costs are deferred until the directory is published and
advertising revenues related to the costs are recognized. Directory costs
include all direct costs related to the publishing of a telephone directory,
such as publishing and distribution expenses and commissions on sales, other
sales expenses and depreciation and amortization. General and administrative
costs are charged to expense as incurred.
Costs incurred with the expansion into new markets include all direct
costs related to the publishing of a first-year telephone directory
(prototype directory). Advertising space in prototype directories is
generally provided to advertisers at no cost; therefore, no advertising
revenues are derived from prototype directories. As the future economical
benefit of the direct costs related to prototype directories cannot be
determined, such direct costs are charged to expense as incurred. The Company
had three prototype directories for the year ended January 31, 1995. Direct
costs related to the prototype directories charged to expense totaled
$4,316,000 for the year ended January 31, 1995. The Company had no prototype
directories for the years ended January 31, 1996 or December 31, 1996.
NONMONETARY TRANSACTIONS
The Company trades advertising space for goods and services used primarily
for promotional, sales and other business activities. Barter revenue is
recorded when directories are published and barter
F-27
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
expense is recorded when goods and services are received or used. Barter
transactions are recorded at their estimated fair value and are included in
the accompanying statements of operations. Barter revenue aggregated
approximately $1,507,000, $1,598,000 and $2,155,000 and barter expense
aggregated approximately $1,042,000, $1,459,000 and $1,547,000 for the years
ended January 31, 1995 and 1996 and December 31, 1996, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
As discussed in note 3, the Company changed to an S Corporation effective
January 1, 1997. The income or loss of an S Corporation is includable in the
federal income tax returns of the individual shareholders.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on accelerated methods.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares outstanding during the period of computation. The weighted average
shares outstanding were 1,250 for the years ended January 31, 1995 and 1996
and December 31, 1996 and the six months ended June 30, 1996 and 1997
(unaudited).
INTERIM FINANCIAL INFORMATION
The unaudited financial statements for the six months ended June 30, 1996
and 1997 are presented for comparative purposes only and have been prepared
on a basis substantially consistent with that of the audited financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments, which are of a normal and
recurring nature, considered necessary for a fair presentation.
This information is an integral part of the accompanying financial
statements.
F-28
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995 AND 1996, DECEMBER 31, 1996
AND JUNE 30, 1996 AND 1997
NOTE 1 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
The changes in the allowance for doubtful accounts were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
JANUARY 31, 1995 JANUARY 31, 1996 DECEMBER 31, 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period................ $ 2,987,278 $ 4,561,673 $ 6,498,520
Provision charged to expense.................. 2,907,720 3,249,165 4,650,918
Accounts written-off.......................... (1,333,325) (1,566,616) (4,387,244)
Recoveries on accounts previously
written-off.................................. -- 346,625 1,520,751
---------------- ---------------- -----------------
Balance at end of period...................... $ 4,561,673 $ 6,590,847 $ 8,282,945
================ ================ =================
</TABLE>
NOTE 2 -- DEBT OBLIGATIONS
NOTE PAYABLE TO BANK
The note payable to bank was a $2,500,000 line of credit with outstanding
advances of $2,100,000 at January 31, 1996. At December 31, 1996, the Company
had a $2,000,000 line of credit with a bank with no outstanding advances. The
line of credit bears interest at prime, which was 8.50% at January 31, 1996
and 8.25% at December 31, 1996. The line is collateralized by accounts
receivable and may be used for general corporate working capital and other
purposes as approved by the bank.
LONG-TERM DEBT
Long-term debt at January 31, 1996 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1996 1996
------------- --------------
<S> <C> <C>
Term note payable to bank, due in monthly installments of $204,000
including interest at prime (8.5% and 8.25% at January 31, 1996
and December 31, 1996, respectively) through July 1997, secured
by accounts receivable............................................ $ 5,495,930 $ 1,849,309
Term note payable to bank, due in monthly installments of $4,133
including interest at 1% over prime (9.5% at January 31, 1996),
secured by certain property....................................... 144,861 --
------------- --------------
Total long-term debt............................................... 5,640,791 1,849,309
Less current maturities............................................ (2,109,740) (1,849,309)
------------- --------------
$
LONG-TERM DEBT, LESS CURRENT MATURITIES............................ $ 3,531,051 --
============= ==============
</TABLE>
The Company has a letter agreement with a bank relating to a line of
credit and the term note payable. The agreement includes provisions which,
among other things, require the maintenance of specified financial ratios.
Further, the agreement imposes certain restrictions with respect to new
market expansion, dividend distributions and contributions to the profit
sharing plan. The Company paid all debt obligations on June 15, 1997.
F-29
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INCOME TAXES
The sources of deferred tax assets and liability and the tax effect of
each as of January 31, 1996 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1996 1996
------------- --------------
<S> <C> <C>
Deferred tax assets--
Allowance for doubtful
accounts....................... $1,042,376 $1,515,100
Deferred expenses............... 245,586 159,503
------------- --------------
Total deferred tax assets .... 1,287,962 1,674,603
------------- --------------
Deferred tax liability--
Accrued commissions............. (253,966) (290,425)
------------- --------------
NET DEFERRED TAX ASSET ........... $1,033,996 $1,384,178
============= ==============
</TABLE>
The provision for income taxes for the years ended January 31, 1995 and
1996 and December 31, 1996 consists of the following components:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, DECEMBER 31,
1995 1996 1996
------------- ------------- --------------
<S> <C> <C> <C>
Federal:
Current......................... $ 583,256 $1,286,457 $5,022,755
Deferred........................ (434,866) (92,415) (378,354)
State............................. 63,303 113,248 791,586
------------- ------------- --------------
TOTAL PROVISION FOR INCOME TAXES
$ 211,693 $1,307,290 $5,220,602
============= ============= ==============
</TABLE>
A reconciliation of the provision for income taxes for the years ended
January 31, 1995 and 1996 and December 31, 1996 at the statutory federal tax
rate to the Company's actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, DECEMBER 31,
1995 1996 1996
------------- ------------- --------------
<S> <C> <C> <C>
Computed "expected" tax expense............. $146,155 $1,177,340 $4,677,111
Nondeductible expenses...................... 14,375 16,702 35,950
State income taxes, net of federal
benefits................................... 41,147 73,611 514,530
Other, net.................................. (12,140) -- (68,660)
------------- ------------- --------------
TOTAL PROVISION FOR INCOME TAXES............ $211,693 $1,307,290 $5,220,602
============= ============= ==============
</TABLE>
Prior to January 1, 1997, the Company had been a Subchapter C Corporation
for income tax purposes, and therefore paid U.S. Federal income taxes. On
March 15, 1997, the Company filed an election to become a nontaxable
Subchapter S Corporation effective January 1, 1997. The effect of the change
in tax status on the net deferred tax asset and corresponding charge to
income tax expense of approximately $1,400,000 was recognized in the June 30,
1997 financial statements. Additionally, the Company may be subject to a
corporate-level tax on the net unrealized built-in gain after the date of
conversion to S Corporation.
F-30
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LEASES
The Company leases certain property and equipment under leases classified
as operating leases that expire over the next five years. Rental expense for
all operating leases totaled approximately $400,000, $462,000 and $472,000
for the years ended January 31, 1995 and 1996 and December 31, 1996,
respectively. For the five fiscal years subsequent to December 31, 1996,
future minimum lease payments under noncancelable operating leases total
$1,029,000 and are approximately $318,000, $282,000, $225,000, $143,000 and
$61,000, respectively.
NOTE 5 -- RELATED PARTY TRANSACTIONS
Transactions with related parties include certain publishing and
distribution services with shareholders and entities in which they have an
interest. Purchases of services from these related parties for the years
ended January 31, 1995 and 1996 and December 31, 1996 were approximately,
$653,000, $1,275,000 and $1,893,000, respectively. Amounts payable to related
parties at January 31, 1996 and December 31, 1996 were approximately $270,000
and $483,000, respectively.
Notes receivable from shareholders at January 31, 1996 and December 31,
1996 included notes totaling approximately $405,000 and $360,000,
respectively, which are included in other current assets and represent
advances to related parties. The notes bear interest at 8% and are secured by
personal property. Interest income recognized on related-party notes
receivable was not significant for the years ended January 31, 1995 and 1996
and December 31, 1996. The notes were repaid on June 15, 1997.
NOTE 6 -- PROFIT SHARING PLAN
The Company formed a self-employed profit sharing plan in the year ended
January 31, 1996 that provides certain retirement, disability, death and
termination benefits for eligible employees. The Plan contains a 401(k)
arrangement whereby each participant may elect to contribute a portion of
their salary to the Plan. Each Plan year, the Company may contribute an
amount of matching contributions determined at the Company's discretion. Such
matching contributions are allocated to participants based on the Plan's
provisions. Discretionary Company contributions may also be made. Participant
after-tax contributions are not allowed. The provision for the Company's
matching contributions for the years ended January 31, 1996 and December 31,
1996 was approximately $40,000 and $53,000, respectively. No discretionary
profit sharing contributions were made to the Plan for the years ended
January 31, 1996 or December 31, 1996.
NOTE 7 -- LITIGATION
During 1996, the Company settled its lawsuit against a utility
telephone-directory publisher related to, among other things, certain
antitrust violations. Under the terms of the settlement, the Company received
approximately $6,282,000 in cash, net of related expenses, and such amount is
reflected in other income for the year ended December 31, 1996.
At December 31, 1996, the Company was the defendant in a class action
lawsuit filed in Sonoma County, California, alleging, among other things,
breach of contract. Subsequent to December 31, 1996, the lawsuit was settled.
Pending expected court approval, the Company will make approximately $479,000
in refunds and credits to various advertisers, and such amount has been
recognized in the accompanying December 31, 1996 financial statements.
F-31
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments, the results of applying such methods
and assumptions to the financial instruments and limitations inherent in fair
value estimates:
CASH, ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE FROM SHAREHOLDERS
The assets are considered short-term instruments for which the carrying
amount is a reasonable estimate of fair value.
NOTE PAYABLE TO BANK AND LONG-TERM DEBT
The fair value of the note payable to a bank is equal to the carrying
value as such liability is deemed to be a short-term borrowing. The Company's
variable-rate, long-term debt reprices frequently, and therefore fair values
approximate the carrying amounts.
NOTE 9 -- SUBSEQUENT EVENT
On June 16, 1997, the Company's shareholders entered into a stock purchase
agreement (the Agreement) to sell all of the issued and outstanding common
stock of the Company , pursuant to which the Company's shareholders were
issued 2,000,000 nontransferrable common stock warrants of the purchaser. As
amended and restated as of October 6, 1997, this agreement provides that the
consideration payable at closing will be $55,000,000 in cash, $15,000,000 in
notes, shares of common stock of the purchaser and an additional 500,000
nontransferrable common stock warrants of the purchaser. The purchase of the
Company's stock is generally contingent upon the successful completion of an
initial public offering by the purchaser.
Subsequent to June 30, 1997, the Company paid $1,200,000 in dividends
(unaudited).
This information is an integral part of the accompanying financial
statements.
F-32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Valu-Line of Longview, Inc.
Longview, Texas
We have audited the accompanying combined balance sheets of Valu-Line of
Longview, Inc. and Related Companies as of December 31, 1995 and 1996, and
the related combined statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Valu-Line of Longview, Inc. and Related Companies as of December 31, 1995 and
1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
May 23, 1997
F-33
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................... $ 281,703 $ 289,612 $ 215,279
Receivables, net........................................ 986,344 1,021,102 1,338,301
Prepaid expenses........................................ 4,508 8,624 --
------------ ------------ ------------
Total current assets.................................. 1,272,555 1,319,338 1,553,580
PROPERTY AND EQUIPMENT, net............................... 2,341,596 1,650,497 1,397,668
OTHER NONCURRENT ASSETS................................... 7,561 6,615 6,552
------------ ------------ ------------
Total assets.......................................... $3,621,712 $2,976,450 $2,957,800
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, including current portion of long-term
debt................................................... $ 413,741 $ 384,543 $ 397,035
Current portion of capital lease obligation............. 170,297 -- --
Accounts payable and accrued line costs................. 709,259 743,572 900,932
Accrued payroll and related taxes....................... 53,330 65,053 53,873
Sales, property excise and franchise taxes payable ..... 124,378 149,262 136,750
Customer deposits....................................... 12,312 11,162 9,162
------------ ------------ ------------
Total current liabilities............................. 1,483,317 1,353,592 1,497,752
NOTES PAYABLE, net of current portion..................... 1,698,486 1,357,011 1,178,341
------------ ------------ ------------
Total liabilities..................................... 3,181,803 2,710,603 2,676,093
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 102,000 shares authorized;
3,000 shares issued and outstanding.................... 3,000 3,000 3,000
Retained earnings......................................... 436,909 262,847 278,707
------------ ------------ ------------
Total stockholders' equity............................ 439,909 265,847 281,707
------------ ------------ ------------
Total liabilities and stockholders' equity ........... $3,621,712 $2,976,450 $2,957,800
============ ============ ============
</TABLE>
See accompanying notes to these combined financial statements.
F-34
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES....................... $13,416,673 $13,330,346 $11,181,125 $5,877,034 $5,903,388
OPERATING EXPENSES:
Line and other direct costs . 6,774,963 7,491,433 6,036,439 3,234,080 3,363,345
Selling, general and
administrative.............. 3,724,582 3,898,106 3,571,468 1,760,339 1,955,013
Depreciation and
amortization................ 399,050 717,631 819,315 402,587 264,383
------------- ------------- ------------- ------------ ------------
Total operating expenses .. 10,898,595 12,107,170 10,427,222 5,397,006 5,582,741
------------- ------------- ------------- ------------ ------------
Income from operations .... 2,518,078 1,223,176 753,903 480,028 320,647
OTHER INCOME (EXPENSE):
Interest expense............. (67,906) (81,579) (185,777) (107,461) (70,016)
Interest income and other,
net......................... 29,943 93,287 72,812 34,483 45,229
------------- ------------- ------------- ------------ ------------
Net income................. $ 2,480,115 $ 1,234,884 $ 640,938 $ 407,050 $ 295,860
============= ============= ============= ============ ============
</TABLE>
See accompanying notes to these combined financial statements.
F-35
<PAGE>
VALU-LINE OF LONGVIEW INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from January 1, 1994 to June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1994................. 3,000 $3,000 $ 402,910 $ 405,910
Net income.............................. -- -- 2,480,115 2,480,115
Distributions to stockholders........... -- -- (2,356,000) (2,356,000)
-------- -------- ------------- -------------
BALANCES, December 31, 1994............... 3,000 3,000 527,025 530,025
Net income.............................. -- -- 1,234,884 1,234,884
Distributions to stockholders........... -- -- (1,325,000) (1,325,000)
-------- -------- ------------- -------------
BALANCES, December 31, 1995............... 3,000 3,000 436,909 439,909
Net income.............................. -- -- 640,938 640,938
Distributions to stockholders........... -- -- (815,000) (815,000)
-------- -------- ------------- -------------
BALANCES, December 31, 1996............... 3,000 3,000 262,847 265,847
Net income (unaudited).................. -- -- 295,860 295,860
Distributions to stockholders
(unaudited)............................ -- -- (280,000) (280,000)
-------- -------- ------------- -------------
BALANCES, June 30, 1997 (unaudited) ...... 3,000 $3,000 $ 278,707 $ 281,707
======== ======== ============= =============
</TABLE>
See accompanying notes to these combined financial statements.
F-36
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTH ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income..................... $ 2,480,115 $ 1,234,884 $ 640,938 $ 407,050 $ 295,860
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization................. 399,050 717,631 819,315 402,587 264,383
(Increase) decrease in:
Receivables.................. (139,187) 281,235 (34,758) (155,985) (317,199)
Prepaid expenses and other
assets...................... 8,569 19,806 (3,170) 5,363 8,687
Increase (decrease) in:
Accounts payable and accrued
line costs.................. 60,708 53,696 34,313 24,024 157,360
Other current liabilities ... 51,647 (71,602) 35,457 11,586 (25,692)
------------- ------------- ------------- ----------- -----------
Net cash provided by
operations.................. 2,860,902 2,235,650 1,492,095 694,625 383,399
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (95,124) (2,375,964) (134,651) (40,372) (42,749)
Other, net..................... 3,016 15,523 6,435 (24,833) 31,195
------------- ------------- ------------- ----------- -----------
Net cash provided by (used
in) investing activities ... (92,108) (2,360,441) (128,216) (65,205) (11,554)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on
long-term debt, capital
leases and other notes
payable....................... (494,734) (519,209) (581,123) (309,346) (246,653)
Proceeds from long-term debt
and other notes payable....... 124,890 2,112,950 40,153 16,842 80,475
Distributions to stockholders . (2,356,000) (1,325,000) (815,000) (330,000) (280,000)
------------- ------------- ------------- ----------- -----------
Net cash provided by (used
in) financing activities ... (2,725,844) 268,741 (1,355,970) (622,504) (446,178)
------------- ------------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH........................... 42,950 143,950 7,909 6,916 (74,333)
CASH, beginning of period ...... 94,803 137,753 281,703 281,703 289,612
------------- ------------- ------------- ----------- -----------
CASH, end of period............. $ 137,753 $ 281,703 $ 289,612 $ 288,619 $ 215,279
============= ============= ============= =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................. $ 67,906 $ 81,579 $ 185,777 $ 107,461 $ 70,016
Equipment acquired under
capital leases................ $ -- $ 238,683 $ -- $ -- $ --
============= ============= ============= =========== ===========
</TABLE>
See accompanying notes to these combined financial statements.
F-37
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization -- Valu-Line of Longview, Inc. and Related Companies provide
long distance or "interexchange" services primarily to commercial and
residential customers located in Texas and Arkansas.
Principles of Combination -- The accompanying financial statements include
the combined accounts of Valu-Line of Longview, Inc., Valu-Line of Louisiana,
Inc. and Shared Tenant Services, Inc., which are each owned proportionately
by the same stockholders. All significant intercompany transactions have been
eliminated. Collectively, the entities are referred to as "the Company".
Receivables -- Revenue is recognized as service is rendered. Receivables
include billed and unbilled amounts that are due from customers according to
contractual terms.
Property and Equipment -- Property and equipment is stated at cost, net of
accumulated depreciation and amortization. Maintenance and repairs are
expensed as incurred. Depreciation is calculated using various accelerated
methods over the estimated useful lives of the related assets which range
from 5 to 7 years. Leasehold improvements are amortized over the life of the
lease. Equipment under capital leases is recorded at the present value of
minimum lease payments at the inception of the lease and amortized over the
shorter of the lease term or estimated useful life of the asset. Amortization
of equipment held under capital leases is included in depreciation and
amortization expense. Expenditures to acquire dialers are expensed as
incurred.
Income Taxes -- The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under such provisions the
Company does not pay federal corporate income taxes on its taxable income.
The stockholders, therefore, are liable for individual income taxes on the
Company's taxable income.
Concentrations of Credit Risk -- The Company's financial instruments that
are exposed to concentrations of credit risk consist primarily of cash
investments and trade accounts receivable. The Company places its cash and
temporary cash investments with high credit quality banking institutions. At
times such investments may be in excess of the FDIC insurance limit.
Management does not anticipate any losses will arise from this exposure.
Use of Estimates -- The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and the accompanying results.
Actual results could differ from these estimates.
Fair Value of Financial Instruments -- The Company's only financial
instruments are cash, short-term trade receivables and payables, notes
payable and capital lease obligations. Management believes the carrying
amounts of the financial instruments classified as current assets and
liabilities approximate their fair values because of their short-term nature.
Management believes the interest rates on its notes payable and capital lease
obligations represent fair market rates, and therefore their carrying value
approximates fair value.
Cash Equivalents -- For purposes of reporting cash flows, cash equivalents
include highly-liquid investments purchased with a maturity of three months
or less.
Recent Accounting Pronouncements -- The Financial Accounting Standards
Board (FASB) issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets And For Long-Lived Assets To Be Disposed of, which is effective for
fiscal years beginning after December 15, 1995. SFAS No. 121 specifies
certain events and circumstances which indicate the cost of an asset or
assets may be impaired, the method by which the evaluation should be
performed, and the method by which writedowns, if any, of the asset or assets
are to be determined and recognized. The adoption of this pronouncement in
1996 did not have a material impact on the Company's financial condition or
operating results.
F-38
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The FASB also issued SFAS No. 123, Accounting for Stock Based
Compensation, effective for fiscal years beginning after December 31, 1995.
This statement allows companies to choose to adopt the statement's new rules
for accounting for employee stock-based compensation plans. For those
companies who choose not to adopt the new rules, the statement requires
disclosures as to what earnings per share would have been if the new rules
had been adopted. The Company did not grant stock options or any other form
of stock-based compensation during any of the periods included in the
accompanying financial statements.
The FASB also issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, during February 1997. The new statement which is
effective for financial statements issued after December 31, 1997, including
interim periods, establishes standards for computing and presenting earnings
per share. The new statement requires retroactive restatement of all
prior-period earnings per share data presented.
Unaudited Interim Information -- The accompanying financial information as
of June 30, 1997 and for the six-month periods ended June 30, 1996 and 1997
has been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments, consisting of normal recurring accruals
which are, in the opinion of management, necessary to fairly present such
information in accordance with generally accepted accounting principles.
2. RECEIVABLES:
Receivables consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables:
Billed........................ $ 805,569 $ 785,457 $1,048,522
Unbilled...................... 205,775 260,645 314,779
----------- ------------ ------------
1,011,344 1,046,102 1,363,301
Allowance for doubtful
accounts....................... (25,000) (25,000) (25,000)
----------- ------------ ------------
$ 986,344 $1,021,102 $1,338,301
=========== ============ ============
</TABLE>
F-39
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996 JUNE 30, 1997
------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................. $ 50,622 $ 50,622 $ 50,622
Building.......................... 350,605 350,605 350,605
Switch and network equipment ..... 3,396,746 3,349,534 3,381,794
Vehicles.......................... 229,773 201,121 189,965
Computer equipment................ 208,694 229,759 157,646
Furniture and fixtures............ 45,603 46,365 46,365
Leasehold improvements............ 26,607 26,607 26,607
------------- ------------- ---------------
4,308,650 4,254,613 4,203,604
Less accumulated depreciation and
amortization..................... (1,967,054) (2,604,116) (2,805,936)
------------- ------------- ---------------
$ 2,341,596 $ 1,650,497 $ 1,397,668
============= ============= ===============
</TABLE>
4. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to a bank due in monthly
installments ranging from $324 to $926,
including interest ranging from 8.25% to 9.0%
and maturing at various times through 1999.
The notes are collateralized by a switch and
network equipment, computer equipment and
vehicles...................................... $ 98,694 $ 49,128 $ 60,853
Notes payable to a bank due in monthly
installments of $3,456 and $3,970, including
interest at 8.25% and prime, not to exceed
12% (8.75% at June 30, 1997) and maturing
August 2005 and October 1998, respectively.
The notes are collateralized by land and
buildings..................................... 388,533 330,826 300,032
Note payable to a bank due in monthly
installments of $33,536, including interest
at prime, not to exceed 12% (8.5% at June 30,
1997) with a balloon payment on December 28,
1998. The note is collateralized by certain
switch and network equipment.................. 1,625,000 1,361,600 1,214,491
------------ ------------ -----------
2,112,227 1,741,554 1,575,376
Less current portion........................... (413,741) (384,543) (397,035)
------------ ------------ -----------
$1,698,486 $1,357,011 $1,178,341
============ ============ ===========
</TABLE>
F-40
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future maturities of notes payable as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
- --------------------------------- -----------
<S> <C>
1997........................... $ 384,543
1998........................... 1,154,268
1999........................... 25,400
2000........................... 27,600
2001........................... 30,000
Thereafter..................... 119,743
-----------
$1,741,554
===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Commitments -- The Company was obligated under capital leases for switch
equipment which expired at various dates through 1996. The carrying value of
the leased equipment and related accumulated amortization included in
property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1995 1996 1997
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Switch equipment.............. $ 1,244,803 $ 1,244,803 $ 1,244,803
Less accumulated
amortization................. (1,029,983) (1,125,460) (1,155,296)
------------- ------------- -------------
$ 214,820 $ 119,343 $ 89,507
============= ============= =============
</TABLE>
The Company leases office space and certain equipment under operating
leases which expire on various dates through the year 2000. Several of the
office leases require the Company to pay its portion of taxes, maintenance
and insurance. Rent expense was $163,732, $175,273 and $102,010 for the years
ended December 31, 1994, 1995 and 1996, respectively, and $38,388 and $46,035
for the three-month periods ended June 30, 1996 and 1997.
Future minimum lease payments under noncancelable operating leases with
original terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
- --------------------------------- ---------
<S> <C>
1997........................... $ 63,584
1998........................... 37,757
1999........................... 29,757
2000........................... 21,037
---------
$152,135
=========
</TABLE>
Contingencies -- The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's combined financial condition,
liquidity or results of operations.
6. STOCK PURCHASE AGREEMENT:
In March 1997, the Company entered into a letter of intent under which it
will be sold to a Texas corporation. The sale is subject to various terms and
conditions as outlined in the agreement, including the requirement that the
purchaser obtain additional equity capital.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Feist Long Distance Service, Inc.:
We have audited the accompanying balance sheet of Feist Long Distance
Service, Inc. as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Feist Long Distance
Service, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
August 5, 1997
F-42
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 21,565 106,479
Accounts receivable, net allowance for doubtful accounts of
$106,280 and $125,776, respectively.............................. 1,190,307 1,408,078
Other current assets.............................................. 7,545 17,957
-------------- -----------
Total current assets............................................ 1,219,417 1,532,514
PROPERTY AND EQUIPMENT, net......................................... 370,043 388,597
-------------- -----------
Total assets.................................................... $1,589,460 1,921,111
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable..................................................... 20,323 21,866
Accounts payable.................................................. 647,555 715,575
Accrued expenses.................................................. 72,045 147,740
Notes payable to shareholders..................................... 809,450 659,450
-------------- -----------
Total current liabilities....................................... 1,549,373 1,544,631
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares authorized; 10,000
shares issued and outstanding.................................... 100,000 100,000
Additional paid-in capital........................................ 938,500 938,500
Retained deficit.................................................. (998,413) (662,020)
-------------- -----------
Total stockholders' equity...................................... 40,087 376,480
-------------- -----------
Total liabilities and stockholders' equity...................... $1,589,460 1,921,111
============== ===========
</TABLE>
See accompanying notes to the financial statements.
F-43
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
JUNE 30,
DECEMBER 31, ------------------------
1996 1996 1997
-------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES............................ $10,027,743 4,864,874 5,741,153
COST OF SERVICES.................... 6,854,333 3,283,940 3,872,289
DEPRECIATION........................ 237,240 112,118 90,012
-------------- ----------- -----------
Gross profit.................... 2,936,170 1,468,816 1,778,852
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,469,137 1,132,377 1,421,942
-------------- ----------- -----------
Income from operations.......... 467,033 336,439 356,910
OTHER INCOME (EXPENSE):
Interest expense.................. (60,211) (37,238) (21,916)
Other............................. (1,737) -- 1,399
-------------- ----------- -----------
NET INCOME.......................... $ 405,085 299,201 336,393
============== =========== ===========
NET INCOME PER SHARE................ $ 40.51 29.92 33.64
============== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-44
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- ---------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995......... 10,000 $100,000 $938,500 $(1,403,498) $(364,998)
Net income........................ -- -- -- 405,085 405,085
-------- ---------- ------------ -------------- ---------------
BALANCES, December 31, 1996......... 10,000 $100,000 $938,500 (998,413) 40,087
Net income (unaudited)............ -- -- -- 336,393 336,393
-------- ---------- ------------ -------------- ---------------
BALANCES, June 30, 1997
(unaudited)........................ 10,000 $100,000 $938,500 $ (662,020) $ 376,480
======== ========== ============ ============== ===============
</TABLE>
See accompanying notes to the financial statements.
F-45
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1996 1996 1997
-------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 405,085 $ 299,201 $ 336,393
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 237,240 112,118 90,012
Provision for bad debts..................... 41,401 45,059 19,496
Changes in assets and liabilities:
Accounts receivable....................... (210,869) (254,993) (237,267)
Other current assets...................... 11,916 7,276 (10,412)
Accounts payable.......................... (199,626) (97,819) 68,020
Accrued expenses.......................... (9,695) 41,360 75,695
-------------- ----------- -----------
Net cash provided by operating
activities................................. 275,452 152,202 341,937
-------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (114,576) (56,965) (108,566)
-------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................... (180,906) (89,821) (150,000)
Proceeds from notes payable................... -- -- 1,543
-------------- ----------- -----------
Net cash used in financing activities ... (180,906) (89,821) (148,457)
-------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (20,030) 5,416 84,914
CASH AND CASH EQUIVALENTS, beginning of period . 41,595 41,595 21,565
-------------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period ....... $ 21,565 $ 47,011 $ 106,479
============== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ....... $ 60,313 $ 37,291 $ 21,964
============== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-46
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1997 (Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Feist Long Distance Service, Inc. (the Company) is headquartered in
Wichita, Kansas and was founded in 1992 to provide long distance and 800
services to business and residential customers in Kansas, Nebraska, Missouri,
Texas and Oklahoma.
Interim Financial Information
The interim financial statements for the six months ended June 30, 1996
and 1997 are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements,
have been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
Cash equivalents consist of short-term investments with an original
maturity of three months or less.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
using the double declining method over the estimated useful lives of the
assets which range from 3 to 7 years.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Accordingly, no provision for federal income
taxes has been provided for by the Company, as the shareholders of the
Company have included the income on their personal income tax returns.
Fair Value of Financial Instruments
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment, and therefore cannot be
determined with precision.
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature.
Revenue Recognition
Revenues are recognized as long-distance services are provided.
Net Income Per Share
Net income per share is based on the weighted average number of shares of
common stock outstanding during the respective periods. The weighted average
shares outstanding were 10,000 for the year ended December 31, 1996 and for
the six months ended June 30, 1996 and 1997 (unaudited).
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
F-47
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, ESTIMATED
1996 1997 USEFUL LIFE
-------------- ------------ --------------
<S> <C> <C> <C>
Machinery and equipment....... $1,394,466 $1,477,262 3 to 5 years
Office equipment.............. 55,368 62,446 7 years
Vehicles...................... 31,900 50,592 5 years
-------------- ------------
1,481,734 1,590,300
Less accumulated
depreciation................. 1,111,691 1,201,703
-------------- ------------
$ 370,043 $ 388,597
============== ============
</TABLE>
(3) NOTES PAYABLE
At December 31, 1996, the Company had notes payable totaling $809,450
outstanding to the Company's eight shareholders. The notes are payable on
demand and accrue interest at 5.75%. The Company paid $46,543 in interest
expense on these notes payable for the year ended December 31, 1996.
The Company also has a $16,996 note payable to an affiliate, Feist
Publications, Inc. The note is payable on demand and accrues interest at
8.83%. The Company paid $3,141 in interest expense on this note payable for
the year ended December 31, 1996.
(4) RELATED PARTY TRANSACTION
The Company leases its office space through a sublease agreement with an
affiliate, Feist Publications, Inc. Rental expense for the year ended
December 31, 1996 and the six months ended June 30, 1997 amounted to
approximately $45,000 and $22,500, respectively, related to this lease.
(5) DEPENDENCE ON LOCAL EXCHANGE CARRIER
The Company is dependent on local exchange carriers to provide access
service for the origination and termination of its long distance traffic.
Historically, these access charges have made up a significant percentage of
the overall cost of providing long distance service. To the extent that the
access services of the local exchange carriers are used, the Company and its
customers are subject to the quality of service, equipment failures and
service interruptions of the local exchange carriers.
F-48
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS
The Company leases office space under long-term lease agreements. Future
minimum rental payments under noncancelable long-term leases are as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR AMOUNT
- --------------------------------- ---------
<S> <C>
1997 ............................ $56,568
1998............................. 22,692
1999............................. 2,850
---------
$82,110
=========
</TABLE>
Total rent expense under all operating leases for the year ended December
31, 1996 and the six months ended June 30, 1997 was $73,733 and $46,168,
respectively.
(7) SUBSEQUENT EVENT (UNAUDITED)
Subsequent to December 31, 1996, the Company's shareholders entered into a
stock purchase agreement to sell all of the issued and outstanding common
stock of the Company for a total consideration consisting of $10,000,000 in
cash and shares of common stock of the purchaser. The purchase of the
Company's stock is generally contingent upon the successful completion of an
intitial public offering by the purchaser.
F-49
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
The Stockholders and Board of Directors
Firstel, Inc.
Sioux Falls, South Dakota
We have audited the accompanying balance sheets of Firstel, Inc. (an S
corporation) as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations,
stockholder's deficit, and cash flows for the year ended December 31, 1994,
we did not extend our auditing procedures to enable us to express an opinion
on results of operations and cash flows for the year ended December 31, 1994.
Accordingly, we express no opinion on them.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
Firstel, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
CHARLES BAILLY & COMPANY P.L.L.P.
Sioux Falls, South Dakota
August 6, 1997
F-50
<PAGE>
FIRSTEL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................... $ 43,761 $ 54,128 $ 104,413
Collateral account--Note 2.............................. 74,515 -- --
Receivables
Trade, net of allowance of $0, $0, and $18,000,
respectively......................................... 569,122 640,259 896,301
Due from independent contractors...................... 13,420 2,207 --
Other................................................. 10,361 3,047 19,740
Unbilled services--Note 3............................... 399,610 499,679 641,010
Inventory............................................... -- 2,187 29,758
Prepaid expenses........................................ 19,759 23,413 60,694
------------ ------------ ------------
Total current assets.................................. 1,130,548 1,224,920 1,751,916
------------ ------------ ------------
OTHER ASSETS
Deposit................................................. 1,150 38,951 61,575
Intangible assets, net of accumulated
amortization--Note 4................................... 6,723 5,482 3,614
------------ ------------ ------------
7,873 44,433 65,189
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................. 30,632 34,182 34,182
Office furniture and equipment.......................... 186,421 263,611 313,215
Network equipment....................................... 576,518 656,069 719,594
Dialers................................................. 493,288 535,113 572,345
------------ ------------ ------------
1,286,859 1,488,975 1,639,336
Less accumulated depreciation and amortization ......... (341,629) (585,373) (715,783)
------------ ------------ ------------
945,230 903,602 923,553
------------ ------------ ------------
$2,083,651 $2,172,955 $2,740,658
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Checks issued but not presented for payment............. $ 36,466 $ -- $ 378,825
Current maturities of long-term debt--Note 7 ........... 81,321 1,397,834 1,110,534
Accounts payable........................................ 722,090 895,186 991,912
Accrued expenses
Taxes, other than income taxes........................ 69,283 58,617 74,750
Interest.............................................. 8,769 -- --
Wages................................................. -- -- 64,681
Other................................................. 12,104 9,611 7,512
------------ ------------ ------------
Total current liabilities............................... 930,033 2,361,248 2,628,214
------------ ------------ ------------
OTHER LIABILITIES
Deferred compensation payable--Note 9................... 36,845 26,686 31,686
LONG-TERM DEBT, less current maturities--Note 7 .......... 1,766,610 18,073 110,000
------------ ------------ ------------
Total liabilities..................................... 2,733,488 2,406,007 2,769,900
COMMITMENTS AND CONTINGENCIES--Note 10 ...................
STOCKHOLDERS' DEFICIT
Common stock, par value $1 per share Authorized,
1,000,000 shares Issued, 1,000 shares.................. 1,000 1,000 1,000
Accumulated deficit..................................... (650,837) (234,052) (30,242)
------------ ------------ ------------
(649,837) (233,052) (29,242)
------------ ------------ ------------
$2,083,651 $2,172,955 $2,740,658
============ ============ ============
</TABLE>
See notes to financial statements.
F-51
<PAGE>
FIRSTEL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES...................... $4,079,136 $7,838,345 $10,355,229 $5,043,143 $6,069,702
------------ ------------ ------------- ------------ ------------
COST OF REVENUES:
Line costs.................. 2,752,568 5,001,807 6,620,483 3,135,567 3,943,738
Direct labor................ 247,092 288,459 393,983 187,186 185,243
Cellular costs.............. -- -- -- -- 132,191
Dialer costs................ 116,199 161,807 191,854 100,183 103,192
Switch costs................ 47,225 81,663 101,673 43,935 52,576
Other....................... 2,177 6,108 5,943 3,260 13,329
------------ ------------ ------------- ------------ ------------
3,165,261 5,539,844 7,313,936 3,470,131 4,430,269
------------ ------------ ------------- ------------ ------------
GROSS PROFIT.................. 913,875 2,298,501 3,041,293 1,573,012 1,639,433
------------ ------------ ------------- ------------ ------------
OPERATING EXPENSES:
Selling..................... 635,801 926,115 1,107,800 528,881 571,298
General and administrative . 375,896 615,923 810,637 417,806 467,531
Sales support............... 143,525 183,649 218,525 103,807 203,132
Cellular.................... -- -- 10,049 -- 61,398
------------ ------------ ------------- ------------ ------------
1,155,222 1,725,687 2,147,011 1,050,494 1,303,359
------------ ------------ ------------- ------------ ------------
INCOME (LOSS) FROM
OPERATIONS................... (241,347) 572,814 894,282 522,518 336,074
OTHER INCOME (EXPENSE):
Finance charges and
penalties.................. 9,901 36,792 34,718 23,797 19,236
Other income................ 24,713 5,561 300 300 --
Interest expense............ (154,509) (220,932) (191,076) (70,470) (39,000)
Loss on sale of equipment .. -- (1,139) (158) -- --
------------ ------------ ------------- ------------ ------------
NET INCOME (LOSS)............. $ (361,242) $ 393,096 $ 738,066 $ 476,145 $ 316,310
============ ============ ============= ============ ============
INCOME (LOSS) PER SHARE....... $ (361.24) $ 393.10 $ 738.07 $ 476.15 $ 316.31
============ ============ ============= ============ ============
</TABLE>
See notes to financial statements.
F-52
<PAGE>
FIRSTEL, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED TREASURY TOTAL
SHARES AMOUNT DEFICIT STOCK EQUITY
-------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 (Unaudited) .. 1,000 $1,000 $(517,691) $ -- $(516,691)
Net loss............................... -- -- (361,242) -- (361,242)
-------- -------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1994 (Unaudited) .. 1,000 1,000 (878,933) -- (877,933)
Distributions ($165.00 per share) ..... -- -- (165,000) -- (165,000)
Net income............................. -- -- 393,096 -- 393,096
-------- -------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1995............... 1,000 1,000 (650,837) -- (649,837)
Distributions ($221.28 per share) ..... -- -- (221,281) -- (221,281)
Net income............................. -- -- 738,066 -- 738,066
Purchase of 100 shares of treasury
stock................................. -- -- -- (700,000) (700,000)
Sale of 100 shares of treasury stock .. -- -- (100,000) 700,000 600,000
-------- -------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1996............... 1,000 1,000 (234,052) -- (233,052)
Distributions ($112.50 per share) ..... -- -- (112,500) -- (112,500)
Net income............................. -- -- 316,310 -- 316,310
-------- -------- ------------- ----------- ------------
BALANCE, June 30, 1997 (Unaudited) ...... 1,000 $1,000 $ (30,242) $ $ (29,242)
======== ======== ============= =========== ============
</TABLE>
See notes to financial statements.
F-53
<PAGE>
FIRSTEL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------
1994 1995 1996 1996 1997
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $(361,242) $ 393,096 $ 738,066 $ 476,145 $ 316,310
Charges and credits to net income
(loss) not affecting cash
Depreciation and amortization ...... 124,918 205,890 247,618 121,710 132,278
Provision for losses on accounts
receivable......................... -- -- -- 15,000 18,000
Write-off of shareholder's
receivable......................... 3,966 -- -- -- --
Loss on sale of equipment........... -- 1,139 158 -- --
Changes in assets and liabilities
Receivables......................... (361,269) (221,079) (52,610) (114,714) (288,528)
Unbilled services................... (245,822) (109,796) (100,069) (69,942) (141,331)
Inventory........................... -- -- (2,187) -- (27,571)
Prepaid expenses.................... (18,121) (1,638) (3,654) (32,957) (37,281)
Deposits............................ (1,000) (150) (37,801) (425) (22,624)
Checks issued but not presented for
payment............................ 175,734 (139,268) (36,466) (36,466) 378,825
Accounts payable.................... 403,736 213,134 173,096 128,422 96,726
Accrued expenses.................... 22,200 19,989 (21,928) 43,477 78,715
Deferred compensation payable ...... -- 36,845 (10,159) 63,476 5,000
------------ ------------ ----------- ----------- -----------
NET CASH FROM (USED FOR) OPERATING
ACTIVITIES............................ (256,900) 398,162 894,064 593,726 508,519
------------ ------------ ----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of equipment ...... -- 923 255 -- --
Property and equipment purchases ..... (469,849) (379,424) (203,162) (146,075) (150,361)
Payments to/from collateral account .. -- (74,515) 74,515 74,515 --
Payments for loan origination fees ... (6,000) (1,443) (2,000) -- --
------------ ------------ ----------- ----------- -----------
NET CASH USED FOR INVESTING
ACTIVITIES............................. (475,849) (454,459) (130,392) (71,560) (150,361)
------------ ------------ ----------- ----------- -----------
FINANCING ACTIVITIES
Net payments on notes payable......... 539,800 (99,300) -- -- --
Principal payments on long-term debt,
including capitalized leases......... (35,137) (171,623) (471,626) (228,119) (305,373)
Proceeds from long-term debt
borrowings........................... -- 531,944 39,602 -- 110,000
Distribution payments................. -- (165,000) (221,281) (118,121) (112,500)
Purchase of treasury Stock............ -- -- (700,000) (700,000) --
Sale of treasury Stock................ -- -- 600,000 600,000 --
------------ ------------ ----------- ----------- -----------
NET CASH FROM (USED FOR) FINANCING
ACTIVITIES ............................. 504,663 96,201 (753,305) (446,240) (307,873)
------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... (228,086) 39,724 10,367 75,926 50,285
CASH AT BEGINNING OF PERIOD............. 232,123 4,037 43,761 43,761 54,128
------------ ------------ ----------- ----------- -----------
CASH AT END OF PERIOD................... $ 4,037 $ 43,761 $ 54,128 $ 119,687 $ 104,413
============ ============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the
period--Interest..................... $ 153,735 $ 212,936 $ 199,845 $ 107,874 $ 78,852
============ ============ =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Short-term debt refinanced............ $ -- $1,400,000 $ -- $ -- $ --
============ ============ =========== =========== ===========
</TABLE>
See notes to financial statements.
F-54
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996 and June 30, 1996 and 1997
1. BUSINESS ACTIVITY, SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
Principal Business Activity
Firstel, Inc. (the "Company"), located in Sioux Falls, South Dakota, is a
carrier of long distance and cellular telecommunications services. Their
service area includes South Dakota, North Dakota, Minnesota, Iowa, Nebraska,
Wyoming, Colorado, and Montana.
Concentrations of Credit Risk
The Company performs periodic credit evaluations of its customer's
financial condition and generally does not require collateral. Receivables
generally are due in 30 days. An allowance for doubtful accounts is used
until year end, when management reviews the accounts receivable and
writes-off those they consider to be uncollectible. Therefore, they have
estimated the allowance for doubtful accounts to be zero as of December 31,
1996 and 1995.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations in Operations
The Company currently buys approximately 70% of its long distance lines
from two suppliers. Although there are a limited number of suppliers,
management believes that other suppliers could provide similar service on
comparable terms, and that a change in suppliers would not adversely affect
operating results.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method)
or market. In December 1996, the Company purchased cellular phone equipment
to be sold in 1997.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization
are computed using the straight-line method over the following estimated
useful lives:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements ..... 5-10 years
Furniture and equipment .... 5-7 years
Dialers..................... 5 years
Network equipment........... 5-7 years
Capitalized leases.......... 5-7 years
</TABLE>
Intangible Assets
Organizational costs, stated at cost less accumulated amortization, are
amortized on the straight-line method over a 60 month period. Loan
origination fees, stated at cost less accumulated amortization, are amortized
on the straight-line method over the term of the loan.
F-55
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
income taxes on its taxable income and is not allowed a net operating loss
carryover or carryback as a deduction. Accordingly, no income taxes have been
provided in the financial statements because the shareholders will include
the Company's income or loss on their individual income tax returns, subject
to at-risk basis limitations.
Treasury Stock
Treasury stock is accounted for using the weighted average method.
Interim Financial Information
The unaudited financial statements for the six months ended June 30, 1997
and 1996 are presented for comparative purposes only and have been prepared
on a basis substantially consistent with that of the audited financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments, which are of a normal and
recurring nature, considered necessary for a fair presentation.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the
weighted average number of common and dilutive common shares outstanding
during the periods in accordance with the applicable rules of the Securities
and Exchange Commission. As of December 31, 1994, 1995 and 1996, and June 30,
1996 and 1997, there were no common stock equivalents. The weighted average
number of shares outstanding was 1,000 for each period.
2. COLLATERAL ACCOUNT
Pursuant to a line of credit agreement with a bank, signed January 4,
1995, the Company directed all receipts to a lockbox established by the bank.
The funds were subsequently deposited into a collateral account and held for
two days. At that time, they became available for use and were transferred to
the regular business account. In 1996, the Company entered into a lockbox
agreement with a different bank. All receipts are directed to a lockbox
established by the bank and are directly deposited to the Company's checking
account daily.
3. UNBILLED SERVICES
The Company bills in four cycles per month. At the end of each month any
new charges which have not been included in the billing cycles are shown as
unbilled services.
F-56
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Organizational costs............ $ 10,206 $ 10,206 $ 10,206
Loan origination fees........... 7,443 9,443 9,443
---------- ---------- -----------
17,649 19,649 19,649
Less accumulated
amortization................ (10,926) (14,167) (16,035)
---------- ---------- -----------
$ 6,723 $ 5,482 $ 3,614
========== ========== ===========
</TABLE>
Amortization expense charged to operations was $1,441, $8,885 and $3,241,
respectively for the years ended December 31, 1994 (unaudited), 1995 and 1996
and $1,321 and 1,868 for the six months ended June 30, 1996 (unaudited), and
1997 (unaudited).
5. CAPITALIZATION
Upon initial capitalization, the company issued 1,000 shares of its common
stock to the original five stockholders. The stock was recorded at par value
at the date of issuance. In February of 1996, 100 shares were purchased as
treasury shares, and subsequently reissued to a new stockholder. As described
in Note 12, the stockholders will surrender all outstanding shares of the
company stock, concurrent with the effective date of the merger and such
shares will be canceled.
6. LEASES
The Company leases office space, equipment and telephone lines under
long-term lease agreements. The leases for office space, telephone lines and
equipment are operating leases which expire in various years through 1998.
Generally, the Company is required to pay executory costs such as maintenance
and insurance. Rental payments include minimum rentals plus contingent
rentals based on usage.
Rental expense for operating leases for the years ended December 31, 1994
(unaudited), 1995 and 1996, and for the six month periods ended June 30, 1996
(unaudited), and 1997 (unaudited) was $2,778,586, $5,051,893, $6,797,857,
$3,273,503 and $3,982,459, respectively, composed of $133,224, $139,003,
$230,784, $42,433 and $223,899 respectively, in minimum rents and $2,645,362,
$4,912,890, $6,567,073, $3,231,070 and $3,758,560, respectively of contingent
rent expense.
Capitalized leased assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment . $ 38,791 $ 85,693 $ 85,693
Harris switches................. 296,536 296,536 296,536
---------- ----------- -----------
335,327 382,229 382,229
Less accumulated
amortization................ (74,857) (129,796) (158,435)
---------- ----------- -----------
$260,470 $ 252,433 $ 223,794
========== =========== ===========
</TABLE>
F-57
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum lease payments for capital and operating leases in future years
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Six months ending December 31, 1997.......................... $61,350 $224,819
Year ending December 31, 1998................................ 15,666 433,235
Remaining years.............................................. -- --
--------- -----------
Total minimum lease payments................................. 77,016 $658,054
===========
Less interest................................................ (6,482)
---------
Present value of minimum lease payments as of June 30, 1997
--Note 7.................................................... $70,534
=========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
------------ -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized lease obligations, at varying rates of
imputed interest from 10.42% to 18.60%, due in
monthly installments of $10,225, including interest,
through June 1998, secured by leased assets--Note 6 .. $ 177,142 $ 115,907 $ 70,534
$800,000 revolving line of credit payable to bank, due
July 1, 1998, variable rate, 9.5% at June 30,1997 and
December 31, 1996 and 12.05% at December 31, 1995,
secured by substantially all assets of the Company,
personal guarantees of four Company officers, and
Company owned life insurance on an officer of the
Company, subject to various financial covenants ...... 370,789 -- 110,000
Unsecured notes payable to shareholders, at 12%, due
December 31, 1997, subordinated to revolving line .... 1,300,000 1,300,000 1,040,000
------------ ------------- -------------
1,847,931 1,415,907 1,220,534
------------ ------------- -------------
Less current maturities................................ (81,321) (1,397,834) (1,110,534)
------------ ------------- -------------
$1,766,610 $ 18,073 $ 110,000
============ ============= =============
</TABLE>
Long-term debt maturities are as follows:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Six months ending December 31,
1997............................... $1,092,461
Year ending December 31, 1998 ...... 128,073
Thereafter.......................... --
------------
$1,220,534
============
</TABLE>
8. RELATED PARTY TRANSACTIONS
One of the Company's major shareholders is also a partner in an accounting
firm. For the years ending December 31, 1994, 1995 and 1996 and for six
months ending June 30, 1996 and 1997, accounting fees paid to the related
company were $48,593, $27,579, $41,774, $23,320 and $22,711, respectively.
F-58
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. DEFERRED COMPENSATION PLAN
In 1995, the Company established deferred compensation plans for the
benefit of the shareholders who are also key employees of the Company. The
benefit payable was accrued based on various criteria for each person. The
amount expensed for the years ended December 31, 1995 and 1996 and for the
six months ended June 30, 1996 (unaudited) and 1997 (unaudited), for such
future obligation were $36,845, $125,541, $70,470 and $39,000.
10. COMMITMENTS AND CONTINGENCIES
In 1996, Firstel, Inc. signed a long term carrier agreement with MCI Corp.
Included in the agreement is a commitment that Firstel's monthly usage shall
equal or exceed $225,000. If usage is less Firstel will pay the actual usage
plus an underutilization charge of 15% of the difference between actual usage
and $225,000.
Also, in 1996 Firstel, Inc. purchased the stock of a certain shareholder
for $700,000. Under the terms of the purchase agreement, Firstel, Inc. has
agreed to pay an additional $200,000 contingent on the occurrence of either
of the following events:
1. If, prior to February 6, 1999, a sale or transfer of stock owned or
controlled by four of the original shareholders or by Firstel, Inc., or a
sale of the assets of Firstel, Inc. is consummated at a value in excess of
$6,000,000.
2. If, as of February 6, 1999, 50% of the stock issued remains directly
or indirectly owned or controlled by the four remaining original
shareholders.
11. RETIREMENT PLAN
In 1996, the Company adopted a qualified 401(k) employee savings and
profit sharing plan which covers all employees who meet eligibility
requirements. Eligible employees may contribute directly to the plan. The
Company matches twenty-five percent (25%) of the employee contribution, not
to exceed one percent of the employee's eligible wages. The Company has the
option to make discretionary contributions to the plan. The Company's
contribution expenses for the year ended December 31, 1996 and the six months
ended June 30, 1997 (unaudited) were $7,157 and $5,983 respectively.
12. SUBSEQUENT EVENTS
As of October 6, 1997, the Company's stockholders entered into a stock
purchase agreement. The notes payable to stockholders will be acquired by the
purchaser in the acquisition. The issued and outstanding capital stock of the
Company and such notes will be sold for the consideration of $5,000,000 in
cash, $2,000,000 in 10% convertible subordinated notes, common stock of the
purchaser and 50,000 warrants to purchase common stock of the purchaser. The
transaction is generally contingent upon the successful completion of an
initial public offering of the purchaser.
As of September 3, 1997, the Company has purchased two telecommunications
companies located in Sioux Falls, South Dakota. The combined purchase price
of the two companies is approximately $1,210,000 payable with notes from the
Company maturing December 15, 1997 and later amended to mature January 31,
1998. Payment of the notes will be with stock issued by the potential
purchaser of the Company, upon the successful completion of an initial public
offering. If the potential purchase of the Company does not take place by
January 31, 1998, the notes will be paid with cash.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholder of KIN Network, Inc.:
We have audited the balance sheets of KIN Network, Inc. as of December 31,
1994 and 1995, and the related statements of operations, stockholder's equity
(deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. The accompanying financial statements of KIN Network, Inc. as
of and for the year ended December 31, 1996 and as of and for the six month
periods ended June 30, 1996 and 1997 were not audited by us and, accordingly,
we have not expressed an opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1994 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of KIN
Network, Inc. as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KENNEDY AND COE, LLC
Salina, Kansas
February 23, 1996
F-60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
KIN Network, Inc.
Salina, Kansas
We have audited the balance sheet of KIN Network, Inc. as of December 31,
1996, and the related statements of operations, stockholder's equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of KIN Network, Inc. as of December 31, 1995, and 1994, were
audited by other auditors whose reports dated February 23, 1996, and March 1,
1995, respectively, expressed unqualified opinions on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of KIN Network, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Out audit was conducted for the purpose of forming an opinion on the 1996
basic financial statements taken as a whole. The financial information for
June 30, 1997 and 1996 and for the periods then ended (marked "unaudited" and
accompanying the basic financial statements) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has not been subjected to the auditing
procedures applied in the audit of the 1996 basic financial statements, and
accordingly, we express no opinion on it.
SARTAIN FISCHBEIN & CO.
February 25, 1997
F-61
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------- ------------------------------
1995 1996 1996 1997
------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..................... $ 2,286,360 $ 2,688,775 $ 880,382 $ 1,055,969
Receivables:
Trade accounts.............................. 432,780 324,771 299,043 555,825
Accrued revenue............................. 283,648 533,145 473,660 664,478
Patronage credits........................... 351,138 227,259 227,259 190,326
Affiliated company.......................... -- -- 6,562 --
Liberty Cellular, Inc....................... -- 1,185,538 -- 5,273
Prepaid expenses.............................. 47,914 144,874 123,725 234,886
RTFC capital certificates..................... 452,373 251,609 122,785 133,454
------------- -------------- -------------- --------------
Total Current Assets............................ 3,854,213 5,355,971 2,133,416 2,840,211
------------- -------------- -------------- --------------
Property, Plant and Equipment, net.............. 21,408,898 21,821,077 21,001,751 22,133,221
------------- -------------- -------------- --------------
Other Assets
RTFC capital certificates..................... 3,265,963 3,014,351 3,143,176 2,880,897
Deferred income taxes......................... 6,206,648 3,108,267 6,558,639 3,304,745
Debt issue costs, net......................... 68,790 62,290 65,540 59,040
Patronage credits receivable.................. 398,266 604,921 457,722 540,510
Prepayments on fiber leases................... 227,445 197,778 212,611 182,945
Organization and other intangible costs, net
of accumulated amortization of $826,801 in
1995, $836,278 in 1996, and $841,407 in
1997......................................... 22,265 10,444 15,574 5,315
Other assets.................................. 1,300 1,300 1,300 --
------------- -------------- -------------- --------------
Total Other Assets.............................. 10,190,677 6,999,351 10,454,562 6,973,452
------------- -------------- -------------- --------------
Totals.......................................... $35,453,788 $ 34,176,399 $ 33,589,729 $ 31,946,884
============= ============== ============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt ......... $ 2,518,559 $ 2,892,009 $ 2,622,781 $ 2,836,429
Accounts payable:
Trade....................................... 198,246 632,519 85,632 160,133
Liberty Cellular, Inc....................... 2,649 -- 12,587 --
Affiliate................................... 15,184 66,408 -- 47,392
Accrued expenses.............................. 536,553 515,932 575,060 588,739
------------- -------------- -------------- --------------
Total Current Liabilities....................... 3,271,191 4,106,868 3,296,060 3,632,693
Long-Term Debt, less current
maturities..................................... 31,655,696 28,763,687 30,323,625 27,320,436
Total Liabilities............................... 34,926,887 32,870,555 33,619,685 30,953,129
------------- -------------- -------------- --------------
Stockholder's Equity
Common stock, no par value; authorized
10,000,000 shares; issued and outstanding
300,000 shares............................... 3,000,000 3,000,000 3,000,000 3,000,000
Additional paid in capital.................... 7,500,000 9,071,316 7,500,000 9,071,316
Retained earnings............................. (9,973,099) (10,765,472) (10,529,956) (11,077,561)
------------- -------------- -------------- --------------
Total Stockholder's Equity...................... 526,901 1,305,844 (29,956) 993,755
------------- -------------- -------------- --------------
Totals.......................................... $35,453,788 $ 34,176,399 $ 33,589,729 $ 31,946,884
============= ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
1994 1995 1996 1996 1997
-------------- -------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 3,550,242 $ 6,496,741 $ 8,552,564 $3,816,197 $5,609,588
Cost of Services.............. 2,450,281 3,094,454 2,863,857 1,277,259 1,955,102
-------------- -------------- ------------- ------------ ------------
Gross Profit.................. 1,099,961 3,402,287 5,688,707 2,538,938 3,654,486
-------------- -------------- ------------- ------------ ------------
Expenses
Operating and
administrative............. 2,533,095 2,929,555 3,416,589 1,700,251 2,271,246
Depreciation and
amortization............... 1,700,096 1,825,297 1,906,094 878,533 1,058,282
-------------- -------------- ------------- ------------ ------------
Total Expenses................ 4,233,191 4,754,852 5,322,683 2,578,784 3,329,528
-------------- -------------- ------------- ------------ ------------
Income (Loss) from
Operations................... (3,133,230) (1,352,565) 366,024 (39,846) 324,958
Other Income (Expense)
Interest and other income .. 26,532 41,683 80,678 60,026 61,637
Interest, net of patronage
credits.................... (1,616,071) (2,047,215) (1,826,148) (929,028) (895,162)
-------------- -------------- ------------- ------------ ------------
Net Loss Before Income Taxes . (4,722,769) (3,358,097) (1,379,446) (908,848) (508,567)
Deferred Income Tax Benefit .. 1,839,803 1,303,549 587,073 351,991 196,478
-------------- -------------- ------------- ------------ ------------
Net Loss...................... $(2,882,966) $(2,054,548) $ (792,373) $ (556,857) $ (312,089)
============== ============== ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------------ ------------ --------------- ---------------
$
<S> <C> <C> <C> <C>
Balance, January 1, 1994 .. $3,000,000 -- $ (5,035,585) $(2,035,585)
Capital Contributions ... -- 1,500,000 -- 1,500,000
Net Loss--1994........... -- -- (2,882,966) (2,882,966)
------------ ------------ --------------- ---------------
Balance, December 31,
1994...................... 3,000,000 1,500,000 (7,918,551) (3,418,551)
Capital Contributions ... -- 6,000,000 -- 6,000,000
Net Loss--1995........... -- -- (2,054,548) (2,054,548)
------------ ------------ --------------- ---------------
Balance, December 31,
1995...................... 3,000,000 7,500,000 (9,973,099) 526,901
Capital Contributions ... -- 1,571,316 -- 1,571,316
Net Loss--1996........... -- -- (792,373) (792,373)
------------ ------------ --------------- ---------------
Balance, December 31,
1996...................... 3,000,000 9,071,316 (10,765,472) 1,305,844
Capital Contributions ... -- -- -- --
Net Loss--June 30, 1997 . -- -- (312,089) (312,089)
------------ ------------ --------------- ---------------
Balance, June 30, 1997 .... $3,000,000 $9,071,316 $(11,077,561) $ 993,755
============ ============ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1994 1995 1996 1996 1997
-------------- -------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss................................ $(2,882,966) $(2,054,548) $ (792,373) $ (556,857) $ (312,089)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities
Deferred income taxes.................. (1,839,803) (1,303,549) (587,073) (351,991) (196,478)
Depreciation and amortization.......... 1,700,096 1,825,297 1,906,094 878,533 1,058,282
Gain on sale of assets................. -- (2,984) (13,883) -- --
(Increase) decrease in:
Receivables.......................... (348,783) (140,406) (224,348) (61,746) (436,414)
Prepaid expenses..................... 28,202 1,344 (96,960) (75,811) (90,012)
Other assets......................... 198,041 29,666 29,667 78,165 213,998
Increase (decrease) in:
Accounts payable..................... (636,864) 87,384 273,173 (117,860) (655,692)
Accrued expenses..................... (300,041) (302,349) (20,621) 38,507 72,807
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In) Operating
Activities.............................. (4,082,118) (1,860,145) 473,676 (169,060) (345,598)
-------------- -------------- ------------- ------------- -------------
Cash Flows from Investing Activities
Repayment of advance................... 1,000,000 -- -- -- --
Additions--property, plant & equip .... (1,203,916) (749,668) (1,545,534) (461,445) (1,362,047)
Proceeds from sale of plant............ -- 24,592 40,456 -- --
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In)
Investing Activities................... (203,916) (725,076) (1,505,078) (461,445) (1,362,047)
-------------- -------------- ------------- ------------- -------------
Cash Flows from Financing Activities
Proceeds from borrowings............... 5,634,998 -- -- -- --
Return of RTFC capital certificates ... -- -- 452,376 452,376 251,609
Principal payments on debt............. (1,821,913) (2,329,374) (2,516,089) (1,227,849) (1,334,541)
Payments on capital leases............. (217,642) (2,470) (2,470) -- --
Payment by Liberty Cellular, Inc:
Income tax benefit................... -- -- 2,500,000 -- 1,157,771
Capital contributions................ 1,500,000 6,000,000 1,000,000 -- --
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In)
Financing Activities................... 5,095,443 3,668,156 1,433,817 (775,473) 74,839
-------------- -------------- ------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents............................. 809,409 1,082,935 402,415 (1,405,978) (1,632,806)
Cash and Cash Equivalents:
Beginning of Period.................... 394,016 1,203,425 2,286,360 2,286,360 2,688,775
-------------- -------------- ------------- ------------- -------------
End of Period.......................... $ 1,203,425 $ 2,286,360 $ 2,688,775 $ 880,382 $ 1,055,969
============== ============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING & FINANCING ACTIVITIES
Property contributed as capital by
Liberty Cellular, Inc.................. $ -- $ -- $ 571,316 $ -- $ --
Property acquired through increases
in accounts payable--trade............. $ 148,393 $ 25,577 $ 209,675 $ 53,054 $ 22,672
RTFC capital certificates received in
lieu of cash with borrowings........... $ 626,114 $ -- $ -- $ -- $ --
OTHER DISCLOSURES
Interest paid, net of patronage
refunds................................ $1,791,252 $2,290,421 $1,923,165 $1,051,143 $946,309
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, 1996
AND SIX MONTHS ENDED JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: KIN Network, Inc. ("the Company") is a wholly-owned
subsidiary of Liberty Cellular, Inc. ("Liberty").
The Company is constructing and operating a statewide fiber optic network
in Kansas to provide private circuit transport, network toll terminations,
equal access transport and switching, and other services to businesses and
independent telephone companies in Kansas.
ALLOWANCE FOR BAD DEBTS: The Company recognizes bad debts under the
allowance method. As of December 31, 1995, 1996, and June 30, 1997, the
Company believes that the dollar amount of receivables subject to the risk of
uncollectibility is minimal and has set its allowance for doubtful accounts
at zero.
PROPERTY, PLANT AND EQUIPMENT: Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Repairs and maintenance are expensed as incurred, whereas major improvements
are capitalized.
Depreciation expense on property, plant and equipment charged to
operations was $1,524,492 in 1994, $1,648,377 in 1995, $1,887,774 in 1996,
and $1,049,902 for the six months ended June 30, 1997.
DEBT ISSUE COSTS: Debt issue costs, which were incurred in 1991, are being
amortized using the straight-line method over the term of the related debt,
which approximates fifteen years. Annual amortization expense charged to
operations was $6,500 in 1994, 1995, and 1996. Expense charged for the period
ended June 30, 1997, was $3,250.
INCOME TAXES: The Company and Liberty file consolidated tax returns.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred tax liabilities are recognized for differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable and amortizable assets (use of
different depreciation and amortization methods and lives for financial
statement and income tax purposes). In addition, deferred tax assets result
from the anticipated benefits attributable to the utilization of the
Company's net operating losses as an offset to Liberty's taxable income on a
consolidated basis. The net deferred tax benefits represent the tax impact of
the future resolution of the above described differences.
ORGANIZATION COSTS AND OTHER INTANGIBLES: The costs of organizing the
Company have been capitalized and are being amortized over a five-year
period. Annual amortization expense charged to operations was $169,105 in
1994, $170,420 in 1995, $11,821 in 1996, and $5,129 for the period ended June
30, 1997.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that could affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
CASH EQUIVALENTS: For purposes of the balance sheets and statements of
cash flows, cash equivalents include all highly liquid debt instruments with
original maturities of three months or less.
F-67
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Borrowings under a $37,183,333 note with Rural Telephone
Finance Cooperative ("RTFC"). The note bears a variable
rate of interest (6.65% as of June 30, 1997) and
borrowings under the note are due in equal quarterly
installments of principal and interest of approximately
$1,130,000 beginning November 1993, with the final
payment due August 2006. The note is collateralized by
network telephone plant and revenues...................... $32,659,604 $30,143,515 $28,808,974
Capital lease obligations (described in Note 3) with
certain stockholders (or their affiliates) of Liberty.
The obligations are due in variable annual principal
installments, plus interest, with the final installments
due in the year 2006. The obligations are collateralized
by portions of the fiber optic network ................... $ 1,514,651 $ 1,512,181 $ 1,347,891
------------- ------------- -------------
34,174,255 31,655,696 30,156,865
Less current maturities.................................... 2,518,559 2,892,009 2,836,429
------------- ------------- -------------
$31,655,696 $28,763,687 $27,320,436
============= ============= =============
</TABLE>
The note payable to the RTFC contains various covenants pertaining to the
maintenance of net worth, payment of dividends, and debt service coverage. At
December 31, 1996, the Company was in compliance with such covenants.
Estimated maturities on the borrowings with RTFC over the next 5 1/2 years
beginning July 1, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997............................. $1,393,177
1998............................. 2,949,248
1999............................. 3,188,013
2000............................. 3,446,034
2001............................. 3,724,932
2002............................. 4,026,402
</TABLE>
F-68
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments for property under capital leases at June 30,
1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1997 ....................................................... $ 0.00
1998 ....................................................... 345,872
1999 ....................................................... 328,990
2000 ....................................................... 312,110
2001 ....................................................... 295,228
2002 ....................................................... 263,748
After 2002 ................................................. 867,387
------------
Total minimum lease payments ............................... 2,413,335
Less amount representing interest,administration, and
overhead ................................................... 1,065,444
------------
Present value of minimum lease payments, excluding
interest, administration and overhead ..................... $1,347,891
Less current maturities .................................... 147,393
------------
$1,200,498
============
</TABLE>
RTFC distributes patronage credits to the Company on an annual basis based
upon annually determined percentages of interest paid by the Company to RTFC.
The amount of patronage credits was $254,879 in 1994, $325,515 in 1995,
$305,346 in 1996, and $107,653 in 1997.
As a condition to the loan agreement, the Company must purchase
non-interest bearing subordinated capital certificates from RTFC in an amount
equal to 10% of each advance under the note. Through December 31, 1995, the
Company had purchased $3,718,336 of RTFC subordinated capital certificates.
Beginning in 1996, as principal payments are made on the underlying debt,
returns of certificate principal amounts are made proportionately in order to
maintain a certificate principal balance equal to 10% of the outstanding loan
balances. RTFC has returned certificates to the Company totaling $452,376 and
$251,609 in 1996 and through June 30, 1997, respectively, leaving certificate
balances totaling $3,014,351 at June 30, 1997.
3. INTEREST EXPENSE
The Company follows the policy of capitalizing interest as a component of
property and equipment constructed for its own use. Total interest incurred
(net of patronage credits) was $1,616,071 in 1994, $2,047,215 in 1995,
$1,826,148 in 1996, and $895,161 in 1997. No significant interest was
capitalized in 1994, 1995, or 1996.
4. LEASING ARRANGEMENTS
CAPITAL LEASES: The Company leases fiber optic cable from certain Liberty
stockholders (or their affiliates) under capital leases expiring in the year
2006. The assets and obligations under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset. The assets are depreciated over their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation
expense and amounted to $100,598 in 1994, 1995, and 1996, and $50,299 for the
period ended June 30, 1997. Interest expense associated with the obligations
under these leases amounted to $207,706 in 1994, $132,924 in 1995, $132,666
in 1996, and $139,372 at June 30, 1997. Fiber optic cable under capital
leases was $2,091,378, $1,990,780, $1,890,182 and $1,839,883 at December 31,
1994, 1995, 1996 and June 30, 1997, respectively, net of accumulated
depreciation of $322,965 at December 31, 1994, $423,563 at December 31, 1995,
$524,161 at December 31, 1996, and $574,460 for the period ended June 30,
1997.
F-69
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Effective December 31, 1994, the Company re-negotiated the terms of the
capital lease obligations for nine of the ten obligations. The re-negotiated
leases call for the deferral of the principal portion of the lease for a two
year period ending December 31, 1996. At that time the remaining principal
balances on the re-negotiated leases will be repaid evenly over a nine or
ten-year period. The interest rate, which was previously set at 12%, was
re-negotiated for 1995 and 1996 to 8.5% for a majority of the leases and 10%
on the balance of the leases. In 1997, the interest rates on those leases
were re-negotiated at rates ranging from 8.5% to 12% for the remainder of the
lease term.
5. OPERATING LEASES
The Company leases various facilities, circuits and equipment under
operating leases expiring in various years through the year 2004. Minimum
future rental commitments under these operating leases as of June 30, 1997,
for each of the next 5 1/2 years and in the aggregate are:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
- --------------------------------- ---------
<S> <C>
1997........................... $ 40,808
1998........................... 26,763
1999........................... 22,482
2000........................... 20,510
2001........................... 17,510
2002........................... 24,514
After 2002..................... 95,886
---------
$248,473
=========
</TABLE>
The Company also leases circuits on a month-to-month basis from various
interconnect companies.
Total rental expense under operating leases, including leased circuits was
$1,257,260 in 1994, $1,146,694 in 1995, $1,653,971 in 1996, and $897,364 at
June 30, 1997.
The Company leases space from Liberty under a year-to-year operating
lease. Total rent expense paid to Liberty was $43,000 in 1996 and $21,500 for
the period ended June 30, 1997.
6. RELATED PARTY TRANSACTIONS
The Company is operated under a management agreement by KINI L.C., which
is related to Liberty through common ownership. Operating and administrative
expenses incurred by the Company through KINI L.C. amounted to $1,682,730,
including $127,401 which was capitalized in 1994, $1,924,084, including
$47,684 which was capitalized, in 1995, and $2,377,223, including $15,329
which was capitalized, in 1996. Beginning January 1, 1997, the management fee
paid to KINI L.C. was increased from 12.5% to 15% under a new operating
agreement. Expenses incurred in 1997 amount to $1,631,249, including $3,770
which was capitalized.
Network revenue includes revenue resulting from services performed for
Liberty which amounted to approximately $482,000 (14% of total network
revenue) in 1994, approximately $1,625,000 (25% of total network revenue) in
1995, approximately $2,810,000 (33% of total network revenue) in 1996, and
approximately $1,580,000 (28% of total network revenue) in 1997. At June 30,
1997, trade accounts receivable and accrued revenue includes approximately
$248,000 due from Liberty.
As part of the capital leases for fiber optic cable with certain
stockholders (or their affiliates), the Company is required to pay fees for
maintenance. Additional fiber optic maintenance costs were also paid to
certain stockholders (or their affiliates). Maintenance costs under these
arrangements were approximately $45,000 in 1994, 1995, 1996 and approximately
$22,500 at June 30, 1997.
F-70
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. CONTINGENCIES
During the course of constructing the statewide fiber-optic network, it
has been necessary for the Company to obtain rights-of-way from property
owners. Outside counsel has advised the Company that the form of a number of
these rights-of-way are defective from a marketable title point of view.
Outside counsel have advised management that at this point they cannot offer
an opinion as to any asset impairment or other outcome resulting from this
situation. In 1992, the Company obtained an indemnification commitment from
the consultants hired by the Company to obtain the rights-of-way, in the
amount of $250,000, which expires over 15 years.
8. INCOME TAXES
Deferred income taxes arise principally due to net operating losses net of
temporary differences in the depreciation of property, plant and equipment.
The Company has net operating losses totaling approximately $15,900,000
expiring in various years through the year 2011, which management believes
will be utilized in the consolidated tax return to offset future taxable
income from the operations of the Company and Liberty.
A reconciliation of the deferred income tax benefit at the federal
statutory rate to the deferred income tax benefit at the effective tax rate
is as follows:
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER 31, MONTHS
-------------------------------------- ENDED
JUNE 30,
1994 1995 1996 1997
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Deferred income tax benefit computed at
federal statutory rate of 34%.......... $1,605,741 $1,141,753 $469,012 $172,912
State taxes, net of federal benefit .... 228,582 162,532 66,765 24,615
Other................................... 5,480 (736) 51,296 (1,049)
------------ ------------ ---------- ----------
$1,839,803 $1,303,549 $587,073 $196,478
============ ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
------------------------------------------ JUNE 30,
1994 1995 1996 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Total deferred tax assets--net operating
losses....................................... $ 7,119,644 $8,957,575 $ 6,190,810 $ 6,586,084
Less valuation allowance...................... -- -- -- --
------------- ------------ ------------- -------------
7,119,644 8,957,575 6,190,810 6,586,084
Total deferred tax liabilities--depreciation . (2,216,545) 2,750,927 (3,082,543) (3,281,339)
------------- ------------ ------------- -------------
Net deferred tax assets....................... $ 4,903,099 $6,206,648 $ 3,108,267 $ 3,304,745
============= ============ ============= =============
</TABLE>
In 1996, Liberty utilized approximately $9,500,000 of the Company's net
operating loss carryforward to offset Liberty's 1996 taxable income. As a
result, Liberty agreed to pay the Company approximately $3,700,000 for the
use of the Company's net operating loss, of which $2,500,000 was paid in
1996. Accounts receivable from Liberty as of December 31, 1996 consists of
the remaining amounts due to the Company for the use of net operating losses.
9. CREDIT RISK
The Company grants credit to customers, primarily local telephone
companies and local businesses.
F-71
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a demand deposit and a repurchase agreement account with
a financial institution. The balance at the financial institution exceeded
the federal insurance limitation of $100,000 at December 31, 1994, 1995, 1996
and June 30, 1997. However, the financial institution has pledged assets to
secure the repurchase agreement in excess of the federal insurance
limitation.
10. DEFERRED COMPENSATION PLAN
The Company, along with Liberty Cellular, Inc. and KINI, L.C., established
in 1994, a deferred compensation plan for their employees. The plan provides
that the employees will receive additional compensation based upon certain
key operating results of the companies. The total expense under the plan was
$479,198, $1,063,895, and $1,190,761 for the years ended December 31, 1994,
1995, and 1996, respectively. Of the total liability under the plan of
$2,164,646, $387,141 was paid in 1997 and the remaining balance of $1,777,505
deferred to future years. Liberty Cellular, Inc. has assumed all of the
liability and expense under the plan, with the Company contingently liable as
co-signer.
F-72
<PAGE>
ANNEX M
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CERTAIN ACQUIRED COMPANIES
GREAT WESTERN DIRECTORIES, INC.
Great Western, headquartered in Amarillo, Texas, was founded in 1984 and
publishes and distributes approximately three million yellow page books in
Texas and Oklahoma annually and approximately 460,000 yellow page books in
California annually, serving approximately 52,000 primarily small to
mid-sized business customers. Revenues are primarily derived from the sale of
advertising space in the telephone directories. In the prototype year of a
directory, Great Western typically offers free advertising space in order to
attract new customers and begins to charge for such space in the second year
of publication.
The following table sets forth for Great Western selected statement of
operations data and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
YEAR ENDED JANUARY 31, DECEMBER 31, JUNE 30,
--------------------------------------- ------------------- ---------------------------------------
1995 1996(1) 1996(1) 1996 1997
------------------- ------------------- ------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $29,407 100.0% $36,469 100.0% $44,324 100.0% $25,403 100.0% $27,366 100.0%
Cost of services .... 17,733 60.3% 19,568 53.7% 21,785 49.1% 11,234 44.2% 12,172 44.5%
Depreciation and
amortization........ 272 0.9% 228 0.6% 223 0.5% 114 0.4% 102 0.4%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Gross profit......... 11,402 38.8% 16,673 45.7% 22,316 50.3% 14,055 55.3% 15,092 55.1%
Selling, general and
administrative
expenses............ 10,785 36.7% 12,661 34.7% 14,648 33.0% 8,675 34.1% 9,212 33.7%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Income from
operations.......... 617 2.1% 4,012 11.0% 7,668 17.3% 5,380 21.2% 5,880 21.5%
</TABLE>
- ------------
(1) The fiscal years of Great Western Directories, Inc. ended on January
31, 1995 and 1996 and December 31, 1996. Consequently the data for
Great Western for the fiscal years ended January 31, 1996 and December
31, 1996 both include the month of January 1996.
Great Western results for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Revenues. Revenues increased $2.0 million, or 7.7%, from $25.4 million for
the six months ended June 30, 1996 to $27.4 million for the six months ended
June 30, 1997. This improvement resulted primarily from a $1.2 million
increase in sales of advertising space in the Tulsa, Oklahoma directory, due
to increased numbers of customers. The Tulsa directory was in its second year
of revenue publication after its prototype publication in fiscal 1995. In
addition, there were increases of $0.2 million in sales of advertising space
in directories in the established Texas markets of Amarillo and Humble, and
increases of $0.1 million in sales of directories in the established markets
of Lawton, Oklahoma and Temple, Arlington, Clear Lake, Pasadena and Baytown,
Texas. These gains were partially offset by decreases in sales of advertising
space of $0.2 million in the established California markets of Santa Cruz,
Napa and Vallejo.
Gross profit. Gross profit increased $1.0 million, or 7.4%, from $14.1
million for the six months ended June 30, 1996 to $15.1 million for the six
months ended June 30, 1997. Gross margin remained relatively stable at 55.3%
for the six months ended June 30, 1996 compared to 55.1% for the six months
ended June 30, 1997. Although certain variable costs of services, such as
commissions, increased at a more rapid rate than revenues, due primarily to
temporary changes in commission payment methodology, certain other costs of
services, such as printing and distribution, which fluctuate with the number
of directories published, remained flat due to a competitive bidding process
that resulted in the use of alternative printing facilities and delivery
services.
M-1
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.5 million, or 6.2%, from $8.7 million
for the six months ended June 30, 1996 to $9.2 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 34.1% for the six months ended June
30, 1996 to 33.7% for the six months ended June 30, 1997 due to enhanced
operational efficiency because of lower employee turnover and improvements in
production technology. As a percentage of revenues, bad debt expense
decreased from 11.8% for the six months ended June 30, 1996 to 11.0% for the
six months ended June 30, 1997. However, these savings were partially offset
by an increase in executive compensation in the amount of $300,000.
Great Western results for the fiscal year ended December 31, 1996 compared
to the fiscal year ended January 31, 1996.
Revenues. Revenues increased $7.8 million, or 21.5%, from $36.5 million
for the fiscal year ended January 31, 1996 to $44.3 million for the fiscal
year ended December 31, 1996, primarily as a result of the first publication
for revenue of the Tulsa, Oklahoma directory in February 1996, which resulted
in sales of advertising space of $7.4 million. This increase was partially
offset by a $0.5 million charge from the settlement of litigation in Sonoma
County, California, and a $0.6 million decrease in sales of advertising space
of the combined California markets. An additional $1.6 million in revenue
growth was the result of successful marketing efforts in the remaining, more
mature markets.
Gross profit. Gross profit increased $5.6 million, or 33.8%, from $16.7
million for the fiscal year ended January 31, 1996 to $22.3 million for the
fiscal year ended December 31, 1996. Gross margin increased from 45.7% for
the fiscal year ended January 31, 1996 to 50.3% for the fiscal year ended
December 31, 1996 due primarily to the gross profit contribution of the first
sold year of the Tulsa, Oklahoma directory, a highly profitable market. Also,
certain costs of services did not increase proportionately with revenues due
to a competitive bidding process that resulted in the use of alternative
printing facilities. In addition, Great Western was able to take advantage of
an overall decrease in paper prices.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.9 million, or 15.7%, from $12.7 million
for the fiscal year ended January 31, 1996 to $14.6 million for the fiscal
year ended December 31, 1996. As a percentage of revenues, selling, general
and administrative expenses decreased from 34.7% for the fiscal year ended
January 31, 1996 to 33.0% for the fiscal year ended December 31, 1996 as a
result of the impact of the revenues from the first sold year of the Tulsa,
Oklahoma directory. While the sales for the first publication for revenue of
the Tulsa directory were included in the fiscal year ended December 31, 1996,
the associated general and administrative expenses were included in the
fiscal year ended January 31, 1996. General and administrative expenses
related to a given directory are generally incurred prior to the generation
and recognition of revenues and costs of services. As a percentage of
revenues, bad debt expense increased from 8.9% for the fiscal year ended
January 31, 1996 to 10.5% for the fiscal year ended December 31, 1996 due to
a 20% provision, or $1.3 million, related to the first sold year of the
Tulsa, Oklahoma directory, partially offset by lower bad debt provisions for
maturing markets.
Great Western results for the fiscal year ended January 31, 1996 compared
to the fiscal year ended January 31, 1995.
Revenues. Revenues increased $7.1 million, or 24.0%, from $29.4 million
for fiscal 1994 to $36.5 million for fiscal 1995 as a result of the first
sold publications of the Irving and Fort Worth, Texas, directories in
November 1995 which resulted in combined sales of $3.6 million. In addition,
the Lawton, Oklahoma directory was published for 1995 in February 1995 and
for 1996 in January 1996; consequently fiscal 1995 includes $2.7 million
revenue for both directories, while fiscal 1994 includes no revenues related
to Lawton, Oklahoma. These increases are partially offset by an $0.8 million
decrease in sales of advertising space in the combined California markets. An
additional $1.6 million in revenue growth was the result of successful
marketing efforts in the remaining, more mature markets.
Gross profit. Gross profit increased $5.3 million, or 46.2%, from $11.4
million for fiscal 1994 to $16.7 million for fiscal 1995. Gross margin
increased from 38.8% for fiscal 1994 to 45.7% for fiscal 1995 as a result of
three prototype directories published in fiscal 1994 that resulted in only
minimal revenues to offset the related cost of services of $4.3 million.
M-2
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.9 million, or 17.4%, from $10.8 million
for fiscal 1994 to $12.7 million for fiscal 1995. As a percentage of
revenues, selling, general and administrative expenses decreased from 36.7%
for fiscal 1994 to 34.7% for fiscal 1995 as a result of the impact of the
revenues from the first sold years of the Irving and Fort Worth, Texas
directories. In order to support the anticipated increase in volume, Great
Western's infrastructure was enhanced during fiscal 1994, when the Irving and
Fort Worth, Texas directories were prototyped. As a percentage of revenues,
bad debt expense decreased from 9.9% for fiscal 1994 to 8.9% fiscal 1995 due
to lower bad debt provisions for maturing markets, based on improved
collection experience in those markets, partially offset by provisions for
the first sold directories in Irving and Fort Worth, Texas.
Great Western liquidity and capital resources
Great Western generated $2.7 million in net cash from operating activities
for the six months ended June 30, 1997. Net cash used in investing activities
was approximately $0.2 million, principally for purchases of property and
equipment. Net cash used in financing activities was $2.4 million,
representing repayments of long term debt, and cash dividends.
At June 30, 1997, working capital was $15.2 million and there was no debt.
Great Western generated $5.9 million in net cash from operating activities
in the fiscal year ended December 31, 1996. Net cash used in investing
activities in the fiscal year ended December 31, 1996 was approximately $0.3
million, principally for the purchase of property and equipment. Net cash
used in financing activities in the fiscal year ended December 31, 1996 was
$5.0 million, primarily for repayments of long-term debt and notes payable.
At December 31, 1996, working capital was $11.4 million and total debt was
$1.8 million.
Great Western used $3.0 million in net cash from operating activities for
the fiscal year ended January 31, 1996. Net cash used in investing activities
was approximately $0.1 million principally for purchases of property and
equipment. Net cash provided by financing activities was $2.7 million,
primarily from net borrowings under a bank line of credit and advances under
long-term debt.
At January 31, 1996, working capital was $6.9 million and total debt was
$7.7 million.
VALU-LINE OF LONGVIEW, INC.
Valu-Line, headquartered in Longview, Texas, was founded in 1983 and
provides local and long distance services principally to small to mid-size
business customers as well as residential customers, primarily in Texas,
Arkansas, Oklahoma and Louisiana.
The following table sets forth for Valu-Line selected statement of
operations data and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -------------------------------------
1994 1995 1996 1996 1997
------------------- ------------------- ------------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $13,417 100.0% $13,330 100.0% $11,181 100.0% $5,877 100.0% $5,903 100.0%
Cost of services .... 6,775 50.5% 7,491 56.2% 6,036 54.0% 3,234 55.0% 3,363 57.0%
Depreciation and
amortization........ 399 3.0% 718 5.4% 819 7.3% 403 6.9% 264 4.5%
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 6,243 46.5% 5,121 38.4% 4,326 38.7% 2,240 38.1% 2,276 38.5%
Selling, general and
administrative
expenses............ 3,725 27.7% 3,898 29.2% 3,571 32.0% 1,760 29.9% 1,955 33.1%
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Income from
operations.......... 2,518 18.8% 1,223 9.2% 755 6.7% 480 8.2% 321 5.4%
</TABLE>
M-3
<PAGE>
Valu-Line results for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Revenues. Revenues were relatively flat at $5.9 million for each of the
six months ended June 30, 1996 and 1997. Revenues for the first half of 1997
include sales of local telephone service and non-contract international
traffic, which were not offered by Valu-Line in the first six months of 1996.
These gains were offset by decreased volume in the company's core long
distance business. For domestic long distance traffic, total billed minutes
decreased from 39.7 million for the six months ended June 30, 1996 to 38.7
million for the six months ended June 30, 1997, while average revenue per
domestic billable minute decreased 9.5%. In addition, for the six months
ended June 30, 1997, Valu-Line had sales of 2.2 million international long
distance minutes at an average of more than twice the per minute revenue of
its other long distance services. Value-Line expects its sales of
international long distance service to total approximately 5 million minutes
in fiscal 1997.
Gross profit. Gross profit increased $0.1 million, or 4.5%, from $2.2
million for the six months ended June 30, 1996 to $2.3 million for the six
months ended June 30, 1997. Gross margin increased slightly from 38.1% for
the six months ended June 30, 1996 to 38.5% for the six months ended June 30,
1997 due to scheduled decreases in depreciation expense on equipment. For
domestic long distance traffic, average cost per billable minute decreased
13.1% between these periods. For the six months ended June 30, 1997, the
average cost per billable international minute was more than times the
cost of its other long distance services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 11.1%, from $1.8 million
for the six months ended June 30, 1996 to $2.0 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 29.9% for the six months ended June
30, 1996 to 33.1% for the six months ended June 30, 1997 as a result of
salary and administrative costs incurred to rebuild a segment of the sales
team. Several employees resigned from Valu-Line in late 1995 and,
accordingly, their salaries and related costs are not included in the six
months ended June 30, 1996. Several replacements were hired during 1996 with
the result that full salaries and related costs for the sales team are
reflected in the six months ended June 30, 1997.
Valu-Line results for the fiscal year ended December 31, 1996 compared
to the fiscal year ended December 31, 1995.
Revenues. Revenues declined $2.1 million, or 15.8%, from $13.3 million for
fiscal 1995 to $11.2 million for fiscal 1996 due to a decrease in the volume
of business long distance accounts. This resulted from technical difficulties
experienced during a transition from a larger, more technically complex
switching system which caused a temporary erosion of Valu-Line's customer
base. For domestic long distance traffic, total billed minutes decreased from
99.6 million for fiscal 1995 to 79.5 million for fiscal 1996, while average
revenue per billable minute increased 3.2%.
Gross profit. Gross profit decreased $0.8 million, or 15.5%, from $5.1
million for fiscal 1995 to $4.3 million for fiscal 1996. Gross margin
increased from 38.4% for fiscal 1995 to 38.7% for fiscal 1996 as Valu-Line
instituted a program to recycle surplus dialer equipment. Subsequent to the
transition to the new switching system, new customers were supplied with
refurbished dialer equipment recovered from previous subscribers. The cost of
refurbishing dialer equipment is significantly less than the cost to purchase
new dialers. These savings were partially offset by an increase in the
average cost of service per minute resulting from the additional cost
associated with carrying Longview area traffic to the new switch in Dallas.
For domestic long distance traffic, average cost per billable minute
increased 6.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.3 million, or 8.4%, from $3.9 million
for fiscal 1995 to $3.6 million for fiscal 1996. As a percentage of revenues,
selling, general and administrative expenses increased from 29.2% for fiscal
1995 to 32.0% for fiscal 1996, primarily as a result of costs incurred to
accommodate customers' service needs resulting from technical problems
encountered upon the installation of the new switch. For periods generally
ranging
M-4
<PAGE>
from one to four months, Valu-Line customers became temporary subscribers to
other long distance carriers because of the technical problems associated
with the new switch. Valu-Line reimbursed those customers for the difference
between the tariffed rates charged by other carriers and Valu-Line's
contracted rates as an inducement to return to Valu-Line.
Valu-Line results for the fiscal year ended December 31, 1995 compared
to the fiscal year ended December 31, 1994.
Revenues. Revenues decreased $0.1 million, or 1.0%, from $13.4 million for
fiscal 1994 to $13.3 million for fiscal 1995, primarily due to new
competition. In order to maintain its existing customers and to attract new
business, Valu-Line reduced its rate structures in fiscal 1995. For domestic
long distance traffic, total billed minutes increased from 92.8 million for
fiscal 1994 to 99.6 million for fiscal 1995, while average revenue per
billable minute decreased 6.0%.
Gross profit. Gross profit decreased $1.1 million, or 18.0%, from $6.2
million for fiscal 1994 to $5.1 million for fiscal 1995. Gross margin
decreased from 46.5% for fiscal 1994 to 38.4% for fiscal 1995 as a result of
a one-time charge incurred to change the dialing patterns of all its dialers
in accordance with industry requirements. For domestic long distance traffic,
average cost per billable minute increased 4.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 4.6%, from $3.7 million
for fiscal 1994 to $3.9 million for fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses increased from 27.7% for fiscal
1994 to 29.2% for fiscal 1995 as a result of costs associated with the
unsuccessful launch of a new sales office in Houston and costs incurred in
preparation for the switch transition.
Valu-Line liquidity and capital resources
Valu-Line generated $0.4 million in net cash from operating activities for
the six months ended June 30, 1997. Net cash used in financing activities was
$0.4 million, representing $0.2 million in repayments of long term debt and
$0.3 million in distributions to shareholders, net of $0.1 million provided
by proceeds from long term debt.
At June 30, 1997, Valu-Line had working capital of $0.1 million and total
debt outstanding of $1.6 million. Valu-Line has historically funded its
operations with cash from operations and borrowings from lenders.
Valu-Line generated $1.5 million in net cash from operating activities in
fiscal 1996. Net cash used in investing activities was approximately $0.1
million, which was primarily used for capital expenditures. Net cash used in
financing activities was $1.4 million, of which $0.8 million was distributed
to shareholders and $0.6 million was used to repay long-term debt, capital
leases and other notes payable.
As of December 31, 1996, Valu-Line had a working capital deficit of $0.1
million and total debt outstanding of $1.7 million.
Valu-Line generated $2.2 million in net cash from operating activities in
fiscal 1995. Net cash used in investing activities was approximately $2.4
million, which was primarily used for capital expenditures. Net cash provided
by financing activities was $0.3 million, of which $2.1 million was provided
by proceeds from long-term debt and other notes payable, net of $1.3 million
distributed to shareholders and $0.5 million was used to repay long-term
debt, capital leases and other notes payable.
FIRSTTEL, INC.
FirsTel, headquartered in Sioux Falls, South Dakota, was founded in 1993
and provides long distance and cellular telecommunications services to
customers in South Dakota, North Dakota, Nebraska, Minnesota, Iowa and
Wyoming and local services in South Dakota and North Dakota. Revenues are
primarily derived from the sale of long distance services.
M-5
<PAGE>
The following table sets forth for FirsTel selected operating data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $4,079 100.0% $7,838 100.0% $10,355 100.0% $5,043 100.0% $6,070 100.0%
Cost of services .... 3,040 74.5% 5,334 68.1% 7,066 68.2% 3,348 66.4% 4,298 70.8%
Depreciation and
amortization........ 125 3.1% 206 2.6% 248 2.4% 122 2.4% 132 2.2%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 914 22.4% 2,298 29.3% 3,041 29.3% 1,573 31.2% 1,640 27.0%
Selling, general and
administrative
expenses............ 1,155 28.3% 1,726 22.0% 2,147 20.7% 1,050 20.8% 1,303 21.5%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... (241) (5.9)% 573 7.3% 894 8.6% 523 10.4% 337 5.5%
</TABLE>
FirsTel results for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Revenues. Revenues increased $1.1 million, or 20.4%, from $5.0 million for
the six months ended June 30, 1996 to $6.1 million for the six months ended
June 30, 1997 due to increased sales efforts, partially offset by competitive
pricing. For long distance traffic, total billed minutes increased from 32.1
million for the six months ended June 30, 1996 to 40.8 million for the six
months ended June 30, 1997, while average revenue per billable minute
decreased 7.0%.
Gross profit. Gross profit was relatively flat at $1.6 million for the six
months ended June 30, 1996 and 1997. Gross margin decreased from 31.2% for
the six months ended June 30, 1996 to 27.0% for the six months ended June 30,
1997 as a result of competitive pricing strategies and low margins on the
start up of cellular and local sales. For long distance traffic, average cost
per billable minute decreased 3.0%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 24.1%, from $1.1 million
for the six months ended June 30, 1996 to $1.3 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 20.8% for the six months ended June
30, 1996 to 21.5% for the six months ended June 30, 1997 as a result of
increases in sales support expenses. Most of these increases were due to
costs associated with preparing for the provision of cellular and local
services prior to revenues being generated from these services.
FirsTel results for the fiscal year ended December 31, 1996 compared
to the fiscal year ended December 31, 1995.
Revenues. Revenues increased $2.6 million, or 32.1%, from $7.8 million for
fiscal 1995 to $10.4 million for fiscal 1996, primarily due to expansion into
new markets and an increased sales force. For long distance traffic, total
billed minutes increased from 48.3 million for fiscal 1995 to 67.9 million
for fiscal 1996, while average revenue per billable minute decreased 6.2%.
Gross profit. Gross profit increased $0.7 million, or 32.3%, from $2.3
million for fiscal 1995 to $3.0 million for fiscal 1996. Gross margin
remained stable at 29.3% for fiscal 1995 and fiscal 1996. For long distance
traffic, average cost per billable minute decreased 5.8%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.4 million, or 24.4%, from $1.7 million
for fiscal 1995 to $2.1 million for fiscal 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 22.0% for fiscal
1995 to 20.7% for fiscal 1996 as a result of reduced selling expenses. In
1995, sales personnel were paid base salaries; whereas, in 1996 sales
personnel were compensated on a straight commission basis.
M-6
<PAGE>
FirsTel results for fiscal year ended December 31, 1995 compared
to fiscal year ended December 31, 1994.
Revenues. Revenues increased $3.7 million, from $4.1 million for fiscal
1994 to $7.8 million for fiscal 1995. Although FirsTel was founded in 1993,
its initial launch of an effective sales force and a comprehensive marketing
effort occurred during fiscal 1994. Accordingly, fiscal 1995 was the first
year to reflect a full year of benefit from the sales and marketing programs.
For long distance traffic, total billed minutes increased from 24.1 million
for fiscal 1994 to 48.3 million for fiscal 1995, while average revenue per
billable minute decreased 4.1%.
Gross profit. Gross profit increased $1.4 million, from $0.9 million for
fiscal 1994 to $2.3 million for fiscal 1995. Gross margin increased from
22.4% for fiscal 1994 to 29.3% for fiscal 1995 as a result of a reduction in
line costs per minute, and more efficient use of the network and switching
facilities. For long distance traffic, average cost per billable minute
decreased 3.7%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, from $1.1 million for fiscal
1994 to $1.7 million for fiscal 1995. As a percentage of revenues, selling,
general and administrative expenses decreased from 28.3% for fiscal 1994 to
22.0% for fiscal 1995 as a result of increased revenues without a
corresponding increase in expenses.
FirsTel liquidity and capital resources
FirsTel generated $0.5 million in net cash from operating activities for
the six months ended June 30, 1997. Net cash used in investing activities was
approximately $0.2 million, representing equipment purchases. Net cash used
in financing activities was $0.3 million, representing reductions in
capitalized leases and distributions to stockholders, offset by the proceeds
from a debt offering.
At June 30, 1997, FirsTel had a working capital deficit of $0.9 million
and $1.2 million of total debt outstanding. FirsTel has historically funded
its operations with cash flow from operations and loans from stockholders.
FirsTel maintains a revolving line of credit with a local bank in the amount
of $0.8 million for the financing of receivables and un-billed services. As
of June 30, 1997 there was no outstanding balance on the line of credit.
FirsTel generated $0.9 million in net cash from operating activities in
fiscal 1996. Net cash used in investing activities was approximately $0.1
million, of which $0.2 million was used for purchasing equipment. Net cash
used in financing activities was $0.8 million, primarily for reduction in
long-term debt.
As of December 31, 1996, FirsTel had a working capital deficit of $1.1
million and total debt outstanding of $1.4 million.
FirsTel generated $0.4 million in net cash from operating activities in
fiscal 1995. Net cash used in investing activities was approximately $0.5
million, of which $0.4 million was used for purchases of property and
equipment. Net cash provided by financing activities was $0.1 million, of
which $0.5 million represented proceeds from long term borrowings, net of
$0.2 million in principal payments on long term debt and $0.2 million in
distributions to stockholders.
FEIST LONG DISTANCE, INC.
Feist Long Distance, headquartered in Wichita, Kansas, was founded in 1992
and provides primarily long distance and 800 services to business customers
in Kansas, Nebraska, Missouri, Texas and Oklahoma.
M-7
<PAGE>
The following table sets forth for Feist Long Distance selected statement
of operations data and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $5,712 100.0% $7,923 100.0% $10,028 100.0% $4,865 100.0% $5,741 100.0%
Cost of services .... 3,623 63.4% 5,469 69.0% 6,854 68.3% 3,284 67.5% 3,872 67.4%
Depreciation and
amortization........ 255 4.5% 278 3.5% 237 2.4% 112 2.3% 90 1.6%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 1,834 32.1% 2,176 27.5% 2,937 29.3% 1,469 30.2% 1,779 31.0%
Selling, general and
administrative
expenses............ 1,553 27.2% 2,201 27.8% 2,469 24.6% 1,132 23.3% 1,422 24.8%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... 281 4.9% (25) (0.3)% 468 4.7% 337 6.9% 357 6.2%
</TABLE>
Feist Long Distance results for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Revenues. Revenues increased $0.8 million, or 16.3%, from $4.9 million for
the six months ended June 30, 1996 to $5.7 million for the six months ended
June 30, 1997 primarily due to a larger customer base. However, for the six
months ended June 30, 1997 Feist experienced a rate of growth slower than
that experienced in prior periods due to a change in advertising strategy.
For long distance traffic, total billed minutes increased from 33.7 million
for the six months ended June 30, 1996 to 43.0 million for the six months
ended June 30, 1997, while average revenue per billable minute decreased
8.6%.
Gross profit. Gross profit increased $0.3 million, or 21.1%, from $1.5
million for the six months ended June 30, 1996 to $1.8 million for the six
months ended June 30, 1997. Gross margin increased from 30.2% for the six
months ended June 30, 1996 to 31.0% for the six months ended June 30, 1997 as
a result of an increase in lower-cost "on-net" traffic and decrease in higher
cost "off-net" resold traffic, as well as declining fiber lease rates and
access charges. For long distance traffic, average cost per billable minute
decreased 9.5%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.3 million, or 25.6%, from $1.1 million
for the six months ended June 30, 1996 to $1.4 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 23.3% for the six months ended June
30, 1996 to 24.8% for the six months ended June 30, 1997 as Feist Long
Distance added selling and administrative personnel in anticipation of
providing local service.
Feist Long Distance results for the fiscal year ended December 31, 1996
compared to the fiscal year ended December 31, 1995.
Revenues. Revenues increased $2.1 million, or 26.6%, from $7.9 million for
fiscal 1995 to $10.0 million for fiscal 1996, due successful marketing
efforts to obtain new customers in the small business long distance market.
For long distance traffic, total billed minutes increased from 50.9 million
for fiscal 1995 to 71.3 million for fiscal 1996, while average revenue per
billable minute decreased 9.0%.
Gross profit. Gross profit increased $0.7 million, or 35.0%, from $2.2
million for fiscal 1995 to $2.9 million for fiscal 1996. Gross margin
increased from 27.5% for fiscal 1995 to 29.3% for fiscal 1996 as a result of
an increase in lower-cost "on-net" traffic as compared to higher cost
"off-net" resold traffic, as well as declining fiber lease rates and access
charges. For long distance traffic, average cost per billable minute
decreased 10.3%.
M-8
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.3 million, or 13.6%, from $2.2 million
for fiscal 1995 to $2.5 million for fiscal 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 27.8% for fiscal
1995 to 24.6% for fiscal 1996 as management improved the efficiency of
clerical personnel through higher levels of automation.
Feist Long Distance results for the fiscal year ended December 31, 1995
compared
to the fiscal year ended December 31, 1994.
Revenues. Revenues increased $2.2 million, or 38.7%, from $5.7 million for
fiscal 1994 to $7.9 million for fiscal 1995, due to the penetration of new
markets in Oklahoma, Nebraska, Missouri and Texas utilizing agents and
telemarketing. For long distance traffic, total billed minutes increased from
35.1 million for fiscal 1994 to 50.9 million for fiscal 1995, while average
revenue per billable minute decreased 4.3%.
Gross profit. Gross profit increased $0.4 million, or 22.2%, from $1.8
million for fiscal 1994 to $2.2 million for fiscal 1995. Gross margin
decreased from 32.1% for fiscal 1994 to 27.5% for fiscal 1995 as a result of
an expansion into areas served by independent telephone companies which
impose higher access charges than areas served by RBOCs, and the costs
associated with utilizing purchased facilities in those new areas. For long
distance traffic, average cost per billable minute increased 3.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, or 46.7%, from $1.6 million
for fiscal 1994 to $2.2 million for fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses remained relatively flat,
increasing from 27.2% for fiscal year 1994 to 27.8% for fiscal year 1995.
Feist Long Distance liquidity and capital resources
Feist Long Distance generated $0.3 million in net cash from operating
activities for the six months ended June 30, 1997. Net cash used in investing
activities was approximately $0.1 million, principally for equipment
purchases. Net cash used in financing activities was $0.1 million,
representing repayment of long-term debt.
At June 30, 1997, Feist Long Distance had current assets approximately
equal to current liabilities and $0.7 million of total debt outstanding.
Feist Long Distance generated $0.3 million in net cash from operating
activities in fiscal 1996. Net cash used in investing activities was
approximately $0.1 million, which was primarily used to purchase equipment.
Net cash used in financing activities was $0.2 million, which was used to
repay long term debt.
As of December 31, 1996, Feist Long Distance had a working capital deficit
of $0.3 million and total debt outstanding of $0.8 million.
Feist Long Distance used $0.3 million in net cash from operating
activities in fiscal 1995. Net cash used in investing activities was
approximately $0.1 million, which was primarily used for the purchase of
equipment. Net cash generated from financing activities was $0.4 million,
which represented net proceeds from the issuance of long term debt.
As of December 31, 1995, Feist Long Distance had a working capital deficit
of $0.8 million and total debt outstanding of $1.1 million.
KIN NETWORK, INC.
KINNET, headquartered in Kansas, was founded in 1987 and generates
revenues from the sale of private circuit transport, network toll
terminations, equal access transport and switching, and other
telecommunication services to businesses and independent telephone companies
throughout Kansas.
M-9
<PAGE>
The following table sets forth for KINNET selected statement of
operations data and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ -------------------------------------
1994 1995 1996 1996 1997
-------------------- -------------------- ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 3,550 100.0% $ 6,497 100.0% $8,553 100.0% $3,816 100.0% $5,610 100.0%
Cost of services .... 2,450 69.0% 3,094 47.6% 2,864 33.5% 1,277 33.5% 1,955 34.8%
Depreciation and
amortization(1)..... 1,700 47.9% 1,825 28.1% 1,906 22.3% 879 23.0% 1,058 18.9%
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Gross profit(1)...... (600) (16.9)% 1,578 24.3% 3,783 44.2% 1,660 43.5% 2,597 46.3%
Selling, general and
administrative
expenses............ 2,533 71.4% 2,930 45.3% 3,417 40.0% 1,700 44.5% 2,271 40.5%
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... (3,133) (88.3)% (1,352) (20.8)% 366 4.3% (40) (1.0)% 326 5.8%
</TABLE>
- ------------
(1) KINNET has historically included depreciation and amortization in
neither gross profit nor selling, general and administrative expenses,
but as a separate item in the calculation of income (loss) from
operations. The Acquired Companies have historically recorded
depreciation and amortization expense as an element of gross profit,
and for consistency of presentation, in the text of this Prospectus and
the pro forma financial statements, KINNET's depreciation and
amortization expense is included in the calculation of gross profit. As
presented in KINNET's historical financial statements included herein,
its gross profit for fiscal 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997, was (in thousands) $1,100, $3,402,
$5,689, $2,539, and $3,654, respectively.
The Company is acquiring 49% of the outstanding voting stock of KINNET,
and hence KINNET's results of operations are included in the Company's
financial statements on the equity method of accounting. Such amounts
included in the Company's pro forma combined financial statements for the
fiscal year ended December 31, 1996 and the six months ended June 30, 1996
and 1997 were $(388,000), $(273,000) and $(153,000), respectively.
KINNET results for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Revenues. Revenues increased $1.8 million, or 47.0%, from $3.8 million for
the six months ended June 30, 1996 to $5.6 million for the six months ended
June 30, 1997. This increase in revenues occurred primarily because of an
increase in the volume of traffic as a result of continued successful
marketing efforts. Incremental customers gains included two resellers, three
equal access subscribers and 63 new private line customers. For long distance
traffic, total billed minutes increased from 6.9 million for the six months
ended June 30, 1996 to 10.5 million for the six months ended June 30, 1997,
while average revenue per billable minute decreased 21.0%.
Gross profit. Gross profit increased $0.9 million, or 56.4%, from $1.7
million for the six months ended June 30, 1996 to $2.6 million for the six
months ended June 30, 1997. Gross margin increased from 43.5% for the six
months ended June 30, 1996 to 46.3% for the six months ended June 30, 1997 as
a result of network efficiencies, volume discounts and negotiated lower
rates. For long distance traffic, average cost per billable minute decreased
2.6%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, or 33.6%, from $1.7 million
for the six months ended June 30, 1996 to $2.3 million for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 44.5% for the six months ended June
30, 1996 to 40.5% for the six months ended June 30, 1997 as KINNET was able
to take advantage of economies of scale.
KINNET results for the fiscal year ended December 31, 1996 compared
to the fiscal year ended December 31, 1995.
Revenues. Revenues increased $2.1 million, or 32.3%, from $6.5 million for
fiscal 1995 to $8.6 million for fiscal 1996. The largest contribution to the
increase came from wholesale long distance services
M-10
<PAGE>
which increased from $0.5 million in fiscal 1995 to $1.4 million in fiscal
1996. KINNET experienced significant revenue gains in its other major product
lines with private line revenues and equal access revenues increasing 44% and
31%, respectively. Increases in revenues for all product lines are
attributable to increases in volumes resulting from successful marketing
efforts. For long distance traffic, total billed minutes increased from 10.2
million for fiscal 1995 to 15.9 million for fiscal 1996, while average
revenue per billable minute increased 37.3%.
Gross profit. Gross profit increased $2.2 million, or 139.7%, from $1.6
million for fiscal 1995 to $3.8 million for fiscal 1996. Gross margin
increased from 24.3% for fiscal 1995 to 44.2% for fiscal 1996 as the
Company's product mix shifted to a greater proportion of equal access
service, which is a higher margin product. For long distance traffic, average
cost per billable minute decreased 11.3%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.5 million, or 16.6%, from $2.9 million
for fiscal 1995 to $3.4 million for fiscal 1996. As a percentage of revenues,
selling, general and administrative expenses decreased from 45.3% for fiscal
1995 to 40.0% for fiscal 1996 as a result of efficiencies achieved on
maintenance of the fiber system and economies of scale achieved in
administrative operations.
KINNET results for the fiscal year ended December 31, 1995 compared
to the fiscal year ended December 31, 1994.
Revenues. Revenues increased $2.9 million, or 80.6%, from $3.6 million for
fiscal 1994 to $6.5 million for fiscal 1995. The largest contribution to the
increase came from equal access revenues which more than doubled in fiscal
1995 to a total of $3.0 million. Thirteen independent telephone companies
were utilizing KINNET's access tandem switch by the end of fiscal 1995 with
three more in the process of conversion. For long distance traffic, total
billed minutes increased from 3.0 million for fiscal 1994 to 10.2 million for
fiscal 1995, while average revenue per billable minute increased 38.1%.
Gross profit. Gross profit increased $2.2 million, from a loss of $0.6
million for fiscal 1994 to profit of $1.6 million for fiscal 1995. Gross
margin increased from (16.9)% for fiscal 1994 to 24.3% for fiscal 1995 as the
company's product mix shifted to a greater proportion of equal access
service, which is a higher margin product. For long distance traffic, average
cost per billable minute increased 9.3%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.4 million, or 15.7%, from $2.5 million
for fiscal 1994 to $2.9 million for fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses decreased from 71.4% for fiscal
1994 to 45.3% for fiscal 1995 as KINNET achieved significant economies of
scale in customer support and administration.
KINNET liquidity and capital resources
KINNET used $0.3 million in net cash from operating activities for the six
months ended June 30, 1997. Net cash used in investing activities was
approximately $1.4 million for additions to property, plant and equipment.
Net cash generated in financing activities was $0.1 million of which $1.2
million was received from KINNET's parent for utilizing the income tax
benefit of an operating loss carryover, and $0.3 million was received from
the return of Rural Telephone Finance Cooperative capital certificates, net
of $1.3 million in principal payments on long-term debt.
At June 30, 1997, KINNET had a working capital deficit of $0.8 million and
$30.1 million of total debt outstanding. KINNET has historically funded its
operations with cash flow from operations and debt from lenders.
KINNET generated $0.5 million in net cash from operating activities in
fiscal 1996. Net cash used in investing activities was approximately $1.5
million, which was primarily used for additions to property, plant and
equipment. Net cash provided by financing activities was $1.4 million, of
which $3.5 million was received from KINNET's parent for utilizing the income
tax benefit of an operating loss carryover and for contributions of capital,
and $0.4 million was received from the return of Rural Telephone Finance
Cooperative capital certificates, net of $2.5 million principal repayments on
long-term debt.
M-11
<PAGE>
As of December 31, 1996, KINNET had working capital of $1.2 million and
total debt outstanding of $31.7 million.
KINNET used $1.9 million in net cash from operating activities in fiscal
1995. Net cash used in investing activities was approximately $0.7 million,
which was primarily used for additions to property, plant and equipment. Net
cash provided by financing activities was $3.7 million, of which $6.0 million
represented a capital contribution from Liberty Cellular, Inc., net of $2.3
million principal repayments on long-term debt.
As of December 31, 1995, KINNET had working capital of $0.6 million and
total debt of $34.2 million.
M-12
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company or the Underwriters. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the registered
securities to which it relates. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 11
The Company............................... 21
Dividend Policy........................... 24
Use of Proceeds........................... 25
Capitalization............................ 26
Dilution.................................. 27
Selected Financial Data................... 28
Management's Discussion and Analysis
of Combined Financial Condition and
Results of Operations ................... 30
Industry Background and Overview.......... 38
Business.................................. 40
Management................................ 53
Certain Transactions...................... 60
Principal Stockholders.................... 63
Description of Capital Stock.............. 65
Shares Eligible for Future Sale........... 68
Underwriting.............................. 69
Validity of Common Stock.................. 71
Experts................................... 71
Available Information..................... 71
Glossary.................................. G-1
Index to Financial Statements............. F-1
Annex M--Management's Discussion and
Analysis of Financial Condition and
Results of Operations of Certain
Acquired Companies ...................... M-1
</TABLE>
Until , 1997 [25 days after the date of this Prospectus], all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
ADVANCED COMMUNICATIONS GROUP, INC. [LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the SEC registration fee, the NASD filing fee and the NYSE filing
fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee...................... $52,273
NASD filing fee........................... 14,300
NYSE listing fee.......................... *
Printing expenses......................... *
Legal fees and expenses................... *
Accounting fees and expenses.............. *
Blue Sky fees and expenses................ *
Transfer Agent's and Registrar's fees .... *
Miscellaneous............................. *
-----------
TOTAL .................................. $ *
</TABLE>
- ------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Delaware General Corporation Law
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other that an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director,
officer, employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in subsections (a) and
(b). Such determination shall be made with respect to a person who is a
director or officer at the time of such determination (1) by a majority vote
of the directors who are not parties, to such action, suit or proceeding,
even though less than a quorum or (2) by a committee of such directors
designated by a majority of such directors, even though less than a quorum or
(3) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status
as such, whether or not the corporation would have the power to indemnify
such person against such liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or modification of
such provision of the Restated Certificate of Incorporation by the
stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of
the Company existing at the time of such repeal or modification.
II-2
<PAGE>
The Company's Restated Certificate of Incorporation also provides that
each person who was or is made a party or is threatened to be made a party to
or is involved in any action in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director or officer of the
Company or, while a director or officer of the Company, is or was serving at
the request of the Company as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Company to the fullest extent authorized by the DGCL, as the
same exists or may hereafter be amended, against all expense, liability and
loss (including attorneys' fees, judgments, fines, amounts paid or to be paid
in settlement, and excise taxes or penalties arising under the Employee
Retirement Income Security Act of 1974) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided herein, the Company shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors. The right to indemnification
conferred in the Restated Certificate of Incorporation shall be a contract
right and shall include the right to be paid by the Company the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the DGCL requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Company
of an undertaking, by or on behalf of such Director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under the Restated Certificate
of Incorporation or otherwise. The Company may, by action of the Board of
Directors, provide indemnification to employees and agents of the Company
with the same scope and effect as the foregoing indemnification of directors
and officers.
If a claim under the foregoing is not paid in full by the Company within
30 days after a written claim has been received by the Company, the claimant
may at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Company) that the claimant has not met the
standards of conduct which make it permissible under the DGCL for the Company
to indemnify the claimant for the amount claimed but the burden of proving
such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its Stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred by the
Restated Certificate of Incorporation shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Restated Certificate of Incorporation, the Company's
By-Laws, any agreement, any vote of stockholders or disinterested Directors
of the Company or otherwise.
The Company may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss
under the DGCL.
II-3
<PAGE>
No amendment, alteration or repeal of, nor the adoption of any provision
inconsistent with, any of the foregoing provisions of the Company's Restated
Certificate of Incorporation, which shall in any manner increase the actual
or potential liability of any director of the Company shall apply to or have
any effect on the liability or alleged liability of any such director for or
with respect to actions or omissions of such director occurring prior to such
amendment, alteration, repeal or adoption.
Notwithstanding that a lesser percentage may be permitted from time to
time by applicable law, none of the foregoing provisions of the Company's
Restated Certificate of Incorporation may be altered, amended or repealed in
any respect, nor may any provision inconsistent therewith be adopted, unless
such alteration, amendment, repeal or adoption is approved by the affirmative
vote of the holders of at least 80 percent of the combined voting power of
the then outstanding shares of voting stock, voting together as a single
class.
Indemnification Agreements
The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements generally are to the same effect as
the charter provisions described above.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
Insurance
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 17, 1996, the Company's predecessor ("Predecessor") issued
and sold shares of Common Stock, $.00001 par value ("Predecessor Stock"), to
the following parties in the amounts and for the consideration indicated.
These sales were exempt from registration under Section 4(2) of the
Securities Act: CPFF -- 20,000,000 shares for a consideration of $1,000; Rod
K. Cutsinger -- 1,000,000 shares for a consideration of $10,000; Bradley K.
Cutsinger -- 125,000 shares for a consideration of $1,250; Don Chessher --
260,000 (subsequently reduced to 164,250 shares) shares for a consideration
of $2,600; Jeffrey L. Corl -- 250,000 shares for a consideration of $2,500
(subsequently reduced to 30,000 shares, for a consideration of $300); Frank
Bango -- 250,000 shares for a consideration of $2,500; Louis A. Waters --
250,000 shares for a consideration of $2,500 (subsequently reduced to 20,000
shares for a consideration of $1,000); Ronald Shapss -- 30,000 shares for a
consideration of $300; G. Edward Powell -- 20,000 shares for a consideration
of $200; Fentress Bracewell -- 5,000 shares for a consideration of $50;
Jackson Hines -- 5,000 shares for a consideration of $50; Rod Crosby -- 5,000
shares for a consideration of $50; and Ron Ormand -- 5,000 shares for a
consideration of $50.
On September 19, 1996 the Predecessor issued and sold to CPFF an 8%
promissory note, as amended, due upon the first to occur of the effectiveness
of registration statement relating to the Company's initial underwritten
public offering or December 31, 1998, in a transaction exempt from
registration under Section 4(2) of the Securities Act, no public offering
being involved.
On November 7, 1996, the Predecessor issued and sold 100,000 shares of
Predecessor Stock to G. Edward Powell for a consideration of $5,000 in a
transaction exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
On January 3, 1997, the Predecessor issued and sold 5,000 shares of
Predecessor Stock to Beverly A. Aden for a consideration of $250 in a
transaction exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
On May 2, 1997, the Predecessor issued to Joseph C. Cook, for services
rendered as a consultant, a non-transferrable, ten year warrant to purchase
20,000 shares of Predecessor Stock at a price of $1.00 per share in a
transaction exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
II-4
<PAGE>
On June 12, 1997, in connection with the execution of a related
employment agreement, the Predecessor issued to Todd J. Feist a
non-transferrable five year option to purchase 250,000 shares of Predecessor
Stock. This transaction was completed without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2)
thereof, no public offering being involved.
On June 16, 1997, the Predecessor issued to the stockholders of Great
Western Directories, Inc. non-transferable, ten-year warrants to purchase
2,000,000 shares of Predecessor Stock. This transaction was completed without
registration under the Securities Act in reliance upon the exemption afforded
by Section 4(2) of the Securities Act, no public offering being involved.
Pursuant to the Acquisition Agreements filed as Exhibits 2.1 through 2.10
and substantially concurrently with the consummation of the Offering, the
Company has agreed to issue an aggregate of shares of Common Stock, $17.4
million in promissory notes, $2.0 million in convertible subordinated notes
and 636,635 warrants or options to purchase Common Stock to the stockholders
of Great Western, Valu-Line, Feist Long Distance, FirsTel, Tele-Systems and
KINNET. These transactions will be completed without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2)
thereof, no public offering being involved.
On October 9, 1997, the Company issued to its parent, Advanced
Communications Corp., 1,000 shares of Common Stock for the consideration of
$1,000. Concurrently with the consummation of the Offering, Advanced
Communications Corp. will be merged with a subsidiary of the Company, will
become a subsidiary of the Company, and the stockholders of Advanced
Communications Corp. will receive one share of Common Stock of the Company
for each share of common stock they hold in Advanced Communications Corp.
These transactions will be completed without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2)
thereof, no public offering being involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ----------------------------------------------------------------------------------------
<S> <C> <C>
1.1 --Form of Underwriting Agreement.
2.1 --Restated Stock Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Great Western Directories, Inc. and the stockholders
of Great Western Directories, Inc.
2.2 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition Corp., Valu-Line of Longview,
Inc. and the shareholders of Valu-Line of Longview, Inc.
2.3 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., 1+USA Acquisition Corp., Feist Long Distance
Service, Inc. and the stockholders of Feist Long Distance Service, Inc.
2.4 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., FirsTel, Inc., the stockholders of FirsTel, Inc. and others.
2.5 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition II Corp., Tele-Systems, Inc.
and the stockholders of Tele-Systems, Inc.
2.6 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Long Distance Management II, Inc. and Robert
Alexander.
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ----------------------------------------------------------------------------------------
2.7 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Long Distance Management of Kansas, Inc., Robert
Alexander and others.
2.8 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Switchboard of Oklahoma City, Inc. and others.
2.9 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition II Corp. and Daniel W. and Cheryl
A. Peters.
2.10 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., KIN Network, Inc. and Liberty Cellular, Inc.
2.11 --Agreement of Merger dated as of October 9, 1997 among Advanced Communications Group, Inc.,
Advanced Communications Corp. and Advanced Communications Acquisition, Inc.
3.1 --Restated Certificate of Incorporation of ACG.
3.2 --Restated Bylaws of ACG.
*4.1 --Form of certificate representing Common Stock.
*5.1 --Opinion of Bracewell & Patterson, L.L.P.
10.1 --ACG 1997 Stock Awards Plan.
10.2 --Non-Qualified Stock Option Plan for Non-Employee Directors.
10.3 --Employment Agreement between ACG and Rod K. Cutsinger.
10.4 --Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
(see Annex V to Exhibit 2.1).
10.5 --Employment Agreement between 1+ USA V Acquisition Corp. and Todd Feist (see Annex III to
Exhibit 2.3).
10.6 --Form of Employment Agreement between Fred L. Thurman and FirsTel, Inc. (see Annex V to Exhibit
2.4).
*10.7 --Form of Indemnification Agreement entered into between ACG and each of its officers and
directors.
10.8 --Form of Employment Agreement between Larry Baldwin and Great Western Directories, Inc. (see
Annex VI to Exhibit 2.1).
10.9 --Form of Series A Warrant issued to shareholders of Great Western Directories, Inc.
10.10 --Form of Series B Warrant issued to shareholders of Great Western Directories, Inc.
10.11 --Form of Series C Warrant issued to shareholders of Great Western Directories, Inc.
10.12 --Form of Series D Warrant to be issued to shareholders of Great Western Directories, Inc.
(see Annex IV to Exhibit 2.1).
10.13 --Form of 5% Subordinated Note to be issued to shareholders of Great Western Directories,
Inc. (see Annex III to Exhibit 2.1).
10.14 --Form of 10% Convertible Subordinated Note to be issued to shareholders of FirsTel, Inc.
(see Annex III to Exhibit 2.4).
21.1 --List of subsidiaries of ACG.
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of KPMG Peat Marwick LLP.
23.3 --Consent of Clifton Gunderson P.L.L.C.
23.4 --Consent of Charles Bailly & Company P.L.L.P.
23.5 --Consent of Hein & Associates LLP.
23.6 --Consent of Sartain Fischbein & Co.
23.7 --Consent of Kennedy and Coe LLC.
23.8 --Consent of Richard O'Neal to be named as a director.
II-6
<PAGE>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ----------------------------------------------------------------------------------------
23.9 --Consent of Todd J. Feist to be named as a director.
23.10 --Consent of Fentress Bracewell to be named as a director.
23.11 --Consent of E. Clarke Garnett to be named as a director.
23.12 --Consent of David M. Mitchell to be named as a director.
23.13 --Consent of Fred L. Thurman to be named as a director.
23.14 --Consent of Bracewell & Patterson, L.L.P. (contained in Exhibit 5.1).
24.1 --Power of Attorney (included on the Signature Page of this Registration Statement).
27.1 --Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required under the
related instructions, are inapplicable, or the information is included in the
consolidated financial statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 14, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective; (ii) for the purpose of determining
any liability under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ADVANCED
COMMUNICATIONS GROUP, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR
AMENDMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON OCTOBER 10, 1997.
ADVANCED COMMUNICATIONS GROUP, INC.
By: ROD K. CUTSINGER
-------------------------------------
ROD K. CUTSINGER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Rod K. Cutsinger and G. Edward Powell with
full power to act without the other, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing)
to sign any and all amendments (including post-effective amendments and
amendments thereto) to this Registration Statement, including any
Registration Statement filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might do or could do in person thereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute,
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
CAPACITIES IN
SIGNATURE WHICH SIGNED DATE
- -------------------- --------------------------------- --------------------
<S> <C> <C>
ROD K. CUTSINGER Chairman and Chief Executive
-------------------- Officer and Director (Principal
ROD K. CUTSINGER Executive Officer) October 10, 1997
G. EDWARD POWELL Chief Financial Officer and
-------------------- Director (Principal Financial and
G. EDWARD POWELL Accounting Officer) October 10, 1997
FRANK BANGO Director October 10, 1997
--------------------
FRANK BANGO
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ----------------------------------------------------------------------------------------
<S> <C> <C>
1.1 --Form of Underwriting Agreement.
2.1 --Restated Stock Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Great Western Directories, Inc. and the stockholders
of Great Western Directories, Inc.
2.2 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition Corp., Valu-Line of Longview,
Inc. and the shareholders of Valu-Line of Longview, Inc.
2.3 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., 1+USA Acquisition Corp., Feist Long Distance
Service, Inc. and the stockholders of Feist Long Distance Service, Inc.
2.4 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., FirsTel, Inc., the stockholders of FirsTel, Inc. and others.
2.5 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition II Corp., Tele-Systems, Inc.
and the stockholders of Tele-Systems, Inc.
2.6 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Long Distance Management II, Inc. and Robert
Alexander.
2.7 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Long Distance Management of Kansas, Inc., Robert
Alexander and others.
2.8 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., Switchboard of Oklahoma City, Inc. and others.
2.9 --Restated Asset Purchase Agreement dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., ACG Acquisition II Corp. and Daniel W. and Cheryl
A. Peters.
2.10 --Agreement and Plan of Exchange dated as of October 6, 1997, by and among Advanced Communications
Group, Inc., Advanced Communications Corp., KIN Network, Inc. and Liberty Cellular, Inc.
2.11 --Agreement of Merger dated as of October 9, 1997 among Advanced Communications Group, Inc.,
Advanced Communications Corp. and Advanced Communications Acquisition, Inc.
3.1 --Restated Certificate of Incorporation of ACG.
3.2 --Restated Bylaws of ACG.
*4.1 --Form of certificate representing Common Stock.
*5.1 --Opinion of Bracewell & Patterson, L.L.P.
10.1 --ACG 1997 Stock Awards Plan.
10.2 --Non-Qualified Stock Option Plan for Non-Employee Directors.
10.3 --Employment Agreement between ACG and Rod K. Cutsinger.
10.4 --Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
(see Annex V to Exhibit 2.1).
10.5 --Employment Agreement between 1+ USA V Acquisition Corp. and Todd Feist (see Annex III to
Exhibit 2.3).
10.6 --Form of Employment Agreement between Fred L. Thurman and FirsTel, Inc. (see Annex V to Exhibit
2.4).
*10.7 --Form of Indemnification Agreement entered into between ACG and each of its officers and
directors.
10.8 --Form of Employment Agreement between Larry Baldwin and Great Western Directories, Inc. (see
Annex VI to Exhibit 2.1).
10.9 --Form of Series A Warrant issued to shareholders of Great Western Directories, Inc.
10.10 --Form of Series B Warrant issued to shareholders of Great Western Directories, Inc.
10.11 --Form of Series C Warrant issued to shareholders of Great Western Directories, Inc.
10.12 --Form of Series D Warrant to be issued to shareholders of Great Western Directories, Inc.
(see Annex IV to Exhibit 2.1).
10.13 --Form of 5% Subordinated Note to be issued to shareholders of Great Western Directories,
Inc. (see Annex III to Exhibit 2.1).
10.14 --Form of 10% Convertible Subordinated Note to be issued to shareholders of FirsTel, Inc.
(see Annex III to Exhibit 2.4).
21.1 --List of subsidiaries of ACG.
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of KPMG Peat Marwick LLP.
23.3 --Consent of Clifton Gunderson P.L.L.C.
23.4 --Consent of Charles Bailly & Company P.L.L.P.
23.5 --Consent of Hein & Associates LLP.
23.6 --Consent of Sartain Fischbein & Co.
23.7 --Consent of Kennedy and Coe LLC.
23.8 --Consent of Richard O'Neal to be named as a director.
23.9 --Consent of Todd J. Feist to be named as a director.
23.10 --Consent of Fentress Bracewell to be named as a director.
23.11 --Consent of E. Clarke Garnett to be named as a director.
23.12 --Consent of David M. Mitchell to be named as a director.
23.13 --Consent of Fred L. Thurman to be named as a director.
23.14 --Consent of Bracewell & Patterson, L.L.P. (contained in Exhibit 5.1).
24.1 --Power of Attorney (included on the Signature Page of this Registration Statement).
27.1 --Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
<PAGE>
DRAFT 10/9/97
________________ Shares
ADVANCED COMMUNICATIONS GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
___________, 1997
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Advanced Communications Group, Inc., a Delaware corporation
(the "Company"), proposes to sell an aggregate of _______ shares (the "Firm
Shares") of the Company's Common Stock, $.0001 par value per share (the "Common
Stock"), to you and to the other underwriters named in Schedule I
(collectively, the "Underwriters"), for whom you are acting as representatives
(the "Representatives"). The Company has also agreed to grant to you and the
other Underwriters an option (the "Option") to purchase up to an additional
______ shares of Common Stock (the "Option Shares") on the terms and for the
purposes set forth in Section 1(b). The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."
The initial public offering price per share for the Shares
and the purchase price per share for the Shares to be paid by the several
Underwriters shall be agreed upon by the Company and the Representatives,
acting on behalf of the several Underwriters, and such agreement shall be set
forth in a separate written instrument substantially in the form of Exhibit A
hereto (the "Price Determination Agreement"). The Price Determination
<PAGE>
Agreement may take the form of an exchange of any standard form of written
telecommunication among the Company and the Representatives and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and, unless the context otherwise indicates, all references
contained herein to "this Agreement" and to the phrase "herein" shall be deemed
to include the Price Determination Agreement.
The Company confirms as follows its agreements with the
Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations,
warranties and agreements of the Company herein contained and subject to all
the terms and conditions of this Agreement, the Company agrees to sell to each
Underwriter named below, and each Underwriter, severally and not jointly,
agrees to purchase from the Company at the purchase price per share for the
Firm Shares to be agreed upon by the Representatives and the Company in
accordance with Section 1(c) or 1(d) hereof and set forth in the Price
Determination Agreement, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I, plus such additional number of Firm Shares
which such Underwriter may become obligated to purchase pursuant to Section 8
hereof. Schedule I may be attached to the Price Determination Agreement.
(b) Subject to all the terms and conditions of
this Agreement, the Company grants the Option to the several Underwriters to
purchase, severally and not jointly, up to ___ Option Shares from the Company
at the same price per share as the Underwriters shall pay for the Firm Shares.
The Option may be exercised only to cover over-allotments in the sale of the
Firm Shares by the Underwriters and may be exercised in whole or in part at any
time (but not more than once) on or before the 45th day after the date of this
Agreement (or, if the Company has elected to rely on Rule 430A, on or before
the 45th day after the date of the Price Determination Agreement), upon written
or telegraphic notice (the "Option Shares Notice") by the Representatives to
the Company no later than 12:00 noon, New York City time, at least two and no
more than five business days before the date specified for closing in the
Option Shares Notice (the "Option Closing Date") setting forth the aggregate
number of Option Shares to be purchased and the time and date for such
purchase. On the Option Closing Date, the Company will issue and sell to the
Underwriters the number of Option Shares set forth in the Option Shares Notice,
and each Underwriter will purchase such percentage of the Option Shares as is
equal to the percentage of Firm Shares that such Underwriter is purchasing, as
adjusted by the Representatives in such manner as they deem advisable to avoid
fractional shares.
2
<PAGE>
(c) The initial public offering price per share
for the Firm Shares and the purchase price per share for the Firm Shares to be
paid by the several Underwriters shall be agreed upon and set forth in the
Price Determination Agreement, if the Company has elected to rely on Rule 430A.
In the event such price has not been agreed upon and the Price Determination
Agreement has not been executed by the close of business on the fourteenth
business day following the date on which the Registration Statement (as
hereinafter defined) becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Section 6 shall remain in effect.
(d) If the Company has elected not to rely on
Rule 430A, the initial public offering price per share for the Firm Shares and
the purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be agreed upon and set forth in the Price Determination
Agreement, which shall be dated the date hereof, and an amendment to the
Registration Statement containing such per share price information shall be
filed before the Registration Statement becomes effective.
2. Delivery and Payment. Delivery of the Firm Shares
shall be made to the Representatives [for the accounts of the Underwriters at
the office of PaineWebber Incorporated, 1285 Avenue of the Americas, New York,
New York 10019], against payment of the purchase price by [Federal Reserve
Funds check payable in immediately available funds to the order of the Company]
[by wire transfer of Federal Funds or similar same day funds to an account
designated in writing by the Company to PaineWebber Incorporated at least one
business day prior to the Closing Date (as hereinafter defined)]. Such payment
shall be made at 10:00 a.m., New York City time, on the third business day (or
fourth business day, if the Price Determination Agreement is executed after
4:30 p.m.) after the date on which the first bona fide offering of the Shares
to the public is made by the Underwriters or at such time on such other date,
not later than ten business days after such date, as may be agreed upon by the
Company and the Representatives (such date is hereinafter referred to as the
"Closing Date").
To the extent the Option is exercised, delivery of the Option
Shares against payment by the Underwriters (in the manner specified above) will
take place at the offices specified above for the Closing Date at the time and
date (which may be the Closing Date) specified in the Option Shares Notice.
[Certificates evidencing the Shares shall be in definitive
form and shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.]
3
<PAGE>
The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Firm Shares and Option Shares by the
Company to the respective Underwriters shall be borne by the Company. The
Company will pay and save each Underwriter and any subsequent holder of the
Shares harmless from any and all liabilities with respect to or resulting from
any failure or delay in paying Federal and state stamp and other transfer
taxes, if any, which may be payable or determined to be payable in connection
with the original issuance or sale to such Underwriter of the Firm Shares and
Option Shares.
3. Representations and Warranties of the Company. The
Company represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No. ) on
Form S-1 relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the date
of this Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A")
of the Rules and Regulations included at any time as part of the registration
statement. Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives. The
term "Registration Statement" means the registration statement as amended at
the time it becomes or became effective (the "Effective Date"), including
financial statements and all exhibits and any information deemed to be included
by Rule 430A or Rule 434 of the Rules and Regulations. If the Company files a
registration statement to register a portion of the Shares and relies on Rule
462(b) of the Rules and Regulations for such registration statement to become
effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to the "Registration Statement" shall be deemed
to include the Rule 462 Registration Statement, as amended from time to time.
The term "Prospectus" means the prospectus as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is
required, the form of final prospectus included in the Registration Statement
at the Effective Date.
(b) On the Effective Date, the date the Prospectus
is first filed with the Commission pursuant to Rule 424(b) (if required), at
all times subsequent to and including the Closing Date and, if later, the
Option Closing Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the Prospectus is
filed with the Commission, the Registration Statement and the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment or supplement thereto), including the financial statements
included in the Prospectus, did or will comply with all applicable provisions
of the Act and
4
<PAGE>
the Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not or will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. For all purposes of this
Agreement, the amounts of the selling concession and reallowance set forth in
the Prospectus constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus. The Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration Statement,
the preliminary prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
(c) The only subsidiaries (as defined in the Rules
and Regulations) of the Company are the subsidiaries listed on Exhibit 21 to
the Registration Statement (the "Subsidiaries"). The Company and each of its
Subsidiaries is, and at the Closing Date will be, a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. The Company and each of its Subsidiaries has, and at the Closing
Date will have, full power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it and to
conduct its business as described in the Registration Statement and the
Prospectus. The Company and each of its Subsidiaries is, and at the Closing
Date will be, duly licensed or qualified to do business and in good standing as
a foreign corporation in all jurisdictions in which the nature of the
activities conducted by it or the character of the assets owned or leased by it
makes such licensing or qualification necessary. All of the outstanding shares
of capital stock of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company free
and clear of all liens, encumbrances and claims whatsoever. Except for the
stock of the Subsidiaries and as disclosed in the Registration Statement, the
Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the certificate of incorporation and of the by-laws of the Company
and each of its Subsidiaries and all amendments thereto have been delivered to
the Representatives, and no changes therein
5
<PAGE>
will be made subsequent to the date hereof and prior to the Closing Date or, if
later, the Option Closing Date.
(d) The outstanding shares of Common Stock have
been, and the Shares to be issued and sold by the Company upon such issuance
will be, duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right. The description of the
Common Stock in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all respects. Except as set
forth in the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of Common
Stock, any shares of capital stock of any Subsidiary or any such warrants,
convertible securities or obligations.
(e) The financial statements and schedules included
in the Registration Statement or the Prospectus present fairly the consolidated
financial condition of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved, except as otherwise disclosed in the Prospectus. The pro forma
financial statements and other pro forma financial information included in the
Registration Statement or the Prospectus (i) present fairly in all material
respects the information shown therein, (ii) have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements and (iii) have been properly computed on the bases described
therein. The assumptions used in the preparation of the pro forma financial
statements and other pro forma financial information included in the
Registration Statement or the Prospectus are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein. No other financial statements or schedules
of the Company are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. KPMG Peat Marwick
LLP, Clifton Gunderson P.L.L.C., Hein & Associates LLP, Charles Bailly &
Company P.L.L.P., Kennedy and Coe, LLC and Sartain Fischbein & Co. (the
"Accountants") who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The statements included in the Registration
Statement with respect to the Accountants pursuant to Rule 509 of Regulation
S-K of the Rules and Regulations are true and correct in all material respects.
(f) The Company maintains a system of internal
accountings control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets;
6
<PAGE>
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company, or in the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, arising for any reason whatsoever, (ii)
neither the Company nor any of its Subsidiaries has incurred nor will it incur
any material liabilities or obligations, direct or contingent, nor has it
entered into nor will it enter into any material transactions other than
pursuant to this Agreement and the transactions referred to herein and (iii)
the Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock.
(h) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended.
(i) Except as set forth in the Registration
Statement and the Prospectus, there are no actions, suits or proceedings
pending or threatened against or affecting the Company or any of its
Subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely
affect the Company or any of its Subsidiaries or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations.
(j) The Company and each of its Subsidiaries has,
and at the Closing Date will have, (i) all governmental licenses, permits,
consents, orders, approvals and other authorizations necessary to carry on its
business as contemplated in the Prospectus, (ii) complied in all respects with
all laws, regulations and orders applicable to it or its business and (iii)
performed all its obligations required to be performed by it, and is not, and
at the Closing Date will not be, in default, under any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement, lease, contract or other agreement or instrument (collectively, a
"contract or other agreement") to which it is a party or by which its property
is bound or affected. To the best knowledge of the Company and each of its
Subsidiaries, no other party under any contract or other agreement to which it
is a party is in default in any respect thereunder. Neither the Company nor any
of its Subsidiaries is, nor at the Closing Date will any of them be, in
violation of any provision of its certificate of incorporation or by-laws.
7
<PAGE>
(k) No consent, approval, authorization or order of,
or any filing or declaration with, any court or governmental agency or body is
required in connection with the authorization, issuance, transfer, sale or
delivery of the Shares by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in connection with
the taking by the Company of any action contemplated hereby, except such as
have been obtained under the Act or the Rules and Regulations and such as may
be required under state securities or Blue Sky laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution by the Underwriters of the Shares.
(l) The Company has full corporate power and
authority to enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with the terms hereof. The performance of this Agreement and the
consummation of the transactions contemplated hereby and the application of the
net proceeds from the offering and sale of the Shares in the manner set forth
in the Prospectus under "Use of Proceeds" will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company or any of its Subsidiaries pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, any contract or other agreement to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any of its properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company or any of its Subsidiaries.
(m) The Company and each of its Subsidiaries has
good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Prospectus or are not
material to the business of the Company or its Subsidiaries. The Company and
each of its Subsidiaries has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such exceptions as
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company and such Subsidiaries.
(n) The Company and its Subsidiaries (i) are in
compliance with any and all applicable federal, state and local laws and
regulations relating to telecommunications ("Telecommunications Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Telecommunications Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval.
8
<PAGE>
(o) There is no document or contract of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not described or
filed as required. All such contracts to which the Company or any Subsidiary is
a party have been duly authorized, executed and delivered by the Company or
such Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against the Company or such Subsidiary in
accordance with the terms thereof.
(p) No statement, representation, warranty or
covenant made by the Company in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Representatives was
or will be, when made, inaccurate, untrue or incorrect.
(q) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any action
intended, or which might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares.
(r) No holder of securities of the Company has
rights to the registration of any securities of the Company because of the
filing of the Registration Statement.
(s) Prior to the Closing Date, the Shares will be
duly authorized for listing by the New York Stock Exchange upon official notice
of issuance.
(t) The Company and its Subsidiaries are in
compliance with all federal, state and local employment and labor laws,
including, but not limited to, laws relating to non-discrimination in hiring,
promotion and pay of employees; no labor dispute with the employees of the
Company or any Subsidiary exists or, to the knowledge of the Company, is
imminent or threatened; and the Company is not aware of any existing, imminent
or threatened labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in a material adverse
effect on the condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company and its
Subsidiaries, taken as a whole.
(u) The Company and its Subsidiaries own, or are
licensed or otherwise have the full exclusive right to use, the material
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, services marks
and trade names (collectively, "patent and proprietary rights") presently
employed by them or which are necessary in connection with the conduct of the
business now operated by them, and neither the Company nor any of its
Subsidiaries has received
9
<PAGE>
any written notice or otherwise has actual knowledge of any infringement of or
conflict with asserted rights of others or any other claims with respect to any
patent or proprietary rights, or of any basis for rendering any patent and
proprietary rights invalid or inadequate to protect the interest of the Company
or any of its Subsidiaries.
(v) Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation or
of a character required to be disclosed in the Prospectus.
(w) The Company has complied, and until the
completion of the distribution of the Shares will comply, with all of the
provisions of (including, without limitation, filing all forms required by)
Section 517.075 of the Florida Securities and Investor Protection Act and
Regulation 3E-900.001 issued thereunder with respect to the offering and sale
of the Shares.
(x) The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or imposing liability or standards of conduct concerning any
Hazardous Material (as hereinafter defined) ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate result in a material adverse effect on the
condition (financial or otherwise) or on the earnings, business, properties,
business prospects or operations of the Company and its Subsidiaries, taken as
a whole. The term "Hazardous Material" means (A) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (B) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (C) any petroleum or petroleum
product, (D) any polychlorinated biphenyl and (E) any pollutant or contaminant
or hazardous, dangerous, or toxic chemical, material, waste or substance
regulated under or within the meaning of any other Environmental Law.
(y) In the ordinary course of its business, the
Company conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its Subsidiaries, in the
course of which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on
10
<PAGE>
operating activities and any potential liabilities to third parties). Except as
set forth in the Registration Statement and the Prospectus there are no costs
and liabilities associated with or arising in connection with Environmental
Laws as currently in effect (including, without limitation, costs of compliance
therewith) which would, singly or in the aggregate have a material adverse
effect on the condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company and its
Subsidiaries, taken as a whole.
(z) The Company maintains insurance with respect to
its properties and business of the types and in amounts generally deemed
adequate for its business and consistent with insurance coverage maintained by
similar companies and businesses, all of which insurance is in full force and
effect.
(aa) The Company has filed all material federal,
state and foreign income and franchise tax returns and has paid all taxes shown
as due thereon, other than taxes which are being contested in good faith and
for which adequate reserves have been established in accordance with generally
accepted accounting principles ("GAAP"); and the Company has no knowledge of
any tax deficiency which has been or might be asserted or threatened against
the Company. There are no tax returns of the Company or any of its Subsidiaries
that are currently being audited by state, local or federal taxing authorities
or agencies (and with respect to which the Company or any Subsidiary has
received notice), where the findings of such audit, if adversely determined,
would result in a material adverse effect on the condition (financial or
otherwise) or on the earnings, business, properties, business prospects or
operations of the Company and its Subsidiaries, taken as a whole.
(bb) With respect to each employee benefit plan,
program and arrangement (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) maintained or contributed to by the Company, or
with respect to which the Company could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the best
knowledge of the Company, there exists no condition or set of circumstances, in
connection with which the Company could be subject to any liability under the
terms of such Benefit Plan, applicable law (including, without limitation,
ERISA and the Internal Revenue Code of 1986, as amended) or any applicable
agreement that could materially adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole.
4. Agreements of the Company. The Company agrees with
the several Underwriters as follows:
11
<PAGE>
(a) The Company will not, either prior to the
Effective Date or thereafter during such period as the Prospectus is required
by law to be delivered in connection with sales of the Shares by an Underwriter
or dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective, and will notify the
Representatives promptly, and will confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the Commission for
amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (4) of
the happening of any event during the period mentioned in the second sentence
of Section 4(e) that in the judgment of the Company makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading and (5) of receipt by the Company or any representative or
attorney of the Company of any other communication from the Commission relating
to the Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. The Company will use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
Rule 430A and to notify the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives,
without charge, two signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto and will furnish to the Representatives, without
charge, for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
(d) The Company will comply with all the provisions
of any undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time
to time, the Company will deliver to each of the Underwriters, without charge,
as many copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the several Underwriters
and by all dealers to whom the Shares may
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be sold, both in connection with the offering or sale of the Shares and for any
period of time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the Underwriters
should be set forth in the Prospectus in order to make any statement therein,
in the light of the circumstances under which it was made, not misleading, or
if it is necessary to supplement or amend the Prospectus to comply with law,
the Company will forthwith prepare and duly file with the Commission an
appropriate supplement or amendment thereto, and will deliver to each of the
Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request.
(f) Prior to any public offering of the Shares by
the Underwriters, the Company will cooperate with the Representatives and
counsel to the Underwriters in connection with the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Representatives may request; provided, that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it is not
now so subject.
(g) During the period of five years commencing on
the Effective Date, the Company will furnish to the Representatives and each
other Underwriter who may so request copies of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock, and will
furnish to the Representatives and each other Underwriter who may so request a
copy of each annual or other report it shall be required to file with the
Commission.
(h) The Company will make generally available to
holders of its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which need
not be audited but shall be in reasonable detail) for a period of 12 months
ended commencing after the Effective Date, and satisfying the provisions of
Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
will pay, or reimburse if paid by the Representatives, all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including but not limited to costs and expenses of or relating to
(1) the preparation, printing and filing of the Registration Statement and
exhibits to it, each preliminary prospectus, the Prospectus and any amendment
or supplement to the Registration Statement or the Prospectus, (2) the
preparation and delivery of certificates representing the Shares, (3) the word
processing, printing and reproduction of this Agreement, the Agreement Among
Underwriters, any
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Dealer Agreements and any Underwriters' Questionnaire, (4) furnishing
(including costs of shipping, mailing and courier) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (5) the listing of the Shares on the New York Stock
Exchange, (6) any filings required to be made by the Underwriters with the
NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (7) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) counsel to the Company, (9) the transfer agent
for the Shares and (10) the Accountants.
(j) If this Agreement shall be terminated by the
Company pursuant to any of the provisions hereof (otherwise than pursuant to
Section 8) or if for any reason the Company shall be unable to perform its
obligations hereunder, the Company will reimburse the several Underwriters for
all out-of-pocket expenses (including the fees, disbursements and other charges
of counsel to the Underwriters) reasonably incurred by them in connection
herewith.
(k) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and shall file such reports
with the Commission with respect to the sale of the Shares and the application
of the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(m) Except as provided in this Agreement, during the
period of 180 days commencing at the Closing Date, the Company will not,
without the prior written consent of PaineWebber Incorporated, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of or file any shelf registration statement or any registration other
than the Registration Statement with the Commission for any Common Stock or
securities convertible into or exercisable or exchangeable for Common Stock,
other than to the Underwriters pursuant to this Agreement and other than
pursuant to employee benefit plans, provided, that the Company will not grant
options to purchase shares of Common Stock pursuant to such employee benefit
plans at a price less than the initial public offering price, except that the
Company may (i) issue on the Closing Date the shares of Common Stock to be
issued in connection with the acquisitions to be
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consummated on the Closing Date, as described in the Registration Statement, so
long as the purchasers of such shares agree to be bound by a lock-up agreement
with the Representatives in the form set forth in Exhibit B to the effect that
they will not, for a period of 365 days after the commencement of the public
offering of the Shares ("Lock-Up Period"), without written consent of
PaineWebber Incorporated, sell, contract to sell or otherwise dispose of any of
such shares at any time before the expiration of the Lock-Up Period and the
certificates evidencing such shares bear a legend to such effect, [(ii) issue
up to _____ shares of Common Stock ("Acquisition Shares") during the Lock-Up
Period in connection with additional acquisitions so long as the purchasers of
such Acquisition Shares agree to be bound by the lock-up agreement with the
Representatives in the form set forth in Exhibit B to the effect that they will
not, without written consent of PaineWebber Incorporated, sell, contract to
sell or otherwise dispose of any of such shares at any time before the
expiration of the Lock-Up Period and the certificates evidencing such
Acquisition Shares bear a legend to such effect, [(iii) issue shares of Common
Stock during the LockUp Period pursuant to the (x) conversion of the Company's
convertible notes ("Convertible Notes"), and (y) exercise of warrants
("Warrants") issued by the Company as described in the Registration Statement,
so long as the holders of the Convertible Notes and Warrants agree to be bound
by the lock-up agreement with the Representatives in the form set forth in
Exhibit B to the effect that they will not without written consent of
PaineWebber Incorporated, sell, contract to sell or otherwise dispose of any of
such shares at any time before the expiration of the Lock-Up Period and the
certificates evidencing such shares bear a legend to such effect, and (iv)
grant awards and permit the exercise of awards granted pursuant to the
Company's 1997 Stock Awards Plan.
(n) The Company will cause each of its executive
officers, directors and each beneficial owner of more than 5% of the
outstanding shares of Common Stock and each beneficial owner of Convertible
Notes, Warrants and Acquisition Shares to enter into agreements with the
Representatives in the form set forth in Exhibit B to the effect that they will
not, for a period of 365 days after the commencement of the public offering of
the Shares, without the prior written consent of PaineWebber Incorporated,
sell, contract to sell or otherwise dispose of any of such Shares, Convertible
Notes, Warrants and Acquisition Shares (other than pursuant to employee stock
option plans or in connection with other employee incentive compensation
arrangements).
(o) The Company will cause Rod K. Cutsinger, the
Chairman of the Board of Directors and Chief Executive Officer of the Company
to enter into an agreement with the Representatives in the form set forth in
Exhibit C to the effect that he will not, for a period ending on March 31,
1999, without the prior written consent of PaineWebber Incorporated, sell,
contract to sell or otherwise dispose of any shares of Common Stock held by
him.
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<PAGE>
5. Conditions of the Obligations of the Underwriters.
In addition to the execution and delivery of the Price Determination Agreement,
the obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has
become effective shall be received by the Representatives not later than 5:00
p.m., New York City time, on the date of this Agreement or at such later date
and time as shall be consented to in writing by the Representatives and all
filings required by Rule 424 of the Rules and Regulations and Rule 430A shall
have been made.
(b) (i) No stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities and (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith, and the Representatives
shall have received certificates, dated the Closing Date and the Option Closing
Date and signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their information and
belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
there shall not have been, and no development shall have occurred which could
reasonably be expected to result in, a material adverse change in the general
affairs, business, business prospects, properties, management, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) neither
the Company nor any of its Subsidiaries shall have sustained any material loss
or interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the Prospectus, if in
the judgment of the Representatives any such development makes it impracticable
or inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the initial public offering price.
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(d) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no litigation or other proceeding instituted against the
Company or any of its Subsidiaries or any of their respective officers or
directors in their capacities as such, before or by any Federal, state or local
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding would materially and adversely affect the business,
properties, business prospects, condition (financial or otherwise) or results
of operations of the Company and its Subsidiaries taken as a whole.
(e) Each of the representations and warranties of
the Company contained herein shall be true and correct in all material respects
at the Closing Date and, with respect to the Option Shares, at the Option
Closing Date, as if made at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and, with respect to the Option Shares, at or prior to the Option
Closing Date, shall have been duly performed, fulfilled or complied with.
(f) The Representatives shall have received an
opinion, dated the Closing Date and, with respect to the Option Shares, the
Option Closing Date, and satisfactory in form and substance to counsel for the
Underwriters, from Bracewell & Patterson, counsel to the Company, to the effect
set forth in Exhibit D.
(g) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, from Morgan, Lewis
& Bockius LLP, counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be
satisfactory in all respects to the Representatives.
(h) On the date of the Prospectus, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules
and Regulations and with respect to the financial and other statistical and
numerical information contained in the Registration Statement. At the Closing
Date and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter from the Accountants, that nothing has come
to their attention during the period from the date of the letter referred to in
the prior sentence to a date (specified in the letter) not more than five days
prior to the Closing Date and the Option Closing Date which would require any
change in their letter dated the date of the Prospectus, if it were required to
be dated and delivered at the Closing Date and the Option Closing Date.
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(i) At the Closing Date and, as to the Option
Shares, the Option Closing Date, there shall be furnished to the
Representatives an accurate certificate, dated the date of its delivery, signed
by each of the Chief Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Representatives, to the
effect that:
(i) Each signer of such certificate has
carefully examined the Registration Statement and the Prospectus and (A) as of
the date of such certificate, such documents are true and correct in all
material respects and do not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not untrue
or misleading and (B) since the Effective Date, no event has occurred as a
result of which it is necessary to amend or supplement the Prospectus in order
to make the statements therein not untrue or misleading in any material
respect;
(ii) Each of the representations and
warranties of the Company contained in this Agreement were, when originally
made, and are, at the time such certificate is delivered, true and correct in
all material respects;
(iii) Each of the covenants required herein
to be performed by the Company on or prior to the delivery of such certificate
has been duly, timely and fully performed and each condition herein required to
be complied with by the Company on or prior to the date of such certificate has
been duly, timely and fully complied with; and
(iv) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (A)
there has not been, and no development has occurred which could reasonably be
expected to result in, a material adverse change in the general affairs,
business, business prospects, properties, management, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement and the Prospectus and (B) neither the Company nor any
of its Subsidiaries has sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, and such other matters
as the Representatives may reasonably request.
(j) On or prior to the Closing Date, the
Representatives shall have received the executed agreements referred to in
Section 4(n).
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(k) The Shares shall be qualified for sale in such
states as the Representatives may reasonably request, each such qualification
shall be in effect and not subject to any stop order or other proceeding on the
Closing Date and the Option Closing Date.
(l) Prior to the Closing Date, the Shares shall have
been duly authorized for listing by the New York Stock Exchange upon official
notice of issuance.
(m) The National Association of Securities Dealers,
Inc. shall have approved the underwriting terms and arrangements and such
approval shall not have been withdrawn or limited.
(n) The Company shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder, or as to the fulfillment of the conditions concurrent
and precedent to the obligations hereunder of the Representatives.
6. Indemnification.
(a) The Company will indemnify and hold harmless
each Underwriter, the directors, officers, employees and agents of each
Underwriter and each person, if any, who controls each Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid
in settlement of, any action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted), as and when incurred, to
which any Underwriter, or any such person, may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities, expenses
or damages arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment or supplement to
the Registration Statement or the Prospectus or in any application or other
document executed by or on behalf of the Company or based on written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the Securities Laws thereof or filed with
the Commission, (ii) the omission or alleged omission to state in such document
a material fact required to be stated in it or necessary to make the statements
in it not misleading or (iii) any act or failure to act or any alleged act or
failure
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to act by any Underwriter in connection with, or relating in any manner to, the
Shares or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided that the
Company shall not be liable under this clause (iii) to the extent it is finally
judicially determined by a court of competent jurisdiction that such loss,
claim, liability, expense or damage resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such underwriter through
its gross negligence or willful misconduct); provided that the Company will not
be liable to the extent that such loss, claim, liability, expense or damage
arises from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of any Underwriter expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company might
otherwise have.
(b) Each Underwriter will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives on behalf of such Underwriter expressly for
use in the Registration Statement, the Preliminary Prospectus or the
Prospectus. This indemnity will be in addition to any liability that each
Underwriter might otherwise have; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discounts and commissions received by such Underwriter.
(c) Any party that proposes to assert the right to
be indemnified under this Section 6 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 6, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under the foregoing provisions of this Section 6 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly
notified, to assume
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the defense of the action, with counsel satisfactory to the indemnified party,
and after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to
the indemnified party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred by
the indemnified party in connection with the defense. The indemnified party
will have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 6 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
Notwithstanding any other provision of this Section 6 (c), if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this
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Section 6 is applicable in accordance with its terms but for any reason is held
to be unavailable from the Company or the Underwriters, the Company and the
Underwriters will contribute to the total losses, claims, liabilities, expenses
and damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters, such as
persons who control the Company within the meaning of the Act, officers of the
Company who signed the Registration Statement and directors of the Company, who
also may be liable for contribution) to which the Company and any one or more
of the Underwriters may be subject in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand and
the Underwriters on the other. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. If, but only if, the allocation
provided by the foregoing sentence is not permitted by applicable law, the
allocation of contribution shall be made in such proportion as is appropriate
to reflect not only the relative benefits referred to in the foregoing sentence
but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Representatives on behalf of the Underwriters,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 6(d)
shall be deemed to include, for purpose of this Section 6(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts and commissions received by
it and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 6(d) are
several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section 6(d), any person who controls a party to
this Agreement within the meaning of the
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Act will have the same rights to contribution as that party, and each officer
of the Company who signed the Registration Statement will have the same rights
to contribution as the Company, subject in each case to the provisions hereof.
Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 6(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify
will not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 6 (d). Except for a
settlement entered into pursuant to the last sentence of Section 6 (c) hereof,
no party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
(e) The indemnity and contribution agreements
contained in this Section 6 and the representations and warranties of the
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of the Shares and payment therefore or (iii) any
termination of this Agreement.
7. Termination. The obligations of the several
Underwriters under this Agreement may be terminated at any time on or prior to
the Closing Date (or, with respect to the Option Shares, on or prior to the
Option Closing Date), by notice to the Company from the Representatives,
without liability on the part of any Underwriter to the Company, if, prior to
delivery and payment for the Shares (or the Option Shares, as the case may be),
in the sole judgment of the Representatives, (i) there has been, since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the Company's business, properties,
business prospects, condition (financial or otherwise) or results of
operations, (ii) trading in any of the equity securities of the Company shall
have been suspended by the Commission, the NASD, by an exchange that lists the
Shares or by the Nasdaq Stock Market, (iii) trading in securities generally on
the New York Stock Exchange or the Nasdaq Stock Market shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on such exchange or over the counter market, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange or by
order of the Commission or the NASD or any court or other governmental
authority, (iv) a general banking moratorium shall have been declared by either
Federal or New York State authorities or (v) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis shall have occurred the effect of
any of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus.
23
<PAGE>
8. Substitution of Underwriters. If any one or more of
the Underwriters shall fail or refuse to purchase any of the Firm Shares which
it or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bears to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Representatives
may specify; provided that in no event shall the maximum number of Firm Shares
which any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 8 by more than one-ninth of the number of
Firm Shares agreed to be purchased by such Underwriter without the prior
written consent of such Underwriter. If any Underwriter or Underwriters shall
fail or refuse to purchase any Firm Shares and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase exceeds one-tenth of the aggregate number of the Firm
Shares and arrangements satisfactory to the Representatives and the Company for
the purchase of such Firm Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company for the purchase or sale of any
Shares under this Agreement. In any such case either the Representatives or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the office of
the Company, 3355 West Alabama, Suite 580, Houston, Texas 77098, Attention: Rod
K. Cutsinger, or (b) if to the Underwriters, to the Representatives at the
offices of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New
York 10019, Attention: [Reginald J. Hollinger], Corporate Finance Department.
Any such notice shall be effective only upon receipt. Any notice under Section
7 or 8 may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit of
the several Underwriters and the Company and of the controlling persons,
directors and officers referred to in Section 6, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors
24
<PAGE>
and assigns" as used in this Agreement shall not include a purchaser, as such
purchaser, of Shares from any of the several Underwriters.
All representations, warranties and agreements of the Company
contained herein or in certificates or other instruments delivered pursuant
hereto, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any of its controlling
persons and shall survive delivery of and payment for the Shares hereunder.
Any action required or permitted to be taken by the
Representatives under this Agreement may be taken by them jointly or by
PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
This Agreement may be signed in two or more counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably
waive any right they may have to a trial by jury in respect of any claim based
upon or arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or
any provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
ADVANCED COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
Title:
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
Acting on behalf of themselves
and as the Representatives of the
other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By:
------------------------------------
Title:
OPPENHEIMER & CO., INC.
By:
------------------------------------
By:
------------------------------------
26
<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Name of Firm Shares
Underwriters to be Purchased
- ------------ ---------------
PaineWebber Incorporated
Oppenheimer & Co., Inc.
Total......................................................
----------------
----------------
1
<PAGE>
EXHIBIT A
ADVANCED COMMUNICATIONS GROUP, INC.
- ---------------------
PRICE DETERMINATION AGREEMENT
[Date]
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated
______, 1997 (the "Underwriting Agreement"), among Advanced Communications
Group, Inc., a Delaware corporation (the "Company") and the several
Underwriters named in Schedule I thereto or hereto (the "Underwriters"), for
whom PaineWebber Incorporated and Oppenheimer & Co., Inc. are acting as
representatives (the "U.S. Representatives"). The Underwriting Agreement
provides for the purchase by the Underwriters from the Company, subject to the
terms and conditions set forth therein, of an aggregate of ________ shares (the
"Firm Shares") of the Company's common stock, par value $____ per share. This
Agreement is the Price Determination Agreement referred to in the Underwriting
Agreement.
<PAGE>
Pursuant to Section 1 of the Underwriting Agreement, the
undersigned agree with the Representatives as follows:
The initial public offering price per share for the Firm
Shares shall be $_______.
The purchase price per share for the Firm Shares to be paid
by the several Underwriters shall be $_______ representing an amount equal to
the initial public offering price set forth above, less $______ per share.
The Company represents and warrants to each of the
Underwriters that the representations and warranties of the Company set forth
in Section 3 of the Underwriting Agreement are accurate as though expressly
made at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as
Schedule I is a completed list of the several Underwriters, which shall be a
part of this Agreement and the Underwriting Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
If the foregoing is in accordance with your understanding of
the agreement among the Underwriters and the Company, please sign and return to
the Company a counterpart hereof, whereupon this instrument along with all
counterparts and together with
2
<PAGE>
the Underwriting Agreement shall be a binding agreement among the Underwriters
and the Company in accordance with its terms and the terms of the Underwriting
Agreement.
Very truly yours,
ADVANCED COMMUNICATIONS GROUP, INC.
By:
----------------------------------------
Title:
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By:
--------------------------------------
Title:
OPPENHEIMER & CO., INC.
By:
--------------------------------------
By: ]
--------------------------------------
3
<PAGE>
EXHIBIT B
[DATE]
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several
Underwriters, for which PaineWebber Incorporated and Oppenheimer & Co., Inc.
(the "Representatives") intend to act as Representatives to underwrite a
proposed public offering (the "Offering") of ____ shares of Common Stock, par
value $______ per share (the "Common Stock") of Advanced Communications Group,
Inc., a Delaware corporation, as contemplated by a registration statement with
respect to such shares filed with the Securities and Exchange Commission on
Form S-1 (Registration No. _________), the undersigned hereby agrees that the
undersigned will not, for a period of 365 days after the commencement of the
public offering of such shares, without the prior written consent of
PaineWebber Incorporated, offer to sell, sell, contract to sell, grant any
option to sell, or otherwise dispose of, or require the Company to file with
the Securities and Exchange Commission a registration statement under the
Securities Act of 1933 to register any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights
to acquire shares of Common Stock of which the undersigned is now, or may in
the future become, the beneficial owner within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934)[(other than pursuant to employee stock
<PAGE>
[Revised March 31, 1997]
option plans or in connection with other employee incentive compensation
arrangements)].*/
Very truly yours,
By:
--------------------------------
Print Name:
------------------------
- -------------
*/ Insert if this letter agreement will be signed by an employee of the
Company.
2
<PAGE>
EXHIBIT C
[DATE]
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several
Underwriters, for which PaineWebber Incorporated and Oppenheimer & Co., Inc.
(the "Representatives") intend to act as Representatives to underwrite a
proposed public offering (the "Offering") of ____ shares of Common Stock, par
value $______ per share (the "Common Stock") of Advanced Communications Group,
Inc., a Delaware corporation, as contemplated by a registration statement with
respect to such shares filed with the Securities and Exchange Commission on
Form S-1 (Registration No. _________), the undersigned hereby agrees that the
undersigned will not, for a period ending on March 31, 1999, without the prior
written consent of PaineWebber Incorporated, offer to sell, sell, contract to
sell, grant any option to sell, or otherwise dispose of, or require the Company
to file with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933 to register any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to acquire shares of Common Stock of which the undersigned is now,
or may in the future become, the beneficial owner within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934)option plans or in connection
with other employee incentive compensation arrangements).
Very truly yours,
By:
-----------------------------------
Print Name:
---------------------------
<PAGE>
[Revised March 31, 1997]
EXHIBIT D
Form of Opinion of
Counsel to the Company
The Company and each of its Subsidiaries (hereinafter
Subsidiary shall also mean Acquired Company) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by
it and to conduct its business as described in the Registration Statement and
the Prospectus. The Company is the sole record owner and, to our knowledge, the
sole beneficial owner of all of the capital stock of each of its Subsidiaries.
All of the outstanding shares of Common Stock have been, and
the Shares, when paid for by the Underwriters in accordance with the terms of
the Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar right under
(i) the statutes, judicial and administrative decisions, and the rules and
regulations of the governmental agencies of the State of Delaware, (ii) the
Company's certificate of incorporation or by-laws or (iii) any instrument,
document, contract or other agreement referred to in the Registration Statement
or any instrument, document, contract or agreement filed as an exhibit to the
Registration Statement. Except as described in the Registration Statement or
the Prospectus, to the best of our knowledge, there is no commitment or
arrangement to issue, and there are no outstanding options, warrants or other
rights calling for the issuance of, any share of capital stock of the Company
or any Subsidiary to any person or any security or other instrument that by its
terms is convertible into, exercisable for or exchangeable for capital stock of
the Company.
No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required in connection with the authorization, issuance, transfer, sale or
delivery of the Shares by the Company, in connection with the execution,
delivery and performance of the Agreement by the Company or in connection with
the taking by the Company of any action contemplated thereby [or, if so
required, all such consents, approvals, authorizations and orders, [specifying
the same] have been obtained and are in full force and effect], except such as
have been obtained under the Act and the Rules and Regulations and such as may
be required under state securities or "Blue Sky" laws or by the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be
2
<PAGE>
[Revised March 31, 1997]
sold by the Company. All references in this opinion to the Agreement shall
include the Price Determination Agreement.
The authorized, issued and outstanding capital stock of the
Company is as set forth in the Registration Statement and the Prospectus under
the caption "Capitalization." The description of the Common Stock contained in
the Prospectus is complete and accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.
The Registration Statement and the Prospectus comply in all
material respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus.
To the best of our knowledge, any instrument, document,
lease, license, contract or other agreement (collectively, "Documents")
required to be described or referred to in the Registration Statement or the
Prospectus has been properly described or referred to therein and any Document
required to be filed as an exhibit to the Registration Statement has been filed
as an exhibit thereto or has been incorporated as an exhibit by reference in
the Registration Statement; and no default exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any Document filed or required to be filed as an exhibit to the
Registration Statement.
To the best of our knowledge, except as disclosed in the
Registration Statement or the Prospectus, no person or entity has the right to
require the registration under the Act of shares of Common Stock or other
securities of the Company by reason of the filing or effectiveness of the
Registration Statement.
To the best of our knowledge, the Company is not in violation
of, or in default with respect to, any law, rule, regulation, order, judgment
or decree, except as may be described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a material adverse
effect upon the operations, business or assets of the Company and the
Subsidiaries, taken as a whole.
All descriptions in the Prospectus of statutes, regulations
or legal or governmental proceedings are accurate and fairly present the
information required to be shown.
3
<PAGE>
[Revised March 31, 1997]
The Company has full corporate power and authority to enter
into the Agreement, and the Agreement has been duly authorized, executed and
delivered by the Company, is a valid and binding agreement of the Company and,
except for the indemnification and contribution provisions thereof, as to which
we express no opinion, is enforceable against the Company in accordance with
the terms thereof.
The execution and delivery by the Company of, and the
performance by the Company of its agreements in, the Agreement do not and will
not (i) violate the certificate of incorporation or by-laws of the Company,
(ii) breach or result in a default under, cause the time for performance of any
obligation to be accelerated under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company or any of
its Subsidiaries pursuant to the terms of, (x) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement, capital lease or other
evidence of indebtedness of which we have knowledge, (y) any voting trust
arrangement or any contract or other agreement to which the Company is a party
that restricts the ability of the Company to issue securities and of which we
have knowledge or (z) any Document filed as an exhibit to the Registration
Statement, (iii) breach or otherwise violate any existing obligation of the
Company under any court or administrative order, judgment or decree of which we
have knowledge or (iv) violate applicable provisions of any statute or
regulation in the States of Delaware, Kansas, Nebraska, Minnesota,
North Dakota, Oklahoma, South Dakota, Texas and Wyoming and of the United
States.
Delivery of certificates for the Shares will transfer valid
and marketable title thereto to each Underwriter that has purchased such Shares
in good faith and without notice of any adverse claim with respect thereto.
The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
The Shares have been duly authorized for listing by the New
York Exchange upon official notice of issuance.
We hereby confirm to you that we have been advised by the
Commission that the Registration Statement has become effective under the Act
and that no order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been instituted or is
pending, threatened or contemplated.
4
<PAGE>
[Revised March 31, 1997]
We hereby further confirm to you that there are no actions,
suits, proceedings or investigations pending or, to our knowledge, overtly
threatened in writing against the Company or any of its Subsidiaries, or any of
their respective officers or directors in their capacities as such, before or
by any court, governmental agency or arbitrator which (i) seek to challenge the
legality or enforceability of the Agreement, (ii) seek to challenge the
legality or enforceability of any of the Documents filed, or required to be
filed, as exhibits to the Registration Statement, (iii) seek damages or other
remedies with respect to any of the Documents filed, or required to be filed,
as exhibits to the Registration Statement, (iv) except as set forth in or
contemplated by the Registration Statement and the Prospectus, seek money
damages in excess of $_______ or seek to impose criminal penalties upon the
Company, any of its Subsidiaries or any of their respective officers or
directors in their capacities as such and of which we have knowledge or (v)
seek to enjoin any of the business activities of the Company or any of its
Subsidiaries or the transactions described in the Prospectus and of which we
have knowledge.
We have participated in the preparation of the Registration
Statement and the Prospectus and, without assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto nothing has come to our attention that causes us to believe that, both
as of the Effective Date and as of the Closing Date and the Option Closing
Date, the Registration Statement or any amendment thereto contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that any Prospectus or any amendment or supplement thereto at
the time such Prospectus was issued, at the time any such amended or
supplemented Prospectus was issued, at the Closing Date and the Option Closing
Date, contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus.
The foregoing opinion is subject to the qualification that
the enforceability of the Agreement may be: (i) subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally; and (ii) subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding at law or in
equity) including principles of commercial reasonableness or conscionability
and an implied covenant of good faith and fair dealing.
This letter is furnished by us solely for your benefit in
connection with the transactions referred to in the Agreement and may not be
circulated to, or relied upon by,
5
<PAGE>
[Revised March 31, 1997]
any other person, except that this letter may be relied upon by your counsel in
connection with the opinion letter to be delivered to you pursuant to Section
5(g) of the Agreement.
[Where appropriate, include additional opinions with respect
to matters such as patents, franchises, specific litigation, regulatory
approvals, etc.]
[In rendering the foregoing opinion, counsel may rely, to the
extent they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States and the State of [specify], and as
to matters of fact, upon certificates of officers of the Company, the Selling
Shareholders and of government officials; provided that such counsel shall
state that the opinion of any other counsel is in form satisfactory to such
counsel. Copies of all such opinions and certificates shall be furnished to
counsel to the Underwriters on the Closing Date.]
6
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED STOCK PURCHASE AGREEMENT
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(PURCHASER)
and
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
GREAT WESTERN DIRECTORIES, INC.
(COMPANY)
and
RICHARD O'NEAL, LARRY BALDWIN, STEVE SPARKS,
RON BALDWIN AND RONNIE EMANUEL
(STOCKHOLDERS)
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. DEFINITIONS..............................................................................................3
2. PURCHASE, SALE AND EXCHANGE..............................................................................9
2.1 Consideration for Execution of Original Agreement...............................................9
2.2 Consideration for Shares........................................................................9
2.3 Underlying Principles..........................................................................10
2.4 Post Closing Payment...........................................................................10
2.5 Section 351 Exchange Plan......................................................................12
2.6 Certain Effects of OLD ACG Merger..............................................................12
3. CLOSING.................................................................................................12
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND STOCKHOLDERS.......................13
4.1 Due Organization...............................................................................13
4.2 Authorization..................................................................................13
4.3 Capital Stock of Company.......................................................................13
4.4 Options, etc...................................................................................14
4.5 No Bonus Shares................................................................................14
4.6 Subsidiaries...................................................................................14
4.7 Predecessor Status; etc........................................................................14
4.8 Spinoff by the Company.........................................................................14
4.9 Financial Statements...........................................................................14
4.10 Liabilities and Obligations....................................................................15
4.11 Permits and Intangibles........................................................................16
4.12 Environmental Matters..........................................................................16
4.13 Significant Customers; Material Contracts and Commitments......................................17
4.14 Real Property..................................................................................18
4.15 Employee Plans.................................................................................18
4.16 Employee Plans and Compliance with ERISA.......................................................19
4.17 Conformity with Law; Litigation................................................................20
4.18 Tax Matters....................................................................................20
4.19 No Violations..................................................................................22
4.20 Absence of Changes............................................................................22
4.21 Accounts and Notes Receivable..................................................................24
4.22 Personal Property..............................................................................24
4.23 Insurance......................................................................................25
-ii-
<PAGE>
4.24 Intellectual Property..........................................................................25
4.25 Labor Relations................................................................................25
4.26 Disclosure.....................................................................................26
4.27 Prohibited Activities..........................................................................26
4.28 Draft Registration Statement...................................................................26
5. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF STOCKHOLDERS........................26
5.1 Authority......................................................................................26
5.2 Preemptive Rights..............................................................................27
5.3 Tax Matters....................................................................................27
5.4 No Retained Rights.............................................................................27
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PURCHASER AND OLD ACG..........................27
6.1 Due Organization...............................................................................27
6.2 Authorization..................................................................................27
6.3 Capital stock..................................................................................28
6.4 Transactions in Capital Stock, Organization Accounting.........................................28
6.5 Subsidiaries...................................................................................28
6.6 Financial Statements...........................................................................28
6.7 Liabilities and Obligations....................................................................29
6.8 Conformity with Law; Litigation................................................................29
6.9 No Violations..................................................................................29
6.10 Securities.....................................................................................30
6.11 Business; Real Property; Material Agreement....................................................30
6.12 Tax Matters....................................................................................30
6.13 Draft Registration Statement...................................................................31
7. OTHER COVENANTS PRIOR TO CLOSING........................................................................31
7.1 Access and Cooperation; Due Diligence; Audits..................................................31
7.2 Conduct of Business Pending Closing............................................................32
7.3 Prohibited Activities..........................................................................33
7.4 Exclusivity....................................................................................34
7.5 Notification of Certain Matters................................................................34
7.6 Amendment of Schedules.........................................................................35
7.7 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"Hart-Scott Act")..............................................................................35
7.8 Further Assurance..............................................................................35
-iii-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS ....................................................36
8.1 Representations and Warranties; Performance of Obligations.....................................36
8.2 Satisfaction...................................................................................36
8.3 No Litigation..................................................................................36
8.4 Opinion of Counsel.............................................................................36
8.5 Consents and Approvals.........................................................................36
8.6 Good Standing Certificates.....................................................................37
8.7 No Material Adverse Change.....................................................................37
8.8 Secretary's Certificates.......................................................................37
8.9 Closing of IPO.................................................................................37
8.10 Employment Agreements..........................................................................37
8.11 Section 1362(E)(3) Election....................................................................37
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER........................................................37
9.1 Representations and Warranties; Performance of Obligations.....................................38
9.2 No Litigation..................................................................................38
9.3 Company's Secretary's Certificate..............................................................38
9.4 No Material Adverse Effect.....................................................................38
9.5 Stockholders' Release..........................................................................38
9.6 Satisfaction...................................................................................39
9.7 Opinion of Counsel.............................................................................39
9.8 Consents and Approvals.........................................................................39
9.9 Good Standing Certificates.....................................................................39
9.10 FIRPTA Certificate.............................................................................39
9.11 Closing of IPO.................................................................................39
9.12 Employment Agreements..........................................................................39
9.13 Licensing Arrangements.........................................................................40
10. CERTAIN TAX AND EMPLOYEE BENEFIT MATTERS................................................................40
10.1 Preparation and Filing of Tax Returns..........................................................40
10.2 Preservation of Employee Benefit Plans.........................................................40
11. TERMINATION OF AGREEMENT................................................................................41
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................41
12.1 Company and Stockholders.......................................................................41
12.2 Purchaser......................................................................................42
12.3 Damages........................................................................................43
12.4 Survival.......................................................................................43
-iv-
<PAGE>
13. NONCOMPETITION..........................................................................................43
13.1 Prohibited Activities..........................................................................43
13.2 Damages........................................................................................44
13.3 Reasonable Restraint...........................................................................44
13.4 Severability, Reformation......................................................................45
13.5 Independent Covenant...........................................................................45
13.6 Materiality....................................................................................45
14. TRANSFER PROHIBITIONS AND RESTRICTIONS..................................................................45
14.1 Warrants. ....................................................................................45
14.2 Purchaser Stock................................................................................46
14.3 Legend.........................................................................................46
15. INVESTMENT REPRESENTATIONS..............................................................................46
15.1 Compliance With Law............................................................................46
15.2 Economic Risk, Sophistication..................................................................47
16. REGISTRATION RIGHTS.....................................................................................48
16.1 PiggyBack Registration Rights..................................................................48
16.2 Demand Registration Rights.....................................................................48
16.3 Registration Procedures........................................................................49
16.4 Other Registration Matters.....................................................................51
16.5 Indemnification................................................................................52
16.6 Contribution...................................................................................55
16.7 Availability of Rule 144.......................................................................56
17. GENERAL.................................................................................................56
17.1 Cooperation....................................................................................56
17.2 Successors and Assigns.........................................................................56
17.3 Entire Agreement...............................................................................56
17.4 Counterparts...................................................................................57
17.5 Brokers and Agents.............................................................................57
17.6 Expenses.......................................................................................57
17.7 Notices........................................................................................57
17.8 Governing Law..................................................................................59
17.9 Exercise of Rights and Remedies................................................................59
17.10 Time...........................................................................................59
17.11 Reformation and Severability...................................................................59
17.12 Remedies Cumulative............................................................................59
17.13 Captions.......................................................................................59
-v-
<PAGE>
17.14 Public Statements..............................................................................60
17.15 Amendments and Waivers.........................................................................60
-vi-
</TABLE>
<PAGE>
RESTATED STOCK PURCHASE AGREEMENT
THIS RESTATED STOCK PURCHASE AGREEMENT (the "Agreement") is made as
of the 6th day of October, 1997, by and among ADVANCED COMMUNICATIONS GROUP,
INC., a Delaware corporation organized in September 1997 ("Purchaser"),
ADVANCED COMMUNICATIONS CORP. (formerly named Advanced Communications Group,
Inc.), a Delaware corporation organized in June 1996 ("Old ACG"), GREAT
WESTERN DIRECTORIES, INC., a Texas corporation ("Company"), and RICHARD
O'NEAL, LARRY BALDWIN, STEVE SPARKS, RON BALDWIN and RONNIE EMANUEL
(individually, a "Stockholder" and collectively, the "Stockholders"), the
owners of 1,250 shares of Common Stock, $1.00 par value, of Company ("Company
Stock"), representing all the capital stock of Company issued and outstanding
on the date of this Agreement ("Shares").
RECITALS
WHEREAS, Old ACG has entered into agreements for, or
negotiated the terms of, the acquisition by merger, asset purchase or
stock purchase of ten companies (or interests therein) engaged in
various aspects of the telecommunications industry ("Founding
Companies") for voting capital stock and other consideration,
including cash, one of such agreements being the Stock Purchase
Agreement dated as of June 16, 1997 among Old ACG, the Company and
the Stockholders ("Original Agreement"); and
WHEREAS, Old ACG issued to Stockholders on June 16, 1997,
non-transferable warrants to purchase an aggregate of 2,000,000
shares of Old ACG's Common Stock, $.00001 par value,
contemporaneously with the execution and delivery of the Original
Agreement; and
WHEREAS, Old ACG intended to close the acquisition of the
Founding Companies substantially contemporaneously with the
consummation of an initial underwritten public offering of its common
stock; and
WHEREAS, the executive officers of Old ACG have determined
that it is desirable for licensing and other regulatory purposes to
restructure the acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the
restructured proposal, Old ACG formed Purchaser as a new Delaware
corporation in September 1997 to serve as the
<PAGE>
vehicle for the acquisition of the Founding Companies substantially
contemporaneously with the consummation of an initial underwritten
public offering ("IPO") of Common Stock, $.0001 par value, of
Purchaser ("Purchaser Stock") at the price to the public reflected in
the final prospectus of Purchaser relating to the IPO ("IPO Price");
and
WHEREAS, under the restructured proposal, contemporaneously
with the consummation of the IPO and as part of a single transaction,
the stockholders of the Founding Companies, including Stockholders
and Old ACG, will transfer, by stock or asset purchase or reverse
triangular merger, the stock or substantially all the assets of
certain companies and other assets in which they own an interest to
Purchaser in exchange for voting capital stock of Purchaser and other
consideration, including cash, voting stock, options, warrants,
notes, convertible notes and other property of Purchaser, under
circumstances that will constitute a tax-free transfer of property
under Section 351 of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder ("Code"), to the extent of
their receipt of voting capital stock of Purchaser; and
WHEREAS, substantially contemporaneously with the execution
of this Agreement and in order to document the integrated Section 351
exchange plan contemplated herein, (a) Old ACG, the other Founding
Companies, their stockholders and others are amending and restating
their respective acquisition agreements; and (b) Purchaser and Old
ACG are entering into a merger agreement pursuant to which Old ACG
will become a wholly-owned subsidiary of Purchaser substantially
contemporaneously with the consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation
of the IPO, Old ACG will effect an approximately one-for-two reverse
stock split, the exact magnitude of which will be dependent upon the
ultimate post IPO valuation of Purchaser by the managing underwriters
in the IPO and the anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies
and Old ACG are described in the Registration Statement on Form S-1
of Purchaser (draft of October 2, 1997), a copy of which is attached
to this Agreement as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Company and the Stockholders
desire to amend and restate the Original Agreement in its entirety
and transform it into this Agreement; and
WHEREAS, Purchaser desires to acquire all the Shares
directly from Stockholders for the consideration set forth in Section
2.2 of this Agreement, and Stockholders have
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<PAGE>
agreed to sell the Shares to Purchaser on the terms and subject to
the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
"Affiliates" has the meaning set forth in Section 4.8.
"Agreed Rate" means the prime rate of interest reported in The Wall
Street Journal on the Closing Date.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"Arbitrator" has the meaning set forth in Section 2.4(iii).
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"Cash Report" has the meaning set forth in Section 2.4(ii).
"Charter Documents" means the Certificate of Incorporation, Articles
of Incorporation or other instrument pursuant to which any
corporation, partnership or other business entity that is a signatory
to this Agreement was formed or organized in accordance with
applicable law.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in the sixth recital of this
Agreement.
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<PAGE>
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section
4.9.
"Company Operating Profit" means, as of any date, the amount by which
Company's revenues for the period beginning on January 1, 1997 and
ending on the date such determination is being made exceed the costs
and expenses (other than deferred income Taxes) appropriately
deducted in the computation of profit and loss for such period in
accordance with generally accepted accounting principles.
"Company Stock" has the meaning set forth in the first paragraph of
this Agreement.
"Controlled Group" has the meaning set forth in Section 4.16.
"Deemed Closing Date" means the the Closing Date, except if the
Closing occurs after December 31, 1997, in which case it means
December 31, 1997.
"Disputed Matter" has the meaning set forth in Section 2.4(ii).
"Distributable Cash" means, as of any date or for any period, all
collected cash balances of Company in excess of the level required to
support the ongoing operations of the Company in accordance with
prudent business practices so as not to require the infusion of
additional working capital.
"Draft Registration Statement" has the meaning set forth in the ninth
recital of this Agreement.
"Environmental Laws" has the meaning set forth in Section 4.12.
"ERISA" has the meaning set forth in Section 4.15.
"Final Cash Report" has the meaning set forth in Section 2.4(iv).
"Founding Companies" has the meaning set forth in the first recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.2.
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<PAGE>
"Hazardous Wastes" and "Hazardous Substances" have the meanings set
forth in Section 4.12.
"Hart-Scott Act" has the meaning set forth in Section 7.7.
"Initial Disclosure Date" means March 31, 1997.
"Intellectual Property" means all patents, trademarks, service marks,
copyrights and applications therefor, all tradenames, brand names,
logos, inventions, discoveries, improvements, processes,
technologies, know-how, formulae, drawings, specifications, trade
secrets, plans, computer software (including source codes and other
documentation thereof), files, programs, notebooks and records, all
other proprietary, technical and other information, data and
intellectual property, and all licenses, permits and other rights to
use the foregoing, whether patentable or unpatentable, used or held
for use in or associated with the ownership of Company's assets, or
the conduct of Company's business (or, if Company does not own any
such proprietary, technical or other information, data and
intellectual property, a paid-up or royalty-free, irrevocable
license, permit or other right to use the same), including, without
limitation, the Intellectual Property described in Schedule 4.24, but
expressly excluding the technology owned by Big Stuff, Inc. relating
to the colorizing of yellow pages and the generation of world wide
web pages except to the extent that Company is licensed to use such
technology
"IPO" has the meaning set forth in the fifth recital of this
Agreement.
"IPO Price" has the meaning set forth in the fifth recital of this
Agreement.
"IRS" or "Internal Revenue Service" means the Internal Revenue
Service of the Department of the Treasury.
"June Balance Sheet" has the meaning set forth in Section 4.9.
"Leases" means all real and personal property leased by Company and
used, useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 4.3.
"Material Adverse Effect" has the meaning set forth in Section 4.1.
-5-
<PAGE>
"Material Documents" has the meaning set forth in Section 4.19.
"Measurement Period" has the meaning set forth in Section 2.4(ii).
"Notes" means the Purchaser's 5% Subordinated Notes due [Closing
Date], 1999 in the original principal amount of $15 million and
substantially in the form of Annex III.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section
6.6.
"OLD ACG Merger" means the reverse triangular merger of OLD ACG with
a wholly-owned subsidiary of Purchaser, pursuant to which Old ACG
will become a wholly owned subsidiary of Purchaser.
"Old Warrants" means the Series A Warrants, the Series B Warrants and
the Series C Warrants.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a joint stock company, a
trust, or other unincorporated organization.
"Prohibited Activities" has the meaning set forth in Paragraph 4.27.
"Proscribed Business" has the meaning set forth in Section 13.1.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section
6.1.
"Purchaser Documents" has the meaning set forth in Section 6.9.
"Purchaser Stock" has the meaning set forth in the fifth recital of
this Agreement.
"Qualified Plans" has the meaning set forth in Section 4.16.
Restricted Payment" means any declaration or payment of any dividend
or distribution in respect of the capital stock of Company or any
direct or indirect redemption, purchase or other acquisition of any
of the capital stock of Company.
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<PAGE>
"Registrable Securities" means (i) the shares of Purchaser Stock
acquired by Stockholders constituting part of the Stock Component and
(ii) the shares of Warrant Stock acquired by the holders of Warrants
upon the exercise thereof.
"Restricted Securities" has the meaning set forth in introductory
paragraph to Section 15.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a
particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties, covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in
the form of Annex II.
"Series A Warrants" means the 666,666 non-transferrable Warrants,
substantially in the form of Annex IV to the Original Agreement, to
purchase a like number of shares of Purchaser Stock on the terms set
forth therein at an initial exercise price of $2.50 per share.
"Series B Warrants" means the 666,667 non-transferrable Warrants,
substantially in the form of Annex V to the Original Agreement, to
purchase a like number of shares of Purchaser Stock on the terms set
forth therein at an initial exercise price of $2.50 per share.
"Series C Warrants" means the 666,667 non-transferrable Warrants,
substantially in the form of Annex VI to the Original Agreement, to
purchase a like number of shares of Purchaser Stock on the terms set
forth therein at an initial exercise price of $2.50 per share.
"Series D Warrants" means the 500,000 non-transferable Warrants,
substantially in the form of Annex IV, to purchase a like number of
shares of Purchaser Stock on the terms set forth therein at an
initial exercise price equal to the IPO Price.
"Series D Warrant Stock" means the shares of Purchaser Stock issuable
upon the exercise of the Series D Warrants.
"Shares" has the meaning set forth in the first paragraph of this
Agreement;
-7-
<PAGE>
"Stock Component" has the meaning set forth in Section 2.2.
"Stockholder" and "Stockholders" have the meanings set forth in the
first paragraph of this Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which
(i) such Person or any other Subsidiary of such Person is a general
partner (excluding partnerships, the general partnership interests of
which held by such Person or any Subsidiary of such Person do not
have a majority of the voting interests in such partnership) or (ii)
at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such Person, by any one or more of its Subsidiaries, or
by such Person and one or more of its Subsidiaries; provided,
however, that under no circumstances shall Big Stuff, Inc. be deemed
to be a Subsidiary of Company or any Stockholder.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll,
employment, excise, property, deed, stamp, alternative or add on
minimum, environmental or other taxes, assessments, duties, fees,
levies or other governmental charges of any nature whatever, whether
disputed or not, together with any interest, penalties, additions to
tax or additional amounts with respect thereto.
"TBCA" means the Texas Business Corporation Act.
"Termination Date" has the meaning set forth in Section 13.1.
"Territory" has the meaning set forth in Section 13.1(i).
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Warrants" means the Old Warrants and the Series D Warrants.
"Warrant Stock" means shares of Purchaser Stock issued upon the
exercise of the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
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<PAGE>
2. PURCHASE, SALE AND EXCHANGE
2.1 Consideration for Execution of Original Agreement. Pursuant to
the terms of the Original Agreement and contemporaneously with the execution
and delivery hereof, Purchaser issued to each Stockholder, in consideration of
such Stockholder's execution and delivery of the Original Agreement, the
number of Old Warrants of each series set forth below opposite the name of
such Stockholder:
<TABLE>
<CAPTION>
Number of Old Warrants
-------------------------------------------
Name of Stockholder Series A Series B Series C
- ------------------- -------- -------- --------
<S> <C> <C> <C>
Richard O'Neal 500,000 500,000 500,000
Larry Baldwin 100,000 100,000 100,000
Steve Sparks 33,333 33,333 33,334
Ron Baldwin 33,333 33,334 33,333
Ronnie Emanuel - - -
------- ------- -------
Total 666,666 666,667 666,667
</TABLE>
2.2 Consideration for Shares. Pursuant to the terms of this Agreement
and subject to the remaining provisions of this Section 2, at the Closing, (x)
Stockholders will transfer, convey, assign and deliver to Purchaser the
Shares, together with stock powers duly endorsed by Stockholders so that the
Shares may be duly registered in Purchaser's name, and (y) Purchaser will
acquire the Shares from Stockholders for an aggregate consideration of $55
million in immediately available funds, $15 million principal amount of Notes,
500,000 Series D Warrants and such number of shares of Purchaser Stock
(rounded to the nearest whole share) as shall be determined by dividing $10
million by the IPO Price ("Stock Component"). The number of Shares to be
exchanged by each Stockholder and the amount of cash and the other
consideration deliverable to each Stockholder are set forth below opposite the
name of such Stockholder:
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF NUMBER OF
NUMBER OF AMOUNT OF AMOUNT OF SERIES D SHARES OF
NAME OF STOCKHOLDER SHARES CASH NOTES WARRANTS PURCHASER STOCK (1)
------------------- ------ ---- ----- -------- -------------------
<S> <C> <C> <C> <C> <C>
Richard O'Neal 700.00 $30,800,000 $8,400,000 280,000 56%
Larry Baldwin 312.50 $13,750,000 $3,750,000 125,000 25%
Steve Sparks 87.50 $3,850,000 $1,050,000 35,000 7%
Ron Baldwin 87.50 $3,850,000 $1,050,000 35,000 7%
Ronnie Emanuel 62.50 $2,750,000 $2,750,000 25,000 5%
TOTAL 1,250.00 $55,000,000 $15,000,000 500,000 100%
</TABLE>
2.3 Underlying Principles. The aggregate consideration payable by
Purchaser to Stockholders for the Shares was negotiated based upon the
assumptions and agreements that (x) Company will have no outstanding
obligation for the repayment of borrowed money as of the Closing Date (it
being understood for this purpose that accounts payable incurred in the
ordinary course of business do not constitute obligations for the repayment of
borrowed money) and (y) Company is permitted to make Restricted Payments to
Stockholders through the earlier to occur of the Closing Date or December 31,
1997 in an aggregate amount not exceeding the lesser of Company Operating
Profit or Distributable Cash.
2.4 Post Closing Payment.
(i) As promptly as practicable after the end of the calendar
month in which the Deemed Closing Date occurs, Purchaser will post
all entries and close Company's books as of the end of such month.
Financial statements for Company as of the Deemed Closing Date will
be prepared based upon the assumption that Company's profit and loss
for the month in which the Deemed Closing Date occurs will be
allocated between Purchaser and Stockholders based upon the number of
days in the month that each owned or is deemed to have owned the
Company Stock. Purchaser's first day of ownership of the Company
Stock will be the Closing Date, unless the Closing does not occur by
December 31, 1997, in which case Purchaser's first day of ownership
will be deemed to be January 1, 1997.
- -----------------------
(1) Expressed as a percentage of the Stock Component.
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<PAGE>
(ii) As promptly as practicable following the preparation of
Company's financial statements as of the Deemed Closing Date, and in
no event later than the last day of the month next following the
month in which the Deemed Closing Date occurs, Purchaser shall
prepare and submit to Stockholders a schedule setting forth the
Company Operating Profit for the period beginning on January 1, 1997
and ending on either (aa) the date preceding the Closing Date or (bb)
if the Closing does not occur by December 31, 1997, then December 31,
1997 (the "Measurement Period"), the Distributable Cash generated
during the Measurement Period and the Restricted Payments made by
Company to Stockholders during the Measurement Period (the "Cash
Report"). Representative of Stockholders shall have access to
Company's books and records in order to verify the accuracy of the
Cash Report. The parties shall endeavor to resolve any disagreements
relating to the Cash Report by the end of the second calendar month
following the month in which the Deemed Closing Date occurs. If all
disagreements relating to the Cash Report cannot be resolved by the
parties, all matters in dispute (collectively, the "Disputed Matter")
shall be resolved by arbitration as set forth in Section 2.4(iii).
(iii) Any Disputed Matter shall be promptly submitted to and
reviewed by Deloitte & Touche LLP, or other nationally recognized
independent accounting firm mutually acceptable to Stockholders and
Purchaser ("Arbitrator"). The Arbitrator shall consider only the
Disputed Matter and shall act promptly to resolve in writing the
Disputed Matter. The Arbitrator's decision with respect to the
Disputed Matter shall be final and binding on Stockholders and
Purchaser. Stockholders and Purchaser shall each be responsible for
and pay one-half of the fees and expenses of the Arbitrator. Each
party shall be responsible for and pay its own expenses incurred in
connection with the resolution of any Disputed Matter.
(iv) As promptly as practicable following the first to occur
of (x) an agreement between Purchaser and Stockholders with respect
to the accuracy of the Cash Report or (y) a decision by the
Arbitrator with respect to the appropriate figures for inclusion in
the Cash Report (in either event, the "Final Cash Report"), the
following action shall be taken:
(1) If the amount of Distributable Cash generated
during the Measurement Period (as reflected in the Final
Cash Report) exceeds the aggregate Restricted Payments made
to Stockholders during the Measurement Period (as reflected
in the Final Cash Report), the excess, together with simple
interest thereon from the Closing Date at the Agreed Rate
(calculated on the basis of a 365-day year), shall be
promptly remitted by Purchaser to Stockholders on a pro rata
basis; or
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<PAGE>
(2) If the aggregate Restricted Payments made to
Stockholders during the Measurement Period (as reflected in
the Final Cash Report) exceeds the amount of Distributable
Cash generated during the Measurement Period (as reflected
in the Final Cash Report), the excess, together with simple
interest thereon from the Closing Date at the Agreed Rate
(calculated on the basis of a 365-day year), shall be
promptly remitted by Stockholders to Purchaser. The
obligations of Stockholders to remit such funds shall be
joint and several.
(v) Stockholders have filed a request with the IRS for a tax
refund in respect of Company's 1996 tax year. To the extent that such
refund is not received by Company prior to the preparation of the
Cash Report but is received prior to the payment of the funds
contemplated by Section 2.4(iv), the Cash Report or Final Cash
Report, as the case may be, shall be amended to include the amount of
such refund in the amount of Distributable Cash generated during the
Measurement Period as reflected thereon. In the event that the
foregoing refund is received by Company subsequent to the payment of
the funds contemplated by Section 2.4(iv), Purchaser shall remit such
refund pro rata to Stockholders promptly, but in no event later than
five days after its receipt.
2.5 Section 351 Exchange Plan. By executing this Agreement, each
Stockholder is deemed to have approved and adopted the Section 351 Exchange
Plan to the same extent as if he had subscribed his signature thereon.
2.6 Certain Effects of OLD ACG Merger. The Old ACG Merger will be
effected substantially contemporaneously with the consummation of the IPO.
Upon the consummation of the Old ACG Merger, the Old Warrants shall become
exercisable for Purchaser Stock upon the same terms and conditions as they
were exercisable for Old ACG Stock immediately prior to t he Old ACG Merger.
3. CLOSING
The closing of the transactions contemplated by this Agreement
("Closing") shall take place on the date of the closing of the sale of shares
of the Purchaser Stock in the IPO, or such other date as the parties hereto
may designate (the "Closing Date"), at such place in New York City as the
parties may mutually agree.
-12-
<PAGE>
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS
Company and Stockholders, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and
warranties in this Section 4 are true at the date of this Agreement and,
subject to Section 7.6, shall be true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 4 shall be materially complied
with or performed at and as of the Closing Date. None of the representations,
warranties, covenants and agreements set forth in this Section 4 shall survive
the Closing Date. For purposes of this Section 4, the term Company shall mean
and refer to Company and all of its Subsidiaries, if any.
4.1 Due Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of Texas,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required
except (i) as set forth on Schedule 4.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of Company (as used herein with respect to Company
or with respect to any other Person, a "Material Adverse Effect"). Schedule
4.1 contains a list of all such jurisdictions in which Company is authorized
or qualified to do business. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Company are attached hereto as
Schedule 4.1. The stock records of Company as heretofore made available to
Purchaser, are correct and complete in all material respects. There are no
minutes in the possession of Company or any Stockholder which have not been
made available to Purchaser, and all of such minutes are correct and complete
in all material respects.
4.2 Authorization. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Company of this Agreement and its
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Company. This Agreement has been duly
executed and delivered by Company and is a valid and binding obligation of
Company, enforceable against Company in accordance with its terms.
4.3 Capital Stock of Company. The authorized capital stock of Company
consists of 10,000 shares of Company Stock, of which 1,250 shares are issued
and outstanding and owned of record and beneficially by Stockholders in the
amounts set forth in Section 2.1; and, as of the Closing Date, such shares
will be owned free and clear of all mortgages, liens, security interests,
pledges, voting trusts, restrictions, encumbrances and claims of every kind
(collectively, the "Liens"). All of the issued and outstanding shares of
Company Stock (i) have been duly authorized
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<PAGE>
and validly issued and (ii) are fully paid and nonassessable. Further, none of
such shares was issued in violation of the preemptive rights of any past or
present stockholder.
4.4 Options, etc. Except as set forth on Schedule 4.4, Company has
not acquired any Company Stock since January 1, 1994. No option, warrant,
call, conversion right or commitment of any kind exists which obligates
Company to issue any of its authorized but unissued capital stock. Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend (other than discretionary cash dividends payable with respect to the
Company Stock) or make any distribution in respect thereof. Neither the voting
stock structure of Company nor the relative ownership of shares among any of
its stockholders has been altered or changed in contemplation of the
transactions contemplated by this Agreement.
4.5 No Bonus Shares. None of the outstanding shares of Company Stock
was issued pursuant to awards, grants or bonuses.
4.6 Subsidiaries. Except as set forth on Schedule 4.6, Company has no
Subsidiaries; Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person; and Company is
not directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
4.7 Predecessor Status; etc. Set forth in Schedule 4.7 is a listing
of all names of all predecessor companies of Company, including the names of
any entities acquired by Company (by stock purchase, merger or otherwise) or
owned by Company or from whom Company previously acquired material assets in
excess of $250,000, in any case, since January 1, 1991. Except as disclosed on
Schedule 4.7, Company has not been, within such period of time, a Subsidiary
or division of another corporation or a part of an acquisition which was later
rescinded.
4.8 Spinoff by the Company. Except as set forth on Schedule 4.8,
there has not been any sale, spin-off or split-up of material assets in excess
of $250,000 of either Company or any other Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, Company ("Affiliates") since January 1, 1994.
4.9 Financial Statements. Attached hereto as Schedule 4.9 are copies
of the following financial statements of Company (the "Company Financial
Statements"): audited Balance Sheets as of January 31, 1996 and December 31,
1996, unaudited Balance Sheets as of January 31, 1995 and June 30, 1997 ("June
Balance Sheet"), audited Statements of Operations and Cash Flows in each
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case for the fiscal years ended January 31, 1995 and 1996 and December 31,
1996, audited Statements of Stockholders' Equity for the fiscal years ended
January 31, 1995 and 1996 and the eleven months ended December 31, 1996,
unaudited Statements of Operations and Cash Flows and for the six months ended
June 30, 1997 and 1996 (June 30, 1997 being hereinafter referred to as the
"Balance Sheet Date"), unaudited statements of Stockholders' Equity for the
six months ended June 30, 1997 and the related notes thereto. The audited
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 4.9). The unaudited
Company Financial Statements were prepared in accordance with the books and
records of Company in accordance with accounting principles consistently
applied. Company's Balance Sheets present fairly the financial position of
Company as of the dates indicated thereon, and Company's Statements of
Operations, Stockholder's Equity and Cash Flows included in the Company
Financial Statements present fairly the results of operations for the periods
indicated thereon in accordance with generally accepted accounting principles.
Company's Financial Statements at and for the fiscal periods ended December
31, 1996 and January 31, 1995 and 1996 have been examined by Clifton Gunderson
PLLC, independent public accountants.
4.10 Liabilities and Obligations. Company has no material liabilities
of any kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, that are not reflected on the June Balance
Sheet or otherwise reflected in the Company Financial Statements at the
Balance Sheet Date. Company has no indebtedness or any other obligation
outstanding under any loan agreements, indemnity or guaranty agreements,
bonds, mortgages, Liens, pledges or other security agreements. Except as set
forth on Schedule 4.10, since the Initial Disclosure Date, Company has not
incurred any material liabilities of any kind, character and description,
whether accrued, absolute, secured or unsecured, contingent or otherwise,
other than liabilities incurred in the ordinary course of business. Company
has also disclosed to Purchaser on Schedule 4.10, in the case of those
contingent liabilities related to pending or threatened litigation or other
liabilities which are not fixed or otherwise accrued or reserved, the
following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating
thereto;
(y) amounts claimed and any other action or relief
sought; and
(z) name of claimant and all other parties to the
claim, suit or proceeding;
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(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to
each such liability.
4.11 Permits and Intangibles. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which
could have a Material Adverse Effect on its business, and Company has
delivered to Purchaser an accurate list and summary description (which is set
forth on Schedule 4.11) of all such licenses, franchises, permits and other
governmental authorizations, including titles, certificates, trademarks, trade
names, patents, patent applications and copyrights owned or held by Company
(including interests in software or other technology systems, programs and
intellectual property) (it being understood and agreed that a list of all
environmental permits and other environmental approvals is set forth on
Schedule 4.12). To the knowledge of Company, the licenses, franchises, permits
and other governmental authorizations listed on Schedules 4.11 and 4.12 are
valid in all material respects, and Company has not received any notice that
any governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
4.11 and 4.12 and is not in violation of any of the foregoing except where
such non-compliance or violation would not have a Material Adverse Effect on
Company. Except as specifically provided in Schedule 4.11, the transactions
contemplated by this Agreement will not result in a material default under or
a material breach or violation of, or materially adversely affect the rights
and benefits afforded to Company by, any such license, franchise, permit or
government authorization.
4.12 Environmental Matters. Except as set forth on Schedule 4.12, (i)
Company has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including,
without limitation, Environmental Laws relating to air, water, land and the
generation, storage, use, handling, transportation, treatment or disposal of
Hazardous Wastes and Hazardous Substances including petroleum and petroleum
products (as such terms are defined in any applicable Environmental Law); (ii)
Company has obtained and substantially adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and
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Hazardous Substances, a list of all of which permits and approvals is set
forth on Schedule 4.12 and reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned
and operated by Company where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been
no releases or threats of releases (as defined in Environmental Laws) at,
from, in or on any property owned or operated by Company except as permitted
by Environmental Laws; (iv) no on-site or off-site location to which Company
has transported or disposed of Hazardous Wastes and Hazardous Substances or
arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any Federal, state, local or foreign enforcement
action or any other investigation, could lead to any material claim against
Company for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) Company has no contingent liability in connection
with any release of any Hazardous Waste or Hazardous Substance into the
environment.
4.13 Significant Customers; Material Contracts and Commitments.
Company has delivered to Purchaser an accurate list (which is set forth on
Schedule 4.13) of all significant customers, or Persons that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 4.13, means a customer
(or Person) (i) representing 2% or more of Company's annual revenues as of the
Initial Disclosure Date or (ii) reasonably expected to represent 2% or more of
Company's revenues during the twelve-month period ending March 31, 1998.
Except to the extent set forth on Schedule 4.13, none of Company's significant
customers (or Persons that are sources of a significant number of customers)
has canceled or substantially reduced or, to the knowledge of Company, is
currently attempting or threatening to cancel a contract or substantially
reduce utilization of the services provided by Company. Company has listed on
Schedule 4.13 all material contracts, commitments and similar agreements to
which Company is a party or by which it or any of its properties are bound
(including, but not limited to, contracts with significant customers, joint
venture or partnership agreements, contracts with any labor organizations,
strategic alliances and options to purchase land), other than agreements
listed on other Schedules to this Agreement, (x) in existence as of the
Initial Disclosure Date and (y) entered into since the Initial Disclosure
Date, and in each case has delivered true, complete and correct copies of such
agreements to Purchaser. Company has complied with all material commitments
and obligations pertaining to it, and is not in material default under any
contract or agreement listed on Schedule 4.13 and no notice of default under
any such contract or agreement has been received. Company has also indicated
on Schedule 4.13 a summary description of all plans or projects involving the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $50,000 by Company.
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4.14 Real Property. Company has good and insurable title to the real
property owned or leased by it and used or held for use in its business,
subject to no Lien except for:
(w) Liens reflected on Schedule 4.10 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current taxes not yet payable and assessments
not in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County
Clerks in which the properties, assets and leasehold estates are
located which do not adversely affect in any material respect the
current use of the property.
All Leases by Company are in full force and effect in all material respects
and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
4.15 Employee Plans. Schedule 4.15 represents an accurate list of all
employee benefit plans of Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other
similar provisions, and deferred compensation agreements, and classifications
of employees covered thereby as of the Initial Disclosure Date. Except for the
employee benefit plans, if any, described on Schedule 4.15, Company does not
sponsor, maintain or contribute to any plan program, fund or arrangement that
constitutes an "employee pension benefit plan," and Company does not have any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning
of Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended "ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. Company
has not sponsored, maintained or contributed to any employee pension benefit
plan other than the plans set forth on Schedule 4.15, nor is Company required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
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Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 4.15 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well
as with all other applicable Federal, state and local statutes, ordinances and
regulations.
All accrued contribution obligations of Company with respect to any
plan listed on Schedule 4.15 have either been fulfilled in their entirety or
are fully reflected on the balance sheet of Company as of the Balance Sheet
Date.
4.16 Employee Plans and Compliance with ERISA. All employee benefit
plans listed on Schedule 4.15 that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code are, and have been so qualified and
have been determined by the Internal Revenue Service to be so qualified, and
copies of such determination letters (other than in the case of defined
contribution plans sponsored by unaffiliated financial institutions) are
included as part of Schedule 4.15. Except as disclosed on Schedule 4.15, all
reports and other documents required to be filed with any governmental agency
or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely filed
or distributed, and copies thereof are included as part of Schedule 4.15.
Neither any Stockholder nor any such plan listed in Schedule 4.15, nor Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No employee benefit plan listed on
Schedule 4.15 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and Company has not
incurred (i) any liability for excise tax or penalty payable to the Internal
Revenue Service or (ii) any liability to the Pension Benefit Guaranty
Corporation (other than for premium payments). Furthermore:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under Section
401(a) of the Code without notice to and approval by the Internal
Revenue Service;
(w) no plan listed on Schedule 4.15 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to employee benefit
plans listed in Schedule 4.15;
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(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) no circumstances exist pursuant to which Company could
reasonably be expected to have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer plan or the Pension Benefit Guaranty Corporation under
Title IV of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory Lien to secure
payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes
Company.
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group has not resulted
in and will not result in payments to "disqualified individuals" (as defined
in Section 280G(c) of the Code) of Company or any member of the Controlled
Group which, individually or in the aggregate will constitute "excess
parachute payments" (as defined in Section 280G(b) of the Code) resulting in
the imposition of the excise tax under Section 4999 of the Code or the
disallowance of deductions under Section 280G of the Code.
4.17 Conformity with Law; Litigation. Except to the extent set forth
on Schedule 4.17, Company is not in violation of any law or regulation or any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 4.17, there are no material claims,
actions, suits or proceedings, commenced or, to the knowledge of Company,
threatened, against or affecting Company, at law or in equity, or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over Company and
no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by Company or any Stockholder. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on schedules to
this Agreement, and is not in violation of any of the foregoing which might
have a Material Adverse Effect.
4.18 Tax Matters.
(i) Company is, as of the date first set forth above, taxed
under Subchapter S of the Code and will remain so through the Deemed
Closing Date. Stockholders have filed all
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income Tax Returns that they were required to file with respect to
Company, and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were correct and
complete in all material respects. All Taxes owed by Company (whether
or not shown on any Tax Return) have been paid. Except as set forth
on Schedule 4.18, Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since January
1, 1994, no claim with respect to Company has been made by an
authority in a jurisdiction where Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There
is no Lien affecting any of Company's assets that arose in connection
with any failure or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or
other party.
(iii) Company does not expect any authority to assess any
material amount of additional Taxes against Company for any period
for which Tax Returns have been filed. There is no material dispute
or claim concerning any Tax liability of Company either claimed or
raised by any authority in writing or as to which Company has
knowledge based upon direct inquiry by any agent of such authority.
Schedule 4.18(iii) lists all income Tax Returns of Company for
taxable periods ended on or after January 1, 1992, indicates those
Tax Returns of which Company is aware that have been audited and
indicates those Tax Returns that currently are the subject of audit.
Company has delivered to Purchaser correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by Company for any taxable period ended
on or after January 1, 1993.
(iv) Except as set forth on Schedule 4.18(iv), neither
Stockholders nor Company has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations. Company has not made
any payments, is not obligated to make any
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payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
fully deductible under Section 280G of the Code.
(vi) Except as set forth on Schedule 4.18(vi), none of
Company's assets secures any debt, the interest on which is
tax-exempt under Section 103(a) of the Code. None of Company's assets
are "tax-exempt use property" within the meaning of Section 168(h) of
the Code. The transactions contemplated by this Agreement are not
subject to Tax withholding pursuant to the provisions of Section 3406
or Subchapter A of Chapter 3 of the Code or any other provision of
applicable law.
(vii) Company has not received a ruling from any taxing
authority or entered into any agreement regarding Taxes with any
taxing authority that would, individually or in the aggregate, apply
to Company after the Closing Date.
4.19 No Violations. Company is not in violation of its Charter
Documents. Neither Company nor, to the knowledge of Company, any other party
thereto, is in material default under any Lease, instrument, agreement,
license, or permit set forth on any schedule to this Agreement, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 4.19, (i) the
rights and benefits of Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will
not result in any material violation or breach or constitute a material
default under, any of the terms or provisions of the Material Documents or the
Charter Documents. Except as set forth on Schedule 4.19, none of the Material
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect in all
material respects, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration
or loss of any material right or benefit. Except as set forth on Schedule
4.19, to the knowledge of Company, none of the Material Documents prohibits
the use or publication by Company or Purchaser of the name of any other party
to such Material Document, and none of the Material Documents prohibits or
restricts Company from freely providing services to any other customer or
potential customer of Company, any of the Other Founding Companies or
Purchaser.
4.20 Absence of Changes. Since the Initial Disclosure Date, except as
set forth on Schedule 4.20, there has not been:
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(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
Company;
(ii) any damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests or
any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) any Restricted Payment in an amount in excess of the
lesser of Company Operating Profit and Distributable Cash;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor
claims filed, or any other similar labor event or condition of any
character, materially adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
Person, including, without limitation, any Stockholder and its
Affiliates outside the ordinary course of business of Company;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to Company, including without
limitation any indebtedness or obligation of any Stockholder or any
Affiliate thereof outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
assets, property or rights of Company or requiring consent of any
party to the transfer and assignment of any such assets, property or
rights;
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(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or asset
outside of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of Company;
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which Company
is a party;
(xiii) any transaction by Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business;
4.21 Accounts and Notes Receivable. As of May 31, 1997, Company's
accounts and notes receivable (including receivables from and advances to
employees and Stockholders or their Affiliates) were $49.9 million, of which
no single account represented more than $333,944. Except to the extent
reflected on Schedule 4.21, such accounts, notes and other receivables are
collectible, net of reserves reflected in the June Balance Sheet.
4.22 Personal Property. Company has delivered to Purchaser a
depreciation schedule (which is set forth on Schedule 4.22) which includes (i)
all personal property included (or that will be included) in "depreciable
plant, property and equipment" on the balance sheet of Company, (ii) all
personal property owned by Company with a value in excess of $50,000 (x) as of
the Initial Disclosure Date and (y) acquired since the Initial Disclosure Date
and (iii) all Leases and agreements in respect of personal property,
including, in the case of each of (i), (ii) and (iii), (1) true, complete and
correct copies of all such Leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by the Stockholders, relatives of the
Stockholders, or Affiliates of Company. Except as set forth on Schedule 4.22,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 4.22,
(b) all of the personal property listed on Schedule 4.22 is in good working
order and condition, ordinary wear and tear excepted and (c) all Leases and
agreements included on Schedule 4.22 are, to the knowledge of Company and
Stockholders, in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
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4.23 Insurance. Company has delivered to Purchaser, as set forth on
and attached to Schedule 4.23, (i) an accurate list as of the Initial
Disclosure Date of all insurance policies carried by Company, (ii) an accurate
list of all insurance loss runs on workers compensation claims received for
the past three policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all
of the insurance that Company is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws or that
management of Company otherwise believes is prudent and appropriate to insure
against the risks inherent in Company's business in accordance with customary
industry practices. All of such insurance policies are currently in full force
and effect and shall remain in full force and effect through the Closing Date.
No insurance carried by Company has ever been canceled by the insurer, and
Company has never been denied coverage.
4.24 Intellectual Property. Except as set forth in Schedule 4.24,
Company either owns or has the right to use by license, sublicense, agreement,
or permission all of Company's inventions, improvements, domestic and foreign
patents and applications therefor, customer lists, copyrights, copyright
registrations and applications therefor, trademarks, tradenames, service
marks, trade dress, logos, rights in computer software, and all rights granted
or retained in licenses under any of the foregoing which are used in
connection with the conduct of Company's business as presently conducted.
Except as set forth on Schedule 4.24, none of the Intellectual Property which
is used in connection with the conduct of Company's business is, or has been
in the past five years involved in, or the subject of, any pending or, to the
knowledge of Company, threatened infringement, interference, opposition or
similar action, suit or proceeding or, to the knowledge of Company, has
otherwise been challenged in any way. Except as set forth on Schedule 4.24,
the Intellectual Property will afford Purchaser the right to use all
technology, know-how, technical and other information, data and other
intellectual property, whether patentable or unpatentable, and whether owned
by Company, any other Person or others, necessary for the conduct of Company's
business in a manner consistent with Company's prior practice. The license
fees, royalties and other amounts payable by Company in connection with the
use of the Intellectual Property, together with the terms and conditions on
which and periods for which such amounts are payable, are described in
Schedule 4.24. Any licenses fees, royalties or other amounts payable as a
result of the consummation of the transactions contemplated by this Agreement
shall be paid by Purchaser.
4.25 Labor Relations. Except as set forth on Schedule 4.25, Company
is not a party to any collective bargaining agreement; and there are no
controversies pending or, to Company's knowledge, threatened between Company
and any of its current or former employees or any labor or other collective
bargaining unit representing any current or former employee of Company that
could reasonably be expected to result in a labor strike, dispute, slow-down
or work stoppage or otherwise have a Material Adverse Effect. Company is not
aware of any organizational effort
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presently being made or threatened by or on behalf of any labor union with
respect to employees of Company. To Company's knowledge, no executive, key
employee or group of employees of Company has any plan to terminate employment
with Company.
4.26 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of Company for the time periods with respect to
which such information was requested. Company's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and
no statement made herein would be rendered untrue in any material respect by,
any other document to which Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding Company (which fact or
circumstance was, or should reasonably, after due inquiry, have been known to
Company) that is not disclosed pursuant hereto or thereto.
4.27 Prohibited Activities. Except as set forth on Schedule 4.27,
Company has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Section 7.3 ("Prohibited
Activities").
4.28 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft
Registration Statement, insofar as they were provided by the Company expressly
for inclusion therein but not otherwise, are true, accurate and complete in
all material respects and do not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
5. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents
warrants, covenants and agrees (i) that all of the following representations
and warranties in this Section 5 are true at the date of this Agreement and,
subject to Section 7.6, shall be true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 5 shall be complied with or
performed at and as of the Closing Date. The representations, warranties,
covenants and agreements set forth in this Section 5 shall not survive the
Closing Date.
5.1 Authority. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder.
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5.2 Preemptive Rights. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire Company Stock or Purchaser
Stock that such Stockholder has or may have had other than the rights of such
Stockholder to acquire Purchaser Stock upon the exercise of Warrants.
5.3 Tax Matters. Each Stockholder has been advised by his counsel
that certain aspects of the transactions contemplated by this Agreement
qualify for the deferral of gain pursuant to Section 351 of the Code.
5.4 No Retained Rights. No Stockholder will retain any right after
the Closing in any Company Stock to be transferred by him at the Closing but,
to the extent that such right may exist upon the consummation of the Closing,
such right shall be deemed to have been released and extinguished.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PURCHASER AND OLD ACG
Purchaser and Old ACG, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.6, shall be true at the Closing Date and that all of the
covenants and agreements in this Section 6 shall be complied with or performed
at and as of the Closing Date. The representations, warranties, covenants and
agreements set forth in this Section 6 shall not survive the Closing Date.
6.1 Due Organization. Purchaser and Old ACG each is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware, and is duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on its business in the places and in the manner as now conducted,
except where the failure to be so authorized or qualified would not have a
Material Adverse Effect. True, complete and correct copies of the Charter
Documents and By-laws, each as amended, of Purchaser and Old ACG
(collectively, the "Purchaser Charter Documents") are attached hereto as
Schedule 6.1.
6.2 Authorization. Each of Purchaser and Old ACG has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by each of Purchaser and Old
ACG of this Agreement and its consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of
Purchaser and Old ACG. This Agreement has been duly executed and delivered by
each of
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Purchaser and Old ACG and is a valid and binding obligation of each of
Purchaser and Old ACG, enforceable against each of them in accordance with its
terms.
6.3 Capital stock. The authorized capital stock of Old ACG is as set
forth on Schedule 6.3. All of the issued and outstanding shares of the capital
stock of Old ACG (i) have been duly authorized and validly issued, (ii) are
fully paid and nonassessable, (iii) are owned of record and beneficially by
the Persons set forth on Schedule 6.3, and (iv) were offered, issued, sold and
delivered by Old ACG in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Old ACG. Subject only to changes resulting from the
consummation of the reverse stock split referred to in the eight recital of
this Agreement and the consummation of Purchaser's acquisition of Old ACG in
the reverse triangular merger, the capitalization of Purchaser will be
identical to the capitalization of Old ACG immediately prior to the
consummation of the IPO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as
set forth on Schedule 6.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call,
conversion right or commitment of any kind exists which obligates Old ACG to
issue any of its authorized but unissued capital stock and (ii) Old ACG has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend
or make any distribution in respect thereof. Schedule 6.3 also includes
complete and accurate copies of all stock option or stock purchase plans,
including a list, accurate as of the date hereof, of all outstanding options,
warrants or other rights to acquire shares of capital stock of Old ACG.
6.5 Subsidiaries. Neither Purchaser nor Old ACG has any Subsidiaries,
except for each of the companies identified on Schedule 6.5. Except as set
forth in the preceding sentence, neither Purchaser nor Old ACG presently owns,
of record or beneficially, or controls, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and neither Purchaser nor
Old ACG, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporation entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies
of the following financial statements of Old ACG, which reflect the results of
its operations from inception in June 1996 (the "Old ACG Financial
Statements"): Old ACG's audited Balance Sheet as of December 31, 1996 and its
unaudited Balance Sheet as of June 30, 1997, and audited Statements of
Operations, Stockholder's Equity and Cash Flows and related notes thereto for
the period from June 10, 1996 through December 31, 1996 and unaudited
Statements of Operations, Stockholder's Equity and Cash
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Flows for the six months ended June 30, 1997. The audited Old ACG Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated
(except as noted thereon or on Schedule 6.6). The unaudited Old ACG Financial
Statements were prepared in accordance with the books and records of Old ACG
in accordance with accounting principles consistently applied. Old ACG's
Balance Sheets present fairly the financial position of Old ACG as of the
dates indicated thereon, and Old ACG's Statements of Operations, Stockholder's
Equity and Cash Flows included in the Old ACG Financial Statements present
fairly the results of operations for the periods indicated thereon in
accordance with generally accepted accounting principles. Old ACG's Financial
Statements at and for the period ended December 31, 1996 have been examined by
KPMG Peat Marwick LLP, independent public accountants.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
neither Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth
on Schedule 6.8, or in the Draft Registration Statement, neither Purchaser nor
Old ACG is in violation of any law or regulation or any order of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it which would have
a Material Adverse Effect; and except to the extent set forth on Schedule 6.8,
or in the Draft Registration Statement, there are no material claims, actions,
suits or proceedings, pending or, to the knowledge of either Purchaser or Old
ACG, threatened, against or affecting either Purchaser or Old ACG, at law or
in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Each of Purchaser and Old
ACG has conducted and is conducting is businesses in substantial compliance
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
6.9 No Violations. Neither Purchaser nor Old ACG is in violation of
any Purchaser Charter Document. Neither Purchaser nor Old ACG, nor to the
knowledge of Purchaser or Old ACG, any other party thereto, is in default
under any Lease, instrument, agreement, license, or permit to which Purchaser
or Old ACG is a party, or by which Purchaser or Old ACG or any of its
properties, are bound (collectively, the "Purchaser Documents"); and (i) the
rights and benefits of
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Purchaser and Old ACG under the Purchaser Documents will not be adversely
affected by the transactions contemplated hereby and (ii) the execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms
or provisions of the Purchaser Documents or the Purchaser Charter Documents.
Except as set forth on Schedule 6.9, none of the Purchaser Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 Securities. The execution and delivery by Purchaser of the
Series D Warrants and the Notes have been duly authorized by all necessary
corporate action of Purchaser. Upon the execution and delivery of the Series D
Warrants and the Notes at the Closing in accordance with the terms of this
Agreement, the Series D Warrants and the Notes will be valid and binding
obligations of Purchaser, enforceable against Purchaser in accordance with
their terms. The shares of Purchaser Stock comprising the Stock Component and
the Series D Warrant Stock have been duly authorized and reserved for issuance
and such shares, when issued upon the consummation of the transaction
contemplated by this Agreement and upon the exercise of the Series D Warrants
in accordance with the terms thereof, respectively, will be validly issued,
fully paid and nonassessable.
6.11 Business; Real Property; Material Agreement. Old ACG was formed
in June 1996, and Purchaser was formed in September 1997. Neither Purchaser
nor Old ACG has conducted any material business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with Founding Companies. Except as disclosed on Schedule
6.11, neither Purchaser nor Old ACG owns or has at any time owned any real
property or any material personal property or is a party to any other material
agreement.
6.12 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Old ACG were correct and
complete in all material respects. All Taxes owed by Old ACG (whether
or not shown on any Tax Return) have been paid. Old ACG is not
currently the beneficiary of any extension of time within which to
file any Tax Return. Since Old ACG's formation in June 1996 , no
claim with respect to Old ACG has been made by an authority in a
jurisdiction where Old ACG does not file Tax Returns that it is or
may
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be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any
failure or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or
other party.
(iii) Old ACG does not expect any authority to assess any
material amount of additional Taxes against it for any period for
which Tax Returns have been filed. There is no material dispute or
claim concerning any Tax liability of Old ACG either claimed or
raised by any authority in writing or as to which Old ACG has
knowledge based upon direct inquiry by any agent of such authority.
6.13 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft
Registration Statement, insofar as they relate to Purchaser or Old ACG but not
otherwise, are true, accurate and complete in all material respects and do not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
7. OTHER COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized representatives of
Purchaser access to all of Company's sites, properties, books and
records and will furnish Purchaser with such additional financial and
operating data and other information as to the business and
properties of Company as Purchaser may from time to time reasonably
request. Company will cooperate with Purchaser, its representatives,
auditors and counsel in the preparation of any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. Purchaser will cause all
information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 12.
(ii) Between the date of this Agreement and the Closing,
Purchaser will afford to the officers and authorized representatives
of Company and Stockholders access to all sites, properties, books
and records of Purchaser, Old ACG and the other Founding Companies,
and will furnish Company and Stockholders with such additional
financial and
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operating data and other information as to the business and
properties of Purchaser, Old ACG and the other Founding Companies as
Company and Stockholders may from time to time reasonably request.
Purchaser will cooperate with Company and Stockholders, their
representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with
any documents or materials required by this Agreement. Company and
Stockholders will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 12.
(iii) Company agrees to permit an independent accounting
firm selected by Purchaser to audit and render a report on the
Company Financial Statements, provided that all the costs and
expenses of such audits are paid by Purchaser.
7.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Purchaser, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on business in substantially the same manner as it
has heretofore;
(ii) maintain its properties and facilities, including those
held under Lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects
the present insurance policies or other comparable insurance
coverage;
(v) use its reasonable efforts to maintain and preserve its
business organization intact, retain its respective present key
employees and maintain its respective relationships with suppliers,
customers and others having business relationships with it;
(vi) maintain present Lease instruments and not enter into
new or amended Lease or debt instruments;
(vii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with prior practices; and
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(viii) maintain material compliance with all material
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
7.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Company, will not, without prior written consent of Purchaser:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(iii) make any Restricted Payment in excess of the lesser of
Company Operating Profit and Distributable Cash;
(iv) merge or consolidate or agree to merge or consolidate
with or into any other Person;
(v) commit a material breach or amend or terminate any
material agreement, permit, license or other right;
(vi) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice)
or involves an amount not in excess of $50,000;
(vii) create, assume or permit to exist any Lien upon any
asset or property whether now owned or hereafter acquired, except (x)
with respect to purchase money Liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$50,000 necessary or desirable for the conduct of its business, (y)
(1) Liens for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested Taxes
adequate reserves have been established and are being maintained) or
(2) materialmen's, mechanics', workers', repairmen's, employees' or
other like Liens arising in the ordinary course of business, or (3)
Liens set forth on any Schedule to this Agreement;
(viii) sell, assign, lease or otherwise transfer or dispose
of any property or equipment except in the normal course of business;
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(ix) negotiate for the acquisition of any business or the
start-up of any new business;
(x) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 Exclusivity. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with,
the earlier to occur of the Closing Date or the termination of this Agreement
in accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than
Purchaser or its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, Company or any merger, consolidation or business
combination of Company.
7.5 Notification of Certain Matters. Stockholders and Company shall
give prompt notice to Purchaser of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Company or Stockholders contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing Date
and (ii) any material failure of Stockholders or Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by such Person hereunder as of such date. Purchaser shall give prompt notice
to Company and Stockholders of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Purchaser and Old ACG contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing Date
and (ii) any material failure of Purchaser or Old ACG to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder as of such date. The delivery of any notice pursuant to this
Section 7.5 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification
may only be made pursuant to Section 7.6, (ii) modify the conditions set forth
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in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.6 Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
to supplement or amend promptly the Schedules with respect to any matter
hereafter arising or discovered which, if existing or known at the date of
this Agreement, would have been required to be set forth or described in the
Schedules. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company, Stockholders, Purchaser or Old ACG that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless Purchaser and Old ACG or Stockholders and
Company, as the case may be, consents to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 7.6. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to
the provisions of Section 11.1(v). Neither the entry by Purchaser into any
other agreement after the date hereof for the acquisition of one or more
companies involved in or assets associated with the telecommunication
business, yellow page publishing business or related activities nor the
performance by Purchaser of its obligations thereunder shall be deemed to
require the amendment to or a supplementation of any Schedule hereto.
7.7 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act will be required in connection with
the transactions contemplated herein. Accordingly, (i) each of the parties
hereto agrees to cooperate and use its best efforts to comply with the
Hart-Scott Act; (ii) such compliance by Company and Stockholders shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Section 9 of this Agreement, and such compliance by Purchaser shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Section 8 of this Agreement; (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to
be made; and (iv) Purchaser shall be responsible for all filing fees under the
Hart-Scott Act.
7.8 Further Assurance. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated by this Agreement.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of Stockholders with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to
the Closing Date of all of the following conditions. Upon Closing, all
conditions not satisfied shall be deemed to have been waived:
8.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions
of this Agreement to be complied with or performed by Purchaser and Old ACG on
or before the Closing Date shall have been duly complied with or performed in
all material respects; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of each of
Purchaser and Old ACG shall have been delivered to Stockholders.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other
related legal matters shall be reasonably satisfactory to Stockholders and
their counsel.
8.3 No Litigation. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of
Company or Stockholders as a result of which Stockholders deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. Stockholders shall have received an opinion
from counsel for Purchaser and Old ACG, dated the Closing Date, in the form
and substance reasonably acceptable to Stockholders, relating to, insofar as
Purchaser and Old ACG are concerned, as the case may be, (a) the
authorization, execution, delivery, performance and enforceability of the
Agreement, the Series D Warrants and the Notes, (b) the consummation of the
transactions contemplated herein and (c) such other legal matters as
Stockholders may reasonably request.
8.5 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
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8.6 Good Standing Certificates. Purchaser shall have delivered to
Stockholders a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and, unless
waived by Stockholders, in each state in which Purchaser is authorized to do
business, showing that Purchaser is in good standing and authorized to do
business and that all state franchise and/or income Tax Returns and Taxes for
Purchaser, for all periods prior to the Closing Date have been filed and paid
to the extent required.
8.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Purchaser that would constitute a Material Adverse
Effect.
8.8 Secretary's Certificates. Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the
Secretary of each of Purchaser and Old ACG, certifying the completeness and
accuracy of the attached copies of Purchaser's Charter Documents (including
amendments thereto), By-Laws (including amendments thereto), and resolutions
of the board of directors approving Purchaser's and Old ACG's entering into
this Agreement and its consummation of the transactions contemplated hereby.
8.9 Closing of IPO. The sale by Purchaser of shares of Purchaser
Stock in the IPO shall have closed prior to or substantially contemporaneously
with the consummation of the transactions contemplated herein.
8.10 Employment Agreements. Richard O'Neal shall have been afforded
an opportunity to enter into an employment agreement substantially in the form
of Annex V providing for an annual minimum salary of $300,000, Larry Baldwin
shall have been afforded an opportunity to enter into an employment agreement
substantially in the form of Annex VI providing for an annual minimum salary
of $175,000 and Steve Sparks and Ron Baldwin each shall have been afforded an
opportunity to enter into an employment agreement substantially in the form of
Annex VII providing for an annual minimum salary of $155,000 and $155,000,
respectively.
8.11 Section 1362(E)(3) Election. Stockholders and Purchaser shall
have executed a ss. 1362(E)(3) election for filing with the IRS relating to
the allocation of profits for tax year 1997 upon the disqualification of
Company as a Subchapter S corporation.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
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The obligations of Purchaser with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
9.1 Representations and Warranties; Performance of Obligations. All
the representations and warranties of Company and Stockholders contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by Company
and Stockholders on or before the Closing Date shall have been duly performed
or complied with in all material respects; and Company and Stockholders each
shall have delivered to Purchaser a certificate dated the Closing Date and
signed by them to such effect.
9.2 No Litigation. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of
Purchaser as a result of which the management of Purchaser deems it
inadvisable to proceed with the transactions hereunder.
9.3 Company's Secretary's Certificate. Purchaser shall have received
a certificate, dated the Closing Date and signed by the Secretary of Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors approving the
Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Company which would constitute a Material Adverse
Effect, and Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of Company to
conduct its business.
9.5 Stockholders' Release. Stockholders shall have delivered to
Purchaser an instrument dated the Closing Date releasing (i) Company from any
and all claims of Stockholders (including those under existing agreements) and
(ii) the obligations of Purchaser and Old ACG to Stockholders, except in each
case for the obligations arising under this Agreement, the transactions
contemplated by this Agreement and as otherwise listed on Schedule 9.5.
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9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Purchaser and its counsel.
9.7 Opinion of Counsel. Purchaser shall have received an opinion from
counsel to Stockholders, dated the Closing Date, in the form and substance
reasonably acceptable to Purchaser, relating to, insofar as Company and
Stockholder are concerned, (a) the authorization, execution, delivery,
performance and enforceability of the Agreement, (b) the consummation of the
transactions contemplated herein and (c) such other matters as Purchaser may
reasonably request.
9.8 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
required consents and approvals of third parties shall have been obtained.
9.9 Good Standing Certificates. Company shall have delivered to
Purchaser a certificate, dated as of a date no earlier than ten days prior to
the Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Purchaser, in each
state in which Company is authorized to do business, showing Company is in
good standing and authorized to do business and that all state franchise
and/or income Tax Returns and Taxes for Company for all periods prior to the
Closing have been filed and paid.
9.10 FIRPTA Certificate. Each Stockholder shall have delivered to
Purchaser a certificate to the effect that he is not a foreign Person under
Section 1.1445-2(b) of the Treasury regulations.
9.11 Closing of IPO. The sale by Purchaser of shares of Purchaser
Stock in the IPO shall have closed prior to or substantially contemporaneously
with the consummation of the transactions contemplated by this Agreement.
9.12 Employment Agreements. Richard O'Neal shall have executed and
delivered an employment agreement with Company substantially in the form of
Annex V providing for an annual minimum salary of $300,000, Larry Baldwin
shall have been afforded an opportunity to enter into an employment agreement
with the Company substantially in the form of Annex VI providing for an annual
minimum salary of $175,000 and Steve Sparks and Ron Baldwin each shall have
entered into an employment agreement with Company substantially in the form of
Annex VII providing for an annual minimum salary of $155,000 and $155,000,
respectively.
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9.13 Licensing Arrangements. The licensing arrangements between Big
Stuff, Inc. and Company relating to the colorizing of yellow pages and the
reselling of world wide web sites shall have been documented on terms
satisfactory to Purchaser.
10. CERTAIN TAX AND EMPLOYEE BENEFIT MATTERS
10.1 Preparation and Filing of Tax Returns.
(i) Stockholders shall file or cause to be filed all
separate Federal income Tax Returns (and any state and local Tax
Returns filed on the basis similar to that of S corporations under
Federal income Tax rules) of Company for all taxable periods that end
on or before the Closing Date. Each Stockholder shall pay or cause to
be paid all Tax liabilities (in excess of all amounts already paid
with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) Purchaser shall file or cause to be filed all separate
Returns of, or that include, Company for all taxable periods ending
after the Closing Date.
(iii) Each party hereto shall, and shall cause its
Subsidiaries and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and work papers, relevant documents relating
to rulings or other determinations by Taxing authorities and relevant
records concerning the ownership and Tax basis of property, which
such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file
Returns pursuant to this Agreement shall bear all costs of filing
such Returns.
10.2 Preservation of Employee Benefit Plans. Following the Closing
Date, Purchaser shall not terminate any health insurance, life insurance or
401(k) plan in effect at Company until such time as Purchaser is able to
replace such plan with a plan that is applicable to Purchaser and all of its
then existing Subsidiaries; provided that Purchaser shall have no obligation
to provide
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replacement plans that have the same terms and provisions as the existing
plans; provided, further, that any new health insurance plan shall provide for
coverage for preexisting conditions.
11. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time prior to the Closing
Date solely:
(i) by mutual consent of Stockholders and the board of directors of
Purchaser;
(ii) by Stockholders, on the one hand, or by Purchaser (acting
through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have
been consummated by January 31, 1998, unless the failure of such transactions
to be consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(iii) by Stockholders, on the one hand, or by Purchaser on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the SEC pursuant to
the 1933 Act;
(iv) by Stockholders, on the one hand, or by Purchaser, on the other
hand, if a material breach or default shall be made by the other party or
parties in the observance or in the due and timely performance of any of the
material covenants, agreements or conditions contained herein, and the curing
of such default shall not have been made on or before the Closing Date; or
(v) by Stockholders, on the one hand, or by Purchaser, on the other
hand, if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 7.6 because such proposed amendment constitutes or reflects an event
or occurrence that would have a Material Adverse Effect on the party or
parties proposing the same.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Company and Stockholders. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Purchaser and Old ACG,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of Purchaser and Old ACG. Company and Stockholders
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agree that they will not disclose such confidential information to any Person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Purchaser and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 12.1, unless (x) such information becomes known to the public
generally through no fault of Company and Stockholders, (y) disclosure is
required by law or the order of any governmental authority under color of law;
provided, that prior to disclosing any information pursuant to this clause
(y), Company and Stockholders, if possible, shall give immediate prior written
notice thereof to Purchaser and provide Purchaser with the opportunity to
contest such disclosure, or (z) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit
against the disclosing party. In the event of a breach or threatened breach by
either Company or any Stockholder of the provisions of this Section 12.1,
Purchaser shall be entitled to an injunction (without the posting of bond or
proof of actual damages) restraining Company or any Stockholder, as the case
may be, from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting Purchaser from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event the transactions contemplated by this
Agreement are not consummated, Company and Stockholders (including their
representatives, advisors and legal counsel) shall within ten business days
after a request from Purchaser, deliver all copies of the confidential
information of Purchaser in their possession in any form whatsoever
(including, but not limited to, reports, memoranda or other materials prepared
by Company and Stockholders or their representatives, advisors or legal
counsel at their direction).
12.2 Purchaser. Each of Purchaser and Old ACG recognizes and
acknowledges that it has in the past, currently has and in the future may
have, prior to the Closing, access to certain confidential information of
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of Company. Each of Purchaser and Old ACG
agrees that, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, it will not disclose such confidential
information to any Person for any purpose or reason whatsoever, except (i) to
authorized representatives of Company, other Founding Companies or any
Stockholder; and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 12.2, unless (x) such information becomes known to the public
generally through no fault of Purchaser and Old ACG (y) disclosure is required
by law or the order of any governmental authority under color of law;
provided, that prior to disclosing any information pursuant to this clause
(y), Purchaser shall, if possible, give immediate prior written notice thereof
to Company and provide Company with the opportunity to contest such
disclosure, or (z) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or
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threatened breach by Purchaser or Old ACG of the provisions of this Section
12.2, Company shall be entitled to an injunction (without the posting of bond
or proof of actual damages) restraining Purchaser or Old ACG from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Company from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Purchaser and Old ACG (including its representatives, advisors and legal
counsel) shall within ten business days after a request from Company, deliver
all copies of the confidential information of Company in their possession in
any form whatsoever (including, but not limited to, any reports, memoranda, or
other materials prepared by either Purchaser or Old ACG or its
representatives, advisors or legal counsel at its direction).
12.3 Damages. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 12.1 and 12.2
and because of the immediate and irreparable damage that would be caused for
which no other adequate remedy exists, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
be enforced against another party by injunction and restraining order.
12.4 Survival. The obligations of the parties under this Article 12
shall survive the termination of this Agreement for a period of three years
from the Closing Date or the termination of this Agreement pursuant to Section
11.
13. NONCOMPETITION
13.1 Prohibited Activities. Each of the Stockholders will not, for a
period of 36 calendar months following the date of cessation of his employment
with Company after the Closing Date ("Termination Date") in the case of
Messrs. O'Neal, Larry Baldwin, Steve Sparks or Ron Baldwin and following the
Closing Date in the case of Ronnie Emanuel, for any reason whatsoever,
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative,
in the sale or marketing of any yellow page publishing, telecommunication
services and natural gas or electrical goods and services (collectively, the
"Proscribed Business"), within the States of Arkansas, California, Kansas,
Missouri, Oklahoma and Texas (the "Territory");
(ii) call upon any Person within the Territory who is employee of
Purchaser (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the
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intent of enticing such employee away from or out of the employ of Purchaser
(including the Subsidiaries thereof); provided that each Stockholder shall be
permitted to call upon and hire immediate family members;
(iii) call upon any Person which is or which has been, within one
year prior to the Closing Date or the Termination Date, as the case may be, a
customer of Purchaser (including the Subsidiaries thereof), or of Company
within the Territory, for the purpose of soliciting or selling products or
services in direct competition with Purchaser (including the Subsidiaries
thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Purchaser
(including the Subsidiaries thereof) engaged in a Proscribed Business, which
candidate, to the actual knowledge of such Stockholder after due inquiry, was
called upon by Purchaser (including the Subsidiaries thereof) or for which, to
the actual knowledge of such Stockholder after due inquiry, Purchaser (or any
Subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent that Company
has in the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenants shall not be
deemed to prohibit any Stockholder from acquiring and holding as a passive
investment not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the
National Association of Securities Dealers' Automated Quotation System.
13.2 Damages. Because of the difficulty of measuring economic losses
to Purchaser as a result of a breach of any of the foregoing covenants, and
because of the immediate and irreparable damage that could be caused to
Purchaser for which it would have no other adequate remedy, each Stockholder
agrees that any of the foregoing covenants may be enforced by Purchaser in the
event of breach by such Stockholder, by injunction and restraining order.
13.3 Reasonable Restraint. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on
Stockholders in light of the activities and business of Purchaser (including
the Subsidiaries thereof) on the date of the execution of this Agreement and
the reasonably foreseeable plans of Purchaser.
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13.4 Severability, Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
13.5 Independent Covenant. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any
Stockholder against Purchaser (including the Subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Purchaser of such covenants. It is specifically agreed that
the period of 36 calendar months stated at the beginning of this Section 13,
during which the agreements and covenants of each Stockholder made in this
Section 13 shall be effective, shall be computed by excluding from such
computation any time during which such Stockholder is in violation of any
provision of this Section 13. The covenants contained in this Section 13 shall
not be affected by any breach of any other provision hereof by any party
hereto and shall become void if the transactions contemplated by this
Agreement are not consummated.
13.6 Materiality. Stockholders hereby agree that the covenants set
forth in this Section 14 are a material and substantial part of the
transactions contemplated by this Agreement.
14. TRANSFER PROHIBITIONS AND RESTRICTIONS
14.1 Warrants. STOCKHOLDERS ACKNOWLEDGE THAT THE WARRANTS ARE
NON-TRANSFERRABLE AND HENCE CANNOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF BY ANY
STOCKHOLDER EXCEPT (I) PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION, (II)
IN CONNECTION WITH A TENDER OFFER OR EXCHANGE OFFER FOR ALL THE PURCHASER
STOCK OR (III) TO A STOCKHOLDER'S LINEAL DESCENDANTS, OR TRUSTS CREATED FOR
THEIR BENEFIT, IN EACH CASE ONLY IF THE TRANSFEREE AGREES TO BE BOUND BY THE
TERMS OF THIS SECTION 14. In addition, Stockholders further acknowledge that
for a period of one year from the date of the original issuance of any Warrant
Stock upon the exercise of a Warrant, except pursuant to Section 16, no
Stockholder may sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any Warrant Stock. The Warrant
Stock delivered to the Stockholders upon exercise of the Warrants will bear a
legend substantially in the form set forth in Section 14.3 and contain such
other information as Purchaser may deem necessary or appropriate.
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14.2 Purchaser Stock. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section
14.2 (or trusts for the benefit of the Stockholders or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 16, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
Purchaser Stock received by the Stockholders in the transaction contemplated
herein. The Purchaser Stock delivered to the Stockholders pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth in
Section 14.3 and contain such other information as Purchaser may deem
necessary or appropriate:
14.3 Legend. The following legend satisfies the requirements of
Sections 14.1 and 14.2:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF DATE OF ORIGINAL ISSUANCE]. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
15. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Notes, the shares of Purchaser Stock
comprising the Stock Component and the Warrant Stock (collectively "Restricted
Securities") will not be registered under the 1933 Act and therefore may not
be resold without compliance with the requirements of the 1933 Act and
applicable state securities laws. All of the Restricted Securities will be
acquired by Stockholders solely for their own respective accounts, for
investment purposes only, and not with a view to the distribution thereof.
15.1 Compliance With Law. Stockholders represent, warrant, covenant
and agree that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed or
otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC thereunder
and the provisions of applicable state securities laws and regulations. All
the Restricted Securities shall bear the following legend in addition to the
legend required under Section 14 of this Agreement:
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THE [SHARES/NOTES] REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE [SHARES/NOTES] REPRESENTED BY THIS
SECURITY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR
(B) THE HOLDER OF THE [SHARES/NOTES] REPRESENTED BY THIS SECURITY PROVIDES THE
ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL
AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE
ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF THE [SHARES/NOTES]
REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE
ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION
UNDER THE ACTS.
15.2 Economic Risk, Sophistication. Each Stockholder represents that
he has received, has read and understands the Draft Registration Statement,
and in particular the risk factors described therein. Each Stockholder further
represents that he is able to bear the economic risk of an investment in the
Restricted Securities and can afford to sustain a total loss of such
investment and either (i) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
proposed investment in Purchaser or (ii) together with the senior executives
of the Company, with whom he has consulted, has such knowledge and experience
in financial and business matters that he is capable of evaluating the merits
and risks of the proposed investment in Purchaser. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Purchaser and the Company concerning any and all matters relating to the
transactions described herein including, without limitation, the background
and experience of the current and proposed officers and directors of
Purchaser, the plans for the operations of the business of Purchaser and any
plans for additional acquisitions and the like. Stockholders have asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Purchaser agrees to afford
Stockholders another opportunity to ask similar questions regarding Purchaser
prior to any exercise of their Warrants. At the time of any such exercise,
Purchaser may, as a condition to the issuance of any Warrant Stock upon the
exercise of Warrants, require the reaffirmation of the statements contained in
this Section 15.2 by the Stockholder seeking to exercise Warrants.
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16. REGISTRATION RIGHTS
16.1 PiggyBack Registration Rights. Whenever Purchaser proposes to
register any Purchaser Stock for its own or the account of others under the
1933 Act for a public offering other than (i) any registration of shares to be
used as consideration for acquisitions of additional businesses by Purchaser
and (ii) registrations relating to employee benefit plans, Purchaser shall
give each Stockholder then owning Registrable Securities that has not been
registered under the 1933 Act prompt written notice of its intent to do so.
Upon the written request of any such Stockholder given within 15 days after
receipt of such notice, Purchaser shall cause to be included in such
registration all Registrable Securities which any Stockholder requests;
provided, however, if Purchaser is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 16.1 that
the number of shares to be sold by Persons other than Purchaser is greater
than the number of such shares which can be offered without adversely
affecting the offering, Purchaser may reduce pro rata the number of shares
offered for the accounts of such Persons (based upon the number of shares held
by such Person) to a number deemed satisfactory by such managing underwriter.
16.2 Demand Registration Rights. At any time after the first
anniversary of the Closing Date, Stockholders or their permitted transferees
("Founding Stockholders") holding a majority of the Registrable Securities
then outstanding (but not less than 500,000 shares), which shares have not
been previously registered or sold and which shares are not entitled to be
sold under Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act, may request in writing that Purchaser file a registration
statement under the 1933 Act covering the registration of such shares of
Registrable Securities issued to and held by the Founding Stockholders or
their permitted transferees (a "Demand Registration"). Within ten days of the
receipt of such request, Purchaser shall give written notice of such request
to all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders
requesting such registration, file and use its best efforts to cause to become
effective a registration statement covering all such shares. Purchaser shall
be obligated to effect only one Demand Registration for all Founding
Stockholders; provided, however, that Purchaser shall not be deemed to have
satisfied its obligation under this Section 16.2 unless and until a Demand
Registration covering all shares of Registrable Securities requested to be
registered has been filed and become effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
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Notwithstanding the foregoing paragraph, following such a demand a
majority of the disinterested directors of Purchaser (i.e. directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Purchaser has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering
under the 1933 Act, no registration of Registrable Securities shall be
initiated under this Section 16.2 until 90 days after the effective date of
such registration statement unless Purchaser is no longer proceeding
diligently to secure the effectiveness of such registration statement;
provided that Purchaser shall provide the Founding Stockholders the right to
participate in such public offering pursuant to, and subject to, Section 16.1.
16.3 Registration Procedures. All expenses incurred in connection
with the registrations under this Section 16 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Purchaser. In
connection with registrations under Sections 16.1 and 16.2 Purchaser will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become and remain effective;
provided that Purchaser may discontinue any registration of its
securities that is being effected pursuant to Section 16.2 at any
time prior to the effective date of the registration statement
relating thereto.
(ii) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period as may be requested by the Stockholders
holding a majority of the Registrable Securities covered thereby not
exceeding 90 days and to comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement; provided, that before filing a
registration statement or prospectus relating to the sale of
Registrable Securities, or any amendments or supplements thereto,
Purchaser will furnish to counsel to each holder of Registrable
Securities covered by such registration statement or prospectus,
copies of all documents proposed to be filed, which documents will be
subject to the review of such
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counsel, and Purchaser will give reasonable consideration in good
faith to any comments of such counsel.
(iii) Furnish to each holder of Registrable Securities
covered by the registration statement and to each underwriter, if
any, of such Registrable Securities, such number of copies of a
preliminary prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other documents, as such
Person may reasonably request, in order to facilitate the public sale
or other disposition of the Registrable Securities.
(iv) Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition of the Registrable Securities
owned by such seller, in such jurisdictions, except that Purchaser
shall not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 16.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities.
(vi) Immediately notify each seller of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
1933 Act within the appropriate period mentioned in Section 16.3(ii),
if Purchaser becomes aware that the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and, at the request of any such seller, deliver a
reasonable number of copies of an amended or supplemental prospectus
as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, each prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
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(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make generally
available to its security holders, in each case as soon as
practicable, but not later than 45 calendar days after the close of
the period covered thereby (90 calendar days in case the period
covered corresponds to a fiscal year of the Purchaser), an earnings
statement of Purchaser which will satisfy the provisions of Section
11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities
exchange as they may reasonably designate.
(ix) In the event the offering is an underwritten offering,
use its best efforts to obtain a "cold comfort" letter from the
independent public accountants for Purchaser in customary form and
covering such matters of the type customarily covered by such
letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as the Stockholders holding a majority of
the shares of Registrable Securities covered by the Registration
Statement may reasonably request in order to effect an underwritten
public offering of such Registrable Securities.
(xi) Make available for inspection by the seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant
to such registration statement and by any attorney, accountant or
other agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate documents
and properties of Purchaser, and cause all of Purchaser's officers,
directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an
opinion or opinions from counsel for Purchaser in customary form and
in form and scope reasonably satisfactory to such underwriter or
agent and its counsel.
16.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registrable
Securities covered by a Registration Statement referred to in this
Section 16 will, upon receipt of any notice from
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Purchaser of the happening of any event of the kind described in
Section 16.3(vi), forthwith discontinue disposition of the
Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by
Section 16.3(vi).
(ii) If a registration pursuant to Section 16.1 or 16.2
involves an underwritten offering, each of Larry Baldwin, Steve
Sparks and Ron Baldwin agrees, if his shares of Registrable
Securities are included in such registration, and Richard O'Neal
agrees, whether or not his shares of Registrable Securities are
included in such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the 1933
Act, of any Registrable Securities, or of any security convertible
into or exchangeable or exercisable for any Registrable Securities
(other than as part of such underwritten offering), without the
consent of the managing underwriter, during a period commencing seven
calendar days before and ending 180 calendar days (or such lesser
number as the managing underwriter shall designate) after the
effective date of such registration. Similarly, each of the
Stockholders agrees not to effect any sale or distribution, including
any sale pursuant to the registration rights provided in Section
16.1, of any Registrable Securities, or of any security convertible
into or exchangeable or exercisable for any Registrable Securities,
without the consent of the managing underwriter of the IPO during a
period commencing on the effective date of the Draft Registration
Statement and ending 365 calendar days (or such lesser number as such
managing underwriter shall designate) after such effective date.
16.5 Indemnification.
(i) In the event of any registration of any securities of
Purchaser under the 1933 Act pursuant to Section 16.1 or 16.2,
Purchaser will, and it hereby agrees to, indemnify and hold harmless,
to the extent permitted by law, each seller of any Registrable
Securities covered by such registration statement, each Affiliate of
such seller and their respective directors, officers, employees and
agents or general and limited partners (and directors, officers,
employees and agents thereof) and, if such seller is a portfolio or
investment fund, its investment advisors or agents, each other Person
who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or
any such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim,
damage or expense whatsoever arising out of or based upon an
untrue statement or alleged untrue statement of a material
fact contained in any registration statement (or any
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<PAGE>
amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein
not misleading, or arising out of an untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(y) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the aggregate
amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of
Purchaser; and
(z) against any and all expense reasonably incurred
by them in connection with investigating, preparing or
defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is
not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Purchaser may require, as a condition to including any
Registrable Securities in any registration statement filed in
accordance with Section 16.1 or 16.2, that Purchaser shall have
received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities or any underwriter,
to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 16.5(i)) Purchaser with respect to any
statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information
furnished
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<PAGE>
to Purchaser by or on behalf of such seller or underwriter
specifically stating that it is for use in the preparation of such
registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of
Purchaser or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller. In that
event, the obligations of the Purchaser and such sellers pursuant to
this Section 16.5 are to be several and not joint; provided, however,
that, with respect to each claim pursuant to this Section 16.5,
Purchaser shall be liable for the full amount of such claim, and each
such seller's liability under this Section 16.5 shall be limited to
an amount equal to the net proceeds (after deducting the underwriting
discount and expenses) received by such seller from the sale of
Registrable Securities held by such seller pursuant to this
Agreement.
(iii) Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section 16.5, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its
obligations under this Section 16.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying
party is materially prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist
in respect of such claim (in which case the indemnifying party shall
not be liable for the fees and expenses of more than one firm of
counsel selected by holders of a majority of the shares of
Registrable Securities included in the offering or more than one firm
of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will
be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the
extent that it may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by such indemnifying party in connection with the defense
thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement
requires no more than a monetary payment for which the indemnifying
party agrees to indemnify the indemnified party and includes a full,
unconditional and complete release of the indemnified party;
provided, however, that the
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<PAGE>
indemnified party shall be entitled to take control of the defense of
any claim as to which, in the reasonable judgment of the indemnifying
party's counsel, representation of both the indemnifying party and
the indemnified party would be inappropriate under the applicable
standards of professional conduct due to actual or potential
differing interests between them. In the event that the indemnifying
party does not assume the defense of a claim pursuant to this Section
16.5(iii), the indemnified party will have the right to defend such
claim by all appropriate proceedings, and will have control of such
defense and proceedings, and the indemnified party shall have the
right to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the indemnifying
party and its legal counsel in connection with its assuming the
defense of any claim, including the furnishing of the indemnifying
party with all papers served in such proceeding. In the event that an
indemnifying party assumes the defense of an action under this
Section 16.5(iii), then such indemnifying party shall, subject to the
provisions of this Section 16.5, indemnify and hold harmless the
indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Purchaser and each seller of Registrable Securities
shall provide for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with respect to any
required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority.
16.6 Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by
Section 16.5 is for any reason not available or insufficient for any reason to
hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities referred to therein, the parties required to indemnify by the
terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by Purchaser, any seller of Registrable Securities and one or more of
the underwriters, except to the extent that contribution is not permitted
under Section 11 (f) of the 1933 Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable
Securities by taking into account the portion of the proceeds of the offering
realized by each, and the relative fault of each party by taking into account
the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission and any other equitable
considerations appropriate under the circumstances. Purchaser and each Person
selling securities agree with each other that no seller of Registrable
Securities shall be required to contribute any
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<PAGE>
amount in excess of the amount such seller would have been required to pay to
an indemnified party if the indemnity under Section 16.5(ii) were available.
Purchaser and each such seller agree with each other and the underwriters of
the Registrable Securities, if requested by such underwriters, that it would
not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the underwriters were treated as one
entity for such purpose) or for the underwriters' portion of such contribution
to exceed the percentage that the underwriting discount bears to the initial
public offering price of the Registrable Securities. For purposes of this
Section 16.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such underwriter, and each director and each officer of
Purchaser who signed the registration statement, and each Person, if any, who
controls Purchaser or a seller of Registrable Securities within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as
Purchaser or a seller of Registrable Securities, as the case may be.
16.7 Availability of Rule 144. Purchaser shall not be obligated to
register shares of Registrable Securities held by any Stockholder at any time
when the resale provisions of Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act are available to such Stockholder.
17. GENERAL
17.1 Cooperation. Company, Stockholders and Purchaser shall deliver
or cause to be delivered to each other on the Closing Date and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the any of the others may reasonably request for the purpose of carrying
out this Agreement.
17.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except (i) by operation of law or (ii)
by Purchaser to one of its wholly-owned Subsidiaries, under circumstances that
does not relieve Purchaser of its obligations under this Agreement), and any
such unpermitted purported assignment shall be void and of no legal force and
effect..
17.3 Entire Agreement. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Company, Stockholders, Purchaser and Old
ACG, and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by Company,
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<PAGE>
Stockholders, Purchaser and Old ACG, acting through their respective officers
or representatives, duly authorized by their respective Boards of Directors in
the cases of Company, Purchaser and Old ACG. Any disclosure made on any
Schedule delivered pursuant hereto shall be deemed to have been disclosed for
purposes of any other Schedule required hereby; provided that each party to
this Agreement shall make a good faith effort to cross reference disclosures,
as necessary or advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each
party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damage or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by
such indemnifying party.
17.6 Expenses. Whether or not the transactions herein contemplated
shall be consummated, Purchaser will pay the fees, expenses and disbursements
of Purchaser, Old ACG and Company and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by Purchaser, Old ACG and Company under this
Agreement. Stockholders shall pay all sales, use, transfer, real property
transfer, gains, stock transfer and other similar taxes ("Transfer Taxes")
imposed in connection with the sale of shares of Company Stock owned by them
to Purchaser, the fees and expenses of Stockholders' legal counsel and all
other costs and expenses incurred by Stockholders in their performance and
compliance with all conditions to be performed by them under this Agreement.
17.7 Notices. All notices of communications required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may
be given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
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<PAGE>
(x) If to Purchaser or Old ACG, addressed to Purchaser at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to Stockholders, addressed to them at:
(Name of Stockholder)
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
Telecopy No.: 806-359-2998
(z) If to Company, addressed to it at:
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
Attn: Richard O'Neal
Telecopy No.: 806-359-2998
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<PAGE>
with a copy to:
McAfee & Taft
Tenth Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102-7103
Attn: Jerry A. Warren
Telecopy No.: 405-235-0439
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas.
17.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall
it be construed as a waiver of or acquiescence in any such breach or default,
or of any similar breach or default occurring later; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
17.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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17.14 Public Statements. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with
respect to the transactions contemplated hereby without the consent of the
other parties, unless the party desiring to make such announcement or
statement, after seeking such consent from the other parties, obtains advice
from legal counsel that a public announcement or statement is required by
applicable law.
17.15 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of Company, Stockholders, Purchaser and Old ACG. Any
amendment or waiver effected in accordance with this Section 17.15 shall be
binding upon each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
BY:
--------------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ADVANCED COMMUNICATIONS CORP.
BY:
--------------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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GREAT WESTERN DIRECTORIES, INC.
BY:
--------------------------------------------
NAME: RICHARD O'NEAL
TITLE: PRESIDENT
-----------------------------------------------
RICHARD O'NEAL
-----------------------------------------------
LARRY BALDWIN
-----------------------------------------------
STEVE SPARKS
-----------------------------------------------
RON BALDWIN
-----------------------------------------------
RONNIE EMANUEL
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ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly
described in the Company's Registration Statement in Form S-1 (draft of
October 2, 1997) ("Draft Registration Statement") relating to its initial
underwritten public offering ("IPO"), the foregoing acquisitions being
hereinafter collectively referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect
to exchange, as a part of a single plan, shares of its voting capital stock
and other consideration, including cash, warrants, options and promissory
notes, for such Assets as shall be transferred to the Company by one or more
of the following individuals and entities: (i) the existing shareholders of
the predecessor to the Company in a reverse triangular merger; (ii) certain
holders of capital stock of other corporations or other assets that shall be
acquired by the Company pursuant to the Acquisitions; (iii) certain other
persons or entities who may assist the Company in the Acquisitions or in the
manufacture and or marketing of its products, (iv) purchasers of the Company's
capital stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the
<PAGE>
Acquisitions and the IPO will possess immediately after the completion of the
Acquisitions, at least 80% of the total combined voting power of all classes
of capital stock of the Company entitled to vote and at least 80% of the total
number of shares of all other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of
Assets to the Company shall qualify as tax free within the provisions of
Section 351 of the Code; provided, however, that the Company does not assume
any liability or responsibility to any holder of capital stock of the Company
or any other person or entity in the event Section 351 of the Code does not
apply to such transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including
cash, options, warrants and promissory notes of the Company, in the
approximate amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in
the Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
ANNEX III
Advanced Communications Group, Inc.
$
5% SUBORDINATED NOTE DUE [ANNIVERSARY DATE OF CLOSING], 1999
DATED: , 1997
------------------
THE SECURITIES REPRESENTED HEREBY WERE NOT ISSUED IN A TRANSACTION
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS.
--------------------
Advanced Communications Group, Inc., a Delaware corporation organized
in September 1997 (the "Company"), for value received, hereby promises to pay
to , or registered assigns, the principal sum of
Dollars ($ ) in one installment on [anniversary date of closing],
1999, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay to the registered holder hereof interest from the date hereof,
annually on [anniversary date of closing] of each year commencing [anniversary
date of closing], 1998, on said principal sum, in like coin and currency, at a
rate per annum of five percent (5%), to Noteholder until payment of said
principal sum has been made or duly provided for; provided, however, that
payment of interest may be made at the option of the Company by wire transfer
of funds to such bank account in the United States as shall be designated in
writing to the Company by the registered holder hereof or by check mailed to
the
<PAGE>
address of the registered holder hereof as such address shall appear in the
Note Register maintained by the Company. Interest shall be calculated on the
basis of a 360-day year of twelve 30-day months.
ARTICLE 1.
Defined Terms
SECTION a. Defined Terms. Unless the context otherwise requires,
capitalized terms used herein shall have the meanings ascribed to them in
Article IX.
ARTICLE 2.
General Provisions
SECTION a. Mutilated Destroyed, Lost or Stolen Note. In case this
Note shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute and deliver a new Note, in exchange and
substitution for the mutilated Note or in lieu of and in substitution for the
Note destroyed, lost or stolen. In every case the Noteholder shall furnish to
the Company such security or indemnity as may be required by it to save the
Company harmless, and, in every case of destruction, loss or theft the
Noteholder shall also furnish to the Company evidence to its satisfaction of
the destruction, loss or theft of this Note and of the ownership thereof. Upon
issuance of any substituted Note, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and other expenses connected therewith.
SECTION b. Transfer and Registration of Notes. This Note may be
presented for transfer by surrender hereof at the office of the Company
maintained for that purpose in accordance with the provisions of Section 4.02,
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Company, duly executed by the holder hereof or his
attorney duly authorized in writing. This Note may be transferred in whole,
but not in part. The Company will have no obligation to transfer this Note
unless its requirements are met and such transfer complies with the legend on
the first page of this Note. By its acceptance of this Note, the holder hereof
acknowledges the restrictions on transfer of this Note set forth herein, and
agrees that it will transfer this Note only as provided herein.
The Company shall not be required to register the transfer of this
Note (i) during a period beginning at the opening of business on a day which
is 15 days before the mailing of a notice of redemption of this Note and
ending on the close of business on the day of such mailing, or (ii) if this
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<PAGE>
Note has been selected for redemption in whole or in part pursuant to Article
III, except the unredeemed portion of this Note if being redeemed in part.
The Company shall keep or cause to be maintained at the office of the
Company maintained in accordance with the provisions of Section 4.02 a
register (herein sometimes referred to as the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
register the Notes (as defined below).
SECTION c. Aggregate Principal Amount of Notes. This Note is one of a
duly authorized issue of Notes of the Company known as its 5% Subordinated
Notes due [anniversary date of closing], 1999, limited to the aggregate
principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00). As
used herein, the term "Notes" refers to all of such issue of Notes.
SECTION d. Amendment of Notes. Each of the Notes may be amended with
the written consent of the holders of at least a majority in outstanding
principal amount of the Notes; provided that without the written consent of
the holder of this Note, no amendment shall (i) reduce the rate or change the
time for payment of interest on this Note, (ii) reduce the principal of or
change the maturity of this Note, (iii) amend Section 6.01, or (iv) make any
change in Article VII that adversely affects the rights of the holder of this
Note. After an amendment becomes effective, it shall bind the holders and
every subsequent holder of Notes, even if notation of the amendment is not
made on any Note. However, the Company may place an appropriate notation
regarding an amendment on any Note thereafter executed.
ARTICLE 3.
Redemption of Note
SECTION a. Redemption Price. The Company may, at its option, redeem
all or from time to time any part of this Note, upon notice as set forth in
Section 3.02 at a redemption price equal to the principal amount to be
redeemed, together with accrued and unpaid interest on the principal amount to
be redeemed to the date fixed for redemption.
SECTION b. Notice of Redemption. If the Company shall desire to
exercise the right to redeem all or any part of this Note pursuant to Section
3.01, it shall fix a date for redemption and shall mail a notice of such
redemption at least 10 days prior to the date fixed for redemption to the
holder of this Note at the last address of such holder as the same appears on
the Note Register. Such mailing shall be by first class mail. The notice if
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice. In any case,
failure to give such notice by mail or any defect in the notice to the holder
of this Note shall not affect the validity of the proceedings for the
redemption of this Note.
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<PAGE>
Each such notice of redemption shall be given in the name of the
Company and shall specify the date fixed for redemption, the principal amount
to be redeemed, the redemption price at which this Note or portion hereof is
to be redeemed, the place of payment, that payment will be made upon
presentation and surrender of this Note and that interest accrued to the date
fixed for redemption will be paid as specified in such notice, and that on and
after said date fixed for redemption interest hereon or on the portions hereof
to be redeemed will cease to accrue. If this Note is to be redeemed in part
only, the notice of redemption shall also state that on and after the date
fixed for redemption, upon surrender of this Note, a new Note in aggregate
principal amount equal to the unredeemed portion hereof will be issued without
charge to the holder.
SECTION c. Payment of Note Called for Redemption. If notice of
redemption has been given as above provided, this Note or the portion of this
Note with respect to which such notice has been given shall become due and
payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued and unpaid to the date fixed
for redemption, and on and after such date (unless the Company shall default
in the payment of this Note or portion hereof to be redeemed at such
redemption price, together with interest accrued to such date) interest on
this Note or portion hereof so called for redemption shall cease to accrue,
and this Note or portion hereof so called for redemption shall be deemed not
to be outstanding and shall not be entitled to any benefit under this Note
except to receive payment of such redemption price, together with accrued
interest to the date fixed for redemption. On presentation and surrender of
this Note on or after the date fixed for redemption at the place of payment in
such notice specified, this Note or the specified portion hereof to be
redeemed shall be paid and redeemed by the Company at the applicable
redemption price, together with interest accrued thereon to the date fixed for
redemption.
ARTICLE 4.
Particular Covenants of the Company
SECTION a. Payment of Principal and Interest on Note. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and the interest on this Note at the place, at the respective
times and in the manner provided herein.
SECTION b. Office for Notices and Payments etc. So long as this Note
remains outstanding, the Company will maintain in the City of Houston, Texas,
an office or agency where this Note may be presented for payment, an office or
agency where this Note may be presented for registration of transfer or
exchange as herein provided, and an office or agency where notices and demands
to or upon the Company in respect of this Note may be served. Until otherwise
designated by the Company in a written notice such offices or agencies shall
be the executive offices of the Company.
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<PAGE>
SECTION c. Limitation on Senior Debt. The Company covenants and
agrees that as long as this Note is outstanding it will not permit the
aggregate amount of Senior Indebtedness outstanding to exceed Fifty Million
and No/100 Dollars ($50,000,000.00).
ARTICLE 5.
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION a. Note Solely Corporate Obligations. No recourse for the
payment of the principal of or interest on this Note, or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Note, or because of
the creation of any indebtedness represented hereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute, or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Note.
ARTICLE 6.
Remedies in Event of Default
SECTION a. Event of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
i. default in the payment of any installment of interest
upon this Note as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
ii. default in the payment of the principal of this Note as
and when the same shall become due and payable either at maturity,
upon redemption, by declaration or otherwise; or
iii. failure on the part of the Company duly to observe or
perform any covenants or agreements (other than a covenant or
agreement the breach or a default in the performance of which is
elsewhere in this Section 6.01 specifically dealt with) on the part
of the Company that continues for a period of 30 days after the date
on which written notice (such written notice to state it is a "Notice
of Default" hereunder) of such failure, requiring the Company
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<PAGE>
to remedy the same, shall have been given to the Company and each
holder of any Senior Indebtedness and each entity committed or
obligated to issue or fund any Senior Indebtedness (provided that
such holder or entity has previously given the holders of the Notes
written notice to the effect that it is a holder of Senior
Indebtedness or an entity committed or obligated to issue or fund
Senior Indebtedness (as the case may be) and that such holder or
entity requests that it be given any such notice) by the holder
hereof; or
iv. without the consent of the Company, a court having
jurisdiction shall enter an order for relief with respect to the
Company under the Bankruptcy Code or without the consent of the
Company a court having jurisdiction shall enter a judgment, order or
decree adjudging the Company a bankrupt or insolvent, or enter an
order for relief for reorganiza tion, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code
or applicable state insolvency law and the continuance of any such
judgment, order or decree unstayed and in effect for a period of 90
consecutive days; or
v. the Company shall institute proceedings for entry of an
order for relief with respect to the Company under the Bankruptcy
Code or for an adjudication of insolvency, or shall consent to the
institution of bankruptcy or insolvency proceedings against it, or
shall file a petition seeking, or seek or consent to reorganization,
arrangement, composition or relief under the Bankruptcy Code or any
applicable state law, or shall consent to the filing of such petition
or to the appointment of a receiver, custodian, liquidator, assignee,
trustee, sequestrator or similar official (other than a custodian
pursuant to 8 Delaware Code ss.226 or any similar statute under other
state laws) of the Company or of substantially all of its property,
or the Company shall make a general assignment for the benefit of
creditors as recognized under the Bankruptcy Code; or
vi. default in the payment of any principal of or interest
on any Senior Indebtedness or on any Pari Passu Debt as and when the
same shall become due and payable and such failure is not cured
within the applicable grace period, if any, or any Senior
Indebtedness or any Pari Passu Debt having an outstanding principal
balance of at least $500,000 shall be declared to be due and payable
prior to the stated maturity thereof;
then and in each and every such case, unless the principal of this Note shall
have already become due and payable, the holders of a majority in outstanding
principal amount of Notes ("Majority Holders") by notice in writing to the
Company and each holder of any Senior Indebtedness and each entity committed
or obligated to issue or fund any Senior Indebtedness (provided that such
holder or entity has previously given the holders of the Notes written notice
to the effect that it is a holder of Senior Indebtedness or an entity
committed or obligated to issue or fund Senior Indebtedness (as the case may
be) and that such holder or entity requests that it be given any such notice),
may declare the principal of all Notes and any accrued interest to the date of
declaration to be due and payable
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<PAGE>
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable, subject to Article VII.
SECTION b. Remedies Cumulative and Continuing. All powers and
remedies given by this Article VI to the holders of the Notes shall, to the
extent permitted by law, be deemed cumulative and not exclusive of any other
thereof or of any other powers and remedies available to such holders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in the Notes, and no delay or omission
of any holder to exercise any right or power accruing upon any default
occurring and continuing as aforesaid, shall impair any such right or power,
or shall be construed to be a waiver of any such default or an acquiescence
therein; and every power and remedy given by this Article VI or by law to the
holders of the Notes may be exercised from time to time, and as often as shall
be deemed expedient, by such holders.
SECTION c. Waiver of Presentment, Demand, Etc. Except as provided
herein, the Company hereby waives presentment and demand for payment, protest,
notice of protest and nonpayment, notice of the intention to accelerate,
notice of acceleration, and agrees that its liability on this Note shall not
be affected by any renewal or extension in the time of payment hereof, by any
indulgences, and hereby consents to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.
ARTICLE 7.
Subordination of Note
SECTION a. Agreement of Subordination. The Company irrevocably
covenants and agrees, and the holder of this Note, by his acceptance thereof,
likewise irrevocably covenants and agrees, that the payment of the principal
of and interest on this Note is hereby expressly subordinated, to the extent
and in the manner hereinafter set forth, to the prior payment in full of all
Senior Indebtedness. The provisions of this Article VII are made for the
benefit of the holders of Senior Indebtedness, and such holders shall, at any
time, be entitled to enforce such provisions against the Company or the holder
hereof. No holder of any Senior Indebtedness shall be deemed to owe any
fiduciary duty or any other obligation to any holder of this Note now or at
any time hereafter.
SECTION b. Payment Over of Proceeds Upon Dissolution, etc. (a) In the
event of (x) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relative
to the Company or its creditors or its property, (y) any proceeding for
voluntary liquidation, dissolution or other winding up of the Company whether
or not involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshaling of the assets of the Company,
then and in any such event,
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<PAGE>
(1) all Senior Indebtedness (including interest
accruing on such Senior Indebtedness after the date of
filing a petition or other action commencing any such
proceeding) shall first be paid in full, or have provision
made for payment in full to the reasonable satisfaction of
the holder of any Senior Indebtedness, before the holder of
this Note shall be entitled to receive any payment on
account of the principal of or interest on the indebtedness
evidenced by this Note, and
(2) any payment or distribution of assets of the
Company of any kind or character, whether in cash, property
or securities (other than securities of the Company or any
other corporation provided for by a plan of reorganization
or readjustment, provided the rights of the holders of
Senior Indebtedness are not altered by such reorganization
or readjustment, the payment of which is subordinate, at
least to the extent provided in this Article VII with
respect to this Note, to the payment of all Senior
Indebtedness at the time outstanding and to the payment of
all securities issued in exchange therefor to the holders of
Senior Indebtedness at the time outstanding), to which the
holder of this Note would be entitled except for the
provisions of this Article VII, shall be paid by the
liquidating trustee or agent or other person making such
payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or other trustee or agent,
directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or
trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining
unpaid on account of the principal of and premium, if any,
and interest on, the Senior Indebtedness held or represented
by each, to the extent necessary to make payment in full of
all Senior Indebtedness remaining unpaid and/or outstanding
(as the case may be), after giving effect to any concurrent
payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
ii. No payments on account of principal of or interest on
this Note shall be made unless full payment of amounts then due for
principal of (including any sinking fund payment), premium, if any,
and interest on all Senior Indebtedness has been made or otherwise
duly provided for to the reasonable satisfaction of each holder of
any Senior Indebtedness.
iii. In the event and during the continuation of any default
or event of default in respect of any Senior Indebtedness or under
any agreement under which any Senior Indebtedness was issued
continuing beyond the period of grace, if any, specified in such
agreement, then, unless and until such default shall have been cured
or waived or shall have
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<PAGE>
ceased to exist, no payment shall be made by the Company and no
application of funds shall be made with respect to the principal of
or interest on this Note.
iv. In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, provided that the rights of
the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate,
at least to the extent provided in this Article VII with respect to
this Note, to the payment of all Senior Indebtedness at the time
outstanding and to the payment of all securities issued in exchange
therefor to the holders of Senior Indebtedness at the time
outstanding), shall be received by the holder of this Note during the
continuance of any event specified in Sections 7.02(a), 7.02(b) or
7.02(c) prohibiting such payment and before all Senior Indebtedness
is paid in full or provision made for its payment to the reasonable
satisfaction of each holder of any Senior Indebtedness, such payment
or distribution (subject to Section 7.04) shall be immediately paid
by the holder hereof over to the holders of Senior Indebtedness (or
their representative or representatives or to the trustee or trustees
under any indenture under which any instruments evidencing any of
such Senior Indebtedness may have been issued), upon their written
request remaining unpaid or unprovided for as provided in the
foregoing subsection (ii) of Section 7.02(a), for application to the
payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
v. Subject to the payment in full of all Senior Indebtedness
and the irrevocable and complete termination of all commitments and
obligations to issue or fund any Senior Indebtedness (and not before
such time), the holder of this Note shall be subrogated equally and
ratably with the holders of all other Notes to all rights of the
holders of Senior Indebtedness to receive payments or distributions
of cash, property or securities of the Company applicable to the
Senior Indebtedness until the principal of and interest on this Note
shall be paid in full; and, for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of
cash, property or securities distributable or paid over to the
holders of Senior Indebtedness under the provisions hereof to which
the holder of this Note or other Notes would be entitled except for
the provisions of this Article VII shall, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the
holder of this Note or of other Notes, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Article VII are and are
intended solely for the purposes of defining the relative rights of
the holder of this Note, the holders of other Notes and the holders
of the Senior Indebtedness.
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<PAGE>
vi. Nothing contained in this Article VII or elsewhere in
this Note is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness (and the
entities committed or obligated to issue or fund any Senior
Indebtedness), and the holder of this Note, the obligation of the
Company, which is absolute and unconditional, to pay to the holder
hereof the principal of and interest hereon, as and when the same
shall become due and payable in accordance with the terms hereof, or
is intended to or shall affect the relative rights of the holder
hereof and other creditors of the Company other than the holders of
the Senior Indebtedness (and the entities committed or obligated to
issue or fund any Senior Indebtedness), nor shall anything in this
Note prevent the holder from exercising all remedies otherwise
permitted by applicable law upon the happening of any Event of
Default under this Note, subject to the rights, if any, under this
Article VII of the holders of Senior Indebtedness (and the entities
committed or obligated to issue or fund any Senior Indebtedness) in
respect of cash, property or securities of the Company received upon
the exercise of any such remedy.
vii. Without notice to or the consent of the holder of this
Note, the holders of the Senior Indebtedness or the entities
committed or obligated to issue or fund any Senior Indebtedness may
at any time and from time to time, without impairing or releasing the
subordination herein made, change the manner, place or terms of
payment, or change or extend the time of payment of or renew or alter
the Senior Indebtedness or the commitment or obligation to issue or
fund any Senior Indebtedness, or amend or supplement in any manner
any instrument evidencing the Senior Indebtedness or the commitment
or obligation to issue or fund any Senior Indebtedness, any agreement
pursuant to which the Senior Indebtedness was issued or incurred or
any instrument securing or relating to the Senior Indebtedness or the
commitment or obligation to issue or fund any Senior Indebtedness;
release any person liable in any manner for the payment or collection
of the Senior Indebtedness; exercise or refrain from exercising any
rights in respect of the Senior Indebtedness against the Company or
any other person; apply any money or other property paid by any
person or released in any manner to the Senior Indebtedness; accept
or release any security for the Senior Indebtedness; sell, exchange,
release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; or exercise or refrain from
exercising any rights against the Company or any other person; all
without thereby impairing in any respect the rights of such holders
of Senior Indebtedness as provided in this Article VII.
SECTION c. No Waiver of Subordination Provision. No right of any
present or future holder of any Senior Indebtedness of the Company to enforce
subordination, as herein provided, shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
act or failure to act, in good faith, by any such holder, or by any
noncompliance
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<PAGE>
by the Company with the terms, provisions and covenants of this Note,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
SECTION d. Payments to Noteholder. Nothing contained in this Article
VII or elsewhere in this Note, shall, however, affect the obligation of the
Company to make, or prevent the Company from making, at any time, except as
provided in Section 7.02, payments of principal of or interest on this Note.
SECTION e. Authorization of Noteholder to Company to Effect
Subordination. The holder of this Note by his acceptance hereof irrevocably
authorizes and directs the Company on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article VII and appoints the Company his attorney-in-fact for such purpose.
SECTION f. All Provisions of Note Qualified by Article VII.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Article VII, so far as the same may be applicable thereto.
ARTICLE 8.
Miscellaneous Provisions
SECTION a. Successors and Assigns of Company Bound. All the
covenants, stipulations, promises and agreements in this Note contained by or
in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION b. Notice to Noteholder. When this Note provides for notice
to the holder of any event, such notice shall be sufficiently given (unless
otherwise expressly herein provided) if in writing and mailed, first class,
postage prepaid, to the holder at his address as it appears on the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any notice which is mailed to
the holder in the manner herein provided shall be conclusively presumed to
have been duly given. Where this Note provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice.
SECTION C. TEXAS CONTRACT. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER THE LAWS OF THE STATE OF TEXAS, AND FOR ALL PURPOSES SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
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<PAGE>
SECTION d. Legal Holidays. In any case where the date of maturity of
interest on or principal of this Note or the date fixed for redemption of this
Note shall not be a Business Day, then payment of interest on or principal of
this Note need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date
of maturity or the date fixed for redemption, and no interest shall accrue for
the period after such prior date.
SECTION e. Severability. In case any provision of this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
ARTICLE 9.
Definitions
SECTION a. Definitions. The terms defined in this Section 9.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Note shall have the respective meanings
specified in this Section 9.01.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
United States Code ss. 101 et seq. or any successor statute thereto.
"Business Day" shall mean any day except a Saturday, a Sunday or a
day on which banking institutions in the City of Houston, Texas are authorized
or required by law to close.
"Indebtedness" shall mean the following, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed, (a) the
principal of, premium if any, and interest on (i) indebtedness of the Company
for money borrowed, (ii) indebtedness of the Company evidenced by bonds,
notes, debentures or similar obligations, (iii) capitalized lease obligations,
(iv) indebtedness or obligations incurred, assumed or guaranteed by the
Company in connection with the acquisition or improvement of any property or
asset or the acquisition by it or by a Subsidiary of any business, (v)
indebtedness of others of the kinds described in the preceding clauses (i),
(ii), (iii), and (iv), assumed or guaranteed by the Company or in effect
guaranteed by the Company through an agreement to purchase or otherwise, (vi)
obligations which would be classified as liabilities on the balance sheet of
the Company in accordance with generally accepted accounting principles,
evidencing the purchase price for the acquisition of assets of any kind,
tangible or intangible, by the Company or a Subsidiary, except in the ordinary
course of business, and (b) any increases, refundings, renewals,
rearrangements or extensions of and amendments, modifications and supplements
to any indebtedness, liability or obligation described in clause (a) above.
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<PAGE>
"Junior Indebtedness" shall mean Indebtedness which, by the terms of
the instrument by which such Indebtedness is created or evidenced, ranks
junior and subordinate in right of payment to the Notes.
"Note" shall mean this Note and any Note issued on exchange or
transfer hereof.
"Noteholder," "holder of this Note" or other similar terms mean any
person in whose name at the time this Note shall be registered in the Note
Register kept for that purpose in accordance with the terms hereof.
"Pari Passu Debt" shall mean any Indebtedness other than (a) Senior
Indebtedness and (b) Junior Indebtedness.
"Senior Bank Lenders" means any commercial lending institution or
group of commercial lending institutions that are or become parties to the
Company's principal working capital, acquisition financing or long-term debt
credit facilities.
"Senior Indebtedness" shall mean whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed, the principal
of, premium if any, and interest on Indebtedness for money borrowed by the
Company in an aggregate amount not exceeding Fifty Million and No/100 Dollars
($50,000,000.00) and owed to Senior Bank Lenders.
"Subsidiary" shall mean any corporation of which the Company, or the
Company and one or more Subsidiaries, or any one or more Subsidiaries,
directly or indirectly own voting securities entitling the holders thereof to
elect a majority of the directors, either at all times or so long as there is
no default or contingency which permits the holders of any other class or
classes of securities to vote for the election of one or more directors.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by a duly authorized officer and has caused a facsimile or its
corporate seal to be imprinted hereon.
ADVANCED COMMUNICATIONS GROUP, INC.
[SEAL]
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
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ANNEX IV
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES D WARRANT
Total Number of Series A Warrants: 500,000 Warrant No. D
Number of Series A Warrants represented by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time after
the closing and (b) on or before the Expiration Date, to purchase from the
Company one fully paid and nonassessable share of Common Stock at the Exercise
Price, subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Restated Stock Purchase Agreement dated as of
October 1, 1997 by and among Company, Old ACG, Great Western and certain
individuals, including the initial registered holder of this Warrant
Certificate.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of Great Western as contemplated by the Agreement.
"Closing Date" means the date upon which the Closing occurs.
"Common Stock" means the Common Stock, $.00001 par value per share,
of the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or
any Convertible Security, other than pursuant to Employee Benefit Plans.
<PAGE>
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September 1997.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Employee Benefit Plans" means all thrift plans, stock purchase
plans, stock bonus plans, stock option plans, employee stock ownership plans
and other incentive or profit sharing arrangements for the benefit of
employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $ [IPO Price].
"Expiration Date" means 5:00 p.m., Houston Time on the fifth
anniversary of the closing Date.
"Great Western" means Great Western Directories, Inc., a Texas
corporation.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Old ACG" means ACG, Inc. (formerly Advanced Communications Group,
Inc.), a Delaware corporation organized in June 1996.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular
way, in each case on the New York Stock Exchange, or, if the Common Stock is
not listed or admitted to trading on such Exchange, on the American Stock
Exchange, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated,
or any successor thereof, or, if not so reported, the average of the closing
bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other
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<PAGE>
cases, the value established by the Board of Directors in good faith; and the
"average" Price per share for any period shall be determined by dividing the
sum of the Prices determined for each Trading Day in such period by the number
of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open
for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in New York City
are not authorized or obligated by law or executive order to close.
"Warrants" means the Series D Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for
the number of Warrants being exercised. If the holder of this Warrant
Certificate at any time exercises less than all the Warrants evidenced by this
Warrant Certificate, the Company shall issue to such holder a Warrant
Certificate identical in form to this Warrant Certificate, but evidencing a
number of Warrants equal to the number of Warrants originally represented by
this Warrant Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this
Warrant Certificate have not been exercised at or prior to the Expiration
Date, such Warrants shall expire and the rights of the holder shall become
void and of no effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 14 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of this Warrant Certificate, the Warrants
evidenced hereby or the Conversion Securities in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. Each
certificate representing Conversion Securities shall bear a legend
substantially similar to the bold-faced legend appearing in Section 15 of the
Agreement. Reference
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<PAGE>
is made to Sections 14, 15 and 16 of the Agreement that relate to the
non-transferability of the Warrants, the type of legend that shall be
imprinted on Conversion Securities and the rights of the holders of Conversion
Securities to secure registration of their securities under the Acts under
certain circumstances. Such sections are incorporated by reference herein. The
Company shall deem and treat the registered holder of this Warrant Certificate
as the true and lawful owner of the Warrants evidenced hereby for all
purposes, any claims of another person to the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable
on exercise of the Warrants evidenced by this Warrant Certificate are shares
of Common Stock as constituted as of the Closing Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case
of any reclassification or change of outstanding securities issuable upon
exercise of the Warrants evidenced by this Warrant Certificate at any time
after the Closing Date (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a
subdivision or combination to which paragraph (b) of this Section 3 applies),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the surviving corporation and which does not result in any reclassification
or change [other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies] in the
securities issuable upon exercise of this Warrant), the holder of the Warrants
evidenced by this Warrant Certificate shall have, and the Company, or such
successor corporation or other entity, shall covenant in the constituent
documents effecting any of the foregoing transactions that such holder does
have, the right to obtain upon the exercise of the Warrants evidenced by this
Warrant Certificate, in lieu of each share of Common Stock, other securities,
money or other property theretofore issuable upon exercise of a Warrant, the
kind and amount of shares of stock, other securities, money or other property
receivable upon such reclassification, change, consolidation or merger by a
holder of the shares of Common Stock, other securities, money or other
property issuable upon exercise of a Warrant if the Warrants evidenced by this
Warrant Certificate had been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in paragraph (a) of this Section 3.
The provisions of paragraph (a) of this Section 3 shall similarly apply to
successive reclassifications, changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any
time after the Closing Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution
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<PAGE>
of, Common Stock), the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of shares of
Common Stock purchasable upon exercise of the Warrants evidenced by this
Warrant Certificate shall be proportionately increased, as at the effective
date of such subdivision, dividend or distribution or if the Company shall
take a record of holders of its Common Stock for such purpose, as at such
record date, whichever is earlier. If the Company, at any time after the
Closing Date, shall combine its shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased, and the number of shares of Common Stock
purchasable upon exercise of the Warrants evidenced by this Warrant
Certificate shall be proportionately reduced, as at the effective date of such
combination, or if the Company shall take a record of holders of its Common
Stock for purposes of such combination, as at such record date, whichever is
earlier.
(c) Certain Issuances of Securities. If the Company at any
time after the Closing Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3)
at a price per share less than the Market Price, then the Exercise Price upon
each such issuance shall be adjusted to that price determined by multiplying
the Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock multiplied by
the Market Price, and (2) the consideration, if any, received and
deemed received by the Company upon the issuance of such additional
shares of Common Stock, and
ii. the denominator of which shall be the Market
Price multiplied by the total number of shares of Common Stock
outstanding immediately after the issuance of such additional shares
of Common Stock.
No adjustments of the Exercise Price shall be made under paragraph
(c) of this Section 3 upon the issuance of any additional shares of Common
Stock that (v) are issued pursuant to Employee Benefit Plans that otherwise
would cause an adjustment under paragraph (c) of this Section 3; provided that
the aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing
the right to purchase shares of Common Stock) pursuant to Employee Benefit
Plans shall not exceed 10% of the Company's outstanding Common Stock (on a
fully diluted basis using the treasury stock method) at the time of such
issuance; (w) are issued pursuant to any Other Warrant or Common Stock
Equivalent (i) which was outstanding on the Closing Date or (ii) if upon the
issuance of any such Common Stock Equivalent, any such adjustments shall
previously have been made pursuant to paragraph (d) of this Section 3 or (iii)
if no adjustment was required pursuant to paragraph (d) of this Section 3.
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<PAGE>
(d) Common Stock Equivalents. If the Company shall, after
the Closing Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price upon each such
issuance or amendment shall be adjusted as provided in paragraph (c) of this
Section 3 on the basis that (i) the maximum number of additional shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued as of the earlier of (a) the date on which the
Company shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock
Equivalent; and (ii) the aggregate consideration for such maximum number of
additional shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent;
provided, however, that no adjustment shall be made pursuant to paragraph (d)
of this Section 3 unless the consideration received and receivable by the
Company per share of Common Stock for the issuance of such additional shares
of Common Stock pursuant to such Common Stock Equivalent is less than the
Market Price. No adjustment of the Exercise Price shall be made under
paragraph (d) of this Section 3 upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any adjustment shall previously have been made
in the Exercise Price then in effect upon the issuance of such warrants or
other rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be
applicable to the making of adjustments in the Exercise Price hereinbefore
provided in this Section 3:
i. The consideration received by the Company shall
be deemed to be the following: (I) to the extent that any additional
shares of Common Stock or any Common Stock Equivalent shall be issued
for cash consideration, the consideration received by the Company
therefor, or, if such additional shares of Common Stock or Common
Stock Equivalent are offered by the Company for subscription, the
subscription price, or, if such additional shares of Common Stock or
Common Stock Equivalent are sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions or expenses
paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issue thereof; (II) to the extent
that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the fair value
of such consideration at the time of such issuance as determined in
good faith by the Board of Directors, as evidenced by a certified
resolution of such Board of Directors delivered to the holder of this
Warrant Certificate setting forth such determination. The
consideration for any additional shares of Common Stock issuable
pursuant to any Common Stock Equivalent shall be the consideration
received by the Company for issuing such Common Stock
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Equivalent, plus the additional consideration payable to the Company
upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment or
satisfaction of any dividend upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such
additional shares of Common Stock or Common Stock Equivalent (which
shall not be deemed to be a dividend payable in, or other
distribution of, Common Stock under paragraph (b) of this Section 3)
consideration equal to the amount of such dividend so paid or
satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of
which effected an adjustment in the Exercise Price, if any such
Common Stock Equivalent shall not have been converted, exercised or
exchanged, the number of shares of Common Stock deemed to be issued
and outstanding because they were issuable upon conversion, exchange
or exercise of any such Common Stock Equivalent shall no longer be
computed as set forth above, and the Exercise Price shall forthwith
be readjusted and thereafter be the price which it would have been
(but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of paragraph (c) of this Section 3 after
the issuance of such Common Stock Equivalent) had the adjustment of
the Exercise Price made upon the issuance or sale of such Common
Stock Equivalent been made on the basis of the issuance only of the
number of additional shares of Common Stock actually issued upon
exercise, conversion or exchange of such Common Stock Equivalent and
thereupon only the number of additional shares of Common Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in
subparagraph (i) of paragraph (e) of this Section 3) shall be deemed
to have been received by the Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly
or indirectly owned or held by or for the account of the Company or
its Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Closing Date or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly
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equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in
effect from time to time shall be calculated to four decimal places
and rounded to the nearest thousandth.
4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise
Price is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to
the holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for
which such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required,
or of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any shares
of any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
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<PAGE>
then the Company shall cause to be sent to the holder hereof, at
least 30 days prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, a written
notice stating (x) the date for the determination of the holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y)
the initial expiration date set forth in any tender offer or exchange offer
for shares of Common Stock (or other securities issuable upon the exercise of
the Warrants), or (z) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock (or other securities issuable upon
the exercise of the Warrants) shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant,
issuance, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock (and other securities),
for the purpose of enabling it to satisfy any obligation to issue shares of
Common Stock (and other securities) upon the exercise of the Warrants
evidenced by this Warrant Certificate, the number of shares of Common Stock
(and other securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which
may be issued upon exercise of the Warrants evidenced by this Warrant
Certificate shall upon issuance be validly issued, fully paid, non-assessable
and free from all taxes, liens and charges with respect to the issuance
thereof.
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
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<PAGE>
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be executed this day of , 1997 by its Chairman and Chief
Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced by this Warrant
Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate
Exercise Price thereof, and requests that the certificate representing the
securities issuable hereunder be issued in the name of and
delivered to , whose address is .
Dated:
----------- -----------------------------------
-----------------------------------
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as
written on the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change
whatsoever.
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<PAGE>
ANNEX V
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on ,
1997, by Richard O'Neal ("Executive") and Great Western Directories, Inc.,
a Texas corporation ("Company") (collectively referred to as the "Parties").
Company and Executive agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Executive and Company, Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc., a Delaware corporation ("ACG"). Unless
the context otherwise clearly requires, all references to ACG in this
Agreement shall include ACG, Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the third anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual
agreement of the Parties. For purposes of this Agreement, "Remaining Term"
shall mean the number of months (or portion thereof) remaining between the
date such determination is made and the then scheduled expiration date of this
Agreement.
3. Compensation and other Benefits.
3.1 As compensation for his services to Company under this
Agreement, Company shall pay to Executive during the term of
this Agreement a base salary ("Base Salary") of not less
than $300,000 per annum, payable in equal bi-weekly
installments, subject only to such payroll and withholding
deductions as may be required by law and other deductions
applied generally to other executives of Company for any
executive benefit plans.
3.2 Executive will be entitled to a reasonable period of paid
vacation annually during the term of this Agreement
consistent with historical practice.
<PAGE>
3.3 Executive shall receive benefits commensurate with his level
of employment under any health plan of ACG.
3.4 Executive shall be entitled to the use of a Company credit
card for Company related expenses.
3.5 After the first twelve consecutive months of employment
under this Agreement, and after every consecutive
twelve-month period thereafter, Executive shall be eligible
to receive a potential cash bonus up to 50% of Executive's
Base Salary ("Bonus") to be based upon his performance as
determined by the Compensation Committee of the Board of
Directors ("Compensation Committee") of ACG. Executive
agrees that the decision as to whether to award a Bonus, the
percentage amount thereof and the Executive's Base Salary
(but in no event less than $300,000) for each subsequent
year will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
3.6 Executive will be awarded 150,000 options to acquire common
stock in ACG at a price equal to the price to public
reflected in the final prospectus relating to ACG's initial
underwritten public offering of its common stock. The
options shall have a term of five years and shall become
exercisable in 25% increments on each anniversary date of
the date of this Agreement. Accordingly, the options shall
become fully vested four years from the date of this
Agreement. The options shall, except as provided herein, be
subject to such terms and conditions as may be prescribed by
the Compensation Committee.
4. Duties and Extent of Service.
Executive shall hold the office of President of Company. Executive agrees to
perform the duties incidental to his position, as amplified from time to time
by the Chief Executive Officer of ACG and in a manner consistent with the
discharge of such duties prior to the purchase of Company by ACG. Executive's
office shall be located at 2400 Lakeview Drive, Amarillo, Texas. Executive
shall devote such time, attention, and energy to the business of Company as
he, in his sole discretion, believes is reasonably necessary for him to supply
overall strategic direction to the Company, but in no event shall Executive be
required to devote more time, attention and energy to the affairs of Company
than he devoted prior to the date of this Agreement. In no event, however,
shall Executive take any action inconsistent with Executive's relationship and
responsibilities as a Company executive, or
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which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
5. Protection of Confidential Information and Executive Non-Competition.
5.1 Executive recognizes and acknowledges that he will have
access to certain confidential information and trade secrets
of ACG ("Confidential Information"). Such Confidential
Information includes, but is not limited to: customer names;
contracts; products purchased by customers; production
capabilities and processes; customer account and credit
data; referral sources; computer programs and software;
information relating to confidential or secret designs,
processes, formulae, plans, devices, or materials of ACG;
business and marketing plans, confidential information and
trade secrets relating to the distribution and marketing of
ACG's products and services; patents pending; confidential
characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG;
management, accounting, and reporting systems, procedures,
and programs; contracts, leases, marketing agreements, sales
executive compensation information, plans, and programs;
marketing and financial analysis, plans, research, programs,
and related information and data; forms, agreements, and
legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and
other similar information; provided, however, that
Confidential Information shall not include any of the
foregoing insofar as they relate to Big Stuff, Inc.
5.2 Executive acknowledges and agrees that this Confidential
Information constitutes valuable, special, and unique
property of ACG.
5.3 Executive will not, at any time during or after the term of
this Agreement or his employment with Company, disclose any
Confidential Information to any person, firm, partnership,
association, company, corporation or other entity
(collectively, a "Person") for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any
information in Executive's possession before its disclosure
to Executive by ACG; or (b) information that is or shall
lawfully be published or become part of the general
knowledge through no act or omission of Executive. The
Confidential Information disclosed to Executive under this
Agreement is not within the foregoing exceptions merely
because such information is embraced by more general
information in the public domain or in Executive's
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<PAGE>
possession, or merely because portions thereof are in the
public domain or in Executive's possession.
5.5 To protect the confidentiality of the Confidential
Information, Executive further agrees that while employed by
Company and for a period of 36 calendar months immediately
after the termination of this Agreement or his employment
with Company, regardless of whether such termination of
employment is voluntary or involuntary, he will not, for
himself, or on behalf of any other Person, (i) generally
compete in any manner whatsoever with ACG or solicit,
accept, divert, or take away from ACG the business of any
Person; (ii) directly or indirectly induce or attempt to
influence any executive, officer, director, consultant,
agent, vendor or other entity related to ACG to terminate
his or her employment or association in any manner
whatsoever with ACG; or (iii) engage in the sale or
marketing of yellow page publishing services,
telecommunication services and natural gas or electrical
goods and services in the States of Arkansas, California
Kansas, Missouri, Oklahoma or Texas ("Proscribed Territory")
during the term of this Agreement or Executive's employment
with Company; provided, however, that notwithstanding the
foregoing, Executive shall be relieved of the limitations
imposed upon his activities by this Paragraph 5.5 in the
event that his employment is terminated pursuant to
subparagraph (d), (e) and (g) of Paragraph 6.1. The
territory in which Executive shall not compete with ACG as
outlined in this Paragraph 5.5 shall consist of the
Proscribed Territory.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by ACG
and the need for sales personnel to have a relatively high
degree of technical knowledge concerning these products and
services, employment by Company for sales and management,
including the special training, knowledge, and confidential
information that has been or will be acquired in the course
of such employment, will give Executive distinct and
substantial advantages for potential sales and management
activities concerning such products and services. Executive
further understands and acknowledges that: because of the
definition of products and services covered by this
Agreement, the highly specialized nature of those products
and services, the limited size and number of business
entities in the business of developing and/or selling those
products and services, and the much more numerous
opportunities for Executive to work in his trade with
respect to products and services not covered by this
Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly
onerous on Executive. Executive therefore agrees that the
limitations as to time, geographic area,
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<PAGE>
and scope of activity contained in Paragraph 5.5 do not
impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business
interests of ACG. Executive also agrees that in light of the
facts acknowledged above, the substantial investment of ACG
in acquiring and developing its business and providing
special training to Executive, and the certain and
substantial harm that ACG would suffer if Executive were to
engage in any of the activities described in Paragraph 5.5,
ACG's need for the protection afforded by Paragraph 5.5 is
greater than any hardship Executive might experience by
complying with its terms. Executive also agrees that, if any
provision of the covenant set forth in Paragraph 5.5 is
found to be invalid in part or whole, ACG may elect, but
shall not be required, to have such provision reformed,
whether as to time, geographic area, scope of activity, or
otherwise, as and to the extent required for its validity
under applicable law, and, as so reformed, such provisions
shall be enforceable.
5.7 Executive acknowledges that a violation or attempted
violation on his part of any provision in this Paragraph 5
will cause irreparable damage to ACG. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Paragraph 5, Executive agrees that ACG
shall be entitled as a matter of right to an injunction, out
of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by
Executive or his agents, without showing any evidence of
actual monetary loss resulting from such breach, including,
but not limited to, restraining Executive from using or
disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any
Person to whom any of such information may have been
disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be
construed as prohibiting ACG from pursuing any other
remedies available to it for such breach or threatened
breach, including the recovery of damages and attorneys'
fees from Executive.
6. Termination of Employment.
6.1 Executive's employment under this Agreement shall terminate
on the occurrence of any of the following events:
(a) End of Term: If the term of employment under the
Agreement or any term of renewal ends.
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(b) Death or Disability of Executive: If Executive dies
or becomes disabled (i.e., such that he no longer
is reasonably able to perform his duties as
contemplated by this Agreement), Company shall pay
to Executive, or to the estate of Executive if he
dies, in a lump sum that part of his Base Salary
which would otherwise be payable to Executive
during the Remaining Term, after giving effect to
accrued sick leave benefits and accrued vacation
time, if any. Upon such payment, as well as
applicable insurance benefits, if any, all
obligations of Company to Executive or his estate
shall be fully satisfied, and this Agreement shall
terminate.
(c) Voluntary Resignation of Executive: If Executive
voluntarily resigns prior to the end of the term of
this Agreement, this Agreement shall terminate
immediately, and Company shall pay to Executive
that part of his Base Salary which would otherwise
be payable to Executive through the effective date
of his resignation. Upon such payment, all
obligations in any manner whatsoever of Company to
Executive shall be fully satisfied.
(d) Coerced Resignation of Executive. If Executive
resigns prior to the end of the term of this
Agreement under circumstances that he reasonably
believes were contrived by Company in order to
elicit his resignation, and if the Compensation
Committee of ACG's Board of Directors in good faith
concludes that Executive's belief is well-founded,
Company will continue to provide Executive with his
monthly compensation and benefits for the Remaining
Term.
(e) Change in Ownership, Management, or Executive's
Responsibilities: If there is a change in the
ownership of Company or the senior management staff
of ACG, and either of these changes significantly
alters Executive's job responsibilities or
compensation, Executive may resign from his
position within 60 days of such a change. If
Executive resigns pursuant to this paragraph,
Company will continue to provide Executive with his
monthly compensation and benefits for the Remaining
Term.
(f) Termination by the Company "With Cause." If
Executive (i) violates any provision of this
Agreement; (ii) fails to perform the services
required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG;
(iv) is convicted of a crime other than a routine
traffic violation; (v) violates any policies of ACG
as
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<PAGE>
outlined in any ACG policy handbook; and/or (vi)
fails, in the reasonable opinion of the
Compensation Committee of ACG's Board of Directors,
to devote sufficient time to the affairs of Company
to merit his continued retention as President of
Company. Company may terminate the employment of
Executive with cause. If Executive is terminated
"with cause," Executive shall not be entitled to
receive any further salary or benefits under this
Agreement other than payment for that part of
Executive's compensation that would otherwise be
payable to Executive through the last date of his
employment with Company. Upon such payment, all
obligations of Company to Executive shall be fully
satisfied, and this Agreement will terminate.
Executive shall not be entitled to receive any
accrued vacation pay if his termination is "with
cause."
(g) Termination by the Company Without Cause. In the
event Company terminates Executive's employment for
any reason other than described in (f) above,
Executive shall be entitled to that part of the
Base Salary and benefits payable to Executive
through the last date of his employment and such
compensation and benefits shall continue thereafter
for the Remaining Term.
6.2 Termination of this Agreement shall not relieve Executive of
any continuing obligations expressly provided in this
Agreement, including, without limitation, those set forth in
Paragraphs 5.1 through 5.6.
6.3 Upon confirmation by Company or determination by arbitration
pursuant to Section 9, that Executive was terminated
pursuant to a coerced resignation pursuant to Section
6.1(d), a change in control pursuant to Section 6.1(e), or a
termination without cause pursuant to Section 6.1(g), any
employee stock options held by Executive to purchase
outstanding securities of ACG shall become fully vested.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings,
documents, data, accounting records, personnel files,
computer terminals, equipment, and other records and written
material prepared or compiled by Executive or furnished to
Executive while in the employ of Company shall be the sole
and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies
thereof, shall be retained by Executive upon termination of
his
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<PAGE>
employment. This ACG property shall not be removed from
Company premises without Company's prior written consent.
7.2 Upon termination of this Agreement or whenever requested by
Company, Executive immediately shall deliver to Company all
of the ACG property or any of ACG's documents in Executive's
possession or under Executive's control, including, but not
limited to, all documents or data, Confidential Information,
accounting records, computer terminals, data, discs,
printouts and tapes and accounting machines provided by
Company. No copies of any such data shall be retained by
Executive.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Executive at 2400 Lakeview Drive, Suite 109,
Amarillo, Texas 79109, and to Company, c/o Rod K. Cutsinger, 3355 West
Alabama, Suite 580, Houston, Texas 77098, or to such other address as either
party shall designate by written notice to the other. Notices may be sent by
messenger or by registered or certified mail, postage prepaid, addressed to
the party or parties to be notified, with return receipt requested. Notices
sent by messenger shall be deemed received upon their actual receipt of the
party to whom they are directed. Notices sent by registered or certified mail
shall be deemed received on the third day following their deposit with the
United States Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by Executive or Company concerning the subject matter contained in
this Agreement (other than action by Company seeking an injunction pursuant to
Paragraph 5.7), including, but not limited to, Executive's employment,
termination from, and/or affiliation with Company, shall be settled by
arbitration in Denver, Colorado, in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
-8-
<PAGE>
10. Miscellaneous.
10.1 The rights and obligations of Company under this Agreement
shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. This Agreement shall be
binding upon the Executive and his agents, heirs, executors,
administrators and legal representatives. The rights and
obligations of Executive hereunder shall not be assignable
by Executive.
10.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which
shall constitute one instrument.
10.4 This Agreement contains the entire agreement of the parties
pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and
discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among
Company, Executive and Rod K. Cutsinger in connection with
the subject matter hereof.
10.5 The waiver by Company of a breach of any provision of this
Agreement by Executive shall not operate or be construed as
a waiver by Company of any subsequent breach by Executive.
10.6 If a court of competent jurisdiction shall adjudge to be
invalid any clause, sentence, subparagraph, paragraph or
section of this Agreement, such judgment or decree shall not
affect, impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the
clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
The parties have executed this Agreement to be effective as of the
day and year first above written.
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<PAGE>
GREAT WESTERN DIRECTORIES, INC.
By
-------------------------------- --------------------------------
Rod K. Cutsinger Richard O'Neal
Its: Chairman and Chief Executive Officer
"COMPANY" "EXECUTIVE"
-10-
<PAGE>
ANNEX VI
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on ,
1997, by Larry Baldwin ("Executive") and Great Western Directories, Inc.,
a Texas corporation ("Company") (collectively referred to as the "Parties").
Company and Executive agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Executive and Company, Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc., a Delaware corporation ("ACG"). Unless
the context otherwise clearly requires, all references to ACG in this
Agreement shall include ACG, Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the third anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual
agreement of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to Company under this
Agreement, Company shall pay to Executive during the term of
this Agreement a base salary ("Base Salary") of not less
than $175,000 per annum, payable in equal bi-weekly
installments, subject only to such payroll and withholding
deductions as may be required by law and other deductions
applied generally to other executives of Company for any
executive benefit plans.
3.2 Executive will be entitled to a reasonable period of paid
vacation annually during the term of this Agreement
consistent with historical practice.
3.3 Executive shall receive benefits commensurate with his level
of employment under any health plan of ACG.
<PAGE>
3.4 Executive shall be entitled to the use of a Company credit
card for Company related expenses.
3.5 After the first twelve consecutive months of employment
under this Agreement, and after every consecutive
twelve-month period thereafter, Executive shall be eligible
to receive a potential cash bonus up to 50% of Executive's
Base Salary ("Bonus") to be based upon his performance as
determined by the Compensation Committee of the Board of
Directors ("Compensation Committee") of ACG. Executive
agrees that the decision as to whether to award a Bonus, the
percentage amount thereof and the Executive's Base Salary
(but in no event less than $175,000) for each subsequent
year will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
3.6 Executive will be awarded 87,000 options to acquire common
stock in ACG at a price equal to the price to public
reflected in the final prospectus relating to ACG's initial
underwritten public offering of its common stock. The
options shall have a term of five years and shall become
exercisable in 25% increments on each anniversary date of
the date of this Agreement. Accordingly, the options shall
become fully vested four years from the date of this
Agreement. The options shall, except as provided herein, be
subject to such terms and conditions as may be prescribed by
the Compensation Committee.
4. Duties and Extent of Service.
Executive shall hold the office of of Company. Executive agrees to
perform the duties incidental to his position, as determined from time to time
by the Chief Executive Officer of ACG. Executive shall devote such time,
attention, and energy to the business of Company as are required to perform
his duties and representatives hereunder and shall not during the term of this
Agreement be engaged, directly or indirectly, in any other business activity
if pursued for gain, profit, or other pecuniary advantage without the prior
written consent of the Chief Executive Officer of ACG. In any event, however,
Executive shall not take any action inconsistent with Executive's relationship
and responsibilities as a Company executive, or take any action which is
intended, or may be reasonably expected, to harm the reputation, business,
prospects, or operations of ACG.
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<PAGE>
5. Protection of Confidential Information and Executive Non-Competition.
5.1 Executive recognizes and acknowledges that he will have
access to certain confidential information and trade secrets
of ACG ("Confidential Information"). Such Confidential
Information includes, but is not limited to: customer names;
contracts; products purchased by customers; production
capabilities and processes; customer account and credit
data; referral sources; computer programs and software;
information relating to confidential or secret designs,
processes, formulae, plans, devices, or materials of ACG;
business and marketing plans, confidential information and
trade secrets relating to the distribution and marketing of
ACG's products and services; patents pending; confidential
characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG;
management, accounting, and reporting systems, procedures,
and programs; contracts, leases, marketing agreements, sales
executive compensation information, plans, and programs;
marketing and financial analysis, plans, research, programs,
and related information and data; forms, agreements, and
legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and
other similar information.
5.2 Executive acknowledges and agrees that this Confidential
Information constitutes valuable, special, and unique
property of ACG.
5.3 Executive will not, at any time during or after the term of
this Agreement or his employment with Company, disclose any
Confidential Information to any person, firm, partnership,
association, company, corporation or other entity
(collectively, a "Person") for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any
information in Executive's possession before its disclosure
to Executive by ACG; or (b) information that is or shall
lawfully be published or become part of the general
knowledge through no act or omission of Executive. The
Confidential Information disclosed to Executive under this
Agreement is not within the foregoing exceptions merely
because such information is embraced by more general
information in the public domain or in Executive's
possession; or merely because portions thereof are in the
public domain or in Executive's possession.
5.5 To protect the confidentiality of the Confidential
Information, Executive further agrees that while employed by
Company and for a period of 36 calendar months immediately
after the termination of this Agreement or his
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<PAGE>
employment with Company, regardless of whether such
termination of employment is voluntary or involuntary, he
will not, for himself, or on behalf of any other Person (i)
generally compete in any manner whatsoever with ACG or
solicit, accept, divert, or take away from ACG the business
of any Person; (ii) directly or indirectly induce or attempt
to influence any executive, officer, director, consultant,
agent, vendor or other entity related to ACG to terminate
his or her employment or association in any manner
whatsoever with ACG; or (iii) engage in the sale or
marketing of yellow page publishing services,
telecommunication services and natural gas or electrical
goods and services in the States of Arkansas, California,
Kansas, Missouri, Oklahoma or Texas ("Proscribed Territory")
during the term of this Agreement or Executive's employment
with Company. The territory in which Executive shall not
compete with ACG as outlined in this Paragraph 5.5 shall
consist of the Proscribed Territory.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by ACG
and the need for sales personnel to have a relatively high
degree of technical knowledge concerning these products and
services, employment by Company for sales and management,
including the special training, knowledge, and confidential
information that has been or will be acquired in the course
of such employment, will give Executive distinct and
substantial advantages for potential sales and management
activities concerning such products and services. Executive
further understands and acknowledges that: because of the
definition of products and services covered by this
Agreement, the highly specialized nature of those products
and services, the limited size and number of business
entities in the business of developing and/or selling those
products and services, and the much more numerous
opportunities for Executive to work in his trade with
respect to products and services not covered by this
Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly
onerous on Executive. Executive therefore agrees that the
limitations as to time, geographic area, and scope of
activity contained in Paragraph 5.5 do not impose a greater
restraint than is necessary to protect the Confidential
Information, goodwill, and other business interests of ACG.
Executive also agrees that in light of the facts
acknowledged above, the substantial investment of ACG in
acquiring and developing its business and providing special
training to Executive, and the certain and substantial harm
that ACG would suffer if Executive were to engage in any of
the activities described in Paragraph 5.5, ACG's need for
the protection afforded by Paragraph 5.5 is greater than any
hardship Executive might experience by complying with its
terms. Executive also agrees that, if any provision of the
covenant set forth in Paragraph 5.5 is
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<PAGE>
found to be invalid in part or whole, ACG may elect, but
shall not be required, to have such provision reformed,
whether as to time, geographic area, scope of activity, or
otherwise, as and to the extent required for its validity
under applicable law, and, as so reformed, such provisions
shall be enforceable.
5.7 Executive acknowledges that a violation or attempted
violation on his part of any provision in this Paragraph 5
will cause irreparable damage to ACG. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Paragraph 5, Executive agrees that ACG
shall be entitled as a matter of right to an injunction, out
of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by
Executive or his agents, without showing any evidence of
actual monetary loss resulting from such breach, including,
but not limited to, restraining Executive from using or
disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any
Person to whom any of such information may have been
disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be
construed as prohibiting ACG from pursuing any other
remedies available to it for such breach or threatened
breach, including the recovery of damages and attorneys'
fees from Executive.
6. Termination of Employment.
6.1 Executive's employment under this Agreement shall terminate
on the occurrence of any of the following events:
(a) End of Term: If the term of employment under the
Agreement or any term of renewal ends.
(b) Death or Disability of Executive: If Executive dies
or becomes disabled (i.e., such that he no longer
is reasonably able to perform his duties as
contemplated by this Agreement), Company shall pay
to Executive, or to the estate of Executive if he
dies, that part of his Base Salary which would
otherwise be payable to Executive through the end
of the month in which his death or disability
occurs, after giving effect to accrued sick leave
benefits and accrued vacation time, if any. Upon
such payment, as well as applicable insurance
benefits, if any, all obligations of Company to
Executive or his estate shall be fully satisfied,
and this Agreement shall terminate.
-5-
<PAGE>
(c) Resignation of Executive: If Executive resigns
prior to the end of the term of this Agreement,
this Agreement shall terminate immediately, and
Company shall pay to Executive that part of his
Base Salary which would otherwise be payable to
Executive through the effective date of his
resignation. Upon such payment, all obligations in
any manner whatsoever of Company to Executive shall
be fully satisfied.
(d) Change in Ownership, Management, or Executive's
Responsibilities: If there is a change in the
ownership of Company or the senior management staff
of ACG, and either of these changes significantly
alters Executive's job responsibilities or
compensation, Executive may resign from his
position within 60 days of such a change. If
Executive resigns pursuant to this paragraph,
Company will continue to provide Executive with his
monthly compensation and benefits for a period of
one year after the initial date of any such change.
Upon completion of such payments, all obligations
in any manner whatsoever of Company to Executive
shall be fully satisfied.
(e) Termination by the Company "With Cause." If
Executive (i) violates any provision of this
Agreement; (ii) fails to perform the services
required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG;
(iv) is convicted of a crime other than a routine
traffic violation; and/or (v) violates any policies
of ACG as outlined in any ACG policy handbook,
Company may terminate the employment of Executive
with cause. If Executive is terminated "with
cause," Executive shall not be entitled to receive
any further salary or benefits under this Agreement
other than payment for that part of Executive's
compensation that would otherwise be payable to
Executive through the last date of his employment
with Company. Upon such payment, all obligations of
Company to Executive shall be fully satisfied, and
this Agreement will terminate. Executive shall not
be entitled to receive any accrued vacation pay if
his termination is "with cause."
(f) Termination by the Company Without Cause. In the
event Company terminates Executive's employment for
any reason other than described in (e) above,
Executive shall be entitled to that part of the
Base Salary and benefits payable to Executive
through the last date of his employment and such
compensation and benefits shall continue thereafter
for a period of six months from termination. Upon
completion of such payments, all obligations in any
manner whatsoever of Company to Executive shall be
fully satisfied.
-6-
<PAGE>
6.2 Termination of this Agreement shall not relieve Executive of
any continuing obligations expressly provided in this
Agreement, including, without limitation, those set forth in
Paragraphs 5.1 through 5.6.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings,
documents, data, accounting records, personnel files,
computer terminals, equipment, and other records and written
material prepared or compiled by Executive or furnished to
Executive while in the employ of Company shall be the sole
and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies
thereof, shall be retained by Executive upon termination of
his employment. This ACG property shall not be removed from
Company premises without the Company's prior written
consent.
7.2 Upon termination of this Agreement or whenever requested by
Company, Executive immediately shall deliver to Company all
of the ACG property or any of ACG's documents in Executive's
possession or under Executive's control, including, but not
limited to, all documents or data, Confidential Information,
accounting records, computer terminals, data, discs,
printouts and tapes and accounting machines provided by
Company. No copies of any such data shall be retained by
Executive.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Executive at , ,
, , and to Company, c/o Rod K. Cutsinger, 3355 West Alabama,
Suite 580, Houston, Texas 77098, or to such other address as either party
shall designate by written notice to the other. Notices may be sent by
messenger or by registered or certified mail, postage prepaid, addressed to
the party or parties to be notified, with return receipt requested. Notices
sent by messenger shall be deemed received upon their actual receipt of the
party to whom they are directed. Notices sent by registered or certified mail
shall be deemed received on the third day following their deposit with the
United States Postal Service.
-7-
<PAGE>
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by Executive or Company concerning the subject matter contained in
this Agreement (other than action by Company seeking an injunction pursuant to
Paragraph 5.7), including, but not limited to, Executive's employment,
termination from, and/or affiliation with Company, shall be settled by
arbitration in Denver, Colorado in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of Company under this Agreement
shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. This Agreement shall be
binding upon the Executive and his agents, heirs, executors,
administrators and legal representatives. The rights and
obligations of Executive hereunder shall not be assignable
by Executive.
10.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which
shall constitute one instrument.
10.4 This Agreement contains the entire agreement of the parties
pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and
discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among
Company, Executive and Rod K. Cutsinger in connection with
the subject matter hereof.
10.5 The waiver by Company of a breach of any provision of this
Agreement by Executive shall not operate or be construed as
a waiver by Company of any subsequent breach by Executive.
-8-
<PAGE>
10.6 If a court of competent jurisdiction shall adjudge to be
invalid any clause, sentence, subparagraph, paragraph or
section of this Agreement, such judgment or decree shall not
affect, impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the
clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
The parties have executed this Agreement to be effective as of the
day and year first above written.
GREAT WESTERN DIRECTORIES, INC.
By
------------------------------------ ------------------------------------
Rod K. Cutsinger
Its: Chairman and Chief Executive Officer
"COMPANY" "EXECUTIVE"
-9-
<PAGE>
ANNEX VII
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on ,
1997, by ("Executive") and Great Western Directories,
Inc., a Texas corporation ("Company") (collectively referred to as the
"Parties"). Company and Executive agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Executive and Company, Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc., a Delaware corporation ("ACG"). Unless
the context otherwise clearly requires, all references to ACG in this
Agreement shall include ACG, Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the third anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual
agreement of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to Company under this
Agreement, Company shall pay to Executive during the term of
this Agreement a base salary ("Base Salary") of not less
than $ per annum, payable in equal bi-weekly
installments, subject only to such payroll and withholding
deductions as may be required by law and other deductions
applied generally to other executives of Company for any
executive benefit plans.
3.2 Executive will be entitled to a reasonable period of paid
vacation annually during the term of this Agreement
consistent with historical practice.
3.3 Executive shall receive benefits commensurate with his level
of employment under any health plan of ACG.
<PAGE>
3.4 Executive shall be entitled to the use of a Company credit
card for Company related expenses.
4. Duties and Extent of Service.
Executive shall hold the office of of Company. Executive agrees to
perform the duties incidental to his position, as determined from time to time
by the Chief Executive Officer of ACG. Executive shall devote such time,
attention, and energy to the business of Company as are required to perform
his duties and representatives hereunder and shall not during the term of this
Agreement be engaged, directly or indirectly, in any other business activity
if pursued for gain, profit, or other pecuniary advantage without the prior
written consent of the Chief Executive Officer of ACG. In any event, however,
Executive shall not take any action inconsistent with Executive's relationship
and responsibilities as a Company executive, or take any action which is
intended, or may be reasonably expected, to harm the reputation, business,
prospects, or operations of ACG.
5. Protection of Confidential Information and Executive Non-Competition.
5.1 Executive recognizes and acknowledges that he will have
access to certain confidential information and trade secrets
of ACG ("Confidential Information"). Such Confidential
Information includes, but is not limited to: customer names;
contracts; products purchased by customers; production
capabilities and processes; customer account and credit
data; referral sources; computer programs and software;
information relating to confidential or secret designs,
processes, formulae, plans, devices, or materials of ACG;
business and marketing plans, confidential information and
trade secrets relating to the distribution and marketing of
ACG's products and services; patents pending; confidential
characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG;
management, accounting, and reporting systems, procedures,
and programs; contracts, leases, marketing agreements, sales
executive compensation information, plans, and programs;
marketing and financial analysis, plans, research, programs,
and related information and data; forms, agreements, and
legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and
other similar information.
5.2 Executive acknowledges and agrees that this Confidential
Information constitutes valuable, special, and unique
property of ACG.
5.3 Executive will not, at any time during or after the term of
this Agreement or his employment with Company, disclose any
Confidential Information to any
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<PAGE>
person, firm, partnership, association, company, corporation
or other entity (collectively, a "Person") for any reason or
purpose.
5.4 The foregoing restrictions shall not apply to: (a) any
information in Executive's possession before its disclosure
to Executive by ACG; or (b) information that is or shall
lawfully be published or become part of the general
knowledge through no act or omission of Executive. The
Confidential Information disclosed to Executive under this
Agreement is not within the foregoing exceptions merely
because such information is embraced by more general
information in the public domain or in Executive's
possession; or merely because portions thereof are in the
public domain or in Executive's possession.
5.5 To protect the confidentiality of the Confidential
Information, Executive further agrees that while employed by
Company and for a period of 36 calendar months immediately
after the termination of this Agreement or his employment
with Company, regardless of whether such termination of
employment is voluntary or involuntary, he will not, for
himself, or on behalf of any other Person (i) generally
compete in any manner whatsoever with ACG or solicit,
accept, divert, or take away from ACG the business of any
Person; (ii) directly or indirectly induce or attempt to
influence any executive, officer, director, consultant,
agent, vendor or other entity related to ACG to terminate
his or her employment or association in any manner
whatsoever with ACG; or (iii) engage in the sale or
marketing of yellow page publishing services,
telecommunication services and natural gas or electrical
goods and services in the States of Arkansas, California,
Kansas, Missouri, Oklahoma or Texas ("Proscribed Territory")
during the term of this Agreement or Executive's employment
with Company. The territory in which Executive shall not
compete with ACG as outlined in this Paragraph 5.5 shall
consist of the Proscribed Territory.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by ACG
and the need for sales personnel to have a relatively high
degree of technical knowledge concerning these products and
services, employment by Company for sales and management,
including the special training, knowledge, and confidential
information that has been or will be acquired in the course
of such employment, will give Executive distinct and
substantial advantages for potential sales and management
activities concerning such products and services. Executive
further understands and acknowledges that: because of the
definition of products and services covered by this
Agreement, the highly specialized nature of those products
and services, the limited size and number of business
-3-
<PAGE>
entities in the business of developing and/or selling those
products and services, and the much more numerous
opportunities for Executive to work in his trade with
respect to products and services not covered by this
Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly
onerous on Executive. Executive therefore agrees that the
limitations as to time, geographic area, and scope of
activity contained in Paragraph 5.5 do not impose a greater
restraint than is necessary to protect the Confidential
Information, goodwill, and other business interests of ACG.
Executive also agrees that in light of the facts
acknowledged above, the substantial investment of ACG in
acquiring and developing its business and providing special
training to Executive, and the certain and substantial harm
that ACG would suffer if Executive were to engage in any of
the activities described in Paragraph 5.5, ACG's need for
the protection afforded by Paragraph 5.5 is greater than any
hardship Executive might experience by complying with its
terms. Executive also agrees that, if any provision of the
covenant set forth in Paragraph 5.5 is found to be invalid
in part or whole, ACG may elect, but shall not be required,
to have such provision reformed, whether as to time,
geographic area, scope of activity, or otherwise, as and to
the extent required for its validity under applicable law,
and, as so reformed, such provisions shall be enforceable.
5.7 Executive acknowledges that a violation or attempted
violation on his part of any provision in this Paragraph 5
will cause irreparable damage to ACG. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Paragraph 5, Executive agrees that ACG
shall be entitled as a matter of right to an injunction, out
of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by
Executive or his agents, without showing any evidence of
actual monetary loss resulting from such breach, including,
but not limited to, restraining Executive from using or
disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any
Person to whom any of such information may have been
disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be
construed as prohibiting ACG from pursuing any other
remedies available to it for such breach or threatened
breach, including the recovery of damages and attorneys'
fees from Executive.
6. Termination of Employment.
6.1 Executive's employment under this Agreement shall terminate
on the occurrence of any of the following events:
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(a) End of Term: If the term of employment under the
Agreement or any term of renewal ends.
(b) Death or Disability of Executive: If Executive dies
or becomes disabled (i.e., such that he no longer
is reasonably able to perform his duties as
contemplated by this Agreement), Company shall pay
to Executive, or to the estate of Executive if he
dies, that part of his Base Salary which would
otherwise be payable to Executive through the end
of the month in which his death or disability
occurs, after giving effect to accrued sick leave
benefits and accrued vacation time, if any. Upon
such payment, as well as applicable insurance
benefits, if any, all obligations of Company to
Executive or his estate shall be fully satisfied,
and this Agreement shall terminate.
(c) Resignation of Executive: If Executive resigns
prior to the end of the term of this Agreement,
this Agreement shall terminate immediately, and
Company shall pay to Executive that part of his
Base Salary which would otherwise be payable to
Executive through the effective date of his
resignation. Upon such payment, all obligations in
any manner whatsoever of Company to Executive shall
be fully satisfied.
(d) Change in Ownership, Management, or Executive's
Responsibilities: If there is a change in the
ownership of Company or the senior management staff
of ACG, and either of these changes significantly
alters Executive's job responsibilities or
compensation, Executive may resign from his
position within 60 days of such a change. If
Executive resigns pursuant to this paragraph,
Company will continue to provide Executive with his
monthly compensation and benefits for a period of
one year after the initial date of any such change.
Upon completion of such payments, all obligations
in any manner whatsoever of Company to Executive
shall be fully satisfied.
(e) Termination by the Company "With Cause." If
Executive (i) violates any provision of this
Agreement; (ii) fails to perform the services
required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG;
(iv) is convicted of a crime other than a routine
traffic violation; and/or (v) violates any policies
of ACG as outlined in any ACG policy handbook,
Company may terminate the employment of Executive
with cause. If Executive is terminated "with
cause," Executive shall not be entitled to receive
any further salary or benefits under this Agreement
other than payment for that part of Executive's
compensation that would otherwise be
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payable to Executive through the last date of his
employment with Company. Upon such payment, all
obligations of Company to Executive shall be fully
satisfied, and this Agreement will terminate.
Executive shall not be entitled to receive any
accrued vacation pay if his termination is "with
cause."
(f) Termination by the Company Without Cause. In the
event Company terminates Executive's employment for
any reason other than described in (e) above,
Executive shall be entitled to that part of the
Base Salary and benefits payable to Executive
through the last date of his employment and such
compensation and benefits shall continue thereafter
for a period of six months from termination. Upon
completion of such payments, all obligations in any
manner whatsoever of Company to Executive shall be
fully satisfied.
6.2 Termination of this Agreement shall not relieve Executive of
any continuing obligations expressly provided in this
Agreement, including, without limitation, those set forth in
Paragraphs 5.1 through 5.6.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings,
documents, data, accounting records, personnel files,
computer terminals, equipment, and other records and written
material prepared or compiled by Executive or furnished to
Executive while in the employ of Company shall be the sole
and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies
thereof, shall be retained by Executive upon termination of
his employment. This ACG property shall not be removed from
Company premises without the Company's prior written
consent.
7.2 Upon termination of this Agreement or whenever requested by
Company, Executive immediately shall deliver to Company all
of the ACG property or any of ACG's documents in Executive's
possession or under Executive's control, including, but not
limited to, all documents or data, Confidential Information,
accounting records, computer terminals, data, discs,
printouts and tapes and accounting machines provided by
Company. No copies of any such data shall be retained by
Executive.
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8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Executive at , ,
, , and to Company, c/o Rod K. Cutsinger, 3355 West Alabama,
Suite 580, Houston, Texas 77098, or to such other address as either party
shall designate by written notice to the other. Notices may be sent by
messenger or by registered or certified mail, postage prepaid, addressed to
the party or parties to be notified, with return receipt requested. Notices
sent by messenger shall be deemed received upon their actual receipt of the
party to whom they are directed. Notices sent by registered or certified mail
shall be deemed received on the third day following their deposit with the
United States Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by Executive or Company concerning the subject matter contained in
this Agreement (other than action by Company seeking an injunction pursuant to
Paragraph 5.7), including, but not limited to, Executive's employment,
termination from, and/or affiliation with Company, shall be settled by
arbitration in Denver, Colorado in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of Company under this Agreement
shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. This Agreement shall be
binding upon the Executive and his agents, heirs, executors,
administrators and legal representatives. The rights and
obligations of Executive hereunder shall not be assignable
by Executive.
10.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which
shall constitute one instrument.
10.4 This Agreement contains the entire agreement of the parties
pertaining to the subject matter hereof and supersedes all
prior agreements, understandings,
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negotiations and discussions, whether oral or written, and
there are no other warranties, representations, covenants or
agreements among Company, Executive and Rod K. Cutsinger in
connection with the subject matter hereof.
10.5 The waiver by Company of a breach of any provision of this
Agreement by Executive shall not operate or be construed as
a waiver by Company of any subsequent breach by Executive.
10.6 If a court of competent jurisdiction shall adjudge to be
invalid any clause, sentence, subparagraph, paragraph or
section of this Agreement, such judgment or decree shall not
affect, impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the
clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
The parties have executed this Agreement to be effective as of the
day and year first above written.
GREAT WESTERN DIRECTORIES, INC.
By
------------------------------------ -----------------------------------
Rod K. Cutsinger
Its: Chairman and Chief Executive Officer
"COMPANY" "EXECUTIVE"
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FINAL EXECUTION COPY
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF EXCHANGE
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(the Parent)
ADVANCED COMMUNICATIONS CORP.
(Old ACG)
and
ACG ACQUISITION CORP.
(Newco)
and
VALU-LINE OF LONGVIEW, INC.
(the Company)
and
DAVID M. MITCHELL
BOB DAMUTH
RICHARD ROPER
ANNE ROPER
and
CLARENCE FRIAR
(the Stockholders of the Company)
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<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE, SALE AND EXCHANGE...............................................6
3. SECTION 351 EXCHANGE PLAN.................................................7
4. CLOSING...................................................................7
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
COMPANY AND THE STOCKHOLDERS..............................................7
(A) Representations, Warranties, Covenants and Agreements of the
Company and the Stockholders........................................7
5.1 Due Organization....................................................8
5.2 Authorization.......................................................8
5.3 Capital Stock of the Company........................................8
5.4 Transactions in Capital Stock.......................................9
5.5 No Bonus Shares.....................................................9
5.6 Subsidiaries........................................................9
5.7 Predecessor Status..................................................9
5.8 Spinoff by the Company..............................................9
5.9 Financial Statements................................................9
5.10 Liabilities and Obligations........................................10
5.11 Accounts and Notes Receivable......................................11
5.12 Permits and Intangibles............................................11
5.13 Environmental Matters..............................................11
5.14 Personal Property..................................................12
5.15 Significant Customers; Material Contracts and Commitments..........12
5.16 Real Property......................................................13
5.17 Insurance..........................................................14
5.18 Compensation; Organized Labor Matters..............................14
5.19 Employee Plans.....................................................14
5.20 Compliance with ERISA..............................................15
5.21 Conformity with Law; Litigation....................................16
5.22 Tax Matters........................................................17
5.23 No Violations......................................................18
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5.24 Government Contracts...............................................18
5.25 Absence of Changes................................................18
5.26 Deposit Accounts; Powers of Attorney...............................20
5.27 Intentionally Deleted..............................................20
5.28 Relations with Governments.........................................20
5.29 Disclosure.........................................................20
5.30 Prohibited Activities..............................................21
5.31 Intentionally Omitted..............................................21
(B) Representations, Warranties, Covenants and Agreements of the
Stockholders.......................................................21
5.32 Authority..........................................................21
5.33 Preemptive Rights..................................................21
5.34 Tax Matters........................................................21
5.35 Affiliated Corporations............................................21
5.36 No Plan of Distribution............................................22
5.37 No Retained Rights.................................................22
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT AND OLD ACG.......................................................22
6.1 Due Organization...................................................22
6.2 Authorization......................................................22
6.3 Capital stock......................................................23
6.4 Transactions in Capital Stock, Organization Accounting.............23
6.5 Subsidiaries.......................................................23
6.6 Financial Statements...............................................23
6.7 Liabilities and Obligations........................................24
6.8 Conformity with Law; Litigation....................................24
6.9 No Violations......................................................24
6.10 Parent Securities..................................................25
6.11 Business; Real Property; Material Agreement........................25
6.12 Tax Matters........................................................25
6.13 Registration Statement.............................................25
7. OTHER COVENANTS PRIOR TO CLOSING.........................................26
7.1 Access and Cooperation; Due Diligence; Audits......................26
7.2 Conduct of Business Pending Closing................................26
7.3 Prohibited Activities..............................................27
7.4 Exclusivity........................................................28
7.5 Notice to Bargaining Agents........................................29
7.7 Notification of Certain Matters....................................29
7.8 Amendment of Schedules.............................................29
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7.9 Further Assurance..................................................30
7.10 Registration Statement.............................................30
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS......................30
8.1 Representations and Warranties Performance of Obligations..........30
8.2 Satisfaction.......................................................31
8.3 No Litigation......................................................31
8.4 Opinion of Counsel.................................................31
8.5 Consents and Approvals.............................................31
8.6 Good Standing Certificates.........................................31
8.7 No Material Adverse Change.........................................31
8.8 Secretary's Certificates...........................................31
8.9 Closing of IPO.....................................................32
8.10 Election of Director...............................................32
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............................32
9.1 Representations and Warranties; Performance of Obligations.........32
9.2 No Litigation......................................................32
9.3 Secretary's Certificate............................................32
9.4 No Material Adverse Effect.........................................33
9.5 Stockholders' Release..............................................33
9.6 Satisfaction.......................................................33
9.7 Termination of Related Party Agreements............................33
9.8 Opinion of Counsel.................................................33
9.9 Consents and Approvals.............................................33
9.10 Good Standing Certificates.........................................33
9.11 FIRPTA Certificate.................................................34
9.12 Closing of IPO.....................................................34
9.13 Acquisition of Affiliated Corporations.............................34
10. COVENANTS OF PARENT WITH THE STOCKHOLDERS AFTER CLOSING..................34
10.1 Release From Guarantees............................................34
10.2 Preparation and Filing of Tax Returns..............................34
10.3 Preservation of Employee Benefit Plans.............................35
10.4 Dividends..........................................................35
10.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................35
10.6 Commitment to Nominate a Director..................................35
10.7 Rule 144 Filing....................................................35
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11. TERMINATION OF AGREEMENT.................................................36
11.1 Termination........................................................36
11.2 Liabilities in Event of Termination................................36
12. NONCOMPETITION...........................................................36
12.1 Prohibited Activities..............................................36
12.2 Damages............................................................37
12.3 Reasonable Restraint...............................................38
12.4 Severability, Reformation..........................................38
12.5 Independent Covenant...............................................38
12.6 Materiality........................................................38
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................38
13.1 Stockholders.......................................................38
13.2 Parent.............................................................39
13.3 Damages............................................................40
13.4 Survival...........................................................40
14. TRANSFER RESTRICTIONS....................................................40
15. INVESTMENT REPRESENTATIONS...............................................40
15.1 Compliance With Law................................................41
15.2 Economic Risk, Sophistication......................................41
16. REGISTRATION RIGHTS......................................................42
16.1 PiggyBack Registration Rights......................................42
16.2 Demand Registration Rights.........................................42
16.3 Registration Procedures............................................43
16.4 Other Registration Matters.........................................45
16.5 Indemnification....................................................46
16.6 Contribution.......................................................49
16.7 Availability of Rule 144...........................................49
17. GENERAL..................................................................50
17.1 Cooperation........................................................50
17.2 Successors and Assigns.............................................50
17.3 Entire Agreement...................................................50
17.4 Counterparts.......................................................50
17.5 Brokers and Agents.................................................51
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17.6 Expenses...........................................................51
17.7 Notices............................................................51
17.8 Governing Law......................................................53
17.9 Exercise of Rights and Remedies....................................53
17.10 Time...............................................................53
17.11 Reformation and Severability.......................................53
17.12 Remedies Cumulative................................................53
17.13 Captions...........................................................53
17.14 Public Statements..................................................53
17.15 Amendments and Waivers.............................................53
17.16 Access and Information.............................................54
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AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (the "Agreement") is made as of
the 6th day of October, 1997, by and among ADVANCED COMMUNICATIONS GROUP, INC.,
a Delaware corporation organized in September 1997 ("Parent"), ADVANCED
COMMUNICATIONS CORP. (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG"), ACG ACQUISITION CORP.,
a Delaware corporation ("Newco"), VALU-LINE OF LONGVIEW, INC., a Texas
corporation (the "Company"), and DAVID M. MITCHELL, BOB DAMUTH, RICHARD ROPER,
ANNE ROPER and CLARENCE FRIAR, the only stockholders of the Company
(collectively, the "Stockholders") and the owners of 1,000 shares of common
stock, no par value of Company ("Company Stock"), representing all the capital
stock of Company issued and outstanding on the date of this Agreement
("Shares").
RECITALS
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Restated Agreement and Plan of Merger dated as of June 19, 1997 among Old
ACG, Newco, the Company and the Stockholders other than Anne Roper (the
"Original Agreement"); and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September
1997 to serve as the vehicle for the acquisition of the Founding Companies
substantially contemporaneously with the consummation of an initial
underwritten public offering ("IPO") of common stock, $.0001 par value, of
Parent ("Parent Stock") at the price to the public reflected in the final
prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Stockholders and Old ACG,
will transfer, by stock or asset
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purchase or reverse triangular merger, the stock or substantially all the
assets of certain companies and other assets in which they own an interest
to Parent in exchange for voting capital stock of Parent and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Parent, under circumstances that
will constitute a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder ("Code"), to the extent of their receipt of voting capital stock
of Parent; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Parent and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Parent substantially contemporaneously with the consummation
of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Parent by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Parent
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Parent, Old ACG, Newco, Company and the Stockholders desire
to amend and restate the Original Agreement in its entirety and transform
it into this Agreement; and
WHEREAS, Parent desires to acquire all the Shares directly from
Stockholders for the consideration set forth in Section 2.2 of this
Agreement, and Stockholders have agreed to sell the Shares to Parent on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
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Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
"Affiliated Corporations" has the meaning set forth in Section 5.35.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" means the certificate of incorporation, articles of
incorporation, or other instruments pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law, as amended from
time to time.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 5.9.
"Company Stock" has the meaning set forth in the first paragraph of this
Agreement.
"Demand Registration" has the meaning set forth in Section 16.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.2.
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"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 5.13.
"Hart-Scott Act" has the meaning set forth in Section 10.5.
"Initial Disclosure Date" means December 31, 1996.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"June Balance Sheet" has the meaning set forth in Section 5.9.
"Key Employee" is any employee of the Company with annual compensation in
excess of $50,000.00.
"Knowledge" means actual knowledge without independent investigation and,
with respect to the Company, the actual knowledge of each of its officers
and directors.
"Liens" has the meaning set forth in Section 5.3.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 6.6.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock, securities convertible into shares of Parent Stock and/or
cash upon the acquisition by Parent of assets or businesses in which such
persons and entities owned an interest on or prior to the closing date of
the IPO.
"Original Agreement" has the meaning set forth in the first recital of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
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"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Documents" has the meaning set forth in Section 6.9.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Prohibited Activities" has the meaning set forth in Paragraph 5.30.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registerable Securities covered by such Registration
Statement, and by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registerable Securities" means the shares of Parent Stock acquired by the
Stockholders pursuant to this Agreement.
"Registration Statement" shall mean any registration statement of the
Parent and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the 1933 Act
which covers any of the Registerable Securities, and all amendments and
supplements to such registration statement, including post-effective
amendments in each case including the Prospectus contained therein, all
exhibits thereto and all materials incorporated by reference therein.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 15.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
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"Stock Component" has the meaning set forth in Section 2.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1(i).
"Transfer Taxes" has the meaning set forth in Section 17.6.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. PURCHASE, SALE AND EXCHANGE
Pursuant to the terms of this Agreement, at the Closing, (x) Stockholders will
transfer, convey, assign and deliver to Parent the Shares, together with stock
powers duly endorsed by Stockholders so that the Shares may be duly registered
in Parent's name, and (y) Parent will acquire the Shares from Stockholders for
an aggregate consideration of $6.6 million in immediately available funds and
such number of shares of Parent Stock (rounded to the nearest whole share) as
shall be determined by dividing $5.2 million by the IPO Price ("Stock
Component"). The number of shares to be exchanged by each Stockholder and the
amount of cash and the number of shares of Parent Stock deliverable to each
Stockholder are set forth below opposite the name of such Stockholder:
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NUMBER OF AMOUNT OF NUMBER OF
NAME OF STOCKHOLDER SHARES CASH PARENT STOCK (1)
- -------------------------------------------------------------------------------
David M. Mitchell 500 $3,330,000 50%
- -------------------------------------------------------------------------------
Bob Damuth 300 $1,980,000 30%
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Richard Roper 50 $330,000 5%
- -------------------------------------------------------------------------------
Anne Roper 50 $330,000 5%
- -------------------------------------------------------------------------------
Clarence Friar 100 $660,000 10%
- -------------------------------------------------------------------------------
TOTAL 1000 $6,600,000 100%
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(1) Expressed as a percentage of the Stock Component.
3. SECTION 351 EXCHANGE PLAN. By executing this Agreement, each Stockholder
is deemed to have approved and adopted the Section 351 Exchange Plan to the
same extent as if he had subscribed his signature thereon.
4. CLOSING
The Closing of the transactions contemplated by this Agreement ("Closing")
shall take place on the date of the closing of the sale of shares of the Parent
Stock in the IPO, or such other date as the parties hereto may designate (the
"Closing Date"), at such place in New York City as the parties may mutually
agree.
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY AND
THE STOCKHOLDERS
(A) Representations, Warranties, Covenants and Agreements of the Company
and the Stockholders.
The Company and each Stockholder severally represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 5(A) are true at the date of the Original Agreement (except as
otherwise expressly noted) and, subject to Section 7.8, shall be true at the
Closing Date and (ii) that all of the covenants and agreements in this Section
5(A) shall be materially complied with or performed at and as of the Closing
Date and (iii) that none of the representations, warranties, covenants and
agreements set forth in this Section 5(A), shall survive the Closing Date,
except that the representations and warranties set forth in Section 5.22 shall
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survive until such time as the limitations period has run for all Tax periods
ended on or prior to the Closing Date. For purposes of this Section 5, the term
Company shall mean and refer to the Company and all of its subsidiaries, if
any.
5.1 Due Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise), of the Company taken as a whole (as used herein with respect to the
Company, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the Company is incorporated
and contains a list of all such jurisdictions in which the Company is
authorized or qualified to do business. True, complete and correct copies of
the Charter Documents and Bylaws, each as amended, of the Company are all
attached hereto as Schedule 5.1. The stock records of the Company, as
heretofore made available to Parent, are correct and complete in all material
respects. To the Knowledge of the Company and the Stockholders, there are no
minutes in the possession of the Company or the Stockholders which have not
been made available to Parent, and all of such minutes are correct and complete
in all material respects.
5.2 Authorization. Company has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by Company of this Agreement and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
5.3 Capital Stock of the Company. The authorized capital stock of the
Company consists of 100,000 shares of Company Stock, of which 1000 are issued
and outstanding. All of the issued and outstanding shares of the capital stock
of the Company are owned of record by the Stockholders in the amounts set forth
in Section 2 above, and further, except as set forth on Schedule 5.3, are owned
free and clear of all mortgages, liens, security interests, pledges, voting
trusts, restrictions, encumbrances and claims of every kind (collectively, the
"Liens"). All of the issued and outstanding shares of the capital stock of the
Company (i) have been duly authorized and validly issued and (ii) are fully
paid and nonassessable. Further, none of such shares was issued in violation of
the preemptive rights of any past or present stockholder.
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5.4 Transactions in Capital Stock. Except as set forth on Schedule 5.4, the
Company has not acquired any Company Stock since January 1, 1994. Except as set
forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the Company to issue any of its
authorized but unissued capital stock; (ii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of the Company nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated by this Agreement. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list
of all outstanding options, warrants or other rights to acquire shares of the
Company Stock.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Except as set forth in Schedule 5.6, (i) the Company has
no subsidiaries, (ii) the Company does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity and (iii) the Company is not directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status. Set forth in Schedule 5.7 is a listing of all names
of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets in excess of $250,000, in any case, since January 1, 1990. Except as
disclosed on Schedule 5.7, the Company has not been, within such period of
time, a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
5.8 Spinoff by the Company. Except as set forth on Schedule 5.8, there has
not been any sale, spin-off or split-up of material assets in excess of
$250,000 of either the Company or any other person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Company ("Affiliates") since January 1,
1994.
5.9 Financial Statements. Attached hereto as Schedule 5.9 are copies of the
following financial statements of the Company (the "Company Financial
Statements"): the Company's audited Balance Sheets as of December 31, 1996,
1995 and 1994 and its unaudited Balance Sheet as of June 30, 1997 ("June
Balance Sheet"), and audited Statements of Income, Retained Earnings and Cash
Flows and any related notes thereto for each of the years in the three-year
period ended December 31, 1996 and unaudited Statements of Income, Retained
Earnings and Cash Flows and any related notes thereto for the year ended June
30, 1997 (June 30, 1997 being hereinafter referred
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to as the " Balance Sheet Date"). The audited Company Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). The unaudited Company Financial Statements were
prepared in accordance with the books and records of the Company in accordance
with accounting principles consistently applied. Except as set forth on
Schedule 5.9, such Balance Sheets as of December 31, 1996, 1995 and 1994
present fairly the financial position of the Company as of the dates indicated
thereon, and the December 31, 1994, 1995 and 1996 Statements of Income,
Retained Earnings and Cash Flows present fairly the results of operations for
the periods indicated thereon in accordance with generally accepted accounting
principles. The Company Financial Statements at and for the three years in the
period ended December 31, 1996 have been examined by Hein + Associates, LLP,
independent public accountants.
5.10 Liabilities and Obligations. The Company has no material liabilities
of any kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, that are not reflected on the June Balance
Sheet or otherwise reflected in the Company Financial Statements at the Balance
Sheet Date including loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements. Except as set forth on
Schedule 5.10, since the Initial Disclosure Date, the Company has not incurred
any material liabilities of any kind, character and description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
disclosed to Parent on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation or other liabilities
which are not fixed or otherwise accrued or reserved, the following
information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
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5.11 Accounts and Notes Receivable. The Company has delivered to Parent an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the Company, as of the Initial Disclosure Date, including
receivables from and advances to employees and the Stockholders. The Company
shall also provide Parent (x) an accurate list of all receivables generated
subsequent to the Initial Disclosure Date and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of a date
reasonably requested by Parent. Except to the extent reflected on Schedule 5.11
or as disclosed by the Company to Parent in a writing accompanying the A/R
Aging Reports, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, and shall be collectible in the amounts
shown on the A/R Aging Reports, net of reserves reflected in the June Balance
Sheet and as of the date of the A/R Aging Reports, respectively.
5.12 Permits and Intangibles. The Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and the Company has delivered
to Parent an accurate list and summary description (which is set forth on
Schedule 5.12) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company
(including interests in software or other technology systems, programs and
intellectual property) (it being understood and agreed that a list of all
environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the Knowledge of the Company, the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12 and 5.13
are valid in all material respects, and the Company has not received any notice
that any governmental authority intends to cancel, terminate or not renew any
such license, franchise, permit or other governmental authorization. The
Company has conducted and is conducting its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in the
licenses, franchises, permits and other governmental authorizations listed on
Schedules 5.12 and 5.13 and is not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect
on the Company. Except as specifically provided in Schedule 5.12, the
transactions contemplated by this Agreement will not result in a material
default under or a material breach or violation of, or materially adversely
affect the rights and benefits afforded to the Company by, any such license,
franchise, permit or government authorization.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
Company has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling,
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transportation, treatment or disposal of Hazardous Wastes and Hazardous
Substances including petroleum and petroleum products (as such terms are
defined in any applicable Environmental Law); (ii) the Company has obtained and
substantially adhered to all necessary permits and other approvals necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been
no releases or threats of releases (as defined in Environmental Laws) at, from,
in or on any property owned or operated by the Company except as permitted by
Environmental Laws; (iv) to the Knowledge of the Company no on-site or off-site
location to which the Company has transported or disposed of Hazardous Wastes
and Hazardous Substances or arranged for the transportation of Hazardous Wastes
and Hazardous Substances, which site is the subject of any Federal, state,
local or foreign enforcement action or any other investigation which could lead
to any material claim against the Company or Parent for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
Company has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 Personal Property. The Company has delivered to Parent an accurate
list (which is set forth on Schedule 5.14) of (i) all personal property
included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the Company, (ii) all other personal
property owned by the Company with a value in excess of $10,000 (x) as of the
Initial Disclosure Date and (y) acquired since the Initial Disclosure Date and
(iii) all written leases and agreements in respect of personal property,
including, in the case of each of (i), (ii) and (iii), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (a) all personal property used by the Company in its business is either
owned by the Company or leased by the Company pursuant to a lease included on
Schedule 5.14, (b) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (c) all
leases and agreements included on Schedule 5.14 are in full force and effect in
all material respects and to the Knowledge of the Company constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 Significant Customers; Material Contracts and Commitments. The Company
has delivered to Parent an accurate list (which is set forth on Schedule 5.15)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person
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or entity) (i) representing 2% or more of the Company's annual revenues as of
the Initial Disclosure Date or (ii) reasonably expected to represent 2% or more
of the Company's revenues during the twelve-month period ending December 31,
1997. Except to the extent set forth on Schedule 5.15, none of the Company's
significant customers (or persons or entities that are sources of a significant
number of customers) have canceled or substantially reduced or, to the
Knowledge of the Company, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all material contracts, commitments
and similar agreements to which the Company is a party or by which it or any of
its properties are bound (including, but not limited to, contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (x) in existence
as of the Initial Disclosure Date and (y) entered into since the Initial
Disclosure Date, and in each case has delivered true, complete and correct
copies of such agreements to Parent. The Company has complied with all material
commitments and obligations pertaining to it, and is not in material default
under any contract or agreement listed on Schedule 5.15 and no notice of
default under any such contract or agreement has been received. The Company has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $10,000 by the Company.
5.16 Real Property. Schedule 5.16 includes a list of all real property
owned or leased by the Company (i) as of the Initial Disclosure Date and (ii)
acquired since the Initial Disclosure Date, and all other real property, if
any, used by the Company in the conduct of its business. The Company has good
and insurable title to the real property owned by it, including those reflected
on Schedule 5.16, subject to no Lien except for:
(w) Liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
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Schedule 5.16 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Company with respect to real property owned by the Company,
(2) true, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company (which copies are attached to
Schedule 5.16), and (3) an indication as to which such properties, if any, are
currently owned, or were formerly owned, by Stockholders or business or
personal Affiliates of the Company or Stockholders.
Except as set forth on Schedule 5.16, all of such leases included on Schedule
5.16 are in full force and effect in all material respects and to the Knowledge
of the Company constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their respective terms.
5.17 Insurance. The Company has delivered to Parent, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Initial Disclosure
Date of all insurance policies carried by the Company, (ii) an accurate list of
all insurance loss runs on workers compensation claims received for the past
three policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. All of such
insurance policies are currently in full force and effect in all material
respects and shall remain in full force and effect in all material respect
through the Closing Date. No insurance carried by the Company has been canceled
by the insurer and the Company has never been denied coverage since January 1,
1992.
5.18 Compensation; Organized Labor Matters. The Company has delivered to
Parent an accurate list (which is set forth on Schedule 5.18) showing all
officers, directors and Key Employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Initial
Disclosure Date and (ii) March 19, 1997. Since the Initial Disclosure Date,
there have been no increases in the compensation payable or any special bonuses
to any officer, director, Key Employee or other employee, except ordinary
salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (w) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (y) to the Knowledge of the Company, no campaign to
establish such representation is in progress and (z) there is no pending or, to
the best of the Company's Knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any
labor interruption over the past three years..
5.19 Employee Plans. The Stockholders have delivered to Parent an accurate
list (which is set forth on Schedule 5.19) showing all employee benefit plans
of the Company, including all
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employment agreements and other agreements or arrangements containing "golden
parachute" or other similar provisions, and deferred compensation agreements,
together with true, complete and correct copies of such plans, agreements and
any trusts related thereto, and classifications of employees covered thereby as
of the Initial Disclosure Date. Except for the employee benefit plans, if any,
described on Schedule 5.19, the Company does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," and the Company does not have any obligation
to contribute to or accrue or pay any benefits under any deferred compensation
or retirement funding arrangement on behalf of any employee or employees (such
as, for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended "ERISA") or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, nor is the Company required to contribute to
any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's employees.
The Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of the Company or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 Compliance with ERISA. All employee benefit plans listed on Schedule
5.19 that are intended to qualify (the "Qualified Plans") under Section 401(a)
of the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are included as part of Schedule 5.19. Except as disclosed on Schedule
5.19, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 5.19. Neither the Stockholders, any such plan listed in Schedule 5.19,
nor the Company has engaged in any transaction prohibited under the provisions
of Section 4975 of the Code or
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Section 406 of ERISA. No employee benefit plan listed on Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and the Company has not incurred (i) any
liability for excise tax or penalty payable to the Internal Revenue Service or
(ii) any liability to the Pension Benefit Guaranty Corporation (other than for
premium payments). The Stockholders further represent that:
(v) there have been no terminations or discontinuance of contributions
to any Qualified Plan intended to qualify under Section 401(a) of the Code
without notice to and approval by the Internal Revenue Service;
(w) no plan listed on Schedule 5.19 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans listed in
Schedule 5.19;
(y) the Company has not incurred liability under Section 4062 of
ERISA; and
(z) no circumstances exist pursuant to which the Company could
reasonably be expected to have any direct or indirect liability whatsoever
(including, but not limited to, any liability to any multiemployer plan or
the Pension Benefit Guaranty Corporation under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory Lien to secure payment of any such liability) with respect to
any plan now or heretofore maintained or contributed to by any entity other
than the Company that is, or at any time was, a member of a "controlled
group" (as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the Company is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10 or 5.13, there are no material
claims, actions, suits or proceedings, commenced or, to the Knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Company or any Stockholder. The
Company has conducted and is conducting its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including all such
permits, licenses, orders and other governmental
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approvals set forth on Schedules 5.12 and 5.13, and is not in violation of any
of the foregoing which might have a Material Adverse Effect.
5.22 Tax Matters.
(i) The Company is currently taxed under Subchapter S of the Code. The
Stockholders have filed all income Tax Returns that they were required to
file with respect to the Company, and the Company has filed all Tax Returns
that it was required to file. All such Tax Returns filed by the Company
were correct and complete in all material respects. All Taxes owed by the
Company (whether or not shown on any Tax Return) have been paid or reserved
for on its books. Except as set forth on Schedule 5.22, the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return. Since January 1, 1994, no claim with respect to the Company has
been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There is no Lien affecting any of the Company's assets that arose in
connection with any failure or alleged failure to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
(iii) The Company does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of the Company either claimed or raised by any authority in writing or as
to which the Company has Knowledge based upon direct inquiry by any agent
of such authority. Schedule 5.22(iii) lists all income Tax Returns of the
Company for taxable periods ended on or after January 1, 1993, indicates
those Tax Returns of which the Company is aware that have been audited and
indicates those Tax Returns that currently are the subject of audit. The
Company has delivered to the Parent correct and complete copies of all Tax
Returns, examination reports and statements of deficiencies assessed
against or agreed to by the Company for any taxable period ended on or
after January 1, 1993.
(iv) Except as set forth on Schedule 5.22(iv), neither the
Stockholders nor the Company has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Company has not made any
material payments, is not obligated to make any material payments and is
not a party to any agreement that under
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certain circumstances could obligate it to make any material payments
that will not be fully deductible under Section 280G of the Code.
(vi) The Company has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to the Surviving
Corporation after the Closing Date.
5.23 No Violations. The Company is not in violation of its Charter
Documents or Bylaws. Neither the Company nor, to the Knowledge of the Company,
any other party thereto, is in material default under any lease, instrument,
agreement, license, or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or
5.16, or any other material agreement to which it is a party or by which its
properties are bound (the "Material Documents"); and, except as set forth in
Schedule 5.23, (i) the rights and benefits of the Company under the Material
Documents will not be materially adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a material default under, any of the terms or provisions
of the Material Documents or the Charter Documents. Except as set forth on
Schedule 5.23, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect in all material respect, and consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any material right or
benefit. Except as set forth on Schedule 5.23, to the Knowledge of the Company,
none of the Material Documents prohibits the use or publication by the Company
or Parent of the name of any other party to such Material Document, and none of
the Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company or Parent
or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
Company is not a party to any governmental contracts subject to price
determination or renegotiation.
5.25 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company
taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Company;
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(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company (except for
dividends which the Company may declare and pay pursuant to Section 10.4);
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the Company to any of its
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character, materially
adversely affecting the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person,
including, without limitation, the Stockholders and their Affiliates
outside the ordinary course of business of the Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholder or any Affiliate thereof
outside the ordinary course of business of the Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the Company is a party:
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(xiii) any transaction by the Company outside the ordinary course of
its respective businesses;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the Company
outside the ordinary course of the Company's business.
5.26 Deposit Accounts; Powers of Attorney. The Company has delivered to
Parent an accurate list (which is set forth on Schedule 5.26) as of the date of
the Original Agreement setting forth:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company
and a description of the terms of such power.
5.27 Intentionally Deleted.
5.28 Relations with Governments. Except for political contributions made in
a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which any Stockholder has been a stockholder of the Company, the
Company has not made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Company to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law
of similar effect. If political contributions made by the Company have exceeded
$10,000 per year for each year in which any Stockholder has been a stockholder
of the Company, each contribution in the amount of $5,000 or more shall be
described on Schedule 5.28.
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5.29 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of the Company for the time periods with respect to
which such information was requested. The Company's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Company (which fact
or circumstance was, or should reasonably, after due inquiry, have been known
to the Company) that is not disclosed pursuant hereto or thereto.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
Company has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Section 7.3 ("Prohibited
Activities").
5.31 Intentionally Omitted.
(B) Representations, Warranties, Covenants and Agreements of the
Stockholders.
Each Stockholder severally represents, warrants, covenants and agrees (i)
that the representations and warranties set forth below are true as of the date
of the Original Agreement and, subject to Section 7.8, shall be true at the
Closing Date, (ii) that all of the covenants and agreements in this Section
5(B) shall be materially complied with or performed at and as of the Closing
Date, and (iii) that none of the representations and warranties set forth in
Section 5(B) shall survive the Closing.
5.32 Authority. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder.
5.33 Preemptive Rights. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent
Stock that such Stockholder has or may have had other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent.
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5.34 Tax Matters. The Stockholders have been advised by their counsel and
are satisfied, as of the date hereof that certain aspects of the transactions
contemplated by this Agreement qualify for the deferral of gain pursuant to
Section 351 of the Code.
5.35 Affiliated Corporations. The Stockholders own all the issued and
outstanding capital stock of Shared Tenant Services, Inc., a Texas corporation,
and Value-Line of Louisiana, Inc., a Louisiana corporation (collectively, the
"Affiliate Corporations"), as set forth on Schedule 5.35, free and clear of any
Liens. Neither of the Affiliated Corporations has incurred any material
obligation to any person other than the Company since its inception and will
not have incurred any such obligation as of the Closing Date.
5.36 No Plan of Distribution. No Stockholder has any intention or
arrangement to sell or otherwise dispose of any Parent Stock to be received
pursuant to this Agreement and the Section 351 Exchange Plan.
5.37 No Retained Rights. No Stockholder will retain any right after the
Closing in any Company Stock to be transferred by him at the Closing but, to
the extent that such right may exist upon the consummation of the Closing, such
right shall be deemed to have been released and extinguished.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND OLD ACG
Parent and Old ACG, jointly and severally, represent warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.8,
shall be true at the Closing Date, (ii) that all of the covenants and
agreements in this Section 6 shall be complied with or performed at and as of
the Closing Date, and (iii) that the following representations and warranties
shall not survive the Closing Date, except that the representations and
warranties set forth in Section 6.12 shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Closing
Date.
6.1 Due Organization. Parent and Old ACG are each corporations duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Charter Documents and By-laws, each as amended, of Parent and Old ACG (the
"Parent Charter Documents") are all attached hereto as Schedule 6.1.
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6.2 Authorization. Each of Parent and Old ACG has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by each of Parent and Old ACG of this
Agreement and its consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Old ACG.
This Agreement has been duly executed and delivered by each of Parent and Old
ACG and is a valid and binding obligation of each of Parent and Old ACG,
enforceable against each of them in accordance with its terms.
6.3 Capital stock. The authorized capital stock of Old ACG is as set forth
on Schedule 6.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, (iii) are owned of record and beneficially by the
Persons set forth on Schedule 6.3, and (iv) were offered, issued, sold and
delivered by Old ACG in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Old ACG. Subject to the consummation of the reverse
stock split referred to in the eight recital of this Agreement and the
consummation of Parent's acquisition of Old ACG in the reverse triangular
merger, the capitalization of Parent will be identical to the capitalization of
Old ACG immediately prior to the consummation of the IPO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
6.5 Subsidiaries. Neither Parent nor Old ACG has any Subsidiaries, except
for each of the companies identified on Schedule 6.5. Except as set forth in
the preceding sentence, neither Parent nor Old ACG presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither Parent, nor Old ACG,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporation entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies of the
following financial statements of Old ACG, which reflect the results of its
operations from inception in June 1996 (the "Old ACG Financial Statements"):
Old ACG's audited Balance Sheet as of December 31, 1996 and its unaudited
Balance Sheet as of June 30, 1997, and audited Statements of Operations,
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Stockholder's Equity and Cash Flows and related notes thereto for the period
from June 10, 1996 through December 31, 1996 and unaudited Statements of
Operations, Stockholder's Equity and Cash Flows for the six months ended June
30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 6.6). The unaudited Old ACG Financial Statements were prepared in
accordance with the books and records of Old ACG in accordance with accounting
principles consistently applied. Old ACG's Balance Sheets present fairly the
financial position of Old ACG as of the dates indicated thereon, and Old ACG's
Statements of Operations, Stockholder's Equity and Cash Flows included in the
Old ACG Financial Statements present fairly the results of operations for the
periods indicated thereon in accordance with generally accepted accounting
principles. Old ACG's Financial Statements at and for the period ended December
31, 1996 have been examined by KPMG Peat Marwick LLP, independent public
accountants.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
neither Parent nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, or in the Draft Registration Statement, neither Parent nor Old
ACG is in violation of any law or regulation or any order of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it which would have
a Material Adverse Effect; and except to the extent set forth on Schedule 6.8,
or in the Draft Registration Statement, there are no material claims, actions,
suits or proceedings, pending or, to the Knowledge of either Parent or Old ACG,
threatened, against or affecting either Parent or Old ACG, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Each of Parent and Old ACG has conducted and is
conducting its businesses in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and are not in violation of any of the foregoing which
might have a Material Adverse Effect.
6.9 No Violations. Neither Parent nor Old ACG is in violation of any Parent
Charter Document. None of Parent nor Old ACG, or, to the Knowledge of Parent
and Old ACG, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which Parent or Old ACG is a
party, or by which Parent or Old ACG, or any of their respective properties,
are bound (collectively, the "Parent Documents"); and (i) the rights and
benefits of Parent and Old ACG under the Parent Documents will not be adversely
affected by the transactions contemplated hereby
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and (ii) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Parent Documents or the Parent Charter
Documents. Except as set forth on Schedule 6.9, none of the Parent Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
6.10 Parent Securities. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the transactions contemplated by this
Agreement, will be validly issued, fully paid and nonassessable.
6.11 Business; Real Property; Material Agreement Old ACG was formed in June
1996, and Parent was formed in September 1997. Neither Parent nor Old ACG has
conducted any material business since the date of its inception, except raising
capital and in connection with this Agreement and similar agreements with the
Founding Companies. Except as disclosed on Schedule 6.12, neither Parent nor
Old ACG owns or has at any time owned any real property or any material
personal property or is a party to any other material agreement.
6.12 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against Old ACG for any period for which Tax
Returns have been filed. There is no material dispute or claim concerning
any Tax liability of Parent either claimed
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or raised by any authority in writing or as to which Old ACG has
knowledge based upon direct inquiry by any agent of such authority.
6.13 Registration Statement. Parent shall cause the Registration Statement
and related Prospectus for the IPO and any amendment and supplement thereto to
comply in all material respects with the applicable requirements of the 1933
Act, the rules and regulations thereunder, and applicable state securities
laws.
7. OTHER COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers and authorized representatives of
Parent access to all of such Company's sites, properties, books and records
and will furnish Parent with such additional financial and operating data
and other information as to the business and properties of the Company as
Parent may from time to time reasonably request. The Company will cooperate
with Parent, its representatives, auditors and counsel in the preparation
of and any documents or other material that may be required in connection
with any documents or materials required by this Agreement. Parent, Old
ACG, Newco, the Stockholders and the Company will treat all information
obtained in connection with the negotiation and performance of this
Agreement as confidential in accordance with the provisions of Section 13.
(ii) Between the date of this Agreement and the Closing, Parent will
afford to the officers and authorized representatives of the Company access
to all sites, properties, books and records of Parent, Old ACG and the
other Founding Companies, and will furnish the Company with such additional
financial and operating data and other information as to the business and
properties of Parent, Old ACG and the other Founding Companies as the
Company may from time to time reasonably request. Parent will cooperate
with the Company, its representatives, auditors and counsel in the
preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. The
Company will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 13.
(iii) The Company agrees to permit an independent accounting firm
selected by Parent to audit and render a report on its Company Financial
Statements and its comparable financial statements at and for the year
ending December 31, 1996, provided that all the costs and expenses of such
audits are paid by Parent.
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7.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date, the
Stockholders will cause the Company to:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Stockholders will not, without prior written consent of
Parent, permit the Company to:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
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(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of Company Stock
(except the declaration and payment of dividends pursuant to Section 10.4);
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 as necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 5.10 or 5.15;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 Exclusivity. Neither any Stockholder, nor the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing
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on the date of this Agreement and ending with, the earlier to occur of the
Closing Date or the termination of this Agreement in accordance with its terms,
directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Company or merger, consolidation or business
combination of the Company.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Parent with proof that any required notice has been sent.
7.6 Agreements. The Stockholders and the Company shall terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the Company and any employee listed on
Schedule 5.18 and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Closing Date. Copies of such termination
agreements are listed on Schedule 7.6 and copies thereof are attached thereto.
7.7 Notification of Certain Matters. The Stockholders and the Company shall
give prompt notice to Parent of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (ii) any material failure of any Stockholder or the Company to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by such person hereunder as of such date. Parent and Old ACG shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Parent or Old ACG contained herein to be untrue
or inaccurate in any material respect at or prior to the Closing Date and (ii)
any material failure of Parent or Old ACG to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections
8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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7.8 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the Company or Parent that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect may be made
unless Parent or the Company, as the case may be, consents to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 8.1
and 9.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 7.8. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 11.1(v). Neither the entry by
Parent into any other agreement, such as this Agreement, after the date hereof
for the acquisition of one or more companies involved in or assets associated
with the telephone business and related activities nor the performance by
Parent of its obligations thereunder shall be deemed to require the amendment
to or a supplementation of any Schedule hereto.
7.9 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
7.10 Registration Statement. Parent shall use its reasonable business
efforts to consummate the IPO. In furtherance, but not in limitation of that
covenant, Parent shall prepare, file and use its reasonable business efforts to
cause to become and remain effective a Registration Statement under the federal
securities laws (and any applicable state securities laws) and to engage one or
more underwriters, enter into a firm commitment underwriting, and perform all
"road shows" and other marketing activities, pursuant to which the IPO is
timely closed. Parent shall keep the Company and Stockholders fully informed at
all times regarding the preparation, filing and effectiveness of the
Registration Statement and shall make any changes in or for, including any
amendment or supplements to, the Registration Statement as may be reasonably
necessary to affect timely closing of the IPO.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of the Stockholders with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following
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conditions. Upon Closing, all conditions not satisfied shall be deemed to have
been waived, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of Parent and Old ACG contained in
Section 6:
8.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Parent and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Parent and Old ACG on or
before the Closing Date shall have been duly complied with or performed in all
material respects; and a certificate to the foregoing effect dated the Closing
Date, and signed by the President or any Vice President of Parent and of Old
ACG shall have been delivered to the Stockholders.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Stockholders and their
counsel.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of the
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. The Stockholders shall have received an opinion
from counsel for Parent and Old ACG, dated the Closing Date, in the form and
substance reasonably acceptable to the Stockholders, relating to, insofar as
Parent and Old ACG are concerned, (a) the authorization, execution, delivery,
performance and enforceability of the Agreement, (b) the consummation of the
transactions contemplated herein and (c) such other legal matters as the
Stockholders may reasonably request.
8.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
8.6 Good Standing Certificates. Parent and Old ACG each shall have
delivered to the Stockholders a certificate, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Delaware Secretary of
State and, unless waived by the Stockholders, in each state in which Parent or
Old ACG is authorized to do business, showing that each of Parent and Old ACG
is in good standing and authorized to do business and that all state franchise
and/or income tax
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returns and taxes for Parent and Old ACG, respectively, for all periods prior
to the Closing Date have been filed and paid to the extent required.
8.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Parent or Old ACG that would constitute a Material
Adverse Effect.
8.8 Secretary's Certificates. The Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of Parent and of Old ACG, certifying the completeness and accuracy of the
attached copies of Parent's and Old ACG's respective Charter Documents
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors of Parent and Old ACG approving Parent's
and Old ACG's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.9 Closing of IPO. The sale by Parent of shares of Parent Stock in the IPO
shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
8.10 Election of Director. David M. Mitchell shall have been elected a
director of Parent.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligations of Parent with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company and the Stockholders contained in Section 5.
9.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
Stockholders and the Company on or before the Closing Date shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Parent a certificate dated the Closing Date and signed by
them to such effect.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made
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any request of Parent as a result of which the management of Parent deems it
inadvisable to proceed with the transactions hereunder.
9.3 Secretary's Certificate. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of the Company's Charter
Documents (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors approving the Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 Stockholders' Release. The Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and Parent and (ii) obligations
of the Company and Parent to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders and (y) obligations arising under this
Agreement or the transactions contemplated hereby.
9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Parent and its counsel.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the Company and the Stockholders
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. Parent shall have received an opinion from counsel
to the Company and the Stockholders, dated the Closing Date, in the form and
substance reasonably acceptable to the Parent, relating to, insofar as the
Company and the Stockholders are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the consummation
of the transactions contemplated herein and (c) such other matters as Parent
shall reasonably request.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated
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herein shall have been obtained and made; and all consents and approvals of
third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The Company shall have delivered to Parent
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Parent, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income Tax
returns and Taxes for the Company for all periods prior to the Closing have
been filed and paid.
9.11 FIRPTA Certificate Each Stockholder shall have delivered to Parent a
certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
9.12 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
9.13 Acquisition of Affiliated Corporations. Parent shall have acquired
title to all the issued and outstanding capital stock of each of the Affiliated
Corporations, free and clear of all Liens, from the stockholders of such
corporations for an aggregate purchase price of $5,000.
10. COVENANTS OF PARENT WITH THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees. Parent shall, within 90 days after the
Closing Date, secure the full release of the Stockholders from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the Company.
10.2 Preparation and Filing of Tax Returns.
(i) The Stockholders shall file or cause to be filed all separate
Federal income Tax Returns (and any state and local Tax Returns filed on
the basis similar to that of S corporations under Federal income Tax rules)
of the Company for all taxable periods that end on or before the Closing
Date. Each Stockholder shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly
accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
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(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, the Company for all taxable periods ending after the
Closing Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together with relevant
accompanying schedules and work papers, relevant documents relating to
rulings or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
10.3 Preservation of Employee Benefit Plans. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at the Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing
plans; provided, further, that any new health insurance plan shall provide for
coverage for preexisting conditions.
10.4 Dividends. The Company may, after the Initial Disclosure Date and
before the Closing Date, pay to each Stockholder, as of the end of each
calendar month and at Closing, his proportionate share of the cash balances in
the bank accounts of the Company, as of the end of such calendar month and at
Closing, net of any outstanding checks.
10.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by the Stockholders and the
Company shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 9 of this Agreement, and such compliance by
Parent and Old ACG shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 8 of this Agreement, (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made, and (iv) Parent shall be
responsible for all filing fees under the Hart-Scott Act.
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10.6 Commitment to Nominate a Director. Subject to its fiduciary
obligations, Parent's Board of Directors agrees to renominate David M. Mitchell
as a director of Parent, from time to time, as long as Mr. Mitchell
beneficially owns at least 100,000 shares of Parent Stock at the time of each
such renomination.
10.7 Rule 144 Filing. Parent, from and after the IPO, shall use its efforts
to assure that Rule 144 under the 1933 Act will be available for sales of
shares by Stockholders after the first anniversary date of closing.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the stockholders and board of directors of Parent;
(ii) by the Stockholders, on the one hand, or by Parent (acting through its
board of directors), on the other hand, if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
January 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to
be performed by it prior to or on the Closing Date;
(iii) by Stockholders, on the one hand, or by Parent, on the other hand,
if, prior to October 16, 1997, a Registration Statement on Form S-1 relating to
the IPO has not been filed by Parent with the SEC pursuant to the 1933 Act;
(iv) by the Stockholders, on the one hand, or by Parent, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the material
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Closing Date; or
(v) by the Stockholders, on the one hand, or by Parent, on the other hand,
if either such party declines to consent to an amendment or supplement to a
Schedule proposed by the other party or parties pursuant to Section 7.8 because
such proposed amendment constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the party or parties proposing the
same.
11.2 Liabilities in Event of Termination. Except as provided in Section
7.8, the termination of this Agreement will in no way limit any obligation or
liability of any party based on
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or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement including, but not limited to, legal and audit costs and out of
pocket expenses.
12. NONCOMPETITION
12.1 Prohibited Activities. Each of the Stockholders will not, for a period
of three years following the Closing Date, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, Company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
long-distance telephone business in direct competition with Parent or any of
the subsidiaries thereof, within 100 miles of where the Company or any of its
subsidiaries conducted business prior to the Effective Time (the "Territory");
(ii) call upon any person within the Territory who is an employee of Parent
(including the subsidiaries thereof) in a sales representative or managerial
capacity for the purpose or with the intent of enticing such employee away from
or out of the employ of Parent (including the subsidiaries thereof); provided
that each Stockholder shall be permitted to call upon and hire any member of
his immediate family;
(iii) call upon any person or entity which is or which has been, within one
year prior to the Closing Date, a customer of Parent (including the
subsidiaries thereof) within the Territory for the purpose of soliciting or
selling products or services in direct competition with Parent within the
Territory;
(iv) call upon any prospective acquisition candidate, on any Stockholder's
own behalf or on behalf of any competitor of Parent in the long-distance
telephone business, which candidate, to the Knowledge of such Stockholder after
due inquiry, was called upon by Parent (including the subsidiaries thereof) or
for which, to the Knowledge of such Stockholder after due inquiry, Parent (or
any subsidiary thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose existing or prospective customers of the Company to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever except to the extent that the Company has in the past disclosed such
information to the public for valid business reasons.
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Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than one
percent of the capital stock of a competing business whose stock is traded on a
national securities exchange.
12.2 Damages. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
12.4 Severability, Reformation. The covenants in this Section 12 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
12.5 Independent Covenant. All of the covenants in this Section 12 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Parent (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 12, during which the agreements
and covenants of each Stockholder made in this Section 12 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 12. The covenants
contained in Section 12 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that the
covenants set forth in this Section 12 are a material and substantial part of
the transactions contemplated by this Agreement.
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13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders. The Stockholders recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the Company and/or Parent and Old ACG, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and/or Parent and Old ACG. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for Parent or the Company;
and (iii) to counsel and other advisers; provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 13.1,
unless (x) such information becomes known to the public generally through no
fault of the Stockholders, (y) disclosure is required by law or the order of
any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), the Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Parent shall be entitled to an injunction
(without the posting of bond or proof of actual damages) restraining such
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Parent from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, the abovementioned restrictions on the
Stockholder's ability to disseminate confidential information with respect to
the Company shall become nugatory.
13.2 Parent. Parent and Old ACG recognize and acknowledge that they had in
the past and currently have and in the future may have, prior to the Closing,
access to certain confidential information of the Company, such as operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company. Parent and Old ACG agree that, prior to the Closing, or
if the transactions contemplated by this Agreement are not consummated, they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (i) to authorized representatives of the Company; and (ii) to counsel
and other advisers; provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 13.2, unless (x) such
information becomes known to the public generally through no fault of Parent or
Old ACG, (y) disclosure is required by law or the order of any governmental
authority under color of law; provided, that prior to disclosing any
information pursuant to this clause (y), Parent and Old ACG shall, if possible,
give immediate prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders
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with the opportunity to contest such disclosure, or (z) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by Parent or Old ACG of the provisions of this Section 13.2,
the Company and the Stockholders shall be entitled to an injunction (without
the posting of bond or proof of actual damages) restraining Parent and Old ACG
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Parent and Old ACG (including their
representatives, advisors and legal counsel) shall within ten (10) business
days after the Company's request, deliver all copies of the confidential
information of the Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent, Old ACG or its representatives, advisors or legal counsel
at their direction).
13.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 13.1 and 13.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
13.4 Survival. The obligations of the parties under this Article 13 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 11.
14. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 14.1 (or trusts for the benefit of
the Stockholders or family members, the trustees of which so agree), for a
period of one year from the Closing, except pursuant to Section 16, none of the
Stockholders shall sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any Parent Stock received by the
Stockholders in the transaction contemplated herein. The Parent Stock delivered
to the Stockholders pursuant to Section 2 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Parent may deem necessary or appropriate:
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THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
15. INVESTMENT REPRESENTATIONS
The Stockholders acknowledge that the Parent Stock to be delivered to the
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
the Stockholders solely for their own respective accounts, for investment
purposes only, and not with a view to the distribution thereof.
15.1 Compliance With Law. The Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 14 of this Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
"ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THESE
SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR (B)
THE HOLDER OF THESE SECURITIES PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THESE SECURITIES MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE ACTS.
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15.2 Economic Risk, Sophistication. Each Stockholder represents that he has
received, has read and understands the Draft Registration Statement, and in
particular the risk factors described therein. Each Stockholder further
represents that he is able to bear the economic risk of an investment in the
Restricted Securities and can afford to sustain a total loss of such investment
and either (i) has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment in Parent or (ii) together with the senior executives of the
Company, with whom he has consulted, has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the proposed investment in Parent. Stockholders have had an adequate
opportunity to ask questions and receive answers from the officers of Parent
and the Company concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience
of the current and proposed officers and directors of Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
16. REGISTRATION RIGHTS
16.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Parent proposes to register any Parent Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Parent and (ii) registrations relating to employee
benefit plans, Parent shall give each of the Stockholders prompt written notice
of its intent to do so. Upon the written request of any of the Stockholders
given within 15 business days after receipt of such notice, Parent shall cause
to be included in such registration all Registrable Securities (including any
shares of Parent Stock issued as a dividend or other distribution with respect
to, or in exchange for, or in replacement of such Registerable Securities)
which any such Stockholder requests; provided, however, if Parent is advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.1 that the number of shares to be sold by persons other than
Parent is greater than the number of such shares which can be offered without
adversely affecting the offering, Parent may reduce pro rata the number of
shares offered for the accounts of such persons (based upon the number of
shares held by such person) to a number deemed satisfactory by such managing
underwriter.
16.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Parent Stock (i)
representing Registerable Securities owned by the Stockholders or their
permitted transferees or (ii) representing Registrable Securities (as defined
in the agreements similar to this Agreement mentioned below) acquired by other
Stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of
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their companies by Parent pursuant to an agreement, similar to this Agreement
(or upon exercise or conversion of securities of Parent received pursuant to
such agreement) (the persons referred to in clauses (i) and (ii) being
collectively referred to as the "Founding Stockholders"), which shares have not
been previously registered or sold and which shares are not entitled to be sold
under Rule 144(k) (or any similar or successor provision) promulgated under the
1933 Act, may request in writing that Parent file a registration statement
under the 1933 Act covering the registration of such shares of Parent Stock
issued to and held by the Founding Stockholders or their permitted transferees
(including any stock issued as a dividend or other distribution with respect
to, or in exchange for, or in replacement of such Parent Stock) (a "Demand
Registration"). Within ten days of the receipt of such request, Parent shall
give written notice of such request to all other Founding Stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from the Founding Stockholders requesting such registration, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. Parent shall be obligated to effect only one Demand Registration
for all Founding Stockholders and will keep such Demand Registration current
and effective for not less than 90 days (or such shorter period as is required
to complete the distribution and sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 16.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 16.1.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 16.1 and 16.2 Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Parent may discontinue any registration of its securities that is being
effected pursuant to Section 16.2 at any time prior to the effective date
of the registration statement relating thereto. Parent shall be obligated
to effect only one Demand Registration for all Founding Stockholders,
provided, however, that Parent shall not be deemed to have satisfied its
obligation under Section 16.2 unless and until a Demand Registration
covering all shares of Registerable Securities requested to be registered
has been filed and become effective under the 1933 Act and has remained
current and effective for not less than 90 days (or such shorter period as
is required to complete the distribution and sale of all shares registered
thereunder).
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(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the stockholders of Parent holding a majority of the Registrable Securities
covered thereby of 90 days (or such shorter period as is required to
complete the distribution and sale of all shares registered thereunder) and
to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
provided, that before filing a registration statement or prospectus
relating to the sale of Registrable Securities, or any amendments or
supplements thereto, Parent will furnish to counsel to each holder of
Registrable Securities covered by such registration statement or
prospectus, copies of all documents proposed to be filed, which documents
will be subject to the review of such counsel, and Parent will give
reasonable consideration in good faith to any comments of such counsel.
(iii) Furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, such number of copies of a preliminary prospectus and
prospectus for delivery in conformity with the requirements of the 1933
Act, and such other documents, as such Person may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities.
(iv) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registrable Securities owned by such seller, in such
jurisdictions, except that Parent shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 16.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 16.3(ii), if
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Parent becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and, at the request of any such seller,
deliver a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, each prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registrable
Securities covered by the Registration Statement may reasonably request in
order to effect an underwritten public offering of such Registrable
Securities.
(xi) Make available for inspection by the seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement.
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(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
16.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registrable Securities covered
by a Registration Statement referred to in this Section 16 will, upon
receipt of any notice from Parent of the happening of any event of the kind
described in Section 16.3(vi), forthwith discontinue disposition of the
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 16.3(vi).
(ii) If a registration pursuant to Section 16.1 or 16.2 involves an
underwritten offering, each Stockholder (including his permitted assigns)
agrees, if his shares of Registrable Securities are included in such
registration, not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the 1933 Act, of any Registrable
Securities, or of any security convertible into or exchangeable or
exercisable for any Registrable Securities (other than as part of such
underwritten offering), without the consent of the managing underwriter,
during a period commencing seven calendar days before and ending 180
calendar days (or such lesser number as the managing underwriter shall
designate) after the effective date of such registration. Similarly, each
of the Stockholders agrees not to effect any sale or distribution,
including any sale pursuant to the registration rights provided in Section
16.1, of any Registrable Securities, or of any security convertible into or
exchangeable or exercisable for any Registrable Securities, without the
consent of the managing underwriter of the IPO during a period commencing
on the effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter shall
designate) after such effective date.
16.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 16.1 or 16.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
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(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Parent may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section
16.1 or 16.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 16.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
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to Parent by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Parent or any such director,
officer or controlling person and shall survive the transfer of such
securities by such seller. In that event, the obligations of the Parent and
such sellers pursuant to this Section 16.5 are to be several and not joint;
provided, however, that, with respect to each claim pursuant to this
Section 16.5, Parent shall be liable for the full amount of such claim, and
each such seller's liability under this Section 16.5 shall be limited to an
amount equal to the net proceeds (after deducting the underwriting discount
and expenses) received by such seller from the sale of Registrable
Securities held by such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 16.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 16.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registrable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and the indemnified
party would be inappropriate under the applicable
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standards of professional conduct due to actual or potential differing
interests between them. In the event that the indemnifying party does not
assume the defense of a claim pursuant to this Section 16.5(iii), the
indemnified party will have the right to defend such claim by all
appropriate proceedings, and will have control of such defense and
proceedings, and the indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel to, provide
reasonable cooperation to the indemnifying party and its legal counsel in
connection with its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served in such
proceeding. In the event that an indemnifying party assumes the defense of
an action under this Section 16.5(iii), then such indemnifying party shall,
subject to the provisions of this Section 16.5, indemnify and hold harmless
the indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
16.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 16.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each person selling securities agree with each
other that no seller of Registrable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 16.5(ii) were available.
Parent and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount
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bears to the initial public offering price of the Registrable Securities. For
purposes of this Section 16.6, each person, if any, who controls an underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such underwriter, and each director and each officer of Parent
who signed the registration statement, and each person, if any, who controls
Parent or a seller of Registrable Securities within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as Parent or a
seller of Registrable Securities, as the case may be.
16.7 Availability of Rule 144. Parent shall not be obligated to register
shares of Registrable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act are available to such Stockholder.
17. GENERAL
17.1 Cooperation. The Company, each Stockholder, Parent and Old ACG shall
deliver or cause to be delivered to the other on the Closing Date and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Parent on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax Return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
17.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent, Old ACG and the
Company, and the heirs and legal representatives of the Stockholders.
Notwithstanding the foregoing, any Stockholder may assign his or its shares of
Parent Stock and rights thereunder, to a family or children's trust; provided
that the assignee agrees to be bound by the terms of this Agreement to the same
extent as his or its assignor.
17.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company, Old ACG and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance
with its terms and may be modified or amended only by a written instrument
executed by the Stockholders and by the Company, Old ACG and Parent, acting
through their respective officers or representatives, duly authorized by their
respective Boards of Directors. Any disclosure made on
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any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby; provided that the Company
shall make a good faith effort to cross reference disclosures, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Parent will pay the fees, expenses and disbursements of Parent,
the Company and their respective agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by Parent and
the Company under this Agreement. In this connection, the Stockholders
acknowledge that Parent has paid legal counsel to the Company a retainer of
$45,000 ("Retainer"). If the Retainer is not required to pay the legal fees and
expenses of counsel to the Company in respect of the transactions contemplated
by this Agreement, the Stockholders will retain any unused portion. The
Retainer shall not be credited against any amounts owed by Parent pursuant to
this Agreement.. Each Stockholder shall pay all sales, use, transfer, real
property transfer, gains, stock transfer and other similar taxes ("Transfer
Taxes") imposed in connection with the transactions contemplated herein, the
fees and expenses of the Stockholders' legal counsel and all other costs and
expenses incurred by the Stockholders in their performance and compliance with
all conditions to be performed by them under this Agreement. Each Stockholder
shall file all necessary documentation and Returns with respect to such
Transfer Taxes. In addition, each Stockholder acknowledges that he or she, and
not the Company or Parent, will pay all Taxes due upon receipt of the
consideration payable pursuant to Section 2, and will assume all Tax risks and
liabilities of the Company in connection with the transactions contemplated
hereby.
17.7 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
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(x) If to Parent, or Old ACG, addressed to Parent at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to the Stockholders, addressed to them at their addresses set forth
on Schedule 5.3, with copies to such counsel as is set forth with respect to
each Stockholder on such Schedule 5.3;
(z) If to the Company, addressed to it at:
Valu-Line of Longview, Inc.
3301 West Marshall Ave.
Longview, Texas 75604
Attn: Bob Damuth
Telecopy No.: 903-238-8023
with a copy to:
Kenneth L. Wenzel
City Center Tower II
301 Commerce, Suite 1500
Ft. Worth, Texas 76102
Telecopy No.: 817-877-1636
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or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement Shall be construed in accordance with
the laws of the State of Delaware.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
17.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
17.14 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
17.15 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Parent, Old ACG, the Company and the Stockholders. Any
amendment or waiver effected in accordance with this Section 18.16 shall be
binding upon each of the parties hereto.
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17.16 Access and Information. Following the Closing Date, Company and
Parent shall give Stockholders and Stockholders' counsel, accountants and other
representatives full access, during reasonable business hours, to the books and
records of the Company. Additionally, Parent shall provide the Stockholders
access to the in-house accountant for Company, Harry Barth, for purposes of
obtaining information necessary for the Tax Returns required to be filed by the
Stockholders pursuant to this Agreement and for Harry Barth to coordinate the
preparation of such Tax Returns with Stockholder's accountant and provide
materials and information as requested by Stockholder's accountant. Company
shall keep such books and records for a period of four (4) years after the
Closing Date. In the event Company or Parent desires to destroy any of such
books and records after the four (4) year period but prior to seven (7) years
after the Closing Date, it shall first give forty-five (45) days prior written
notice to Stockholders, and Stockholders shall thereupon have the right, at
their option, upon prior written notice to Company and/or Parent, as
applicable, within said forty-five (45) day period, to take possession of said
books and records within thirty (30) days after the date of Stockholders'
notice to Company, or Parent, as applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
ADVANCED COMMUNICATIONS CORP.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
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ACG ACQUISITION CORP.
BY:
-------------------------------------
NAME: BRAD K. CUTSINGER
TITLE: PRESIDENT
VALU-LINE OF LONGVIEW, INC.
BY:
-------------------------------------
NAME:
TITLE:
STOCKHOLDERS:
----------------------------------------
DAVID M. MITCHELL
----------------------------------------
BOB DAMUTH
----------------------------------------
ANNE ROPER
----------------------------------------
RICHARD ROPER
----------------------------------------
CLARENCE FRIAR
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ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least
<PAGE>
80% of the total combined voting power of all classes of capital stock of the
Company entitled to vote and at least 80% of the total number of shares of all
other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
-2-
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF EXCHANGE
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(Purchaser)
and
ADVANCED COMMUNICATIONS CORP.
(Old ACG)
1+ USA V ACQUISITION CORP.
(Newco)
and
FEIST LONG DISTANCE SERVICE, INC.
(the Company)
and
THOMAS J. FEIST
ROBERTA FEIST
and
OTHERS
(the Stockholders of the Company)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS............................................................................................. 3
2. PURCHASE, SALE AND EXCHANGE............................................................................. 6
3. SECTION 351 EXCHANGE PLAN............................................................................... 7
4. CLOSING................................................................................................. 7
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
COMPANY AND THE STOCKHOLDERS............................................................................ 8
5.1 Due Organization............................................................................... 8
5.2 Authorization.................................................................................. 8
5.3 Capital Stock of the Company................................................................... 9
5.4 Transactions in Capital Stock.................................................................. 9
5.5 No Bonus Shares................................................................................ 9
5.6 Subsidiaries................................................................................... 9
5.7 Predecessor Status; etc........................................................................ 9
5.8 Spinoff by the Company.........................................................................10
5.9 Financial Statements...........................................................................10
5.10 Liabilities and Obligations....................................................................10
5.11 Accounts and Notes Receivable..................................................................11
5.12 Permits and Intangibles........................................................................11
5.13 Environmental Matters..........................................................................12
5.14 Personal Property..............................................................................12
5.15 Significant Customers; Material Contracts and Commitments......................................13
5.16 Real Property..................................................................................13
5.17 Insurance......................................................................................14
5.18 Compensation; Organized Labor Matters..........................................................14
5.19 Employee Plans.................................................................................15
5.20 Compliance with ERISA..........................................................................16
5.21 Conformity with Law; Litigation................................................................17
5.22 Taxes..........................................................................................17
5.23 No Violations..................................................................................17
5.24 Government Contracts...........................................................................18
5.25 Absence of Changes.............................................................................18
5.26 Deposit Accounts; Powers of Attorney...........................................................19
5.27 Relations with Governments.....................................................................20
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5.28 Disclosure.....................................................................................20
5.29 Prohibited Activities..........................................................................20
5.30 Draft Registration Statement...................................................................20
5.31 Authority......................................................................................21
5.32 Preemptive Rights..............................................................................21
5.33 Tax Matters....................................................................................21
5.34 No Plan of Distribution........................................................................21
5.35 No Retained Rights.............................................................................21
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PURCHASER AND OLD ACG...................................................................................21
6.1 Due Organization...............................................................................22
6.2 Authorization..................................................................................22
6.3 Capital Stock..................................................................................22
6.4 Transactions in Capital Stock, Organization Accounting.........................................22
6.5 Subsidiaries...................................................................................23
6.6 Financial Statements...........................................................................23
6.7 Liabilities and Obligations....................................................................23
6.8 Conformity with Law; Litigation................................................................23
6.9 No Violations..................................................................................24
6.10 Purchaser Securities...........................................................................24
6.11 Business; Real Property; Material Agreement....................................................24
6.12 Tax Matters....................................................................................24
6.13 ...............................................................................................25
7. OTHER COVENANTS PRIOR TO CLOSING........................................................................25
7.1 Access and Cooperation; Due Diligence; Audits..................................................25
7.2 Conduct of Business Pending Closing............................................................26
7.3 Prohibited Activities..........................................................................27
7.4 Exclusivity....................................................................................28
7.5 Notice to Bargaining Agents....................................................................28
7.7 Notification of Certain Matters................................................................29
7.8 Amendment of Schedules.........................................................................29
7.9 Further Assurance..............................................................................29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS.....................................................30
8.1 Representations and Warranties Performance of Obligations......................................30
8.2 Satisfaction...................................................................................30
8.3 No Litigation..................................................................................30
8.4 Opinion of Counsel.............................................................................30
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<PAGE>
8.5 Consents and Approvals.........................................................................30
8.6 Good Standing Certificates.....................................................................31
8.7 No Material Adverse Change.....................................................................31
8.8 Secretary's Certificates.......................................................................31
8.9 Closing of IPO.................................................................................31
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER........................................................31
9.1 Representations and Warranties; Performance of Obligations.....................................31
9.2 No Litigation..................................................................................32
9.3 Secretary's Certificate........................................................................32
9.4 No Material Adverse Effect.....................................................................32
9.5 Stockholders' Release..........................................................................32
9.6 Satisfaction...................................................................................32
9.7 Termination of Related Party Agreements........................................................32
9.8 Opinion of Counsel.............................................................................32
9.9 Consents and Approvals.........................................................................33
9.10 Good Standing Certificates.....................................................................33
9.11 Agreement Regarding Prepaid Advertising........................................................33
9.12 FIRPTA Certificate.............................................................................33
9.13 Agreement Regarding Free Advertising Space.....................................................33
9.14 Noncompetition Agreement.......................................................................34
9.15 Agreement Regarding Office Space...............................................................34
9.16 Agreement Regarding Internet Services..........................................................34
10. COVENANTS OF PURCHASER WITH THE STOCKHOLDERS AFTER CLOSING
34
10.1 Release From Guarantees........................................................................34
10.3 Preservation of Employee Benefit Plans.........................................................35
10.4 Dividends......................................................................................35
11. TERMINATION OF AGREEMENT................................................................................36
11.1 Termination....................................................................................36
11.2 Liabilities in Event of Termination............................................................36
12. NONCOMPETITION..........................................................................................37
12.2 Damages........................................................................................38
12.3 Reasonable Restraint...........................................................................38
12.4 Severability, Reformation......................................................................38
12.5 Independent Covenant...........................................................................38
12.6 Materiality....................................................................................38
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<PAGE>
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................39
13.1 Stockholders...................................................................................39
13.2 Purchaser......................................................................................39
13.3 Damages........................................................................................40
13.4 Survival.......................................................................................40
14. TRANSFER RESTRICTIONS...................................................................................40
14.1 Transfer Restrictions..........................................................................40
15. INVESTMENT REPRESENTATIONS..............................................................................41
15.1 Compliance With Law............................................................................41
15.2 Economic Risk, Sophistication..................................................................41
16. REGISTRATION RIGHTS.....................................................................................42
16.1 PiggyBack Registration Rights..................................................................42
16.2 Demand Registration Rights.....................................................................42
16.3 Registration Procedures........................................................................43
16.4 Other Registration Matters.....................................................................46
16.5 Indemnification................................................................................46
16.6 Contribution...................................................................................49
16.7 Availability of Rule 144.......................................................................50
17. GENERAL.................................................................................................50
17.1 Cooperation....................................................................................50
17.2 Successors and Assigns.........................................................................50
17.3 Entire Agreement...............................................................................50
17.4 Counterparts...................................................................................51
17.5 Brokers and Agents.............................................................................51
17.6 Expenses.......................................................................................51
17.7 Notices........................................................................................51
17.8 Governing Law..................................................................................53
17.9 Exercise of Rights and Remedies................................................................53
17.10 Time...........................................................................................53
17.11 Reformation and Severability...................................................................53
17.12 Remedies Cumulative............................................................................53
17.13 Captions.......................................................................................53
17.14 Amendments and Waivers.........................................................................53
17.15 Public Statements..............................................................................53
17.16 Use of Feist Name..............................................................................53
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (the "Agreement") is made as of
the 6th day of October, 1997, by and among ADVANCED COMMUNICATIONS GROUP, INC.,
a Delaware corporation organized in September 1997 ("Purchaser"), ADVANCED
COMMUNICATIONS CORP. (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG"), 1+ USA V ACQUISITION
CORP., a Delaware corporation ("Newco"), FEIST LONG DISTANCE SERVICE, INC., a
Kansas corporation (the "Company"), and THOMAS J. FEIST, ROBERTA FEIST, JAY A.
FEIST, TODD J. FEIST, JILL FEIST UTZ, PAULA FEIST ALEFS, KATHY J. FEIST and
JODI L. FEIST, the only Stockholders of the Company (collectively, the
"Stockholders") and the owners of 10,000 shares of Common Stock, no par value
of Company ("Company Stock"), representing all the Capital Stock of Company
issued and outstanding on the date of this Agreement ("Shares").
RECITALS
WHEREAS, Old ACG has entered into agreements for, or
negotiated the terms of, the acquisition by merger, asset purchase or
stock purchase of ten companies (or interests therein) engaged in
various aspects of the telecommunications industry ("Founding
Companies") for voting capital stock and other consideration,
including cash, one of such agreements being the Agreement and Plan of
Merger dated as of November 15, 1996, as amended as of June 24, 1997,
among Old ACG, Newco, the Company and the Stockholders ("Original
Agreement"); and
WHEREAS, promptly following the execution of the amendment to
the Original Agreement in June 1997, Todd J. Feist was elected
President of Newco; Mr. Feist entered into an Employment Agreement
with Newco; and Mr. Feist was awarded the stock options referred to
therein; and
WHEREAS, Old ACG intended to close the acquisition of the
Founding Companies substantially contemporaneously with the
consummation of an initial underwritten public offering of its common
stock; and
WHEREAS, the executive officers of Old ACG have determined
that it is desirable for licensing and other regulatory purposes to
restructure the acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the
restructured proposal, Old ACG formed Purchaser as a new Delaware
corporation in September 1997 to serve as the vehicle for the
acquisition of the Founding Companies substantially contemporaneously
with
<PAGE>
the consummation of an initial underwritten public offering ("IPO") of
Common Stock, $.0001 par value, of Purchaser ("Purchaser Stock") at
the price to the public reflected in the final prospectus of Purchaser
relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously
with the consummation of the IPO and as part of a single transaction,
the stockholders of the Founding Companies, including Stockholders and
old ACG, will transfer, by stock or asset purchase or reverse
triangular merger, the stock or substantially all the assets of
certain companies and other assets in which they own an interest to
Purchaser in exchange for voting capital stock of Purchaser and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Purchaser, under circumstances
that will constitute a tax-free transfer of property under Section 351
of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder ("Code"), to the extent of their receipt of
voting capital stock of Purchaser; and
WHEREAS, substantially contemporaneously with the execution
of this Agreement and in order to document the integrated Section 351
exchange plan contemplated herein, (a) Old ACG, the other Founding
Companies, their stockholders and others are amending and restating
their respective acquisition agreements; and (b) Purchaser and Old ACG
are entering into a merger agreement pursuant to which Old ACG will
become a wholly-owned subsidiary of Purchaser substantially
contemporaneously with the consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of
the IPO, Old ACG will effect an approximately one-for-two reverse
stock split, the exact magnitude of which will be dependent upon the
ultimate post IPO valuation of Purchaser by the managing underwriters
in the IPO and the anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies
and Old ACG are described in the Registration Statement on Form S-1 of
Purchaser (draft of October 2, 1997), a copy of which is attached to
this Agreement as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Newco, Company and the
Stockholders desire to amend and restate the Original Agreement in its
entirety and transform it into this Agreement; and
WHEREAS, Purchaser desires to acquire all the Shares directly
from Stockholders for the consideration set forth in Section 2 of this
Agreement, and Stockholders have agreed to sell the Shares to
Purchaser on the terms and subject to the conditions hereinafter set
forth;
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" means the Certificate of Incorporation, Articles
of Incorporation or other instrument pursuant to which any
corporation, partnership or other business entity that is a signatory
to this Agreement was formed or organized in accordance with
applicable law.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the sixth recital of this
Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section
5.9.
"Company Stock" has the meaning set forth in the first paragraph of
this Agreement.
"Demand Registration" has the meaning set forth in Section 16.2.
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<PAGE>
"Directory" means each and every yellow page directory published by
FPI and its Affiliates at the date of this Amendment.
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this Agreement.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Fillers" means the irregular sized spaces in each Directory that
cannot be sold to advertisers.
"Founding Companies" has the meaning set forth in the first recital of
this Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.2.
"FPI" means Feist Publications, Inc., a Kansas corporation.
"FSI" means Feist Systems, Inc., a Kansas corporation.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set
forth in Section 5.13.
"Hart-Scott Act" has the meaning set forth in Section 10.5.
"Initial Disclosure Date" means September 30, 1996.
"IPO" has the meaning set forth in the fifth recital of this
Agreement.
"IPO Price" has the meaning set forth in the fifth recital of this
Agreement.
"June Balance Sheet" has the meaning set forth in Section 5.9.
"Liens" has the meaning set forth in Section 5.3.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
-4-
<PAGE>
"Old ACG Financial Statements" has the meaning set forth in Section
6.6.
"Original Agreement" has the meaning set forth in the first recital of
this Amendment.
"Other Stockholders" means the persons and entities that receive
shares of Purchaser Stock, securities convertible into shares of
Purchaser Stock and/or cash upon the acquisition by Purchaser of
assets or businesses in which such persons and entities owned an
interest on or prior to the closing date of the IPO.
"Prohibited Activities" has the meaning set forth in Paragraph 5.29.
"Proscribed Business" has the meaning set forth in Section 12(i).
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section
6.1.
"Purchaser Documents" has the meaning set forth in Section 6.9.
"Purchaser Stock" has the meaning set forth in the fifth recital of
this Agreement.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registerable Securities" means the shares of Purchaser Stock acquired
by the Stockholders pursuant to this Agreement.
"Restricted Securities" has the meaning set forth in Section 15.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular
Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties, covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the
form of Annex II.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
-5-
<PAGE>
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment,
excise, property, deed, stamp, alternative or add on minimum,
environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatever, whether disputed or
not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1(i).
"Transfer Taxes" has the meaning set forth in Section 17.6.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. PURCHASE, SALE AND EXCHANGE
Pursuant to the terms of this Agreement, at the Closing, (x)
Stockholders will transfer, convey, assign and deliver to Purchaser the Shares,
together with stock powers duly endorsed by Stockholders so that the Shares may
be duly registered in Purchaser's name, (y) those Stockholders who are payees
of the Company's promissory note in the outstanding principal amount of
$659,450 at the date of the Original Agreement will transfer, convey, assign
and deliver to Purchaser such note, together with all unpaid interest thereon,
and (z) Purchaser will acquire the Shares from Stockholders for an aggregate
consideration of $5 million in immediately available funds and such number of
shares of Purchaser Stock (rounded to the nearest whole share) as shall be
determined by dividing $10 million by the IPO Price ("Stock Component");
provided, however, that the Stock Component shall be determined using $8
million rather than $10 million if the contractual arrangements described in
Sections 9.11, 9.13, 9.15 and 9.16 of the Agreement are not in full force and
effect immediately prior to the Closing. The number of Shares to be exchanged
by each Stockholder and the amount of cash and shares of Purchaser Stock
deliverable to each Stockholder are set forth below opposite the name of such
Stockholder:
-6-
<PAGE>
- -------------------------------------------------------------------------------
NUMBER OF
SHARES OF
AMOUNT OF PURCHASER
NUMBER OF CASH STOCK
NAME OF STOCKHOLDER SHARES DELIVERABLE DELIVERABLE(1)
- -------------------------------------------------------------------------------
Thomas J. Feist 2,000 $ 1,000,000 20%
- -------------------------------------------------------------------------------
Roberta Feist 2,000 1,000,000 20
- -------------------------------------------------------------------------------
Jay A. Feist 1,000 500,000 10
- -------------------------------------------------------------------------------
Todd J. Feist 1,000 500,000 10
- -------------------------------------------------------------------------------
Jill Feist Utz 1,000 500,000 10
- -------------------------------------------------------------------------------
Paula Feist Alefs 1,000 500,000 10
- -------------------------------------------------------------------------------
Kathy J. Feist 1,000 500,000 10
- -------------------------------------------------------------------------------
Jodi L. Feist 1,000 500,000 10
- -------------------------------------------------------------------------------
TOTAL 10,000 $ 5,000,000 100%
- -------------------------------------------------------------------------------
- -------------------
(1) Expressed as a percentage of the Total Shares Stock Component.
3. SECTION 351 EXCHANGE PLAN.
By executing this Agreement, each Stockholder is deemed to have
approved and adopted the Section 351 Exchange Plan to the same extent as if he
had subscribed his signature thereon.
4. CLOSING
The Closing of the transactions contemplated by this Agreement
("Closing") shall take place on the date of the closing of the sale of shares
of the Purchaser Stock in the IPO, or such other date as the parties hereto may
designate (the "Closing Date"), at such place in New York City as the parties
may mutually agree.
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE COMPANY AND THE STOCKHOLDERS
-7-
<PAGE>
(A) Representations, Warranties, Covenants and Agreements of the
Company and the Stockholders.
Each of the Company and the Stockholders, jointly and severally,
represents, warrants, covenants and agrees (i) that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.8, shall be true at the Closing Date,
(ii) that all of the covenants and agreements in this Section 5(A) shall be
complied with or performed at and as of the Closing Date and (iii) that none of
the representations, warranties, covenants and agreements set forth in this
Section 5(A) shall survive the Closing Date, except that the representations
and warranties set forth in Section 5.22 shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Closing
Date. For purposes of this Section 5, the term Company shall mean and refer to
the Company and all of its subsidiaries, if any.
5.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise), of the Company taken as a whole (as used herein with respect to the
Company, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the Company is incorporated
and contains a list of all such jurisdictions in which the Company is
authorized or qualified to do business. True, complete and correct copies of
the Charter Documents and Bylaws, each as amended, of the Company are all
attached hereto as Schedule 5.1. The stock records of the Company, as
heretofore made available to Purchaser, are correct and complete in all
material respects. There are no minutes in the possession of the Company or the
Stockholders which have not been made available to Purchaser, and all of such
minutes are correct and complete in all material respects. The most recent
minutes of the Company, which are dated no earlier than ten business days prior
to the date hereof, affirm and ratify all prior acts of the Company, and of its
officers and directors on behalf of the Company.
5.2 Authorization. The Company has all requisite corporate power and
authority to enter into the Agreement and to perform its obligations
thereunder. The execution and delivery by the Company of the Agreement and its
consummation of the transactions contemplated thereby have been duly authorized
by all necessary corporate action of the Company. The Agreement has been duly
executed and delivered by the Company, and is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
-8-
<PAGE>
5.3 Capital Stock of the Company. The authorized capital stock of the
Company consists of 10,000 shares of Company Stock. All of the issued and
outstanding shares of the capital stock of the Company are owned of record and
beneficially by the Stockholders in the amounts set forth in Section 2 and
further, except as set forth on Schedule 5.3, are owned free and clear of all
mortgages, liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind (collectively, the
"Liens"). All of the issued and outstanding shares of the capital stock of the
Company (i) have been duly authorized and validly issued, (ii) are fully paid
and nonassessable, and (iii) were offered, issued, sold and delivered by the
Company in compliance with all applicable state and Federal laws concerning the
offer, issuance, sale and delivery of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
5.4 Transactions in Capital Stock. Except as set forth on Schedule 5.4,
the Company has not acquired any Company Stock since January 1, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the Company to issue any of its
authorized but unissued capital stock; (ii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of the Company nor the relative ownership of shares among any of its respective
Stockholders has been altered or changed in contemplation of the transactions
contemplated herein. Schedule 5.4 also includes complete and accurate copies of
all stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the Company Stock.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Except as set forth in Schedule 5.6, (i) the Company
has no subsidiaries, (ii) the Company does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity and (iii) the Company is not directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth in Schedule 5.7 is a listing of
all names of all predecessor companies of the Company, including the names of
any entities acquired by the Company (by stock purchase, merger or otherwise)
or owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
-9-
<PAGE>
5.8 Spinoff by the Company. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the Company (the "Company Financial
Statements"): the Company's audited Balance Sheet as of December 31, 1996 and
its unaudited Balance Sheets as of December 31, 1995 and 1994 and June 30, 1997
("June Balance Sheet"), the Company's audited Statements of Operations,
Retained Earnings and Cash Flows for the year ended December 31, 1996 and its
unaudited Statements of Operations, Retained Earnings and Cash Flows and any
related notes thereto for each of the years in the two-year period ended
December 31, 1995 and for the six months ended June 30, 1996 and 1997 (June 30,
1997 being hereinafter referred to as the "Balance Sheet Date"). The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 5.9). Except as set forth on
Schedule 5.9, such Balance Sheets as of December 31, 1996, 1995, and 1994 and
June 30, 1997 present fairly the financial position of the Company as of the
dates indicated thereon, and such Statements of Operations, Retained Earnings
and Cash Flows present fairly the results of operations for the periods
indicated thereon in accordance with generally accepted accounting principles.
The Company Financial Statements of and for the year ended December 31, 1996
have been examined by KMPG Peat Marwick LLP.
5.10 Liabilities and Obligations. The Company has no material
liabilities of any kind, character or description, whether accrued, absolute,
secured, unsecured, contingent or otherwise, that are not reflected on the June
Balance Sheet or otherwise reflected in the Company Financial Statements at the
Balance Sheet Date, including all loan agreements, indemnity or guaranty
agreements, bonds, mortgages, liens, pledges or other security agreements.
Except as set forth on Schedule 5.10, since the Initial Disclosure Date the
Company has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The Company has also disclosed to Purchaser on Schedule 5.10, in the case of
those contingent liabilities related to pending or threatened litigation or
other liabilities which are not fixed or otherwise accrued or reserved, the
following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation
relating thereto;
(y) amounts claimed and any other action or
relief sought; and
(z) name of claimant and all other parties to
the claim, suit or proceeding;
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(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall for
purposes of this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The Company has delivered to
Purchaser an accurate list (which is set forth on Schedule 5.11) of the
accounts and notes receivable of the Company, as of the Initial Disclosure,
including receivables from and advances to employees and the Stockholders. The
Company shall also provide Purchaser (x) an accurate list of all receivables
generated subsequent to the Initial Disclosure Date and (y) an aging of all
accounts and notes receivable showing amounts due in 30 day aging categories,
and such list and such aging report (the "A/R Aging Reports") shall be current
as of a date reasonably requested by Purchaser. Except to the extent reflected
on Schedule 5.11 or as disclosed by the Company to Purchaser in a writing
accompanying the A/R Aging Reports, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, and shall be collectible
in the amounts shown on the A/R Aging Reports, net of reserves reflected in the
June Balance Sheet and as of the date of the A/R Aging Reports, respectively.
5.12 Permits and Intangibles. The Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the Company has
delivered to Purchaser an accurate list and summary description (which is set
forth on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including titles, certificates, trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
(including interests in software or other technology systems, programs and
intellectual property) (it being understood and agreed that a list of all
environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the Company, the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such license,
franchise, permit or other governmental authorization. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12 and 5.13
and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Company. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Company by, any such license, franchise, permit or government authorization.
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5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i)
the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the Company has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and have reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been
no releases or threats of releases (as defined in Environmental Laws) at, from,
in or on any property owned or operated by the Company except as permitted by
Environmental Laws; (iv) the Company knows of no on-site or off-site location
to which the Company has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state, local or
foreign enforcement action or any other investigation which could lead to any
claim against the Company or Purchaser for any clean-up cost, remedial work,
damage to natural resources, property damage or personal injury, including, but
not limited to, any claim under the comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) the Company had no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. The Company has delivered to Purchaser an
accurate list (which is set forth on Schedule 5.14) of (i) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" on the balance sheet of the Company, (ii) all other personal
property owned by the Company with a value in excess of $10,000 (x) as of the
Initial Disclosure Date and (y) acquired since the Initial Disclosure Date and
(iii) all leases and agreements in respect of personal property, including, in
the case of each of (i), (ii) and (iii), (1) true, complete and correct copies
of all such leases and (2) an indication as to which assets are currently
owned, or were formerly owned, by Stockholders, relatives of Stockholders, or
Affiliates of the Company. Except as set forth on Schedule 5.14, (a) all
personal property used by the Company in its business is either owned by the
Company or leased by the Company pursuant to a lease included on Schedule 5.14,
(b) all of the personal property listed on Schedule 5.14 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 5.14 are in full force and effect
and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
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5.15 Significant Customers; Material Contracts and Commitments. The
Company has delivered to Purchaser an accurate list (which is set forth on
Schedule 5.15) of all significant customers, or persons or entities that are
sources of a significant number of customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) (i) representing 5% or more of the Company's
annual revenues as of the Initial Disclosure Date or (ii) reasonably expected
to represent 5% or more of the Company's revenues during the twelve-month
period ending September 30, 1997. Except to the extent set forth on Schedule
5.15, none of the Company's significant customers (or persons or entities that
are sources of a significant number of customers) have canceled or
substantially reduced or, to the knowledge of the Company, are currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the Company is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase
land), other than agreements listed on Schedule 5.10, 5.14 or 5.16, (x) in
existence as of the Initial Disclosure Date and (y) entered into since the
Balance Street Date, and in each case has delivered true, complete and correct
copies of such agreements to Purchaser. The Company has complied with all
material commitments and obligations pertaining to it, and is not in default
under any contract or agreement listed on Schedule 5.15 and no notice of
default under any such contract or agreement has been received. The Company has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $50,000 by the Company.
5.16 Real Property. Schedule 5.16 includes a list of all real property
owned or leased by the Company (i) as of the Initial Disclosure Date and (ii)
acquired since the Initial Disclosure Date, and all other property, if any,
used by the Company in the conduct of its business. The Company has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.16, subject to no Lien except for:
(w) Liens reflected on Schedules 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default
exists);
(x) Liens for current taxes not yet payable and assessments
not in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks
in which the properties, assets and leasehold estates
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are located which do not adversely affect in any material respect the
current use of the property.
Schedule 5.16 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Company with respect to real property owned by the Company,
(2) true, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company (which copies are attached to
Schedule 5.16), and (3) an indication as to which such properties, if any, are
currently owned, or were formerly owned, by Stockholders or business or
personal affiliates of the Company or Stockholders.
Except as set forth on Schedule 5.16, all of such leases included on Schedule
5.16 are in full force and effect and constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. The Company has delivered to Purchaser, as set forth on
and attached to Schedule 5.17, (i) an accurate list as of the Initial
Disclosure Date of all insurance policies carried by the Company, (ii) an
accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All of such insurance policies are currently in full force and effect and shall
remain in full force and effect through the Closing Date. No insurance carried
by the Company has ever been canceled by the insurer and the Company has never
been denied coverage.
5.18 Compensation; Organized Labor Matters. The Company has delivered
to Purchaser an accurate list (which is set forth on Schedule 5.18) showing all
officers, directors and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Initial
Disclosure Date and (ii) the date of this Agreement. Since the Initial
Disclosure Date, there have been no increases in the compensation payable or
any special bonuses to any officer, director, key employee or other employee,
except ordinary salary increases implemented on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (w) the Company is not bound by
or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (y) no campaign to establish such representation is in
progress and (z) there is no pending or, to the best of the Company's
knowledge, threatened labor dispute involving the Company and any group of its
employees nor has the Company experienced any labor interruption over the past
three years. The Company believes its relationship with employees to be good.
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<PAGE>
5.19 Employee Plans. The Stockholders have delivered to Purchaser an
accurate list (which is set forth on Schedule 5.19) showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Initial Disclosure
Date. Except for the employee benefit plans, if any, described on Schedule
5.19, the Company does not sponsor, maintain or contribute to any plan program,
fund or arrangement that constitutes an "employee pension benefit plan," and
the Company does not have any obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended "ERISA") or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on Schedule 5.19, nor is the Company required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the Company's
employees.
The Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well
as with all other applicable Federal, state and local statutes, ordinances and
regulations.
All accrued contribution obligations of the Company or any subsidiary
with respect to any plan listed on Schedule 5.19 have either been fulfilled in
their entirety or are fully reflected on the balance sheet of the Company as of
the Initial Disclosure Date.
5.20 Compliance with ERISA. All employee benefit plans listed on
Schedule 5.19 that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Code are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19. Except as
disclosed on Schedule 5.19, all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19. Neither the Stockholders, any such plan listed in
Schedule 5.19, nor the Company has engaged in any transaction
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prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No employee benefit plan listed on Schedule 5.19 has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred (i) any liability for
excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation. The Stockholders further
represent that:
(v) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee benefit
plans listed in Schedule 5.19;
(y) the Company has not incurred liability under Section 4062
of ERISA; and
(z) no circumstances exist pursuant to which the Company
could reasonably be expected to have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer plan or the Pension Benefit Guaranty Corporation under
Title IV of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory Lien to secure
payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the Company is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10 or 5.13, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Company or any Stockholder. The
Company has conducted and is conducting its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including
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all such permits, licenses, orders and other governmental approvals set forth
on Schedules 5.12 and 5.13, and is not in violation of any of the foregoing
which might have a Material Adverse Effect.
5.22 Taxes. The Company has timely filed all requisite Federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Initial Disclosure Date; and except as set forth on Schedule 5.22,
there are no examinations in progress or claims against it for Federal, state
and other Taxes for any period or periods prior to and including the Balance
Sheet Date and no notice of any claim for Taxes, whether pending or threatened,
has been received. All Tax (whether or not shown on any Tax return) owed by the
Company, any member of an affiliated or consolidated group which includes or
included the Company or with respect to any payment made or deemed made by the
Company has been paid. The amounts shown as accruals for Taxes on the Company
Financial Statements are sufficient for the payment of all Taxes of the kinds
indicated for all fiscal periods ended on or before that date. Copies of (i)
any tax examinations, (ii) extensions of statutory limitations and (iii) the
Federal and local income Tax returns and franchise tax returns of Company for
its last three fiscal years, or such shorter period of time as it shall have
existed, are attached hereto as Schedule 5.22. The Company made an election to
be taxed under the provisions of Subchapter S of the Code and has not, within
the past five years, been taxed under the provisions of Subchapter C of the
Code. The Company has a taxable year ended December 31 and has not made an
election to retain a fiscal year other than December 31 under Section 444 of
the Code. The Company's methods of accounting have not changed in the past five
years. The Company is not an investment Company as defined in Section 351(e)(1)
of the Code.
5.23 No Violations. The Company is not in violation of its Charter
Documents. Neither the Company nor, to the knowledge of the Company, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 5.23, (i) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company or Purchaser of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts
the Company from freely providing services to any other customer or potential
customer of the Company or Purchaser or any Other Founding Company.
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5.24 Government Contracts. Except as set forth on Schedule 5.24, the
Company is not a party to any governmental contracts subject to price
determination or renegotiation.
5.25 Absence of Changes. Since the Initial Disclosure Date, except as
set forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
the Company;
(ii) any damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or
business of the Company;
(iii) any change in the authorized capital of the Company or
its outstanding securities or any change in its ownership interests or
any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock
of the Company (except for dividends which the Company may declare and
pay pursuant to Section 10.4);
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, materially
adversely affecting the business of the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to
any person, including, without limitation, the Stockholders and their
Affiliates;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
assets, property or rights of the Company or requiring consent of any
party to the transfer and assignment of any such assets, property or
rights;
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(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or asset
outside of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which the
Company is a party:
(xiii) any transaction by the Company outside the ordinary
course of its respective businesses;
(xiv) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the
Company.
The Company, notwithstanding the provisions of Section 5.25, may negotiate with
ECON-A-CALL, INC., a corporation located in Hays, Kansas (the "Target"),
concerning the acquisition of Target but shall not reach any agreement with the
Target without obtaining the prior written approval of Purchaser. The Company
shall keep Purchaser fully informed throughout the negotiations.
5.26 Deposit Accounts; Powers of Attorney. The Company has delivered
to Purchaser an accurate list (which is set forth on Schedule 5.26) as of the
date of the Original Agreement setting forth:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company
and a description of the terms of such power.
5.27 Relations with Governments. Except for political contributions
made in a lawful manner which, in the aggregate, do not exceed $10,000 per year
for each year in which any Stockholder has been a stockholder of the Company,
the Company has not made, offered or agreed to offer anything of value
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to any governmental official, political party or candidate for government
office nor has it otherwise taken any action which would cause the Company to
be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect. If political contributions made by the Company have
exceeded $10,000 per year for each year in which any Stockholder has been a
stockholder of the Company, each contribution in the amount of $5,000 or more
shall be described on Schedule 5.27.
5.28 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of the Company for the time periods with respect to
which such information was requested. The Company's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Company (which fact
or circumstance was, or should reasonably, after due inquiry, have been known
to the Company) that is not disclosed pursuant hereto or thereto.
5.29 Prohibited Activities. Except as set forth on Schedule 5.30, the
Company has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Section 7.3 ("Prohibited
Activities").
5.30 Draft Registration Statement. The text of, and the financial
statements and other financial information contained, in the Draft Registration
Statement, insofar as they were provided by the Company expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(B) Representations, Warranties, Covenants and Agreements of the
Stockholders.
Each Stockholder severally represents, warrants, covenants and agrees
(i) that the representations and warranties set forth below are true as of the
date of this Agreement and, subject to Section 7.8, shall be true at the
Closing Date, (ii) that all of the covenants and agreements in this Section
5(B) shall be materially complied with or performed at and as of the Closing
Date and (iii) that none of the representations and warranties set forth in
Section 5(B) shall survive the Closing Date.
5.31 Authority. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder.
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5.32 Preemptive Rights. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Purchaser Stock that such Stockholder has or may have had other than rights of
any Stockholder to acquire Purchaser Stock pursuant to (i) this Agreement or
(ii) any option granted by Purchaser.
5.33 Tax Matters. The Stockholders have been advised by their counsel
and are satisfied, as of the date hereof that contains aspects of the
transaction contemplated by this Agreement qualify for the deferral of gain
pursuant to Section 351 of the Code.
5.34 No Plan of Distribution. No Stockholder has any intention or
arrangement to sell or otherwise dispose of any Purchaser Stock to be received
pursuant to this Agreement and the Section 351 Exchange Plan.
5.35 No Retained Rights. No Stockholder will retain any right after the
Closing in any Company Stock to be transferred by him at the Closing but, to
the extent that such right may exist upon the consummation of the Closing, such
right shall be deemed to have been released and extinguished.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PURCHASER AND OLD ACG
Purchaser and Old ACG, jointly and severally, represent warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are true at the date of this Agreement and, subject to
Section 7.8, shall be true at the Closing Date, (ii) that all of the covenants
and agreements in this Section 6 shall be complied with or performed at and as
of the Closing Date, and (iii) that the following representations and
warranties shall not survive the Closing Date, except that the representations
and warranties set forth in Section 6.12 shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Closing
Date.
6.1 Due Organization. Purchaser and Old ACG are each corporations duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Charter Documents and By-laws, each as amended, of Purchaser and Old ACG (the
"Purchaser Charter Documents") are all attached hereto as Schedule 6.1.
6.2 Authorization. Purchaser and Old ACG each has all requisite
corporate power and authority to enter into the Agreement and to perform its
obligations thereunder. The execution and delivery of the Agreement by
Purchaser and Old ACG and their consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate action of
Purchaser and Old ACG. The Agreement has been duly executed and delivered by
Purchaser and Old ACG, and is a valid and
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binding obligation of Purchaser and Old ACG, enforceable against each of them
in accordance with its terms.
6.3 Capital Stock. The authorized capital stock of Old ACG is as set
forth on Schedule 6.3. All of the issued and outstanding shares of the capital
stock of Old ACG (i) have been duly authorized and validly issued, (ii) are
fully paid and nonassessable, (iii) are owned of record and beneficially by the
Persons set forth on Schedule 6.3, and (iv) were offered, issued, sold and
delivered by Old ACG in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Old ACG. Subject to the consummation of the reverse
stock split referred to in the eight recital of this Agreement and the
consummation of Purchaser's acquisition of Old ACG in the reverse triangular
merger, the capitalization of Purchaser will be identical to the capitalization
of Old ACG immediately prior to the consummation of the IPO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as
set forth on Schedule 6.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
6.5 Subsidiaries. Neither Purchaser nor Old ACG has any Subsidiaries,
except for each of the companies identified on Schedule 6.5. Except as set
forth in the preceding sentence, neither Purchaser nor Old ACG presently owns,
of record or beneficially, or controls, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and neither Purchaser, nor
Old ACG, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporation entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies of
the following financial statements of Old ACG, which reflect the results of its
operations from inception in June 1996 (the "Old ACG Financial Statements"):
Old ACG's audited Balance Sheet as of December 31, 1996 and its unaudited
Balance Sheet as of June 30, 1997, and audited Statements of Operations,
Stockholder's Equity and Cash Flows and related notes thereto for the period
from June 10, 1996 through December 31, 1996 and unaudited Statements of
Operations, Stockholder's Equity and Cash Flows for the six months ended June
30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 6.6). The unaudited Old ACG Financial
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Statements were prepared in accordance with the books and records of Old ACG in
accordance with accounting principles consistently applied. Old ACG's Balance
Sheets present fairly the financial position of Old ACG as of the dates
indicated thereon, and Old ACG's Statements of Operations, Stockholder's Equity
and Cash Flows included in the Old ACG Financial Statements present fairly the
results of operations for the periods indicated thereon in accordance with
generally accepted accounting principles. Old ACG's Financial Statements at and
for the period ended December 31, 1996 have been examined by KPMG Peat Marwick
LLP, independent public accountants.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
neither Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, or in the Draft Registration Statement, neither Purchaser nor Old
ACG is in violation of any law or regulation or any order of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it which would have
a Material Adverse Effect; and except to the extent set forth on Schedule 6.8,
or in the Draft Registration Statement, there are no material claims, actions,
suits or proceedings, pending or, to the Knowledge of either Purchaser or Old
ACG, threatened, against or affecting either Purchaser or Old ACG, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Each of Purchaser and Old ACG
has conducted and is conducting is businesses in substantial compliance with
the requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which might have a Material Adverse Effect.
6.9 No Violations. Neither Purchaser nor Old ACG is in violation of
any Purchaser Charter Document. None of Purchaser, Old ACG, or, to the
knowledge of Purchaser and Old ACG, any other party thereto, is in default
under any lease, instrument, agreement, license, or permit to which Purchaser
or Old ACG is a party, or by which Purchaser or Old ACG, or any of their
respective properties, are bound (collectively, the "Purchaser Documents"); and
(i) the rights and benefits of Purchaser and Old ACG under the Purchaser
Documents will not be adversely affected by the transactions contemplated
hereby and (ii) the execution of this Agreement and the performance of the
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the Purchaser Documents or the
Purchaser Charter Documents. Except as set forth on Schedule 6.9, none of the
Purchaser Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and
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effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit.
6.10 Purchaser Securities. The shares of Purchaser Stock deliverable to
the Stockholders pursuant to this Agreement will have been duly authorized
prior to the Closing, and upon consummation of the transactions contemplated by
this Agreement, will be validly issued, fully paid and nonassessable.
6.11 Business; Real Property; Material Agreement Old ACG was formed in
June 1996, and Purchaser was formed in September 1997. Neither Purchaser nor
Old ACG has conducted any material business since the date of its inception,
except raising capital and in connection with this Agreement and similar
agreements with the Founding Companies. Except as disclosed on Schedule 6.12,
neither Purchaser nor Old ACG owns or has at any time owned any real property
or any material personal property or is a party to any other material
agreement.
6.12 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to
file. All such Tax Returns filed by Old ACG were correct and complete
in all material respects. All Taxes owed by Old ACG (whether or not
shown on any Tax Return) have been paid. Old ACG is not currently the
beneficiary of any extension of time within which to file any Tax
Return. Since Old ACG's formation in June 1996 , no claim with respect
to Old ACG has been made by an authority in a jurisdiction where Old
ACG does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There is no Lien affecting any of Old ACG's
assets that arose in connection with any failure or alleged failure to
pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax
Returns have been filed. There is no material dispute or claim
concerning any Tax liability of Old ACG either claimed or raised by
any authority in writing or as to which Old ACG has knowledge based
upon direct inquiry by any agent of such authority.
6.13Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Purchaser or Old ACG but not otherwise,
are true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
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7. OTHER COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers and authorized representatives of
Purchaser access to all of such Company's sites, properties, books and
records and will furnish Purchaser with such additional financial and
operating data and other information as to the business and properties
of the Company as Purchaser may from time to time reasonably request.
The Company will cooperate with Purchaser, its representatives,
auditors and counsel in the preparation of and any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. Purchaser, Old ACG, the
Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section 13.
(ii) Between the date of this Agreement and the Closing,
Purchaser will afford to the officers and authorized representatives
of the Company access to all sites, properties, books and records of
Purchaser, Old ACG and the other Founding Companies and will furnish
the Company with such additional financial and operating data and
other information as to the business and properties of Purchaser, Old
ACG and the Other Founding Companies as the Company may from time to
time reasonably request. Purchaser will cooperate with the Company,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with
any documents or materials required by this Agreement. The Company
will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 13.
(iii) The Company agrees to permit an independent accounting firm
selected by Purchaser to audit and render a report on its Company
Financial Statements and its comparable financial statements at and
for the year ending December 31, 1996, provided that all the costs and
expenses of such audits are paid by Purchaser.
7.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Purchaser, between the date of this Agreement and the Closing Date,
the Stockholders will cause the Company to:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
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(ii) maintain its respective properties and facilities, including
those held under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its respective present key
employees and maintain its respective relationships with suppliers,
customers and others having business relations with it;
(vi) maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices.
7.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Stockholders will not, without prior written consent of
Purchaser, permit the Company to:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution
in respect of Company Stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of Company Stock (except the declaration and payment of dividends
pursuant to Section 10.4);
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(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) or
involves an amount not in excess of $10,000;
(v) create, assume or permit to exist any Lien upon any asset
or property whether now owned or hereafter acquired, except (x) with
respect to purchase money Liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$10,000 necessary or desirable for the conduct of its businesses, (y)
(1) Liens for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested Taxes
adequate reserves have been established and are being maintained) or
(2) materialmen's, mechanics', workers', repairmen's, employees' or
other like Liens arising in the ordinary course of business, or (3)
Liens set forth on Schedule 5.10 or 5.15;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 Exclusivity. Neither any Stockholder, nor the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with, the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
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(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than
Purchaser or its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Company or merger, consolidation or business
combination of the Company.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Purchaser with proof that any required notice has been sent.
7.6 Agreements. The Stockholders and the Company shall terminate (i)
any Stockholders agreements, voting agreements, voting trusts, options,
warrants and employment agreements between the Company and any employee listed
on Schedule 5.18 and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Closing Date. Copies of such termination
agreements are listed on Schedule 7.6 and copies thereof are attached thereto.
7.7 Notification of Certain Matters. The Stockholders and the Company
shall give prompt notice to Purchaser of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (ii) any material failure of any Stockholder or the Company to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by such person hereunder as of such date. Purchaser and Old ACG shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Purchaser or Old ACG contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing Date
and (ii) any material failure of Purchaser or Old ACG to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections
8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by the Company or Purchaser that constitutes or reflects
an
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event or occurrence that would have a Material Adverse Effect may be made
unless Purchaser or the Company, as the case may be, consents to such amendment
or supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 8.1
and 9.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 7.8. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 11.1(v). Neither the entry by
Purchaser into any other agreement, such as this Agreement, after the date
hereof for the acquisition of one or more companies involved in or assets
associated with the telephone business and related activities nor the
performance by Purchaser of its obligations thereunder shall be deemed to
require the amendment to a supplementation of any Schedule hereto.
7.9 Further Assurance. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of the Stockholders with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. All conditions not
satisfied shall be deemed to have been waived, except that no such waiver shall
be deemed to affect the survival of the representations and warranties of
Purchaser and Old ACG contained in Section 6:
8.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Purchaser and Old ACG on or
before the Closing Date shall have been duly complied with or performed in all
material respects; and a certificate to the foregoing effect dated the Closing
Date, and signed by the President or any Vice President of Purchaser and of Old
ACG shall have been delivered to the Stockholders.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of the
Company
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as a result of which the management of the Company deems it inadvisable to
proceed with the transactions hereunder.
8.4 Opinion of Counsel. The Stockholder shall have received an opinion
from counsel for Purchaser and Old ACG, dated the Closing Date, in the form and
substance reasonably acceptable to the Stockholders, relating to, insofar as
Purchaser and Old ACG, are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the receipt of
all required consents and approvals and (c) such other legal matters as the
Stockholder may reasonably request.
8.5 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
8.6 Good Standing Certificates. Purchaser and Old ACG each shall have
delivered to the Stockholder a certificate, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Delaware Secretary of
State and, unless waived by the Stockholder, in each state in which Purchaser
or Old ACG is authorized to do business, showing that each of Purchaser and Old
ACG is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for Purchaser and Old ACG,
respectively, for all periods prior to the Closing Date have been filed and
paid to the extent required.
8.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Purchaser or Old ACG that would constitute a Material
Adverse Effect.
8.8 Secretary's Certificates. The Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of Purchaser and of Old ACG, certifying the completeness and accuracy of the
attached copies of Purchaser's and Old ACG's respective Charter Documents
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors of Purchaser and Old ACG approving
Purchaser's and Old ACG's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.9 Closing of IPO. The sale by Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. All conditions not satisfied
shall be deemed to have been waived, except that no such waiver shall be deemed
to affect the survival of the representations and warranties of the Company and
the Stockholders contained in Section 5.
9.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
Stockholders and the Company on or before the Closing Date shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Purchaser a certificate dated the Closing Date and signed by
them to such effect.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of
Purchaser as a result of which the management of Purchaser deems it inadvisable
to proceed with the transactions hereunder.
9.3 Secretary's Certificate. Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of the
Company's Charter Documents (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors approving the
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 Stockholders' Release. The Stockholders shall have delivered to
Purchaser an instrument dated the Closing Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Purchaser and
(ii) obligations of the Company and Purchaser to the Stockholders, except for
(x) items specifically identified on Schedules 5.10 and 5.15 as being claims of
or obligations to the
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Stockholders, (y) continuing obligations to Todd J. Feist relating to his
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Purchaser and its counsel.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the Company and the Stockholders
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. Purchaser shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in the
form and substance reasonably acceptable to the Purchaser, relating to, insofar
as the Company and the Stockholders are concerned, (a) the authorization,
execution, delivery, performance and enforceability of the Agreement, (b) the
receipt of all required consents and approvals and (c) such other legal matters
as the Purchaser may reasonably request.
9.9 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The Company shall have delivered to
Purchaser a certificate, dated as of a date no earlier than ten days prior to
the Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by Purchaser, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income Tax returns and Taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 Agreement Regarding Prepaid Advertising. An irrevocable agreement
in the form attached hereto as Annex IV between FPI and the Company, pursuant
to which FPI and its Affiliates agree to provide Company, at no additional cost
to Company, the exclusive right to include the copy for eight pages in the
front of each existing Directory published by FPI or one of its Affiliates at
any time after the date of this Amendment and on or before the fifth
anniversary of the Closing Date shall be in full force and effect. For purposes
of the preceding sentence, an existing Directory is one that has been published
by FPI or one of its Affiliates prior to the date of this Amendment. The copy
to be provided by Company and published by FPI or one of its Affiliates
pursuant to the foregoing agreement will be used to familiarize prospective
customers of Company with the various services offered by Company and will
provide instructions on how to order such services.
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9.12 FIRPTA Certificate Each Stockholder shall have delivered to
Purchaser a certificate to the effect that he or she is not a foreign person
under Section 1.1445-2(b) of the Treasury regulations.
9.13 Agreement Regarding Free Advertising Space. An irrevocable
agreement in the form attached hereto as Annex IV between FPI and Company,
pursuant to which FPI and its Affiliates agree to permit Company to include, at
no cost to Company, (x) two half pages of advertising copy in each Directory
and (y) Company designated Fillers for up to approximately 10% of the total
Fillers in each Directory, subject in each case to FPI's approval of the
contents of such advertising copy and Fillers, such approval not to be
unreasonably withheld.
9.14 Noncompetition Agreement. The key employees listed on Schedule
5.18 who are not Stockholders shall have signed noncompete and non-solicitation
agreements incorporating the terms set forth in Section 13 of this Agreement.
9.15 Agreement Regarding Office Space. An irrevocable agreement in the
form attached hereto as Annex III among FPI, FSI and the Company, pursuant to
which FPI and FSI each agrees to permit the Purchaser and Company, to use the
office space, support facilities and personnel in the offices of FPI and FSI at
110 S. Main, Suite 1000, Wichita, Kansas 67202, shall be in full force and
effect. The foregoing agreement shall provide that (i) irrespective of past
practices, Purchaser and Company will pay their proportionate shares of the
expenses actually incurred by FPI, FSI and their Affiliates in respect of such
office space, support facilities and personnel; (ii) FPI and FSI shall submit
an itemized monthly invoice to Purchaser and Company covering their
proportionate share of such expenses, and Purchaser and Company shall pay
promptly all amounts properly due and owing to FPI and FSI; and (iii) Purchaser
and Company shall submit an itemized monthly invoice to FPI and FSI for any
services rendered by them, and FPI and FSI shall pay promptly all amounts
properly due and owing to Purchaser and Company.
9.16 Agreement Regarding Internet Services. An irrevocable agreement in
the form attached hereto as Annex V between FSI and Company, pursuant to which
FSI and its Affiliates agree to permit Company and its Affiliates to resell
FSI's dial-up Internet services at a cost equal to 75% of the advertised retail
rate that FSI regularly quotes prospective customers, shall be in full force
and effect. The foregoing agreement shall provide that (i) FSI will notify
Company promptly of any change in its advertised retail rate that occurs after
the Closing Date and (ii) FSI and Company each agree to invoice and pay
promptly, and in no event less frequently than monthly, any amounts that may be
payable to the other pursuant to such agreement.
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10. COVENANTS OF PURCHASER WITH THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees. Purchaser shall use its best efforts to
have the Stockholders released from any and all guarantees on any indebtedness
that they personally guaranteed and from any and all pledges of assets that
they pledged to secure such indebtedness for the benefit of the Company, with
all such guarantees on indebtedness being assumed by Purchaser.
10.2 Preparation and Filing of Tax Returns.
(i) The Stockholders shall file or cause to be filed all
separate Federal income Tax Returns (and any state and local Tax
Returns filed on the basis similar to that of S corporations under
Federal income Tax rules) of the Company for all taxable periods that
end on or before the Closing Date. Each Stockholder shall pay or cause
to be paid all Tax liabilities (in excess of all amounts already paid
with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) Purchaser shall file or cause to be filed all separate
Returns of, or that include, the Company for all taxable periods
ending after the Closing Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and work papers, relevant documents relating to
rulings or other determinations by Taxing Authorities and relevant
records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to
the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Preservation of Employee Benefit Plans. Following the Closing
Date, Purchaser shall not terminate any health insurance, life insurance or
401(k) plan in effect at the Company until such time as Purchaser is able to
replace such plan with a plan that is applicable to Purchaser and all of its
then existing subsidiaries; provided that Purchaser shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans; provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions.
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10.4 Dividends. The Company may, after the Balance Sheet Date and
before the Closing Date, pay to each Stockholder the amount equal to the sum of
his or her estimated Federal, state and local income Taxes on the Company
Subpart S earnings taxable to such Stockholder for the period after December
31, 1996 and before the Closing Date.
10.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by the Stockholders and the
Company shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 9 of this Agreement, and such compliance by
Purchaser and Old ACG shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 8 of this Agreement, and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date solely:
(i) by mutual consent of Stockholders and the board of directors of
Purchaser;
(ii) by the Stockholders, on the one hand, or by Purchaser (acting
through its board of directors), on the other hand, if the transactions
contemplated by the Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to terminate
this Agreement to perform any of its obligations under the Agreement to the
extent required to be performed by its prior to or on the Closing Date;
(iii) by Stockholders, on the one hand, or by Purchaser, on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the SEC pursuant to
the 1933 Act;
(iv) by the Stockholders, on the one hand, or by Purchaser, on the
other hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date; or
(v) by the Stockholders, on the one hand, or by Purchaser, on the other
hand, if either such Party declines to consent to an amendment or supplement to
a Schedule proposed by the other party or parties
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pursuant to Section 7.8 because such proposed amendment constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on the party
or parties proposing the same.
11.2 Liabilities in Event of Termination. Except as provided in Section
7.8, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
12. NONCOMPETITION
12.1 Prohibited Activities. Each of the Stockholders will not, for a
period of two years following the Closing Date (or such earlier period as
provided in Annex IV), for any reason whatsoever, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, Company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, major shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative, in
the sale or marketing of local and long distance and natural gas or electrical
goods and services ("Proscribed Business") within the states of Arkansas,
Kansas, Missouri, Oklahoma and Texas (the "Territory");
(ii) call upon any person within the Territory who is employee of
Purchaser (including the subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of Purchaser (including the
subsidiaries thereof); provided that each Stockholder shall be permitted to
call upon and hire any member of his immediate family;
(iii) call upon any person or entity which is or which has been,
within one year prior to the Closing Date, a customer of Purchaser (including
the subsidiaries thereof), of the Company within the Territory for the purpose
of soliciting or selling local or long distance services in direct competition
with Purchaser within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Purchaser in the
long-distance telephone business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Purchaser (including the
subsidiaries thereof) or for which, to the actual knowledge of such Stockholder
after due inquiry, Purchaser (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
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(v) disclose existing or prospective customers of the Company to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever except to the extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as an investment not more than one
percent of the capital stock of a competing business whose stock is traded on a
national securities exchange.
12.2 Damages. Because of the difficulty of measuring economic losses to
Purchaser as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Purchaser for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Purchaser in the event of breach by such
Stockholder, by injunction and restraining order.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholders in light of the activities and business of Purchaser (including
the subsidiaries thereof) on the date of the execution of this Agreement and
the reasonably foreseeable plans of Purchaser.
12.4 Severability, Reformation. The covenants in this Section 12 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
12.5 Independent Covenant. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Purchaser (including the subsidiaries thereof), whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by Purchaser of such covenants. It is specifically agreed that the period of
three years stated at the beginning of this Section 12, during which the
agreements and covenants of each Stockholder made in this Section 12 shall be
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Section 12. The
covenants contained in Section 12 shall not be affected by any breach of any
other provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that
the covenants set forth in this Section 12 are a material and substantial part
of the transactions contemplated by this Agreement.
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13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may have, access to
certain confidential information of the Company and/or Purchaser and Old ACG,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company and/or Purchaser and Old ACG. The
Stockholders agree that they will not disclose such confidential information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (i) to authorized representatives of Purchaser; (ii)
following the Closing, such information may be disclosed by the Stockholders as
is required in the course of performing their duties for Purchaser or the
Company; and (iii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
13.1, unless (x) such information becomes known to the public generally through
no fault of the Stockholders, (y) disclosure is required by law or the order of
any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), the Stockholders shall
give prior written notice thereof to Purchaser and provide Purchaser with the
opportunity to contest such disclosure, or (z) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 13.1,
Purchaser shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Purchaser from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the abovementioned restrictions on the Stockholder's ability to
disseminate confidential information with respect to the Company shall become
nugatory.
13.2 Purchaser. Purchaser and Old ACG recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company. Purchaser
and Old ACG agree that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (i) to authorized
representatives of the Company; and (ii) to counsel and other advisers;
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 13.2, unless (x) such information becomes known to
the public generally through no fault of Purchaser or Old ACG, (y) disclosure
is required by law or the order of any governmental authority under color of
law; provided, that prior to disclosing any information pursuant to this clause
(y), Purchaser and Old ACG shall, if possible, give prior written notice
thereof to the Company and the Stockholders and provide the Company and the
Stockholders with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit
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against the disclosing party. In the event of a breach or threatened breach by
Purchaser or Old ACG of the provisions of this Section 13.2, the Company and
the Stockholders shall be entitled to an injunction restraining Purchaser and
Old ACG from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
13.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 13.1 and 13.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
13.4 Survival. The obligations of the parties under this Article 13
shall survive the termination of this Agreement for a period of three years
from the Closing Date.
14. TRANSFER RESTRICTIONS
14.1 Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section
14.1 (or trusts for the benefit of the Stockholders or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 16, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
Purchaser Stock received by the Stockholders in the transactions contemplated
herein. The Purchaser Stock delivered to the Stockholders pursuant to Section 2
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as Purchaser may deem necessary or
appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR
OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE
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TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
15. INVESTMENT REPRESENTATIONS
The Stockholders acknowledge that the Purchaser Stock to be delivered to the
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
the Stockholders solely for their own respective accounts, for investment
purposes only, and not with a view to the distribution thereof.
15.1 Compliance With Law. The Stockholders represent, warrant,
covenant and agree that none of the Restricted Securities will be offered,
sold, assigned, exchanged, transferred, encumbered, distributed, appointed or
otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC thereunder
and the provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 14 of this Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
"ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THESE
SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR (B)
THE HOLDER OF THESE SECURITIES PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THESE SECURITIES MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE ACTS.
15.2 Economic Risk, Sophistication. Each Stockholder represents that he
has received, has read and understands the Draft Registration Statement, and in
particular the risk factors described therein. Each Stockholder further
represents that he is able to bear the economic risk of an investment in the
Restricted Securities and can afford to sustain a total loss of such investment
and either (i) has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment in Purchaser or (ii) together with the senior executives of the
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Company, with whom he has consulted, has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the proposed investment in Purchaser. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Purchaser and the Company concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of Purchaser, the
plans for the operations of the business of Purchaser and any plans for
additional acquisitions and the like. Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
16. REGISTRATION RIGHTS
16.1 PiggyBack Registration Rights. At any time following the Closing
Date, whenever Purchaser proposes to register any Purchaser Stock for its own
or the account of others under the 1933 Act for a public offering, other than
(i) any registration of shares to be used as consideration for acquisitions of
additional businesses by Purchaser and (ii) registrations relating to employee
benefit plans, Purchaser shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 5 business days after receipt of such notice,
Purchaser shall cause to be included in such registration all Registrable
Securities (including any shares of Purchaser Stock issued as a dividend or
other distribution with respect to, or in exchange for, or in replacement of
such Registerable Securities) which any such Stockholder requests; provided,
however, if Purchaser is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 16.1 that the number
of shares to be sold by persons other than Purchaser is greater than the number
of such shares which can be offered without adversely affecting the offering,
Purchaser may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such person) to a number
deemed satisfactory by such managing underwriter.
16.2 Demand Registration Rights. At any time after the first
anniversary of the Closing Date, the holders of a majority of the shares of
Purchaser Stock (i) representing Registerable Securities owned by the
Stockholders or their permitted transferees or (ii) representing Registerable
Securities (as defined in the agreements similar to this Agreement mentioned
below) acquired by other Stockholders of Purchaser on or prior to the closing
of the IPO in connection with the acquisition of their companies by Purchaser
pursuant to an agreement similar to this Agreement (or upon exercise or
conversion of securities of Purchaser received pursuant to such agreement) (the
persons referred to in clause (i) and (ii) being collectively referred to as
the "Founding Stockholders") which shares have not been previously registered
or sold and which shares are not entitled to be sold under Rule 144(k) (or any
similar or successor provision) promulgated under the 1933 Act, may request in
writing that Purchaser file a registration statement under the 1933 Act
covering the registration of such shares of
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Purchaser Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Purchaser Stock) (a "Demand Registration"). Within ten days of the receipt of
such request, Purchaser shall give written notice of such request to all other
Founding Stockholders and shall, as soon as practicable but in no event later
than 45 days after notice from the Founding Stockholders requesting such
registration, file and use its best efforts to cause to become effective a
registration statement covering all such shares. Purchaser shall be obligated
to effect only one Demand Registration for all Founding Stockholders and will
keep such Demand Registration current and effective for not less than 90 days
(or such shorter period as is required to complete the distribution and sale of
all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a
majority of the disinterested directors of Purchaser (i.e. directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Purchaser has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Purchaser Stock shall be initiated under
this Section 16.2 until 90 days after the effective date of such registration
statement unless Purchaser is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Purchaser shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 16.1.
16.3 Registration Procedures. All expenses incurred in connection with
the registrations under this Section 16 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Purchaser. In connection with
registrations under Sections 16.1 and 16.2 Purchaser will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective;
provided that Purchaser may discontinue any registration of its
securities that is being effected pursuant to Section 16.2 at any time
prior to the effective date of the registration statement relating
thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period
as may be requested by the Stockholders holding a majority of the
Registrable Securities covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
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statement during such period in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such
registration statement; provided, that before filing a registration
statement or prospectus relating to the sale of Registrable
Securities, or any amendments or supplements thereto, Purchaser will
furnish to counsel to each holder of Registrable Securities covered by
such registration statement or prospectus, copies of all documents
proposed to be filed, which documents will be subject to the review of
such counsel, and Purchaser will give reasonable consideration in good
faith to any comments of such counsel.
(iii) Furnish to each holder of Registrable Securities covered by
the registration statement and to each underwriter, if any, of such
Registrable Securities, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with the
requirements of the 1933 Act, and such other documents, as such Person
may reasonably request, in order to facilitate the public sale or
other disposition of the Registrable Securities.
(iv) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may
be reasonably necessary or advisable to enable such seller to
consummate the disposition of the Registrable Securities owned by such
seller, in such jurisdictions, except that Purchaser shall not for any
such purpose be required (x) to qualify to do business as a foreign
corporation in any jurisdiction where, but for the requirements of
this Section 16.3(iv), it is not then so qualified, or (y) to subject
itself to taxation in any such jurisdiction, or (z) to take any action
which would subject it to general or unlimited service of process in
any such jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the appropriate period mentioned in Section 16.3(ii), if Purchaser
becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and, at
the request of any such seller, deliver a reasonable number of copies
of an amended or supplemental prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable
Securities, each
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prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later
than 45 calendar days after the close of the period covered thereby
(90 calendar days in case the period covered corresponds to a fiscal
year of the Purchaser), an earnings statement of Purchaser which will
satisfy the provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange as they
may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the
independent public accountants for Purchaser in customary form and
covering such matters of the type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including
in an underwritten offering an underwriting agreement in customary
form) and take such other actions and obtain such certificates and
opinions as the stockholders of Purchaser holding a majority of the
shares of Registrable Securities covered by the Registration Statement
may reasonably request in order to effect an underwritten public
offering of such Registrable Securities.
(xi) Make available for inspection by the seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant
to such registration statement and by any attorney, accountant or
other agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate documents
and properties of Purchaser, and cause all of Purchaser's officers,
directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Purchaser in customary form and in form
and scope reasonably satisfactory to such underwriter or agent and its
counsel.
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16.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registrable Securities
covered by a Registration Statement referred to in this Section 16
will, upon receipt of any notice from Purchaser of the happening of
any event of the kind described in Section 16.3(vi), forthwith
discontinue disposition of the Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 16.3(vi).
(ii) If a registration pursuant to Section 16.1 or 16.2 involves
an underwritten offering, each Stockholder (including his permitted
assigns) agrees, if his shares of Registrable Securities are included
in such registration, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of any
Registrable Securities, or of any security convertible into or
exchangeable or exercisable for any Registrable Securities (other than
as part of such underwritten offering), without the consent of the
managing underwriter, during a period commencing seven calendar days
before and ending 180 calendar days (or such lesser number as the
managing underwriter shall designate) after the effective date of such
registration. Similarly, each of the Stockholders agrees not to effect
any sale or distribution, including any sale pursuant to the
registration rights provided in Section 16.1, of any Registrable
Securities, or of any security convertible into or exchangeable or
exercisable for any Registrable Securities, without the consent of the
managing underwriter of the IPO during a period commencing on the
effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter
shall designate) after such effective date.
16.5 Indemnification.
(i) In the event of any registration of any securities of
Purchaser under the 1933 Act pursuant to Section 16.1 or 16.2,
Purchaser will, and it hereby agrees to, indemnify and hold harmless,
to the extent permitted by law, each seller of any Registrable
Securities covered by such registration statement, each Affiliate of
such seller and their respective directors, officers, employees and
agents or general and limited partners (and directors, officers,
employees and agents thereof) and, if such seller is a portfolio or
investment fund, its investment advisors or agents, each other person
who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or
any such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim,
damage or expense whatsoever arising out of or based upon an
untrue statement or alleged untrue statement of a material
fact contained in any registration statement (or any
amendment or supplement
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<PAGE>
thereto), including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or arising out of
an untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(y) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the aggregate
amount paid in settlement of any litigation, or investigation
or proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with
the written consent of Purchaser; and
(z) against any and all expense reasonably incurred
by them in connection with investigating, preparing or
defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is
not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling person and
shall survive the transfer of such securities by such seller.
(ii) Purchaser may require, as a condition to including any
Registrable Securities in any registration statement filed in
accordance with Section 16.1 or 16.2, that Purchaser shall have
received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities or any underwriter,
to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 16.5(i)) Purchaser with respect to any
statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information
furnished to Purchaser by or on behalf of such seller or underwriter
specifically stating that it is for use in the preparation of such
registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and
effect regardless of
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<PAGE>
any investigation made by or on behalf of Purchaser or any such
director, officer or controlling person and shall survive the transfer
of such securities by such seller. In that event, the obligations of
the Purchaser and such sellers pursuant to this Section 16.5 are to be
several and not joint; provided, however, that, with respect to each
claim pursuant to this Section 16.5, Purchaser shall be liable for the
full amount of such claim, and each such seller's liability under this
Section 16.5 shall be limited to an amount equal to the net proceeds
(after deducting the underwriting discount and expenses) received by
such seller from the sale of Registrable Securities held by such
seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section 16.5, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its
obligations under this Section 16.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying
party is materially prejudiced by such failure to give notice. In case
any such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect
of such claim (in which case the indemnifying party shall not be
liable for the fees and expenses of more than one firm of counsel
selected by holders of a majority of the shares of Registrable
Securities included in the offering or more than one firm of counsel
for the underwriters in connection with any one action or separate but
similar or related actions), the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by such indemnifying party in
connection with the defense thereof, provided that the indemnifying
party will not agree to any settlement without the prior consent of
the indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of
any claim as to which, in the reasonable judgment of the indemnifying
party's counsel, representation of both the indemnifying party and the
indemnified party would be inappropriate under the applicable
standards of professional conduct due to actual or potential differing
interests between them. In the event that the indemnifying party does
not assume the defense of a claim pursuant to this Section 16.5(iii),
the indemnified party will have the right to defend such claim by all
appropriate proceedings,
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<PAGE>
and will have control of such defense and proceedings, and the
indemnified party shall have the right to agree to any settlement
without the prior consent of the indemnifying party. Each indemnified
party shall, and shall cause its legal counsel to, provide reasonable
cooperation to the indemnifying party and its legal counsel in
connection with its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served in such
proceeding. In the event that an indemnifying party assumes the
defense of an action under this Section 16.5(iii), then such
indemnifying party shall, subject to the provisions of this Section
16.5, indemnify and hold harmless the indemnified party from any and
all losses, claims, damages or liabilities by reason of such
settlement or judgment.
(iv) Purchaser and each seller of Registrable Securities shall
provide for the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any required
registration or other qualification of securities under any federal or
state law or regulation of any governmental authority.
16.6 Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
16.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Purchaser, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Purchaser and each person selling securities agree with each
other that no seller of Registrable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 16.5(ii) were available.
Purchaser and each such seller agree with each other and the underwriters of
the Registrable Securities, if requested by such underwriters, that it would
not be equitable if the amount of such contribution were determined by pro rata
or per capita allocation (even if the underwriters were treated as one entity
for such purpose) or for the underwriters' portion of such contribution to
exceed the percentage that the underwriting discount bears to the initial
public offering price of the Registrable Securities. For purposes of this
Section 16.6, each person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such underwriter, and each director and each officer of
Purchaser who signed the registration statement, and each Person, if any, who
controls Purchaser or a seller of Registrable
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<PAGE>
Securities within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as Purchaser or a seller of Registrable Securities, as
the case may be.
16.7 Availability of Rule 144. Purchaser shall not be obligated to
register shares of Registrable Securities held by any Stockholder at any time
when the resale provisions of Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act are available to such Stockholder.
17. GENERAL
17.1 Cooperation. The Company, each Stockholder, Purchaser and Old ACG
shall deliver or cause to be delivered to the other on the Closing Date and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax Return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
17.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law), but if
assigned by operation of law, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors of Purchaser, Old
ACG and the Company, and the heirs and legal representatives of the
Stockholders.
17.3 Entire Agreement. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Old ACG and
Purchaser and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Stockholders, the Company, Old ACG and Purchaser,
acting through their respective officers or representatives, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby; provided that the Company shall make a
good faith effort to cross reference disclosures, as necessary or advisable,
between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other
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<PAGE>
parties hereto against all loss, cost, damage or expense arising out of claims
for fees or commission of brokers employed or alleged to have been employed by
such indemnifying party.
17.6 Expenses. Whether or not the transactions herein contemplated
shall be consummated, Purchaser will pay the fees, expenses and disbursements
of Purchaser, the Company and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by
Purchaser and the Company under this Agreement. Each Stockholder shall pay all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar taxes and fees ("Transfer Taxes") imposed in connection with
the transactions contemplated herein, the fees and expenses of the
Stockholders' legal counsel and all other costs and expenses incurred by the
Stockholders in their performance and compliance with all conditions to be
performed by them under this Agreement. Each Stockholder shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each Stockholder acknowledges that he or she, and not the Company or
Purchaser, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2, and will assume all Tax risks and liabilities of the
Company in connection with the transactions contemplated hereby.
17.7 Notices. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may
be given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Purchaser, or Old ACG, addressed to Purchaser at:
1+ USA, inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
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<PAGE>
(y) If to the Stockholders, addressed to them at their addresses set
forth on Schedule 5.3, with copies to such counsel as is set forth with respect
to each Stockholder on such Schedule 5.3;
(z)If to the Company, addressed to it at:
Feist Long Distance Service, Inc.
110 S. Main, Suite 1000
Wichita, Kansas 67202
Attn: Ms. Roberta Feist, Chairman
Telecopy No.: 316-263-6565
with a copy to:
Todd J. Feist
110 S. Main, Suite 1000
Wichita, Kansas 67202
Telecopy No.: 316-263-6565
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement Shall be construed in accordance
with the laws of the State of Delaware.
17.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
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<PAGE>
17.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Purchaser, Old ACG, the Company and the Stockholders. Any
amendment or waiver effected in accordance with this Section 17.14 shall be
binding upon each of the parties hereto.
17.15 Public Statements. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with
respect to the transactions contemplated hereby without the consent of the
other parties, unless the party desiring to make such announcement or
statement, after seeking such consent from the other parties, obtains advice
from legal counsel that a public announcement or statement is required by
applicable law.
17.16 Use of Feist Name. The parties to this Amendment hereby grant the
Company a royalty-free, non-exclusive license to use the name Feist Long
Distance Service, Inc. for a period of two years following the Closing, subject
to the Company's right to request one or more two-year extensions of such
license at lease six months prior to the expiration of the then current license
term; provided, however, that the foregoing license shall in any event
terminate upon the sixth monthly anniversary of the termination of employment
of Todd J. Feist by the Company, Purchaser or any other Affiliate of Purchaser,
unless such license has not been in effect for at least one year at the date of
termination of Mr. Feist's employment, in which event the license shall
terminate on the 18th monthly anniversary of the Closing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
BY:
-------------------------------------------
NAME: ROD K. CUTSINGER
TITLE: AUTHORIZED OFFICER
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ADVANCED COMMUNICATIONS CORP.
BY:
-------------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1+ USA V ACQUISITION CORP.
BY:
-------------------------------------------
NAME: BRAD K. CUTSINGER
TITLE: PRESIDENT
FEIST LONG DISTANCE SERVICE, INC.
BY:
-------------------------------------------
NAME: ROBERTA FEIST
TITLE: CHAIRMAN OF THE BOARD
BY:
-------------------------------------------
NAME: TODD J. FEIST
TITLE: PRESIDENT
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<PAGE>
STOCKHOLDERS:
-------------------------------------------
THOMAS J. FEIST
-------------------------------------------
ROBERTA FEIST
-------------------------------------------
JAY A. FEIST
-------------------------------------------
TODD J. FEIST
-------------------------------------------
JILL FEIST UTZ
-------------------------------------------
PAULA FEIST ALEFS
-------------------------------------------
KATHY J. FEIST
-------------------------------------------
JODI L. FEIST
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least
<PAGE>
80% of the total combined voting power of all classes of capital stock of the
Company entitled to vote and at least 80% of the total number of shares of all
other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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ANNEX III
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of June 12,
1997, by Todd J. Feist ("Employee") and 1+ USA V Acquisition Company, a
Delaware corporation ("Company") (collectively referred to as the "Parties").
The Company and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and the Company, the Company
employs Employee, and Employee accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc. ("ACG"), a Delaware corporation. Unless the
content otherwise clearly requires, all references to ACG in this Agreement
shall include ACG, the Company and ACG's other subsidiaries.
The Company, ACG, Feist Long Distance Service, Inc. ("Feist"), the stockholders
of Feist, including Employee, and other affiliates of Feist have entered into
an Agreement and Plan of Merger, as amended by Amendment No. 1 thereto ("Merger
Agreement"). Upon the consummation of the merger contemplated by the Merger
Agreement ("Merger"), Feist will be merged into the Company, and the name of
the Company will be changed to Feist Long Distance Services, Inc.
Notwithstanding any other term of this Agreement, this Agreement shall
terminate upon the termination of the Merger Agreement pursuant to Article 12
thereof.
If requested by the Employee following the consummation of the Merger, the
Company will enter into a new Employment Agreement with Employee, substantially
in the form of this Agreement, that gives effect to the consummation of the
Merger.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the fifth anniversary of the Closing Date. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
<PAGE>
3. Compensation and other Benefits.
3.1 As compensation for his services to the Company under this
Agreement, the Company shall pay to Employee during the term
of this Agreement a base salary ("Base Salary") payable in
equal semi-monthly installments, subject only to such payroll
and withholding deductions as may be required by law and
other deductions applied generally to employees of the
Company for any employee benefit plans. Prior to the
consummation of the Merger or the termination of the Merger
Agreement, the Base Salary payable to Employee pursuant to
this Agreement shall be $12,000 per annum. Commencing on the
effective date of the Merger, the Base Salary payable to
Employee pursuant to this Agreement shall be increased to not
less than $110,000 per annum.
3.2 After the first twelve consecutive months of employment after
the Closing Date, and after every consecutive twelve-month
period thereafter, Employee shall be eligible to receive a
potential cash bonus up to 63% of Employee's Base Salary
("Bonus") to be based upon his performance as determined by
the Compensation Committee of the Board of Directors
("Compensation Committee") of ACG. The standards required to
be met by Employee to qualify for the cash bonus potential
will be communicated to Employee prior to the commencement of
such twelve-month period, beginning in 1998. Employee agrees
that the decision as to whether to award a Bonus and the
percentage amount thereof will be made by the Compensation
Committee and will be based upon the criteria set by such
committee.
3.3 Employee will be entitled to two weeks of paid vacation
annually during the term of this Agreement.
3.4 Employee will be awarded 250,000 options to acquire common
stock in ACG for a price of $2.50. The options shall have a
term of ten years and shall become exercisable in one-third
increments on each anniversary date of the Closing Date.
Accordingly, the options shall become fully vested three
years from the Closing Date; provided, however, that the
vesting of such options will be accelerated in the event of
the termination of Employee's employment hereunder pursuant
to Section 6.1(d). The options shall, except as provided
herein, be granted pursuant to ACG's 1997 Stock Awards Plan,
a copy of which has heretofore been delivered to Employee.
3.5 Employee shall receive benefits commensurate with his level
of employment under any health plan of ACG.
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<PAGE>
3.6 In the event ACG completes an initial underwritten public
offering of ACG common stock, par value $.00001 per share
(the "IPO"), prior to October 31, 1997, Company shall pay the
Employee a one-time bonus of $50,000 within two weeks after
the closing of the IPO.
4. Duties and Extent of Service.
Employee shall hold the office of President of the Company. Employee agrees to
perform the duties incidental to his position, as determined from time to time
by the Chief Executive Officer of ACG. Employee shall devote such time,
attention, and energy to the business of the Company as are required to perform
his duties and responsibilities hereunder and shall not after the Closing Date
and during the remaining term of this Agreement be engaged, directly or
indirectly, in any other business activity if pursued for gain, profit, or
other pecuniary advantage without the prior written consent of the Chief
Executive Officer of ACG; provided, however, that Employee shall be permitted
to continue to serve as a member of the Board of Directors of Feist
Publications, Inc. and receive compensation for serving in such capacity. In
any event after the Closing Date, Employee shall not take any action
inconsistent with Employee's relationship and responsibilities as an employee
or the Company, or take any action which is intended, or may be reasonably
expected, to harm the reputation, business, prospects, or operations of ACG.
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access
to certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information
includes, but is not limited to: customer names; contracts;
products purchased by customers; production capabilities and
processes; customer account and credit data; referral
sources; computer programs and software; names and
information relating to potential acquisition candidates;
financing sources and other business relationships;
information relating to confidential or secret designs,
processes, formulae, plans, devices, or materials of ACG's
business and marketing plans, confidential information and
trade secrets relating to the distribution and marketing of
ACG's products and services; patents pending; confidential
characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG;
management, accounting, and reporting systems, procedures,
and programs; off net contracts, leases, marketing
agreements, sales employee compensation information, plans,
and programs; marketing and financial analysis, plans,
research, programs, and related information and data; forms,
agreements, and legal documents;
-3-
<PAGE>
regulatory and supervisory reports; correspondence;
statements; corporate books and records; and other similar
information.
5.2 Employee acknowledges and agrees that this Confidential
Information constitutes valuable, special, and unique
property of ACG.
5.3 Employee will not, at any time during or after the term of
this Agreement or his employment with Company, disclose any
Confidential Information to any person, firm, corporation,
association, or other entity for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any
information in Employee's possession before its disclosure to
Employee by ACG; or (b) information that is or shall lawfully
be published or become part of the general knowledge through
no act or omission of Employee. The Confidential Information
disclosed to Employee under this Agreement is not within the
foregoing exceptions merely because such information is
embraced by more general information in the public domain or
in Employee's possession; or merely because portions thereof
are in the public domain or in Employee's possession.
5.5 To protect the confidentiality of the Confidential
Information, Employee further agrees that while employed by
the Company and for a period of three years immediately after
the termination of this Agreement or his employment with the
Company, regardless of whether such termination of employment
is voluntary or involuntary, he will not, for himself, or on
behalf of any other person, firm, partnership, company, or
corporation (i) generally compete in any manner whatsoever
with ACG or solicit, accept, divert, or take away from ACG
the business of any person, company, or business; (ii)
directly or indirectly induce or attempt to influence any
employee, officer, director, consultant, agent, vendor or
other entity related to ACG to terminate his or her
employment or association in any manner whatsoever with ACG;
or (iii) engage in any commercial or technical activity
involving the development, formulation, manufacture,
production, distribution, marketing or sale of any product
and services that ACG designs, produces, manufactures,
distributes, markets or sells during the term of this
Agreement or Employee's employment with the Company. The
prescribed territory in which Employee shall not compete with
ACG as outlined in this Paragraph 5.5 shall consist of all of
those areas of the United States in which ACG is doing
business at the time of Employee's termination of employment.
Notwithstanding anything to the contrary in this Paragraph
5.5, the provisions of this Paragraph 5.5 shall not apply to
Employee (a) until the Closing Date and (b) if the
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<PAGE>
Company declines to renew this Agreement upon the expiration
of its stated term.
5.6 Employee understands and acknowledges that, due to the unique
nature of the products and services provided by ACG and the
need for sales personnel to have a relatively high degree of
technical knowledge concerning these products and services,
employment by the Company for sales, including the special
training, knowledge, and confidential information that will
be acquired in the course of such employment, will give
Employee distinct and substantial advantages for potential
sales activities concerning such products and services.
Employee further understands and acknowledges that: because
of the definition of products and services covered by this
Agreement, the highly specialized nature of those products
and services, the limited size and number of business
entities in the business of developing and/or selling those
products and services, and the much more numerous
opportunities for Employee to work in his trade with respect
to products and services not covered by this Agreement, the
limitations as to time and geographic area contained in
Paragraph 5.5 are reasonable and are not unduly onerous on
Employee. Employee therefore agrees that the limitations as
to time, geographic area, and scope of activity contained in
Paragraph 5.5 do not impose a greater restraint than is
necessary to protect the Confidential Information, goodwill,
and other business interests of ACG. Employee also agrees
that in light of the facts acknowledged above, the
substantial investment of ACG in developing its business and
providing special training to Employee, and the certain and
substantial harm that ACG would suffer if Employee were to
engage in any of the activities described in Paragraph 5.5,
ACG's need for the protection afforded by Paragraph 5.5 is
greater than any hardship Employee might experience by
complying with its terms. Employee also agrees that, if any
provision of the covenant set forth in Paragraph 5.5 is found
to be invalid in part or whole, ACG may elect, but shall not
be required, to have such provision reformed, whether as to
time, geographic area, scope of activity, or otherwise, as
and to the extent required for its validity under applicable
law, and, as so reformed, such provisions shall be
enforceable.
5.7 Employee acknowledges that a violation or attempted violation
on his part of any provision in this Paragraph 5 may cause
irreparable damage to ACG. Accordingly, in the event of a
breach or threatened breach by Employee of the provisions of
this Paragraph 5, Employee agrees that ACG shall be entitled
as a matter of right to an injunction, out of any court of
competent jurisdiction, restraining any violation or further
violation of such agreements by Employee or his agents,
without showing any evidence of actual monetary
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<PAGE>
loss resulting from such breach, including, but not limited
to, restraining Employee from using or disclosing, in whole
or in part, such Confidential Information or trade secrets;
rendering any services to any person, firm, corporation, or
other entity to whom any of such information may have been
disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be
construed as prohibiting ACG from pursuing any other remedies
available to it for such breach or threatened breach,
including the recovery of damages and attorneys' fees from
Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on
the occurrence of any of the following events:
(a) End of Term: If the term of employment under the
Agreement or any term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or
becomes disabled such that he no longer is
reasonably able to perform his duties as
contemplated by this Agreement, the Company shall
pay to Employee, or to the estate of Employee if he
dies, that part of his Base Salary which would
otherwise be payable to Employee through the end of
the month in which his death or disability occurs,
after giving effect to accrued sick leave benefits
and accrued vacation time, if any. Upon such
payment, as well as applicable insurance benefits,
if any, all obligations of the Company to the
Employee or his estate shall be fully satisfied, and
this Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior
to the end of the term of this Agreement, this
Agreement shall terminate immediately, and the
Company shall pay to Employee that part of his Base
Salary which would otherwise be payable to Employee
through the effective date of his resignation. Upon
such payment, all obligations in any manner
whatsoever of the Company to Employee shall be fully
satisfied.
(d) Change in Ownership, Management, or Employee's
Responsibilities: If there is a change in the
ownership or management of the Company after the
Closing Date, and either of these changes
significantly alters Employee's job responsibilities
or compensation, Employee may resign from his
position within 60 days of such a change. If
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<PAGE>
Employee resigns pursuant to this paragraph, the
Company will continue to provide Employee with his
monthly compensation and benefits for a period of
one year after the initial date of any such change.
Employee is not entitled to receive any Bonus if he
resigns as provided in this paragraph. For the
period after Employee's resignation during which
Employee will be paid, Employee will not have any
authority to act on behalf of the Company.
(e) Termination by the Company "With Cause." If Employee
(i) violates any provision of this Agreement; (ii)
fails to perform the services required of him
pursuant to this Agreement; (iii) commits acts of
fraud or dishonesty against ACG; (iv) is convicted
of a crime other than a routine traffic violation;
and/or (v) violates any policies of ACG as outlined
in any ACG policy handbook, the Company may
terminate the employment of Employee with cause. If
Employee is terminated "with cause," Employee shall
not be entitled to receive any further salary or
benefits under this Agreement other than payment for
that part of Employee's compensation that would
otherwise be payable to Employee through the last
date of his employment with the Company. Upon such
payment, all obligations of the Company to Employee
shall be fully satisfied, and this Agreement will
terminate. Employee shall not be entitled to receive
any Bonus or accrued vacation pay if his termination
is "with cause."
(f) Termination by the Company Without Cause. In the
event the Company terminates Employee's employment
for any reason other than described in (e) above,
Employee shall be entitled to that part of the Base
Salary and benefits payable to Employee through the
last date of his employment and such compensation
and benefits shall continue thereafter for a period
of six (6) months from termination.
6.2 Termination of this Agreement shall not relieve Employee of
any continuing obligations expressly provided in this
Agreement, including, without limitation, those set forth in
Paragraphs 5.1 through 5.6.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents,
data, accounting records, personnel files, computer
terminals, equipment, and other records and written material
prepared or compiled by Employee or furnished to Employee
while in the employ of the Company shall be the sole and
exclusive property of
-7-
<PAGE>
ACG, and none of such data, drawings or other records and
written material, or copies thereof, shall be retained by
Employee upon termination of his employment. This ACG
property shall not be removed from Company premises without
the Company's prior written consent.
7.2 Upon termination of this Agreement or whenever requested by
the Company, Employee immediately shall deliver to the
Company all of the ACG property or any of ACG's documents in
Employee's possession or under Employee's control, including,
but not limited to, all documents or data, Confidential
Information, accounting records, computer terminals, data,
discs, printouts and tapes, accounting machines, and all
office furniture and fixtures, supplies, equipment, and other
personal property placed in the office of Company. No copies
of any such data shall be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at 10201 Peppertree, Wichita, Kansas 67226,
and to the Company, c/o Rod K. Cutsinger, 3355 West Alabama, Suite 580,
Houston, Texas 77098, or to such other address as either party shall designate
by written notice to the other. Notices may be sent by messenger or by
registered or certified mail, postage prepaid, addressed to the party or
parties to be notified, with return receipt requested. Notices sent by
messenger shall be deemed received upon their actual receipt of the party to
whom they are directed. Notices sent by registered or certified mail shall be
deemed received on the third day following their deposit with the United States
Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by the Company or Employee concerning the subject matter contained in
this Agreement, including, but not limited to, Employee's employment,
termination from, and/or affiliation with the Company, shall be settled by
arbitration in Houston, Texas, in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
-8-
<PAGE>
10. Miscellaneous.
10.1 The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. This
Agreement shall be binding upon the Employee and his agents,
heirs, executors, administrators and legal representatives.
The rights and obligations of Employee hereunder shall not be
assignable by Employee.
10.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall
constitute one instrument.
10.4 This Agreement contains the entire agreement of the parties
pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and
discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among
the Company, the Employee and Rod K. Cutsinger in connection
with the subject matter hereof.
10.5 The waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed
as a waiver by the Company of any subsequent breach by
Employee.
10.6 If a court of competent jurisdiction shall adjudge to be
invalid any clause, sentence, subparagraph, paragraph or
section of this Agreement, such judgment or decree shall not
affect, impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the
clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
-9-
<PAGE>
The parties have executed this Agreement to be effective as of the day
and year first above written.
1+ USA V ACQUISITION CORP.
- -------------------------------------- -----------------------------------
By: Rod K. Cutsinger Todd J. Feist
Its: Chairman
"COMPANY" "EMPLOYEE"
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<PAGE>
ANNEX IV
ADVERTISEMENT AGREEMENT
THIS AGREEMENT, executed this _____ day of ____________, 1997, by and
between FEIST PUBLICATIONS, INC. ("FPI") and FEIST LONG DISTANCE SERVICE, INC.
("FLD").
IT IS AGREED between the parties hereto as follows:
1. WHITE PAGE INFORMATION. FPI agrees to publish free of cost to
FLD up to eight white pages of forward text information in
front of each of the 15 Feist Telephone Directories FPI
currently publishes for the next five years after
_____________, 1997. The copy for such pages shall be
supplied by FLD and shall in general be a copy used to
familiarize prospective phone customers of FLD of the various
services offered by FLD and to provide them with instructions
on how to use and order services. The text shall be inserted
before the "telephone companies" portion of the forward white
pages text in each of FPI directories and shall be subject to
FPI approval as to content. Should FLD elect to omit the
eight pages in a certain directory, FPI will not be held
responsible to extend this agreement.
2. YELLOW PAGE ADVERTISING. FPI agrees to provide FLD free of
charge with two half page yellow page ads and approximately
10% of the total number of fillers in FPI's yellow pages for
the above mentioned directories published by FPI for the next
five years after ___________, 1997. All such ads and fillers
shall be subject to FPI's approval as to content.
3. PROSPECT EXCHANGE. FLD and FPI agree to continue to exchange
prospect information of customers and potential customers
that enquire about the other's services.
4. BINDING EFFECT. This agreement shall be binding upon the
parties hereto and their successors and assigns. FPI may
terminate this Advertisment Agreement without liability to
any party on thirty (30) days advance written notice if
Advanced Communications Group, Inc. or any company which
Advanced Communications Group, Inc. controls (collectively,
"ACG") publishes a yellow pages directory covering any New
Territory. "New Territory" means any city or county meeting
the following three conditions: (i) Great Western
Directories, Inc. has not previously published a yellow pages
directory covering such city or county, (ii) FPI published a
directory covering such city or county within the previous
twelve months, and (iii) FPI published a directory covering
such city or county within the twelve months prior to the
date first set forth above.
<PAGE>
FEIST PUBLICATIONS, INC.
By:
--------------------------------
Tom Feist, President
FEIST LONG DISTANCE SERVICES, INC.
By:
--------------------------------
Todd J. Feist, President
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<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF EXCHANGE
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(Parent)
and
FIRSTEL, INC.
(Company)
and
FRED L. THURMAN, JAMES E. PERRY, W. BRADLEY VAN LEUR, WALLACE JANSMA, MARK
VANDERBERGE, TELE-TECH, INC. AND RAFT, L.L.C.
(Stockholders of the Company)
and
SCOTT D. SCOFIELD, WILLIAM PEDERSON, AND JERRY R. NOONAN
(Beneficial Owners)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................3
2. THE ACQUISITIONS..........................................................7
3. CONSIDERATION FOR SHARES..................................................7
4. 351 EXCHANGE PLAN.........................................................8
5. CLOSING...................................................................8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS..................................................8
6.1 Due Organization....................................................9
6.2 Authorization.......................................................9
6.3 Capital Stock of the Company........................................9
6.4 Transactions in Capital Stock.......................................9
6.5 No Bonus Shares....................................................10
6.6 Subsidiaries.......................................................10
6.7 Predecessor Status; etc............................................10
6.8 Spinoff by Company.................................................10
6.9 Financial Statements...............................................10
6.10 Liabilities and Obligations........................................11
6.11 Accounts and Notes Receivable......................................11
6.12 Permits and Intangibles............................................12
6.13 Environmental Matters..............................................12
6.14 Personal Property..................................................13
6.15 Significant Customers; Material Contracts and Commitments..........13
6.16 Real Property......................................................14
6.17 Insurance..........................................................15
6.18 Compensation; Organized Labor Matters..............................15
6.19 Employee Plans.....................................................15
6.20 Compliance with the Code and ERISA.................................16
6.21 Conformity with Law; Litigation....................................17
6.22 Tax Matters........................................................18
6.23 No Violations......................................................19
6.24 Absence of Changes.................................................19
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6.25 Deposit Accounts; Powers of Attorney...............................21
6.26 Relations with Governments.........................................21
6.27 Disclosure.........................................................21
6.28 Prohibited Activities..............................................22
6.29 Draft Registration Statement.......................................22
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF STOCKHOLDERS...............................................22
7.1 Authority..........................................................22
7.2 Preemptive Rights..................................................22
7.3 Tax Matters........................................................23
7.4 No Plan of Distribution............................................23
7.5 No Retained Rights.................................................23
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT...................................................................23
8.1 Due Organization...................................................23
8.2 Authorization......................................................23
8.3 Capital stock......................................................23
8.4 Transactions in Capital Stock, Organization Accounting.............24
8.5 Subsidiaries.......................................................24
8.6 Financial Statements...............................................24
8.7 Liabilities and Obligations........................................25
8.8 Conformity with Law; Litigation....................................25
8.9 No Violations......................................................25
8.10 Parent Securities..................................................26
8.11 Business; Real Property; Material Agreement........................26
8.12 Tax Matters........................................................26
8.13 Draft Registration Statement.......................................27
9. OTHER COVENANTS PRIOR TO CLOSING.........................................27
9.1 Access and Cooperation; Due Diligence; Audits......................27
9.2 Conduct of Business Pending Closing................................28
9.3 Prohibited Activities..............................................28
9.4 Exclusivity........................................................30
9.6 Notification of Certain Matters....................................30
9.7 Amendment of Schedules.............................................31
9.8 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................31
9.9 Further Assurance..................................................32
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<PAGE>
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY..................................................................32
10.1 Representations and Warranties Performance of Obligations..........32
10.2 Satisfaction.......................................................32
10.3 No Litigation......................................................32
10.4 Opinion of Counsel.................................................32
10.5 Consents and Approvals.............................................33
10.6 Good Standing Certificates.........................................33
10.7 No Material Adverse Change.........................................33
10.8 Secretary's Certificates...........................................33
10.9 Employment Agreements..............................................33
10.10 Closing of IPO.....................................................33
10.11 Parent Stock Options...............................................33
10.12 Release from Guarantees............................................34
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............................34
11.1 Representations and Warranties; Performance of Obligations.........34
11.2 No Litigation......................................................34
11.3 Secretary's Certificate............................................34
11.4 No Material Adverse Effect.........................................34
11.5 Stockholders' Release..............................................35
11.6 Satisfaction.......................................................35
11.7 Termination of Related Party Agreements............................35
11.8 Opinion of Counsel.................................................35
11.9 Consents and Approvals.............................................35
11.10 Good Standing Certificates.........................................35
11.11 FIRPTA Certificate.................................................35
11.12 Closing of IPO.....................................................36
11.13 Noncompetition Covenants of Key Employees..........................36
11.14 Employment Agreement...............................................36
11.15 Settlement Agreement...............................................36
11.16 Release of Take or Pay Obligations.................................36
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS AFTER
CLOSING..................................................................36
12.1 Preparation and Filing of Tax Returns..............................36
12.2 Preservation of Employee Benefit Plans.............................37
12.3 Rule 144 Filing....................................................37
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<PAGE>
13. TERMINATION OF AGREEMENT.................................................37
13.1 Termination........................................................37
13.2 Liabilities in Event of Termination................................38
14. NONCOMPETITION...........................................................38
14.1 Prohibited Activities..............................................38
14.2 Damages............................................................39
14.3 Reasonable Restraint...............................................39
14.4 Severability, Reformation..........................................39
14.5 Independent Covenant...............................................40
14.6 Materiality........................................................40
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................40
15.1 Stockholders.......................................................40
15.2 Parent.............................................................41
15.3 Damages............................................................41
15.4 Survival...........................................................42
16. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND
WARRANT STOCK............................................................42
17. OTHER TRANSFER RESTRICTIONS..............................................43
18. INVESTMENT REPRESENTATIONS...............................................43
18.1 Compliance With Law................................................43
18.2 Economic Risk, Sophistication......................................44
19. REGISTRATION RIGHTS......................................................44
19.1 PiggyBack Registration Rights......................................44
19.2 Demand Registration Rights.........................................45
19.3 Registration Procedures............................................46
19.4 Other Registration Matters.........................................48
19.5 Indemnification....................................................49
19.6 Contribution.......................................................52
19.7 Availability of Rule 144...........................................52
20. GENERAL..................................................................53
20.1 Cooperation........................................................53
20.2 Successors and Assigns.............................................53
20.3 Entire Agreement...................................................53
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<PAGE>
20.4 Counterparts.......................................................53
20.5 Brokers and Agents.................................................53
20.6 Beneficial Owners..................................................54
20.7 Expenses...........................................................55
20.8 Notices............................................................55
20.9 Governing Law......................................................57
20.10 Exercise of Rights and Remedies....................................57
20.11 Time...............................................................57
20.12 Reformation and Severability.......................................57
20.13 Remedies Cumulative................................................57
20.14 Captions...........................................................57
20.15 Public Statements..................................................57
20.16 Amendments and Waivers.............................................57
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<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (the "Agreement") is made as of the 6th
day of October, 1997, by and among ADVANCED COMMUNICATIONS GROUP, INC., a
Delaware corporation organized in September 1997 ("Parent"), FIRSTEL, INC., a
South Dakota corporation ("Company"), and FRED L. THURMAN, JAMES E. PERRY, W.
BRADLEY VAN LEUR, WALLACE JANSMA, MARK VANDERBERGE, TELE-TECH, INC. AND RAFT,
L.L.C. (collectively, the "Stockholders"), who are the owners of 1,000 shares
of Common Stock, $1.00 par value, of Company ("Company Stock"), representing
all the issued and outstanding capital stock of Company outstanding on the date
of this Agreement (the "Shares"), and SCOTT D. SCOFIELD, WILLIAM PEDERSON, AND
JERRY R. NOONAN (collectively, the "Beneficial Owners").
RECITALS
WHEREAS, ACG, Inc. (formerly named Advanced Communications Group,
Inc.), a Delaware corporation organized in June 1996 ("Old ACG"), has
entered into agreements for, or negotiated the terms of, the acquisition by
merger, asset purchase or stock purchase of ten companies (or interests
therein) engaged in various aspects of the telecommunications industry
("Founding Companies") for voting capital stock and other consideration,
including cash, one of such agreements under negotiation being a merger
agreement among Old ACG, a subsidiary of Old ACG, the Company, the
Stockholders and the Beneficial Owners; and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September
1997 to serve as the vehicle for the acquisition of the Founding Companies
substantially contemporaneously with the consummation of an initial
underwritten public offering ("IPO") of Common Stock, $.0001 par value, of
Parent ("Parent Stock") at the price to the public reflected in the final
prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Stockholders and Old ACG,
will transfer, by stock or asset
<PAGE>
purchase or reverse triangular merger, the stock or substantially all
the assets of certain companies and other assets in which they own an
interest to Parent in exchange for voting capital stock of Parent and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Parent, under circumstances that
will constitute a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder ("Code"), to the extent of their receipt of voting capital stock
of Parent; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Parent and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Parent substantially contemporaneously with the consummation
of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Parent by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Parent
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, the Company, the New Stockholders and the Beneficial Owners
are parties to the Acquisition Agreements, pursuant to which the New
Stockholders were granted certain rights to become Stockholders and to
acquire certain shares of Parent Stock in connection with the acquisition
of Company by Parent; and
WHEREAS, Parent, the Company, the Stockholders and the Beneficial
Owners desire enter into this Agreement; and
WHEREAS, Parent desires to acquire all the Shares directly from
Stockholders for the consideration set forth in Section 3 of this
Agreement, and Stockholders have agreed to sell the Shares to Parent (and
the New Stockholders have agreed that the consideration set forth in
Section 3 will satisfy in full any rights they may have to acquire any
securities of the Company or Parent pursuant to the Acquisition Agreements
or otherwise) on the terms and subject to the conditions hereinafter set
forth;
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this
Agreement.
"Acquisition Agreements" means, collectively, (i) the Asset Purchase
Agreement dated September 3, 1997 among RAFT, L.L.C., PAM Oil, Inc., Scott
D. Scofield, William Pederson and Firstel, Inc. and (ii) the Asset Purchase
Agreement dated September 3, 1997 among Tele-Tech, Inc., Jerry Noonan, and
Firstel, Inc., each as amended from time to time with the prior written
consent of Parent.
"Affiliates" has the meaning set forth in Section 6.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.11.
"Balance Sheet Date" has the meaning set forth in Section 6.9.
"Beneficial Owners" means Scott D. Scofield, William Pederson, and Jerry R.
Noonan.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
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<PAGE>
"Company Financial Statements" has the meaning set forth in Section 6.9.
"Company Notes" has the meaning set forth in Section 3.
"Company Stock" has the meaning set forth in the first paragraph of this
Agreement.
"Controlled Group" has the meaning set forth in Section 6.20.
"Demand Registration" has the meaning set forth in Section 19.2.
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this Agreement.
"Environmental Laws" has the meaning set forth in Section 6.13.
"ERISA" has the meaning set forth in Section 6.19.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 18.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Hart-Scott Act" has the meaning set forth in Section 9.8.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"June Balance Sheet" has the meaning set forth in Section 6.9.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
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<PAGE>
"Material Adverse Effect" has the meaning set forth in Section 6.1.
"Material Documents" has the meaning set forth in Section 6.23.
"New Stockholders" means Tele-Tech, Inc., a South Dakota corporation, and
RAFT, L.L.C., a limited liability company.
"Note Stock" means the shares of Parent Stock issuable upon conversion of
the Notes.
"Notes" means the Parent's 10% Convertible Subordinated Notes due [Closing
Date], 1999 in the aggregate original principal amount of $2 million and
substantially in the form of Annex III.
"Old ACG" has the meaning set forth in the first recital of this Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 8.6.
"Other Stockholders" means the persons and entities, other than
Stockholders, that receive shares of Parent Stock, securities convertible
into shares of Parent Stock and/or cash upon the acquisition by Parent of
assets or businesses in which such persons and entities owned an interest
on or prior to the closing date of the IPO.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.9.
"Parent Group" has the meaning set forth in Section 9.1.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust or other
unincorporated organization.
"Prohibited Activities" has the meaning set forth in Paragraph 6.28.
"Qualified Plans" has the meaning set forth in Section 6.20.
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<PAGE>
"Registerable Securities" means (i) the shares of Parent Stock acquired by
Stockholders constituting part of the Stock Component, (ii) the shares of
Warrant Stock acquired by the holders of Warrants upon the exercise
thereof, and (iii) the shares of Notes Stock acquired by the holders of
Notes upon the conversion thereof.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Stock Component" has the meaning set forth in Section 3.
"Stock Portion of Fee" is defined in Section 20.5.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
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<PAGE>
"Territory" has the meaning set forth in Section 14.1(i).
"Transfer Taxes" has the meaning set forth in Section 20.7.
"Warrants" means the 50,000 non-transferable Series G Warrants,
substantially in the form of Annex IV, to purchase a like number of shares
of Parent Stock on the terms set forth therein at an initial exercise price
equal to the IPO Price.
"Warrant Stock" means the shares of Parent Stock issuable upon exercise of
the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE ACQUISITIONS
In September 1997, the Company entered into the Acquisition Agreements with
the New Stockholders and the Beneficial Owners and effected the acquisitions
contemplated thereby. Pursuant to the Acquisition Agreements, the New
Stockholders have certain rights to acquire Company Stock immediately prior to
the acquisition of the Company by Parent, and thereby to receive shares of
Parent Stock pursuant to the acquisition of the Company by Parent. The Company,
the Stockholders, the New Stockholders and the Beneficial Owners agree that any
and all rights any of the New Stockholders or the Beneficial Owners have to
receive or acquire shares of Company Stock or Parent Stock, pursuant to the
Acquisition Agreements or otherwise, will be fully and completely satisfied and
extinguished by the delivery to the New Stockholders of the consideration
specified in Section 3.
3. CONSIDERATION FOR SHARES.
Pursuant to the terms of this Agreement, at the Closing, (a) Stockholders
will transfer, convey, assign and deliver to Parent the Shares, together with
stock powers duly endorsed by Stockholders so that the Shares may be duly
registered in Parent's name, (b) certain Stockholders will transfer, convey,
assign and deliver to Parent notes receivable from Company outstanding at June
30, 1997, in the aggregate principal amount of $1,040,000, together with all
unpaid interest thereon ("Company Notes"), (c) and Parent will acquire the
Shares from Stockholders (and satisfy and extinguish the rights of the New
Stockholders described in Section 2) for an aggregate consideration of: (w) $5
million in immediately available funds, (x) $2 million principal amount of
Notes, (y) 50,000 Series G Warrants and (z) such number of shares of Parent
Stock (rounded to the nearest whole share) as shall be determined by dividing
$11,097,000 by the IPO Price ("Stock Component"). The number of Shares and
principal amount of Company Notes to be exchanged by each Stockholder (other
than the New Stockholders) and the amount of cash and the other consideration
deliverable to each
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<PAGE>
Stockholder (subject to the reductions set forth in Section 20.5) are set forth
below opposite the name of such Stockholder:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OF PRINCIPAL NUMBER OF NUMBER OF
NUMBER OF COMPANY AMOUNT OF AMOUNT OF SERIES G SHARES OF
NAME OF STOCKHOLDER SHARES NOTES CASH NOTES WARRANTS PARENT'S STOCK (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred L. Thurman 287.5 $250,000 $1,437,500 $575,000 14,375 25.0263%
- ---------------------------------------------------------------------------------------------------------------------
James E. Perry 287.5 $250,000 $1,437,500 $575,000 14,375 25.0263%
- --------------------------------------------------------------------------------------------------------------------
W. Bradley Van Leur 125 $ 40,000 $ 625,000 $250,000 6,250 10.0554%
- --------------------------------------------------------------------------------------------------------------------
Wallace Jansma 150 $250,000 $ 750,000 $300,000 7,500 14.4941%
- --------------------------------------------------------------------------------------------------------------------
Mark VanderBerge 150 $250,000 $ 750,000 $300,000 7,500 14.4941%
- --------------------------------------------------------------------------------------------------------------------
Tele-Tech, Inc. 45.35 None None None None 6.9016%
- --------------------------------------------------------------------------------------------------------------------
RAFT, L.L.C. 26.3 None None None None 4.0022%
- --------------------------------------------------------------------------------------------------------------------
TOTAL 1,071.65 $1,040,000 $5,000,000 $2,000,000 50,000 100%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Expressed as a percentage of the Stock Component.
4. 351 EXCHANGE PLAN
By executing this Agreement, each Stockholder is deemed to have approved
and adopted the Section 351 Exchange Plan to the same extent as if he had
subscribed his signature thereon.
5. CLOSING
The Closing of the transactions contemplated by this Agreement ("Closing")
shall take place on the date of the closing of the sale of shares of the Parent
Stock in the IPO, or such other date as the parties hereto may mutually agree
upon (the "Closing Date"), at such place in New York City as the parties may
mutually agree.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder that is not a New Stockholder, severally and
not jointly, represent, warrant, covenant and agree (i) that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 9.7, shall be true at the Closing
Date, (ii) that all of the covenants and agreements in this Section 6 shall be
materially complied with or performed at and as of the Closing Date. None of
the representations,
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warranties, covenants and agreements set forth in this Section 6 shall survive
the Closing Date. For purposes of this Section 6, the term "Company" shall mean
and refer to Company and all of its Subsidiaries, if any.
6.1 Due Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, prospects, properties,
assets or condition (financial or otherwise), of Company taken as a whole (as
used herein with respect to Company, or with respect to any other Person, a
"Material Adverse Effect"). Schedule 6.1 sets forth the jurisdiction in which
Company is incorporated and contains a list of all such jurisdictions in which
Company is authorized or qualified to do business. True, complete and correct
copies of the Charter Documents and Bylaws, each as amended, of Company are all
attached hereto as Schedule 6.1. The stock records of Company, as heretofore
made available to Parent, are correct and complete in all material respects. To
the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete in all material
respects.
6.2 Authorization. Company has all requisite corporate power and authority
to conduct its business as presently conducted and to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery by Company
of this Agreement and its consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of Company. This
Agreement has been duly executed and delivered by Company, and approved by all
the stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 Capital Stock of the Company. The authorized capital stock of Company
consists of 1,000,000 shares of Company Stock. As of the date of this agreement
only 1,000 shares of the capital stock of Company are issued and outstanding,
and they are owned of record by Stockholders who are not New Stockholders in
the amounts set forth in Section 3. On the Closing Date, immediately prior to
the purchase of Company Stock by Parent, only 1,071.65 shares of the capital
stock of the Company shall be issued and standing, and the same shall be owned
in the amounts set forth in Section 3 by the persons set forth in Section 3.
Except as set forth on Schedule 6.3, all such shares referenced in the prior
two sentences are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and
validly issued and (ii) are fully paid and nonassessable. Further, none of
such shares was issued in violation of the preemptive rights of any past or
present stockholder.
6.4 Transactions in Capital Stock. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1992. Except as set
forth on Schedule 6.4 or described in the Acquisition Agreements, (i) no
option, warrant, call, conversion right or commitment of any kind exists which
obligates Company
-9-
<PAGE>
to issue or sell any of its authorized but unissued capital stock; (ii) Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof; and (iii) neither the
voting stock structure of Company nor the relative ownership of shares among
any of its respective stockholders has been altered or changed in contemplation
of the transactions contemplated by this Agreement. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights to
acquire shares of Company Stock.
6.5 No Bonus Shares. Except as set forth on Schedule 6.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
6.6 Subsidiaries. Except as set forth in Schedule 6.6, (i) Company has no
Subsidiaries, (ii) Company does not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person, and (iii)
Company is not directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.7 Predecessor Status; etc. Set forth in Schedule 6.7 is a listing of all
names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired material assets in
excess of $25,000, in any case, since January 1, 1992. Except as disclosed on
Schedule 6.7, Company has not been, within such period of time, a Subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
6.8 Spinoff by Company. Except as set forth on Schedule 6.8, there has not
been any sale, spin-off or split-up of material assets in excess of $25,000 of
either Company or any other Person, that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, Company ("Affiliates") since January 1, 1992.
6.9 Financial Statements. The Draft Registration Statement contains the
following financial statements of the Company and the related notes thereto
(the "Company Financial Statements"): the Company's audited Balance Sheets as
of December 31, 1996 and 1995, its unaudited Balance Sheet as of June 30, 1997
("June Balance Sheet"), its audited Statements of Operations, Stockholders'
Deficit and Cash Flows for the years ended December 31, 1996 and 1995, its
unaudited Statements of Operations, Stockholders' Deficit and Cash Flows for
the year ended December 31, 1994 and its unaudited Statements of Operations,
Stockholders' Earnings and Cash Flows for the six months ended June 30, 1997
and 1996 (June 30, 1997 being hereinafter referred to as the " Balance Sheet
Date"). The audited and unaudited Company Financial Statements have
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<PAGE>
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). The Balance Sheets included in the Draft Registration Statement
present fairly the financial position of Company as of the dates indicated
thereon, and the Statements of Operations, Stockholders' Deficit and Cash Flows
included in the Draft Registration Statement present fairly the results of
operations for the periods indicated thereon in accordance with generally
accepted accounting principles. The Company Financial Statements at and for the
years ended December 31, 1996 and 1995 have been examined by Charles Bailly &
Company P.L.L.P., independent public accountants.
6.10 Liabilities and Obligations. Company had no material liabilities of
any kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, as of the Balance Sheet Date that are not
reflected on the June Balance Sheet or otherwise reflected in the Company
Financial Statements at the Balance Sheet Date, including all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements. Except as set forth on Schedule 6.10 or set forth in the
Acquisition Agreements, since the Balance Sheet Date Company has not incurred
any material liabilities of any kind, character and description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. Company has also
disclosed to Parent on Schedule 6.10, in the case of those contingent
liabilities related to pending or threatened litigation or other liabilities
which are not fixed or otherwise accrued or reserved, the following
information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted;
6.11 Accounts and Notes Receivable. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.11) of the accounts and notes
receivable of Company, as of the Balance Sheet Date, and including receivables
from and advances to employees and Stockholders. Company shall also provide
Parent (x) an accurate list of all receivables generated subsequent to the
Balance Sheet Date and (y) an aging of all accounts and notes receivable
showing amounts due in
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<PAGE>
30 day aging categories, and such list and such aging report (the "A/R Aging
Reports") shall be current as of July 31, 1997. Except to the extent reflected
on Schedule 6.11 or as disclosed by Company to Parent in a writing accompanying
the A/R Aging Reports, such accounts, notes and other receivables are
collectible in the amounts shown on Schedule 6.11, and shall be collectible in
the amounts shown on the A/R Aging Reports, net of reserves reflected in the
June Balance Sheet and as of the date of the A/R Aging Reports, respectively.
6.12 Permits and Intangibles. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.12) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.13). To
the knowledge of Company, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 6.12 and 6.13 are valid in all
material respects, and Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
6.12 and 6.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on
Company. Except as specifically provided in Schedule 6.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to Company by, any such license, franchise, permit or
government authorization, including those listed on Schedule 6.13.
6.13 Environmental Matters. Except as set forth on Schedule 6.13, (i)
Company has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law) including petroleum and petroleum products; (ii) Company has
obtained and substantially adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Wastes and Hazardous Substances, a list of all of which permits and approvals
is set forth on Schedule 6.13, and
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<PAGE>
has reported to the appropriate authorities, to the extent required by all
Environmental Laws, all past and present sites owned and operated by Company
where Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (iii) there have been no releases or threats
of releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by Company except as permitted by Environmental Laws; (iv) to
the knowledge of Company, no on-site or off-site location to which Company has
transported or disposed of Hazardous Wastes and Hazardous Substances or
arranged for the transportation of Hazardous Wastes and Hazardous Substances is
the subject of any Federal, state, local or foreign enforcement action or any
other investigation which could lead to any material claim against Company or
Parent for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) Company has no contingent liability in connection
with any release of any Hazardous Waste or Hazardous Substance into the
environment.
6.14 Personal Property. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.14) of (i) all personal property included (or
that will be included) in "property and equipment" on the June Balance Sheet of
Company, (ii) all other personal property owned by Company with a value in
excess of $10,000 (x) as of the Balance Sheet Date and (y) acquired since the
Balance Sheet Date and (iii) true and complete copies of all written Leases in
respect of personal property, including, in the case of each of (i), (ii) and
(iii), an indication as to which assets are currently owned, or were formerly
owned, by Stockholders, relatives of Stockholders, or Affiliates of Company.
Except as set forth on Schedule 6.14, (a) all personal property used by Company
in its business is either owned by Company or leased by Company pursuant to a
Lease included on Schedule 6.14, (b) all of the personal property listed on
Schedule 6.14 is in good working order and condition, ordinary wear and tear
excepted and (c) all Leases included on Schedule 6.14 are in full force and
effect in all material respects and to the knowledge of Company constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
6.15 Significant Customers; Material Contracts and Commitments. Company has
delivered to Parent an accurate list (which is set forth on Schedule 6.15) of
all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.15, means a customer (or
person or entity) (i) representing 2% or more of Company's annual revenues as
of the Balance Sheet Date or (ii) reasonably expected to represent 2% or more
of Company's revenues during the twelve-month period ending June 30, 1998.
Except to the extent set forth on Schedule 6.15, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers)
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<PAGE>
has given written notice of an intention to cancel a contract or substantially
reduce utilization of the services provided by Company.
Company has listed on Schedule 6.15 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.10, 6.14 or 6.16, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Street Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all material commitments and obligations
pertaining to it, and is not in material default under any contract or
agreement listed on Schedule 6.15 and no notice of default under any such
contract or agreement has been received. Company has also indicated on Schedule
6.15 a summary description of all plans or projects involving the acquisition
of any personal property, business or assets requiring, in any event, the
payment of more than $20,000 by Company.
6.16 Real Property. Schedule 6.16 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
or leased since the Balance Sheet Date, and all other real property, if any,
used by Company in the conduct of its business. Company has good and insurable
title to the real property owned by it, including those reflected on Schedule
6.16, subject to no Lien except for:
(w) Liens reflected on Schedules 6.10 or 6.15 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 6.16 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of Company with respect to real property owned by Company, (2) true,
complete and correct copies of all Leases and agreements in respect of such
real property leased by Company and (3) an indication as to which such
properties, if any, are
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currently owned, or were formerly owned, by Stockholders or business or
personal Affiliates of Company or Stockholders.
Except as set forth on Schedule 6.16, all of such Leases included on Schedule
6.16 are in full force and effect in all material respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.17 Insurance. Company has delivered to Parent, as set forth on and
attached to Schedule 6.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years or (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
material respects and shall remain in full force and effect in all material
respect through the Closing Date. No insurance carried by Company has been
canceled by the insurer and the Company has never been denied coverage.
6.18 Compensation; Organized Labor Matters. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.18) showing all officers,
directors and other key employees of Company and the rate of compensation (and
the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date of this Agreement. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 6.18, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group
of its employees nor has Company experienced any labor interruption over the
past three years.
6.19 Employee Plans. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.19) showing all employee benefit plans of
Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies
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<PAGE>
of such plans, agreements and any trusts related thereto, and classifications
of employees covered thereby as of the Balance Sheet Date. Except for the
employee benefit plans, if any, described on Schedule 6.19, Company does not
sponsor, maintain or contribute to any plan program, fund or arrangement that
constitutes an "employee pension benefit plan," and Company does not have any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended "ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. Company
has not sponsored, maintained or contributed to any employee pension benefit
plan other than the plans set forth on Schedule 6.19, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multi employer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.20 Compliance with the Code and ERISA. All employee benefit plans listed
on Schedule 6.19 that are intended to qualify under Section 401(a) of the Code
(the "Qualified Plans") are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 6.19. Except as
disclosed on Schedule 6.19, all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 6.19. Neither Stockholders, any such plan listed in
Schedule 6.19, nor Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No employee
benefit plan listed on Schedule 6.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
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ERISA; and Company has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service or (ii) any liability to the Pension
Benefit Guaranty Corporation (other than for premium payments). In addition:
(v) there have been no terminations or discontinuance of contributions
to any Qualified Plan without notice to and approval by the Internal
Revenue Service;
(w) no plan listed on Schedule 6.19 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans listed in
Schedule 6.19;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) no circumstances exist pursuant to which Company could reasonably
be expected to have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multi employer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being subject to any
statutory Lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other
than Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted
in and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.21 or 6.13, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 6.10 or 6.13, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of
Company, threatened, against or affecting Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
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commission, board, bureau, agency or instrumentality having jurisdiction over
Company and no notice of any claim, action, suit or proceeding, whether pending
or threatened, has been received by Company or any Stockholder. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 6.12
and 6.13, and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.22 Tax Matters.
(i) Company is currently taxed under Subchapter S of the Code.
Stockholders have filed all income Tax Returns that they were required to
file with respect to Company, and Company has filed all Tax Returns that it
was required to file. All such Tax Returns filed by Company were correct
and complete in all material respects. All Taxes owed by Company (whether
or not shown on any Tax Return) have been paid or reserved for on its
books. Except as set forth on Schedule 6.22, Company is not currently the
beneficiary of any extension of time within which to file any Tax Return.
Since January 1, 1994, no claim with respect to Company has been made by an
authority in a jurisdiction where Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Company's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
(iii) Company does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of Company either claimed or raised by any authority in writing or as to
which Company has knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.22(iii) lists all Tax Returns relating to income Tax
of Company for taxable periods ended on or after January 1, 1993, indicates
those Returns of which Company is aware that have been audited and
indicates those Returns that currently are the subject of audit. Company
has delivered to Parent correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by Company for any taxable period ended on or after January 1,
1993.
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(iv) Except as set forth on Schedule 6.22(iv), neither Stockholders
nor Company has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any material
payments, is not obligated to make any material payments and is not a party
to any agreement that under certain circumstances could obligate it to make
any material payments that will not be fully deductible under Section 280G
of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing authority that
would, individually or in the aggregate, apply to the Surviving Corporation
after the Closing Date.
6.23 No Violations. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in material default under any Lease, instrument, agreement, license, or
permit set forth on Schedule 6.12, 6.13, 6.14, 6.15 or 6.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 6.23, (i) the
rights and benefits of Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 6.23, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect in all material respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material
right or benefit. Except as set forth on Schedule 6.23, to the knowledge of
Company none of the Material Documents prohibits the use or publication by
Company or Parent of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts Company from freely
providing services to any other customer or potential customer of Company,
Parent or any other Founding Company.
6.24 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 6.24 or in the Acquisition Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company taken
as a whole;
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(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its officers,
directors, stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character, materially
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the ordinary
course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof,
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of Company or requiring consent of any party to the transfer or
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of Company's business;
(xi) any waiver of any material rights or claims of Company;
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(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company is a party:
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.25 Deposit Accounts; Powers of Attorney. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.25) as of the date of the
Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.26 Relations with Governments. Except for political contributions made in
a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect. If political contributions made by Company have exceeded $10,000 per
year for each year in which any Stockholder has been a stockholder of Company,
each contribution in the amount of $5,000 or more shall be described on
Schedule 6.26.
6.27 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with
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respect to which such information was requested. Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which Company is a party, or to which its
properties are subject, or by any other fact or circumstance regarding Company
(which fact or circumstance was, or should reasonably, after due inquiry, have
been known to Company) that is not disclosed pursuant hereto or thereto.
6.28 Prohibited Activities. Except as set forth on Schedule 6.28 or in the
Acquisition Agreements, Company has not, between the Balance Sheet Date and
the date of this Agreement, taken any of the actions set forth in Section 9.3
("Prohibited Activities").
6.29 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Company expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth
below are true as of the date of this Agreement and, subject to Section 9.7,
shall be true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 7 shall be materially complied with or performed at
and as of the Closing Date. None of the representations and warranties in this
Section 7 shall survive the Closing Date.
7.1 Authority. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder in accordance with its terms.
7.2 Preemptive Rights. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent
Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement, (ii) upon
conversion of the Notes, (iii) upon exercise of the Warrants, or (iv) any
option granted by Parent.
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7.3 Tax Matters. The Stockholders have been advised by their counsel and
are satisfied, as of the date hereof, that certain aspects of the transactions
contemplated by this Agreement qualify for the deferral of gain pursuant to
Section 351 of the Code.
7.4 No Plan of Distribution. No Stockholder has any intention or
arrangement to sell or otherwise dispose of any Parent Stock to be received
pursuant to this Agreement and the Section 351 Exchange Plan.
7.5 No Retained Rights. No Stockholder will retain any right after the
Closing in any Company Stock but, to the extent that such right may exist upon
the consummation of the Closing, such right shall be deemed to have been
released and extinguished.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
Parent represents, warrants, covenants and agrees (i) that, except as
disclosed in the Draft Registration Statement, all of the following
representations and warranties in this Section 8 are true at the date of this
Agreement and, subject to Section 9.7, shall be true at the Closing Date, (ii)
that all of the covenants and agreements in this Section 8 shall be complied
with or performed at and as of the Closing Date, and (iii) that none of the
representations, warranties, covenants or agreements in this Section 8 shall
survive the Closing Date.
8.1 Due Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the States of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Charter Documents and By-laws,
each as amended, of Parent (the "Parent Charter Documents") are all attached
hereto as Schedule 8.1.
8.2 Authorization. Parent has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by Parent and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Parent. This Agreement has been duly executed and delivered
by Parent and is a valid and binding obligation of Parent, enforceable against
each of them in accordance with its terms.
8.3 Capital stock. The authorized capital stock of Old ACG is as set forth
in Schedule 8.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly
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authorized and validly issued, (ii) are fully paid and nonassessable, (iii) are
owned of record and beneficially by the persons set forth on Schedule 8.3 and
(iv) were offered, issued, sold and delivered by Old ACG in compliance with all
applicable state and Federal laws concerning the offer, issuance, sale and
delivery of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present stockholder of Old ACG. Subject to
the consummation of the reverse stock split referred to in the eighth recital
of this Agreement and the consummation of Parent's acquisition of Old ACG in
the reverse triangular merger, the capitalization of Parent will be identical
to the capitalization of Old ACG immediately prior to the consummation of the
IPO.
8.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 8.4 or contemplated to be issued in connection with the
acquisitions of the Founding Companies, (i) no option, warrant, call,
conversion right or commitment of any kind exists which obligates Parent to
issue any of its authorized but unissued capital stock and (ii) Parent has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Schedule 8.4 also includes complete
and accurate copies of all stock option or stock purchase plans, including a
list, accurate as of the date hereof, of all outstanding options, warrants or
other rights to acquire shares of capital stock of Parent.
8.5 Subsidiaries. Neither Parent nor Old ACG has any subsidiaries except
for the companies identified on Schedule 8.5. Except as set forth in the
preceding sentence, neither Parent nor Old ACG presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
Person nor is Parent or Old ACG, directly or indirectly, a participant in any
joint venture, partnership or other non-corporation entity.
8.6 Financial Statements. The Draft Registration Statement contains the
following financial statements of ACG, which reflect the results of its
operations from inception in June 1996 (the "Old ACG Financial Statements"):
Old ACG's audited Balance Sheet as of December 31, 1996 and its unaudited
Balance Sheet as of June 30, 1997, and audited Statements of Operations,
Stockholder's Equity and Cash Flows and related notes thereto for the period
from June 10, 1996 through December 31, 1996 and unaudited Statements of
Operations, Stockholder's Equity and Cash Flows for the six months ended June
30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 8.6). The unaudited Old ACG Financial Statements were prepared in
accordance with the books and records of Old ACG in accordance with generally
accepted accounting principles consistently applied. Old ACG's Balance Sheets
present fairly the financial position of Old ACG as of the dates indicated
thereon, and Old ACG's Statements of Operations, Stockholder's Equity and Cash
Flows included in the Old ACG Financial Statements
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present fairly the results of operations for the periods indicated thereon in
accordance with generally accepted accounting principles. Old ACG's Financial
Statements at and for the period ended December 31, 1996 have been examined by
KPMG Peat Marwick LLP, independent public accountants.
8.7 Liabilities and Obligations. Except as set forth on Schedule 8.7,
neither Parent nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
8.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 8.8 or in the Draft Registration Statement, neither Parent nor Old ACG
is in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Material Adverse Effect; and except to the extent set forth in Schedule
8.8, there are no material claims, actions, suits or proceedings, pending or,
to the knowledge of Parent or Old ACG, threatened, against or affecting Parent
or Old ACG, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Old ACG have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
8.9 No Violations. Neither Parent nor Old ACG is in violation of any Parent
Charter Document. None of Parent, Old ACG, or, to the knowledge of Parent and
Old ACG, any other party thereto, is in material default under any lease,
instrument, agreement, license, or permit to which Parent or Old ACG is a
party, or by which Parent or Old ACG, or any of their respective properties,
are bound (collectively, the "Parent Documents"); and (i) the rights and
benefits of Parent and Old ACG under the Parent Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Parent Documents or the Parent
Charter Documents. Except as set forth on Schedule 8.9, none of the Parent
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
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8.10 Parent Securities. The shares of Parent Stock, Notes and Warrants
deliverable to the Stockholders pursuant to this Agreement will have been duly
authorized prior to the Closing, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable. Prior to the Closing, the shares of Parent Stock issuable upon
conversion of the Notes and upon exercise of the Warrants will have been duly
authorized and reserved for issuance and such shares, when issued upon
conversion of such securities in accordance with the terms thereof, will be
validly issued, fully paid and nonassessable.
8.11 Business; Real Property; Material Agreement Old ACG was formed in June
1996 and Parent was formed in September 1997. Neither Parent nor Old ACG has
conducted any material business since the date of its inception, except raising
capital and in connection with this Agreement and similar agreements with other
companies involved in the telephone business and associated activities and
consummating the transactions referred to in the Draft Registration Statement.
Except as disclosed on Schedule 8.11, neither Parent nor Old ACG owns or has at
any time owned any real property or any material personal property or is a
party to any other material agreement.
8.12 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996, no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Parent's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against Old ACG for any period for which Tax
Returns have been filed. There is no material dispute or claim concerning
any Tax liability of Old ACG either claimed or raised by any authority in
writing or as to which Parent has knowledge based upon direct inquiry by
any agent of such authority.
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8.13 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Parent or Old ACG but not otherwise, are
true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of Parent, Old
ACG, the Founding Companies, and Parent's prospective underwriters
(collectively, the "Parent Group") access to all of Company's sites,
properties, books and records and will furnish Parent with such additional
financial and operating data and other information as to the business and
properties of Company as Parent may from time to time reasonably request.
Company will cooperate with Parent Group, its representatives, auditors
and counsel in the preparation of and any documents or other material that
may be required in connection with any documents or materials required by
this Agreement. Parent will, and will cause the other members of the Parent
Group, to treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential in accordance with the
provisions of Section 15.
(ii) Between the date of this Agreement and the Closing, Parent will
afford, or will cause to be afforded, to the officers and authorized
representatives of Company and Stockholders access to all of Parent Group's
sites, properties, books and records and will furnish Company and
Stockholders with such additional financial and operating data and other
information as to the business and properties of Parent Group as Company
and Stockholders may from time to time reasonably request. Parent will
cooperate with Company and Stockholders' representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with any documents or materials required by this
Agreement. Company and Stockholders will cause all information obtained in
connection with the negotiation and performance of this Agreement to be
treated as confidential in accordance with the provisions of Section 15.
(iii) Company agrees to permit an independent accounting firm selected
by Parent to audit and render a report on the Company Financial Statements,
provided that all the costs and expenses of such audits are paid by Parent.
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9.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
9.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Company will not, without prior written consent of Parent:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 6.4;
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(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $20,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $20,000 as necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 6.10 or 6.15;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 6.11 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder;
provided, however, that the Company may distribute to the Stockholders, prior
to the Closing, funds necessary to pay the income tax liability accruing to
them on account of Company revenue (the
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"Interim Revenues") realized during the Interim Period (meaning the period
commencing on the Balance Sheet Date and ending on the Closing Date).
Notwithstanding the foregoing proviso, such dividend may not exceed 35% of the
Interim Revenues. If a subsequent audit reveals that the amount of Interim
Revenues actually realized do not correspond to the amount estimated for
purposes of calculating Stockholder income tax liability, then the difference
shall be either paid by the Company to the Stockholders or refunded by the
Stockholders to the Company, as the case may be. This obligation to make a
corrective payment or refund shall survive the Closing until six months after
the Company files its 1997 tax returns.
9.4 Exclusivity. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with, the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, Company or merger, consolidation or business
combination of Company.
9.5 Agreements. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the Company and any employee who is listed on
Schedule 6.18 and (ii) any existing agreement between Company and any
Stockholder, on or prior to the Closing Date. Copies of such termination
agreements are listed on Schedule 9.5 and attached thereto.
9.6 Notification of Certain Matters. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would likely cause any representation
or warranty of Company or Stockholders contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing Date and (ii) any
material failure of any Stockholder or Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such
Person hereunder as of such date. Parent shall give prompt notice to Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely cause any representation or warranty of
Parent contained herein to be untrue or inaccurate in any material respect at
or prior to the Closing Date and (ii) any
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material failure of Parent to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder as of such date. The
delivery of any notice pursuant to this Section 9.6 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 9.7, (ii)
modify the conditions set forth in Sections 10 and 11, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
9.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by Company or Parent that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Parent
or Company, as the case may be, consents to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 9.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 13.1. Neither the entry by Parent into any other
agreement, such as this Agreement, after the date hereof for the acquisition of
one or more companies involved in or assets associated with the telephone
business and related activities nor the performance by Parent of its
obligations thereunder shall be deemed to require the amendment to or a
supplementation of any Schedule hereto.
9.8 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by and Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in
Section 11 of this Agreement, and such compliance by Parent shall be deemed
a condition precedent in addition to the conditions precedent set forth
in Section 10 of this Agreement, (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to be
made, and (iv) Parent shall be responsible for all filing fees under the
Hart-Scott Act.
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9.9 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
10.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Parent contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent on or before the Closing Date shall have
been duly complied with or performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date, and signed by the
President or any Vice President of Parent shall have been delivered to Company.
10.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Stockholders and their
counsel.
10.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Company
as a result of which the management of Company deems it inadvisable to proceed
with the transactions hereunder.
10.4 Opinion of Counsel. Company shall have received an opinion from
counsel for Parent, dated the Closing Date, in the form and substance
reasonably acceptable to Company and Stockholders, relating to, insofar as
Parent is concerned, (i) the authorization, execution, delivery, performance
and enforceability of this Agreement, (ii) the consummation of the transactions
contemplated herein and (iii) such other legal matters as Company may
reasonably request.
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10.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
10.6 Good Standing Certificates. Parent shall have delivered to Company a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Delaware Secretary of State and, unless waived by
Company, in each state in which Parent is authorized to do business, showing
that each of Parent is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for Parent,
respectively, for all periods prior to the Closing Date have been filed and
paid to the extent required.
10.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Parent or Old ACG that would constitute a Material
Adverse Effect.
10.8 Secretary's Certificates. Company shall have received a certificate or
certificates, dated the Closing Date and signed by the Secretary of Parent,
certifying the completeness and accuracy of the attached copies of Parent's
Charter Documents (including amendments thereto), ByLaws (including amendments
thereto), and resolutions of the board of directors and, if required, the
stockholders of Parent approving Parent's entering into this Agreement and the
consummation of the transactions contemplated hereby.
10.9 Employment Agreements. Each of Fred L. Thurman and W. Bradley Van Leur
shall have been afforded an opportunity to enter an employment agreement
substantially in the forms of Annex V and Annex VI, respectively.
10.10 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
10.11 Parent Stock Options. Parent's Board of Directors shall have awarded
ten-year options to purchase an aggregate of 250,000 shares of Parent Stock at
the IPO Price to the officers and employees of Company listed on Schedule
10.11, such options to be issued pursuant to Parent's 1997 Stock Award Plan and
to become vested and fully exercisable in equal increments on the first,
second, third, fourth, and fifth anniversaries of the Closing Date, provided
such person remains affiliated with Company on each such anniversary dates.
These options are additional to the options referred to in Annex V and VI
hereof.
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10.12 Release from Guarantees. The Stockholders shall have been fully
released from the guarantees of Company indebtedness and the pledges of assets
to secure such indebtedness that are listed on Schedule 10.12.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligations of Parent with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
11.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Stockholders and Company on
or before the Closing Date shall have been duly performed or complied with in
all material respects; and Stockholders and Company each shall have delivered
to Parent a certificate dated the Closing Date and signed by them to such
effect.
11.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Parent
as a result of which the management of Parent deems it inadvisable to proceed
with the transactions hereunder.
11.3 Secretary's Certificate. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and Stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Company which would constitute a Material Adverse
Effect, and Company shall not have suffered any material loss or damages to any
of its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of Company to conduct
its business.
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11.5 Stockholders' Release. Stockholders shall have delivered to Parent an
instrument dated the Closing Date releasing Company and Parent from (i) any and
all claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically
identified on Schedules 6.10 and 6.15 as being claims of or obligations to
Stockholders, (y) obligations arising under this Agreement or the transactions
contemplated hereby, (z) claims for indemnification against the Company in the
Stockholder's capacity as officers or directors of the Company.
11.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Parent and its counsel.
11.7 Termination of Related Party Agreements. Except as set forth on
Schedule 11.7, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.8 Opinion of Counsel. Parent shall have received an opinion from counsel
to Company and Stockholders, dated the Closing Date, in the form and substance
reasonably acceptable to the Parent, relating to, insofar as Company and
Stockholders are concerned, (i) the authorization, execution, delivery,
performance and enforceability of the Agreement, (ii) the consummation of the
transactions contemplated herein and (c) such other matters as Parent shall
reasonably request.
11.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 6.23 shall have been
obtained.
11.10 Good Standing Certificates. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Parent, in each state in
which Company is authorized to do business, showing Company is in good standing
and authorized to do business and that all state franchise and/or income Tax
returns and Taxes for Company for all periods prior to the Closing have been
filed and paid.
11.11 FIRPTA Certificate Each Stockholder shall have delivered to Parent a
certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
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11.12 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
11.13 Noncompetition Covenants of Key Employees. Each of the Persons
designated on Schedule 6.18 as a key employee shall have executed and delivered
to Parent a noncompetition agreement that contains all the substantive
provisions of Section 14.
11.14 Employment Agreement. Each of Fred L. Thurman and W. Bradley Van Leur
shall have executed an employment agreement with Company substantially in the
form of Annex V and Annex VI respectively.
11.15 Settlement Agreement. Stockholders shall have paid all amounts due
and payable to Richard S. Law, a former executive officer of Company, in
complete settlement of all outstanding claims of Mr. Law under the Settlement
Agreement dated as of February 6, 1996.
11.16 Release of Take or Pay Obligations. Company shall have been released
from its accrued take or pay obligations under its contract with Total Network
Services, a division of Cable & Wireless, Inc., dated July 18, 1996, through
September 30, 1997, and its continuing take or pay obligation shall be reduced
to a rate of $25,000 per month through the expiration of such contract.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS AFTER CLOSING
12.1 Preparation and Filing of Tax Returns.
(i) Stockholders shall file or cause to be filed all separate Federal
income Tax Returns (and any state and local Tax Returns filed on the basis
similar to that of S corporations under Federal income Tax rules) of
Company for all taxable periods that end on or before the Closing Date.
Each Stockholder shall pay or cause to be paid all Tax liabilities (in
excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the Company Financial Statements) shown
by such Returns to be due.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the Closing
Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with relevant accompanying schedules
and work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs of
filing such Returns.
12.2 Preservation of Employee Benefit Plans. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing
plans; provided, further, that any new health insurance plan shall provide for
coverage for preexisting conditions. Notwithstanding the prior sentence, Parent
agrees not to terminate or materially modify, for a period of eighteen months
from the Closing Date, the cafeteria benefit plan in effect as of the date
first set forth above.
12.3 Rule 144 Filing. Parent, from and after the IPO, shall use
commercially reasonable efforts to assure that Rule 144 under the Securities
Act will be available for sales of shares by Stockholders after the first
anniversary of the Closing Date.
13. TERMINATION OF AGREEMENT
13.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by the Stockholders, on the one hand, or by Parent (acting
through its board of directors), on the other hand, if a Registration
Statement on Form S-1 relating to the IPO has not been filed with the SEC
prior to October 16, 1997;
(iii) by the Stockholders, on the one hand, or by Parent (acting
through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have
been consummated by January 31, 1998 unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to
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terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(iv) by Stockholders, on the one hand, or by Parent, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the material
covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date; or
(v) by Stockholders, on the one hand, or by Parent, on the other hand,
if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 9.7 because such proposed amendment constitutes or reflects an
event or occurrence that would have a Material Adverse Effect.
13.2 Liabilities in Event of Termination. Except as provided in Section
9.7, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
14. NONCOMPETITION
14.1 Prohibited Activities. Each Stockholder will not, for a period of
three years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other
Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in the sale or marketing of yellow page publishing,
telecommunication services, interconnect services and natural gas or
electrical goods and services within the states of Arkansas, Colorado,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico,
North Dakota, Oklahoma, South Dakota, Wyoming and Texas (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of
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Parent (including the Subsidiaries thereof); provided that each
Stockholder shall be permitted to call upon and hire any member of his
immediate family;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the Subsidiaries
thereof) within the Territory for the purpose of soliciting or selling
products or services in direct competition with Parent within the
Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent in the
long-distance or local telephone business, which candidate, to the
knowledge of such Stockholder after due inquiry, was called upon by Parent
(including the Subsidiaries thereof) or for which, to the knowledge of such
Stockholder after due inquiry, Parent (or any Subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than one
percent of the capital stock of a competing business whose stock is publicly
traded.
14.2 Damages. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
14.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 14 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
14.4 Severability, Reformation. The covenants in this Section 14 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties
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that such restrictions be enforced to the fullest extent the court deems
reasonable, and the Agreement shall thereupon be automatically reformed.
14.5 Independent Covenant. All of the covenants in this Section 14 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 14, during which the agreements
and covenants of each Stockholder made in this Section 14 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 14. The covenants
contained in Section 14 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
14.6 Materiality. Stockholders hereby agree that the covenants set forth in
this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 Stockholders. Stockholders recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information of Company and/or Parent and Old ACG, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company and/or Parent and Old ACG. Stockholders agree that
they will not disclose such confidential information to any Person for any
purpose or reason whatsoever, except (i) to authorized representatives of
Parent; (ii) following the Closing, such information may be disclosed by
Stockholders as is required in the course of performing their duties for Parent
or the Company; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 15.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) disclosure is required by law or the
order of any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any Stockholder of the provisions of
this Section 15.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent from pursuing any other available
remedy for such breach
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or threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, (1) the
abovementioned restrictions on each Stockholder's ability to disseminate
confidential information with respect to Company shall become nugatory and (2)
each Stockholder (including his representatives, advisors and legal counsel)
shall within ten business days of the Parent's request, deliver all copies of
the confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal
counsel).
15.2 Parent. Parent recognizes and acknowledges that it had in the past and
currently have and in the future may have, prior to the Closing, access to
certain confidential information of Company, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of
Company. Parent agrees that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, it will not disclose such
confidential information to any person for any purpose or reason whatsoever,
except (i) to authorized representatives of Company; and (ii) to counsel and
other advisers; provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 15.2, unless (x) such information
becomes known to the public generally through no fault of Parent, (y)
disclosure is required by law or the order of any governmental authority under
color of law; provided, that prior to disclosing any information pursuant to
this clause (y), Parent shall, if possible, give immediate prior written notice
thereof to Company and Stockholders and provide Company and Stockholders with
the opportunity to contest such disclosure, or (z) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by Parent of the provisions of this Section 15.2, Company and
Stockholders shall be entitled to an injunction (without the posting of bond or
proof of actual damages) restraining Parent from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Company and Stockholders from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Parent (including its representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Old ACG or their representatives, advisors or legal
counsel at the direction of Parent or Old ACG).
15.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 15.1 and 15.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
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15.4 Survival. The obligations of the parties under this Section 15 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 13.
16. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND WARRANT STOCK
STOCKHOLDERS ACKNOWLEDGE THAT THE WARRANTS ARE NON-TRANSFERRABLE AND HENCE
CANNOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF BY ANY STOCKHOLDER EXCEPT (I)
PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION, (II) IN CONNECTION WITH A
TENDER OFFER OR EXCHANGE OFFER FOR ALL THE PARENT STOCK OR (III) TO A
STOCKHOLDER'S IMMEDIATE FAMILY MEMBERS, OR TRUSTS CREATED FOR THEIR BENEFIT,
IN EACH CASE ONLY IF THE TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF THIS
SECTION 16. In addition, Stockholders further acknowledge that for a period of
one year from the date of the original issuance of any Warrant Stock upon the
exercise of a Warrant, except pursuant to Section 18, no Stockholder may sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any Warrant Stock. The Warrant Stock delivered to the
Stockholders upon exercise of the Warrants will bear a legend substantially in
the form set forth below and containing such other information as Parent may
deem necessary or appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF DATE OF ORIGINAL ISSUANCE]. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
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17. OTHER TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period
of one year from the Closing, except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock or Note (or the shares of Parent Stock
issued upon any conversion thereof) received by such Stockholder in the
transactions contemplated herein. The Parent Stock and Notes delivered to the
Stockholders pursuant to Section 3 of this Agreement (and any shares of Parent
Stock issued upon the conversion thereof) will bear a legend substantially in
the form set forth below and containing such other information as Parent may
deem necessary or appropriate:
NEITHER THIS SECURITY [NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION HEREOF] MAY BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock comprising the Stock
Component, the Notes, the Note Stock and the Warrant Stock (collectively, the
"Restricted Securities") have not been and will not be registered under the
1933 Act and therefore may not be resold without compliance with the
requirements of the 1933 Act and applicable state securities laws. All of the
Restricted Securities are being acquired by Stockholders solely for their own
respective accounts, for investment purposes only, and not with a view to the
distribution thereof.
18.1 Compliance With Law. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 16 or Section 17 of this Agreement:
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS AND UNTIL (A) THE SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") OR (B) THE HOLDER OF THESE SECURITIES PROVIDES
THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH
COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF
THESE SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y)
SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE ISSUER THAT
THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
ACTS.
18.2 Economic Risk, Sophistication. Each Stockholder represents that he or
she has received, has read and understands the Draft Registration Statement,
and in particular, the risk factors described therein. Each Stockholder further
represents that he or she is able to bear the economic risk of an investment in
the Restricted Securities and can afford to sustain a total loss of such
investment and either (i) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
proposed investment in Parent or (ii) together with the senior executives of
the Company, with whom it has consulted, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment in Parent. Stockholders have had an adequate
opportunity to ask questions and receive answers from the officers of Parent,
and the Company concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience
of the current and proposed officers and directors of Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Parent proposes to register any Parent Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Parent and (ii) registrations relating to employee
benefit
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plans, Parent shall give each of the Stockholders prompt written notice of its
intent to do so. Upon the written request of any of the Stockholders given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
such Stockholder requests; provided, however, if Parent is advised in writing
in good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 19.1 that the number of shares to be sold by persons other than Parent
is greater than the number of such shares which can be offered without
adversely affecting the offering, Parent may reduce pro rata the number of
shares offered for the accounts of such persons (based upon the number of
shares held by such person) to a number deemed satisfactory by such managing
underwriter.
19.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Parent Stock (i)
representing Registerable Securities owned by the Stockholders or their
permitted transferees or (ii) representing Registerable Securities (as defined
in the agreements similar to this Agreement mentioned below) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement (or upon exercise or conversion of securities of Parent
received pursuant to such agreement) (the persons referred to in clauses (i)
and (ii) being collectively referred to as the "Founding Stockholders"), which
shares have not been previously registered or sold and which shares are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, may request in writing that Parent file a
registration statement under the 1933 Act covering the registration of such
shares of Parent Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a registration
statement covering all such shares. Parent shall be obligated to effect only
one Demand Registration for all Founding Stockholders and will keep such Demand
Registration current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
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If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 19.1.
19.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts attributable to the sale of any Registerable
Securities), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2 Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registerable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Parent may discontinue any registration of its securities that is being
effected pursuant to Section 19.2 at any time prior to the effective date
of the registration statement relating thereto. Parent shall be obligated
to effect only one Demand Registration for all Founding Stockholders;
provided, however, that Parent shall not be deemed to have satisfied its
obligation under Section 19.2 unless and until a Demand Registration
covering all shares of Registerable Securities requested to be registered
has been filed and become effective under the 1933 Act and has remained
current and effective for not less than 90 days (or such shorter period
as is required to complete the distribution and sale of all shares
registered thereunder).
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the stockholders of Parent holding a majority of the Registrable Securities
covered thereby not exceeding 90 days and to comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a registration
statement or prospectus relating to the sale of Registerable Securities, or
any amendments or supplements thereto, Parent will furnish to counsel to
each holder of Registerable Securities covered by such registration
statement or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel, and Parent
will give reasonable consideration in good faith to any comments of such
counsel received prior to any such filing.
(iii) Furnish to each holder of Registerable Securities covered by the
registration statement and to each underwriter, if any, of such
Registerable Securities, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the
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requirements of the 1933 Act, and such other documents, as such Person
may reasonably request, in order to facilitate the public sale or other
disposition of the Registerable Securities.
(iv) Use its best efforts to register or qualify the Registerable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registerable Securities owned by such seller, in such
jurisdictions, except that Parent shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 19.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registerable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registerable Securities.
(vi) Immediately notify each seller of Registerable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent becomes aware
that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, at the request of any such seller, deliver a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registerable Securities, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
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(viii) Use its best efforts in cooperation with the underwriters to
list such Registerable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registerable
Securities covered by the registration statement may reasonably request in
order to effect an underwritten public offering of such Registerable
Securities.
(xi) Make available for inspection by the seller of such Registerable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
19.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registerable Securities covered
by a Registration Statement referred to in this Section 19 will, upon
receipt of any notice from Parent of the happening of any event of the kind
described in Section 19.3(vi), forthwith discontinue disposition of the
Registerable Securities pursuant to the registration statement covering such
Registerable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each Stockholder (including his permitted assigns)
agrees, if his shares of Registerable Securities are included in such
registration, not to effect any public sale or
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distribution, including any sale pursuant to Rule 144 under the 1933
Act, of any Registerable Securities, or of any security convertible into or
exchangeable or exercisable for any Registerable Securities (other than as
part of such underwritten offering), without the consent of the managing
underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration. Similarly,
each of the Stockholders agrees not to effect any sale or distribution,
including any sale pursuant to the registration rights provided in Section
19.1, of any Registerable Securities, or of any security convertible into
or exchangeable or exercisable for any Registerable Securities, without the
consent of the managing underwriter of the IPO during a period commencing
on the effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter shall
designate) after such effective date.
19.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 19.1 or 19.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registerable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or in any amendment or supplement thereto) or preliminary,
final or summary prospectus contained therein, including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation,
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or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with the written
consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Parent may require, as a condition to including any Registerable
Securities in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registerable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 19.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if
and only to the extent that such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of Parent or
any such director, officer or controlling person and shall survive the
transfer of such securities by such seller. In that event, the obligations
of the Parent and such sellers pursuant to this Section 19.5 are to be
several and not joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for the full amount
of such claim, and each such seller's liability under this Section 19.5
shall be limited to an amount equal to the net proceeds (after deducting
the underwriting discount and expenses) received by such seller from the
sale of Registerable Securities held by such seller pursuant to this
Agreement.
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(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 19.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registerable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and the indemnified
party would be inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between them. In the
event that the indemnifying party does not assume the defense of a claim
pursuant to this Section 19.5(iii), the indemnified party will have the
right to defend such claim by all appropriate proceedings, at the expense
of the indemnifying party, and will have control of such defense and
proceedings, and the indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel to, provide
reasonable cooperation to the indemnifying party and
its legal counsel in connection with its assuming the defense of any claim,
including the furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party assumes the
defense of an action under this Section 19.5(iii), then such indemnifying
party shall, subject to the provisions of this Section 19.5, indemnify and
hold harmless the
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indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Registerable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
19.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 19.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registerable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registerable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each person selling securities agree with each
other that no seller of Registerable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 19.5(ii) were available.
Parent and each such seller agree with each other and the underwriters of the
Registerable Securities, if requested by such underwriters, that it would not
be equitable if the amount of such contribution were determined by pro rata or
per capita allocation (even if the underwriters were treated as one entity for
such purpose) or for the underwriters' portion of such contribution to exceed
the percentage that the underwriting discount bears to the initial public
offering price of the Registerable Securities. For purposes of this Section
19.6, each person, if any, who controls an underwriter within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as such
underwriter, and each director and each officer of Parent who signed the
registration statement, and each person, if any, who controls Parent or a
seller of Registerable Securities within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as Parent or a seller of
Registerable Securities, as the case may be.
19.7 Availability of Rule 144. Parent shall not be obligated to register
shares of Registerable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k)
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(or any similar or successor provision) promulgated under the 1933 Act are
available to such Stockholder.
20. GENERAL
20.1 Cooperation. Company, each Stockholder and Parent shall deliver or
cause to be delivered to the other on the Closing Date and at such other times
and places as shall be reasonably agreed to, such additional instruments as any
of the others may reasonably request for the purpose of carrying out this
Agreement. Stockholders will cooperate and use their reasonable efforts to have
the present officers, directors and employees of Company cooperate with Parent
on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
20.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent and Company, and the
heirs and legal representatives of Stockholders. Notwithstanding the foregoing,
any Stockholder may assign his shares of Parent Stock or Notes or Warrants and
rights thereunder, to a family or children's trust; provided that the assignee
agrees to be bound by the terms of this Agreement to the same extent as his or
its assignor.
20.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among Stockholders, Company and Parent and supersede any prior
agreement and understanding relating to the subject matter of this Agreement.
This Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and
may be modified or amended only by a written instrument executed by
Stockholders and by Company and Parent, acting through their respective
officers or representatives, duly authorized by their respective Boards of
Directors. Any disclosure made on any Schedule delivered pursuant hereto shall
be deemed to have been disclosed for purposes of any other Schedule required
hereby; provided that Company shall make a good faith effort to cross reference
disclosures, as necessary or advisable, between related Schedules.
20.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
20.5 Brokers and Agents.
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<PAGE>
(i) Except with respect to Company's agreement ("Boles Agreement")
with Boles, Knop & Company LLC ("Boles"), each party represents and
warrants that it employed no broker or agent in connection with this
transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying
party.
(ii) Pursuant to the Boles Agreement and at the Closing, Boles is
entitled to receive in payment of its investment banking fee: (a) $191,452
in cash, (b) a number of shares of Parent Stock out of the Stock Component
that is equal to $378,577 divided by the IPO Price, rounded down to the
nearest whole share, under terms and conditions identical to those
pertaining to the Parent Stock received by the Stockholders, (c) $76,581 in
aggregate value of Notes under terms and conditions identical to those
pertaining to the Notes received by the Stockholders, and (d) 3,000
Warrants under terms and conditions identical to those pertaining to the
Warrants to be received by the Stockholders. Accordingly, each of the
Stockholders instructs Parent to reduce the cash, Parent Stock, original
principal amount of Notes, and Warrants otherwise payable and issuable to
each Stockholder pursuant to Section 3 as set forth in the following table:
<TABLE>
<CAPTION>
Value of
Cash to be Withheld Stock Reduction in Original Warrants to
Stockholder Name Percentage Withheld at IPO Price Principal Amount of Notes be withheld
---------------- ---------- -------- ------------ ------------------------- -----------
<S> <C>
Fred L. Thurman 28.75% $55,042 $106,880 $22,017 862.5
James E. Perry 28.75% $55,042 $106,880 $22,017 862.5
W. Bradley Van Leur 12.5 % $23,932 $ 43,723 $ 9,573 375
Wallace Jansma 15 % $28,718 $ 60,542 $11,487 450
Mark Vanderberge 15 % $28,718 $ 60,542 $11,487 450
Total 100 % $191,452 $378,577 $76,581 3,000
</TABLE>
Parent is further authorized to pay the entire $191,452 in cash
directly to Boles and issue the Parent Stock, Notes, and Warrants
described in the chart above to the principals of Boles according to the
chart below:
IPO Value
Boles Principal Parent Stock Notes Warrants
- --------------- ------------ ----- --------
John M. Boles $128,716 $26,037 1,020
J. Richard Knop $128,716 $26,037 1,020
Montross, Inc. $ 75,715 $15,316 600
Richard R. Miller $ 45,429 $ 9,190 360
Total $378,577 $76,581 3,000
Each of the foregoing principals of Boles has executed this Agreement to
evidence his or its agreement to be bound by the terms of Sections 17, 18,
19 and 20 thereof to the same extent if he or it was named as a Stockholder
herein. Ths address of each of the foregoing for purposes of Section 20.8
is 2 Washington Street, Post Office Box 978, Middlesburg, Virginia
20118-0978 (Telecopy No. 540-687-8112).
20.6 Beneficial Owners.
(a) Scott D. Scofield and William Pederson (the "RAFT Owners")
represent and warrant that, as of the date of this Agreement, they own 100%
of the equity interests in RAFT,
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<PAGE>
L.L.C. The RAFT Owners covenant that, through the Closing Date, they shall not
permit any person or entity other than the Beneficial Owners to purchase, own
or otherwise acquire any beneficial interest in any equity interest in RAFT,
L.L.C. The RAFT Owners shall promptly notify Parent in the event that any third
party acquires such an equity interest.
(b) Jerry R. Noonan represents and warrants that, as of the date of
this Agreement, he owns 100% of the equity interests in Tele-Tech, Inc. and
covenants that, through the Closing Date, he shall not permit any other person
or entity to purchase, own or otherwise acquire any beneficial interest in any
equity interest in Tele-Tech, Inc. Jerry R. Noonan shall promptly notify Parent
in the event that any third party acquires such an equity interest.
(c) The Beneficial Owners agree that they are each bound to the terms
of Sections 7, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20 of this Agreement to
the same extent as if each of them were named as a Stockholder herein. The
Beneficial Owners have executed this Agreement to evidence their agreement to
be bound by the terms of this Agreement to the extent set forth in this Section
20.6.
20.7 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Parent will pay the fees, expenses and disbursements of Parent,
Company and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by Parent and
Company under this Agreement. Each Stockholder shall pay all sales, use,
transfer, real property transfer, gains, stock transfer and other similar taxes
("Transfer Taxes") imposed in connection with the transactions contemplated
herein, the fees and expenses of Stockholders' legal counsel and all other
costs and expenses incurred by Stockholders in their performance and compliance
with all conditions to be performed by them under this Agreement. Each
Stockholder shall file all necessary documentation and Returns with respect to
such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not Company or Parent, will pay any Taxes due upon receipt of the consideration
payable pursuant to Section 3, and will assume all Tax risks and liabilities of
the Company in connection with the transactions contemplated hereby.
20.8 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
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<PAGE>
(x) If to Parent addressed to it at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to Stockholders, addressed to them at their addresses set forth on
Schedule 6.3, with copies to such counsel as is set forth with respect to each
Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
FirsTel, Inc.
110 South Phillips Avenue
Suite 202
Sioux Falls, South Dakota 57104-6727
Attn: Fred L. Thurman
Telecopy No.: 605-332-8004
with a copy to:
Swidler & Berlin, Chartered 3000 K Street N.W.
Suite 300
Washington, DC 20007
Attn: Morris F. DeFeo, Jr.
Telecopy No.: 202-424-7647
-56-
<PAGE>
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.7 from time to time.
20.9 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of South Dakota, excluding its conflict of laws
principles.
20.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
20.11 Time. Time is of the essence with respect to this Agreement.
20.12 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
20.13 Remedies Cumulative. Except as otherwise provided in Section 13, no
right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
20.14 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
20.15 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.16 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.16 be binding upon each of
the parties hereto.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
FIRSTEL, INC.
By:
-------------------------------------
Name: Fred L. Thurman
Title: President and Chief Executive
Officer
STOCKHOLDERS:
----------------------------------------
Fred L. Thurman
----------------------------------------
James E. Perry
----------------------------------------
W. Bradley Van Leur
-58-
<PAGE>
----------------------------------------
Wallace Jansma
----------------------------------------
Mark VanderBerge
NEW STOCKHOLDERS:
TELE-TECH, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
RAFT, L.L.C.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
BENEFICIAL OWNERS:
----------------------------------------
Jerry R. Noonan
----------------------------------------
Scott D. Scofield
-59-
<PAGE>
----------------------------------------
William Pederson
PRINCIPALS OF BOLES, KNOP &
COMPANY LLC
----------------------------------------
John M. Boles
----------------------------------------
J. Richard Knop
MONTROSS, INC.
By:
----------------------------------------
Name: James R. Meadows, Jr.
Title: President
----------------------------------------
Richard R. Miller
-60-
<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
-61-
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least
<PAGE>
80% of the total combined voting power of all classes of capital stock of the
Company entitled to vote and at least 80% of the total number of shares of all
other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
-2-
<PAGE>
ANNEX III
Advanced Communications Group, Inc.
$----------------
10% CONVERTIBLE SUBORDINATED NOTE DUE [ANNIVERSARY DATE OF CLOSING], 1999
DATED: ___________, 1997
------------------
THE SECURITIES REPRESENTED HEREBY WERE NOT ISSUED IN A TRANSACTION
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE
OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS.
--------------------
Advanced Communications Group, Inc., a Delaware corporation organized
in September 1997 (the "Company"), for value received, hereby promises to pay
to ____________, or registered assigns, the principal sum of ____________
Dollars ($___________) in one installment on [anniversary date of closing],
1999, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay to the registered holder hereof interest from the date hereof,
annually on [anniversary date of closing] of each year commencing [anniversary
date of closing], 1998, on said principal sum, in like coin and currency, at a
rate per annum of ten percent (10%), to Noteholder until payment of said
principal sum has been made or duly provided for; provided, however, that
payment of interest may be made at the option of the Company by wire transfer
of funds to such bank account in the United States as shall be designated in
writing to the Company by the registered holder hereof or by check mailed to
the address of the registered holder hereof as such address shall appear in the
Note Register
<PAGE>
maintained by the Company. Interest shall be calculated on the basis of a
360-day year of twelve 30-day months.
ARTICLE I.
Defined Terms
SECTION 1.01 Defined Terms. Unless the context otherwise requires,
capitalized terms used herein shall have the meanings ascribed to them in
Article X.
ARTICLE II.
General Provisions
SECTION 2.01 Mutilated Destroyed, Lost or Stolen Note. In case this
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute and deliver a new Note, in exchange and substitution for
the mutilated Note or in lieu of and in substitution for the Note destroyed,
lost or stolen. In every case the Noteholder shall furnish to the Company such
security or indemnity as may be required by it to save the Company harmless,
and, in every case of destruction, loss or theft the Noteholder shall also
furnish to the Company evidence to its satisfaction of the destruction, loss or
theft of this Note and of the ownership thereof. Upon issuance of any
substituted Note, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses connected therewith.
SECTION 2.02 Transfer and Registration of Notes. This Note may be
presented for transfer by surrender hereof at the office of the Company
maintained for that purpose in accordance with the provisions of Section 5.02,
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Company, duly executed by the holder hereof or his attorney
duly authorized in writing. This Note may be transferred in whole, but not in
part. The Company will have no obligation to transfer this Note unless its
requirements are met and such transfer complies with the legend on the first
page of this Note. By its acceptance of this Note, the holder hereof
acknowledges the restrictions on transfer of this Note set forth herein, and
agrees that it will transfer this Note only as provided herein.
The Company shall not be required to register the transfer of this
Note (i) during a period beginning at the opening of business on a day which is
15 days before the mailing of a notice of redemption of this Note and ending on
the close of business on the day of such mailing, or (ii) if this
-2-
<PAGE>
Note has been selected for redemption in whole or in part pursuant to Article
III, except the unredeemed portion of this Note if being redeemed in part.
The Company shall keep or cause to be maintained at the office of the
Company maintained in accordance with the provisions of Section 5.02 a register
(herein sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall register the
Notes (as defined below).
SECTION 2.03 Aggregate Principal Amount of Notes. This Note is one of
a duly authorized issue of Notes of the Company known as its 10% Convertible
Subordinated Notes due [anniversary date of closing], 1999, limited to the
aggregate principal amount of Two Million and No/100 Dollars ($2,000,000.00).
As used herein, the term "Notes" refers to all of such issue of Notes.
SECTION 2.04 Amendment of Notes. Each of the Notes may be amended with
the written consent of the holders of at least a majority in outstanding
principal amount of the Notes; provided that without the written consent of the
holder of this Note, no amendment shall (i) reduce the rate or change the time
for payment of interest on this Note, (ii) reduce the principal of or change
the maturity of this Note, (iii) amend Section 7.01, or (iv) make any change in
Article VIII that adversely affects the rights of the holder of this Note.
After an amendment becomes effective, it shall bind the holders and every
subsequent holder of Notes, even if notation of the amendment is not made on
any Note. However, the Company may place an appropriate notation regarding an
amendment on any Note thereafter executed.
ARTICLE III.
Redemption of Note
SECTION 3.01 Redemption Price. The Company may, at its option, redeem
all or from time to time any part of this Note, upon notice as set forth in
Section 3.02 at a redemption price equal to the principal amount to be
redeemed, together with accrued and unpaid interest on the principal amount to
be redeemed to the date fixed for redemption.
SECTION 3.02 Notice of Redemption. If the Company shall desire to
exercise the right to redeem all or any part of this Note pursuant to Section
3.01, it shall fix a date for redemption and shall mail a notice of such
redemption at least 20 days, but not more than 45 days, prior to the date fixed
for redemption to the holder of this Note at the last address of such holder as
the same appears on the Note Register. Such mailing shall be by first class
mail. The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice.
-3-
<PAGE>
In any case, failure to give such notice by mail or any defect in the notice to
the holder of this Note shall not affect the validity of the proceedings for
the redemption of this Note.
Each such notice of redemption shall be given in the name of the
Company and shall specify the date fixed for redemption, the principal amount
to be redeemed, the redemption price at which this Note or portion thereof is
to be redeemed, the place of payment, that payment will be made upon
presentation and surrender of this Note, that interest accrued to the date
fixed for redemption will be paid as specified in such notice, that on and
after said date fixed for redemption interest hereon or on the portions hereof
to be redeemed will cease to accrue and that the right to convert this Note or
portion thereof into Common Stock will terminate at 5:00 p.m., Houston, Texas
time, on the second day prior to the date fixed for redemption. If this Note is
to be redeemed in part only, the notice of redemption shall also state that on
and after the date fixed for redemption, upon surrender of this Note, a new
Note in aggregate principal amount equal to the unredeemed portion hereof will
be issued without charge to the holder.
SECTION 3.03 Payment of Note Called for Redemption. If notice of
redemption has been given as above provided, this Note or the portion of this
Note with respect to which such notice has been given shall become due and
payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued and unpaid to the date fixed
for redemption, and on and after such date (unless the Company shall default in
the payment of this Note or portion hereof to be redeemed at such redemption
price, together with interest accrued to such date) interest on this Note or
portion hereof so called for redemption shall cease to accrue, and this Note or
portion hereof so called for redemption shall be deemed not to be outstanding
and shall not be entitled to any benefit under this Note except to receive
payment of such redemption price, together with accrued interest to the date
fixed for redemption. On presentation and surrender of this Note on or after
the date fixed for redemption at the place of payment in such notice specified,
this Note or the specified portion hereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
ARTICLE IV.
Conversion of Note
SECTION 4.01 Conversion Right and Conversion Price. Subject to and
upon compliance with the provisions of this Article IV, the holder hereof shall
have the right, at his option, exercisable at any time until the date ten
business days prior to the stated maturity date of this Note or, in case this
Note or a portion hereof shall have been called for redemption prior to such
date, this Note or such portion thereof until and including but (unless the
Company shall default in the payment due upon the redemption hereof) not after,
5:00 p.m., Houston, Texas time, on the second
-4-
<PAGE>
day prior to the date fixed for redemption of this Note pursuant to Section
3.02, to convert all (but not less than all) of the aggregate principal amount
of this Note into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) obtained by dividing the then
outstanding principal amount of this Note by the conversion price then in
effect, by surrender of this Note in the manner provided below in this Section
4.01. The conversion price shall initially be $_________ [the initial public
offering price] per share of Common Stock and is subject to adjustment in
certain instances, as hereinafter provided.
This Note may be converted by surrender of the Note, accompanied by
(i) a duly executed notice of conversion which may be in the form appearing as
Exhibit A hereto or such other form as is satisfactory to the Company at any
time during usual business hours at the office or agency to be maintained by
the Company in accordance with the provisions of Section 5.02 and (ii) a
written instrument or instruments of transfer in form satisfactory to the
Company duly executed by the holder or his attorney duly authorized in writing.
SECTION 4.02 Issuance of Common Stock on Conversion. As promptly as
practicable after the surrender, as herein provided, of this Note for
conversion, the Company shall deliver or cause to be delivered at the foregoing
office or agency, to or upon the written order of the holder hereof,
certificates representing the number of fully paid and nonassessable shares of
Common Stock of the Company into which this Note may be converted in accordance
with the provisions of this Article IV. Such conversion shall be deemed to have
been made at the close of business on the date that this Note shall have been
surrendered for conversion with a notice of conversion and other required
instruments duly executed, so that the rights of the Noteholder shall cease at
such time and, subject to the following provisions of this Section 4.02, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note shall be treated for all purposes as having become the
record holder or holders of such shares of Common Stock at such time and such
conversion shall be at the conversion price in effect at such time; provided,
however, that no such surrender on any date when the stock transfer books of
the Company shall be closed shall be effective to constitute the person or
persons entitled to receive the shares of Common Stock upon such conversion as
the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the person or persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; and, in that event such conversion shall be
at the conversion price in effect on the date that this Note shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed. If the last day for the exercise of the conversion right shall
not be a Business Day, then such conversion right may be exercised on the next
succeeding Business Day.
No fractional share of Common Stock shall be issued upon conversion of
this Note. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of this
-5-
<PAGE>
Note, the Company shall pay a cash adjustment in respect of such fraction in an
amount equal to such fraction of a share multiplied by the Current Market Price
(as defined herein) per share of Common Stock at the close of business on the
Business Day which next precedes the day of conversion as determined in
accordance with this Section 4.04.
SECTION 4.03 Adjustments of Conversion Price. The conversion price in
effect at any time shall be subject to adjustments from time to time on or
after the date of original issuance of this Note as follows:
(i) In case the Company shall (A) declare a dividend or make
a distribution payable in Common Stock on the Common Stock, (B)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (C) combine its outstanding shares of
Common Stock into a smaller number of shares, the conversion price in
effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassifica tion shall be proportionately reduced in the case of any
increase in the number of shares of Common Stock outstanding, and
increased in the case of any reduction in the number of shares of
Common Stock outstanding, so that the holder of this Note when
surrendered for conversion after such time shall be entitled to
receive the kind and amount of shares which such holder would have
been entitled to receive had such Note been converted into Common
Stock immediately prior to such time and had such Common Stock
received such dividend or other distribution or participated in such
subdivision, combination or reclassification. Such adjustment shall be
effective as of the record date for such dividend or distribution or
the effective date of such combination, subdivision or
reclassification and shall be made successively whenever any event
listed above shall occur. If, as a result of an adjustment made
pursuant to this Section 4.03(i), the holder of this Note thereafter
surrendered for conversion shall become entitled to receive shares of
two or more classes of the capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive if
made in good faith and shall be described in a statement provided to
the registered holder of this Note) shall in good faith determine the
allocation of the conversion price between and among shares of such
classes of capital stock.
(ii) In case the Company shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring
within 45 days of the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 4.03(iv) below) of the
Common Stock, on the date fixed for the determination of stockholders
entitled to receive such rights or warrants (the "Determination
Date"), the conversion price at the opening of
-6-
<PAGE>
business on the day following the Determination Date shall
be reduced by multiplying the conversion price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Determination Date plus
the number of shares of Common Stock which the aggregate of the
offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such Current
Market Price of the Common Stock and the denominator shall be the
number of shares of Common Stock outstanding at the close of business
on the Determination Date plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day
following the Determination Date. For purposes of determining under
this Section 4.03(ii) the number of shares of Common Stock outstanding
at any time, there shall be excluded all shares of Common Stock held
in the treasury of the Company or by any wholly-owned subsidiary of
the Company. If any or all such rights or warrants are not so issued
or expire or terminate before being exercised, the conversion price
then in effect shall be appropriately readjusted, but such
readjustment shall not be applied retroactively to any conversion
hereof effected prior to such readjustment.
(iii) In case the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (including
securities, but excluding cash dividends or a distribution referred to
in paragraph (i) above or paid out of surplus) or rights or warrants
to subscribe for or purchase any of the Company's securities
(excluding those referred to in Section 4.03(ii) above), the
conversion price shall be adjusted so that it shall equal the price
determined by multiplying the conversion price in effect immediately
prior to the close of business on the date fixed for the determination
of stockholders entitled to receive such distribution by a fraction of
which the numerator shall be the Current Market Price per share of the
Common Stock on the date fixed for such determination less the then
fair market value (as determined by the Board of Directors of the
Company, in good faith and in the exercise of its reasonable business
judgment and described in a resolution of the Board of Directors
certified by the Secretary or Assistant Secretary of the Company), of
the portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock; provided,
however, if exercise of such right or warrant is subject to the
occurrence of a contingent event, adjustment of the conversion price
shall be made in the manner provided for in Section 4.03(ii) above and
the date that the right or warrant becomes exercisable shall be deemed
to be the Determination Date for purposes of such adjustment. The
conversion price adjustment made pursuant to this Section 4.03(iii)
shall become effective immediately prior to the opening of business on
the day following the date fixed for
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the determination of stockholders entitled to receive such
distribution (except in the case of rights or warrants subject to
exercise upon the occurrence of a contingent event, in which case such
adjustment shall become effective at the time such rights or warrants
become exercisable).
(iv) For the purposes of this Article IV, the "Current
Market Price" per share of Common Stock on any date means the reported
last sale price per share of Common Stock regular way on such day or,
in case no such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in each case on the
New York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices in the
over-the-counter market as reported by the National Association of
Securities Dealers' Automated Quotation System, or, if not so
reported, as reported by the National Quotation Bureau, Incorporated,
or any successor thereof, or, if not so reported, the average of the
closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to
time by the Company for that purpose; or, in all other cases, the
value established by the Board of Directors in good faith; and the
"average" Price per share for any period shall be determined by
dividing the sum of the Prices determined for each Trading Day in such
period by the number of Trading Days in such period.
(v) All calculations under this Section 4.03 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(vi) No adjustment in the conversion price shall be required
pursuant to any subsection of this Section 4.03 unless such adjustment
(together with prior adjustments which by reason of this Section
4.03(vi) were not required to be made at the time otherwise required
by the above subsections of this Section 4.03) would require a change
of at least 1% in such price; provided, however, that any adjust ments
which by reason of this Section 4.03(vi) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment.
SECTION 4.04 Certain Notices and Calculations. Whenever the conversion
price is adjusted as provided in Section 4.03, the Company shall promptly
deliver to the holder hereof a certificate signed by two officers of the
Company setting forth the conversion price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
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computation thereof.
SECTION 4.05 Effect of Consolidation Merger, etc. In case of any
consolidation or merger of the Company with or into any other corporation
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), or in case of
any sale or transfer of all or substantially all of the assets of the Company,
or the reclassification of the Common Stock into another form of capital stock
of the Company, whether in whole or in part, the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities and property or cash (including, if applicable,
Common Stock) which the holder would have been entitled to receive upon such
consolidation, merger, sale, transfer or reclassification if he had held the
Common Stock issuable upon the conversion of this Note immediately prior to
such consolidation, merger, sale, transfer, or reclassification. The foregoing
provisions of this Section 4.05 shall similarly apply to successive
reclassifications and changes of shares of Common Stock of the Company and to
successive consolidations, mergers, sales, transfers, or reclassifications.
SECTION 4.06 Reservation of Shares. The Company covenants that it will
at all times reserve and keep available, free from pre-emptive rights, out of
its authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and non-assessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all Notes at the time outstanding.
SECTION 4.07 Certain Covenants. Before taking any action which would
cause an adjustment reducing the conversion price below the then stated or par
value of the shares of Common Stock issuable upon conversion of this Note, the
Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of such Common Stock at such adjusted
conversion price.
SECTION 4.08 Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting Noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other
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than that of the holder of this Note, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid; and provided, further, that in no event shall the Company be
required to pay or reimburse the holder for any income tax payable by such
holder as a result of such issuance.
SECTION 4.09 Certain Notices. In case:
(i) the Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or
assets (other than cash dividends or other cash distributions
paid out of surplus); or
(ii) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock or any class or of any other
rights; or
(iii) of any reclassification of the capital stock of the
Company (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or
merger to which the Company is a party and for which approval of
any stockholders of the Company is required, or of the sale,
lease or transfer of all or substantially all of the property of
the Company; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each case, the Company shall cause to be mailed, to the holder hereof
at such holder's last address as the same appears on the Note Register, at
least 20 days, but not more than 45 days, prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, lease, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, lease, transfer,
dissolution, liquidation or winding up.
SECTION 4.10 Common Stock Defined. Whenever reference is made in this
Note to the issue or sale of shares of Common Stock, the term "Common Stock"
shall include only shares of the class designated as Common Stock, $.0001 par
value, of the Company, at the date hereof or shares of any class or classes
resulting from any reclassification or reclassifications thereof and
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which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided,
that if at any time there shall be more than one such resulting class, the
shares of each such class then so deliverable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
ARTICLE V.
Particular Covenants of the Company
SECTION 5.01 Payment of Principal and Interest on Note. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and the interest on this Note at the place, at the respective
times and in the manner provided herein.
SECTION 5.02 Office for Notices and Payments etc. So long as this Note
remains outstanding, the Company will maintain in the City of Houston, Texas,
an office or agency where this Note may be presented for payment, an office or
agency where this Note may be presented for registration of transfer or
exchange or for conversion as herein provided, and an office or agency where
notices and demands to or upon the Company in respect of this Note may be
served. Until otherwise designated by the Company in a written notice such
offices or agencies shall be the executive offices of the Company.
SECTION 5.03 Limitation on Senior Debt. The Company covenants and
agrees that as long as this Note is outstanding it will not permit the
aggregate amount of Senior Indebtedness outstanding to exceed Fifty Million and
No/100 Dollars ($50,000,000.00).
ARTICLE VI.
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 6.01 Note Solely Corporate Obligations. No recourse for the
payment of the principal of or interest on this Note, or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Note, or because of
the creation of any indebtedness represented hereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute, or rule of law, or by the enforcement of any
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assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Note.
ARTICLE VII.
Remedies in Event of Default
SECTION 7.01 Event of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
(a) default in the payment of any installment of interest
upon this Note as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of this Note as
and when the same shall become due and payable either at maturity,
upon redemption, by declaration or otherwise; or
(c) failure on the part of the Company duly to observe or
perform any covenants or agreements (other than a covenant or
agreement the breach or a default in the performance of which is
elsewhere in this Section 7.01 specifically dealt with) on the part of
the Company that continues for a period of 30 days after the date on
which written notice (such written notice to state it is a "Notice of
Default" hereunder) of such failure, requiring the Company to remedy
the same, shall have been given to the Company and each holder of any
Senior Indebtedness and each entity committed or obligated to issue or
fund any Senior Indebtedness (provided that such holder or entity has
previously given the holders of the Notes written notice to the effect
that it is a holder of Senior Indebtedness or an entity committed or
obligated to issue or fund Senior Indebtedness (as the case may be)
and that such holder or entity requests that it be given any such
notice) by the holder hereof; or
(d) without the consent of the Company, a court having
jurisdiction shall enter an order for relief with respect to the
Company under the Bankruptcy Code or without the consent of the
Company a court having jurisdiction shall enter a judgment, order or
decree adjudging the Company a bankrupt or insolvent, or enter an
order for relief for reorganiza tion, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code
or applicable state insolvency law and the continuance of any such
judgment, order or decree unstayed and in effect for a period of 90
consecutive days; or
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(e) the Company shall institute proceedings for entry of an
order for relief with respect to the Company under the Bankruptcy Code
or for an adjudication of insolvency, or shall consent to the
institution of bankruptcy or insolvency proceedings against it, or
shall file a petition seeking, or seek or consent to reorganization,
arrangement, composition or relief under the Bankruptcy Code or any
applicable state law, or shall consent to the filing of such petition
or to the appointment of a receiver, custodian, liquidator, assignee,
trustee, sequestrator or similar official (other than a custodian
pursuant to 8 Delaware Code ss.226 or any similar statute under other
state laws) of the Company or of substantially all of its property, or
the Company shall make a general assignment for the benefit of
creditors as recognized under the Bankruptcy Code; or
(f) default in the payment of any principal of or interest
on any Senior Indebtedness or on any Pari Passu Debt having an
outstanding principal balance of at least $500,000 as and when the
same shall become due and payable and such failure is not cured within
the applicable grace period, if any, or any Senior Indebtedness or any
Pari Passu Debt having an outstanding principal balance of at least
$500,000 shall be declared to be due and payable prior to the stated
maturity thereof;
then and in each and every such case, unless the principal of this Note shall
have already become due and payable, the holders of a majority in outstanding
principal amount of the Notes ("Majority Holders"), by notice in writing to the
Company and each holder of any Senior Indebtedness and each entity committed or
obligated to issue or fund any Senior Indebtedness (provided that such holder
or entity has previously given the holder hereof written notice to the effect
that it is a holder of Senior Indebtedness or an entity committed or obligated
to issue or fund Senior Indebtedness (as the case may be) and that such holder
or entity requests that it be given any such notice), may declare the principal
of all Notes and any accrued interest to the date of declaration to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, subject to Article VIII.
SECTION 7.02 Remedies Cumulative and Continuing. All powers and
remedies given by this Article VII to the holders of the Notes shall, to the
extent permitted by law, be deemed cumulative and not exclusive of any other
thereof or of any other powers and remedies available to such holders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in the Notes, and no delay or omission
of any holder to exercise any right or power accruing upon any default
occurring and continuing as aforesaid, shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and every power and remedy given by this Article VII or by law to the
holders of the Notes may be exercised from time to time, and as often as shall
be deemed expedient, by such holders.
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SECTION 7.03 Waiver of Presentment, Demand, Etc. Except as provided
herein, the Company hereby waives presentment and demand for payment, protest,
notice of protest and nonpayment, notice of the intention to accelerate, notice
of acceleration, and agrees that its liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, and hereby consents to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.
ARTICLE VIII.
Subordination of Note
SECTION 8.01 Agreement of Subordination. The Company irrevocably
covenants and agrees, and the holder of this Note, by his acceptance thereof,
likewise irrevocably covenants and agrees, that the payment of the principal of
and interest on this Note is hereby expressly subordinated, to the extent and
in the manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness. The provisions of this Article VIII are made for the benefit of
the holders of Senior Indebtedness, and such holders shall, at any time, be
entitled to enforce such provisions against the Company or the holder hereof.
No holder of any Senior Indebtedness shall be deemed to owe any fiduciary duty
or any other obligation to any holder of this Note now or at any time
hereafter.
SECTION 8.02 Payment Over of Proceeds Upon Dissolution, etc. (a) In
the event of (x) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relative
to the Company or its creditors or its property, (y) any proceeding for
voluntary liquidation, dissolution or other winding up of the Company whether
or not involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshaling of the assets of the Company,
then and in any such event,
(i) all Senior Indebtedness (including interest accruing on
such Senior Indebtedness after the date of filing a petition or other
action commencing any such proceeding to the extent such interest is
an allowed claim) shall first be paid in full, or have provision made
for payment in full to the reasonable satisfaction of the holder of
any Senior Indebtedness, before the holder of this Note shall be
entitled to receive any payment on account of the principal of or
interest on the indebtedness evidenced by this Note, and
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, provided the rights of
the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate,
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at least to the extent provided in this Article VIII with
respect to this Note, to the payment of all Senior Indebtedness at the
time outstanding and to the payment of all securities issued in
exchange therefor to the holders of Senior Indebtedness at the time
outstanding), to which the holder of this Note would be entitled
except for the provisions of this Article VIII, shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders
of Senior Indebtedness or their representative or representatives or
to the trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on
account of the principal of and premium, if any, and interest on, the
Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid and/or outstanding (as the case may be), after giving effect to
any concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
(b) No payments on account of principal of or interest on
this Note shall be made unless full payment of amounts then due for
principal of (including any sinking fund payment), premium, if any,
and interest on all Senior Indebtedness has been made or otherwise
duly provided for to the reasonable satisfaction of each holder of any
Senior Indebtedness.
(c) In the event and during the continuation of any default
or event of default in respect of any Senior Indebtedness or under any
agreement under which any Senior Indebtedness was issued continuing
beyond the period of grace, if any, specified in such agreement, then,
unless and until such default shall have been cured or waived or shall
have ceased to exist, no payment shall be made by the Company and no
application of funds shall be made with respect to the principal of or
interest on this Note.
(d) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, provided that the rights of
the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate,
at least to the extent provided in this Article VIII with respect to
this Note, to the payment of all Senior Indebtedness at the time
outstanding and to the payment of all securities issued in exchange
therefor to the holders of Senior Indebtedness at the time
outstanding), shall be received by the holder of this Note during the
continuance of any event specified in Sections 8.02(a), 8.02(b) or
8.02(c) prohibiting such payment and before all Senior Indebtedness is
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paid in full or provision made for its payment to the
reasonable satisfaction of each holder of any Senior Indebtedness,
such payment or distribution (subject to Section 8.04) shall be
immediately paid by the holder hereof over to the holders of Senior
Indebtedness (or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued), upon
their written request remaining unpaid or unprovided for as provided
in the foregoing subsection (ii) of Section 8.02(a), for application
to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
(e) Subject to the payment in full of all Senior
Indebtedness and the irrevocable and complete termination of all
commitments and obligations to issue or fund any Senior Indebtedness
(and not before such time), the holder of this Note shall be
subrogated equally and ratably with the holders of all other Notes to
all rights of the holders of Senior Indebtedness to receive payments
or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal of and
interest on this Note shall be paid in full; and, for purposes of such
subrogation, no payments or distributions to the holders of Senior
Indebtedness of cash, property or securities distributable or paid
over to the holders of Senior Indebtedness under the provisions hereof
to which the holder of this Note or other Notes would be entitled
except for the provisions of this Article VIII shall, as between the
Company, its creditors other than the holders of Senior Indebtedness,
and the holder of this Note or of other Notes, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness, it
being understood that the provisions of this Article VIII are and are
intended solely for the purposes of defining the relative rights of
the holder of this Note, the holders of other Notes and the holders of
the Senior Indebtedness.
(f) Nothing contained in this Article VIII or elsewhere in
this Note is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness (and the
entities committed or obligated to issue or fund any Senior
Indebtedness), and the holder of this Note, the obligation of the
Company, which is absolute and unconditional, to pay to the holder
hereof the principal of and interest hereon, as and when the same
shall become due and payable in accordance with the terms hereof, or
is intended to or shall affect the relative rights of the holder
hereof and other creditors of the Company other than the holders of
the Senior Indebtedness (and the entities committed or obligated to
issue or fund any Senior Indebtedness), nor shall anything in this
Note prevent the holder from exercising all remedies otherwise
permitted by applicable law upon the happening of any Event of Default
under this Note, subject to the rights, if any, under this Article
VIII of the holders of Senior Indebtedness (and the entities committed
or obligated
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to issue or fund any Senior Indebtedness) in respect of
cash, property or securities of the Company received upon the exercise
of any such remedy.
(g) Without notice to or the consent of the holder of this
Note, the holders of the Senior Indebtedness or the entities committed
or obligated to issue or fund any Senior Indebtedness may at any time
and from time to time, without impairing or releasing the
subordination herein made, change the manner, place or terms of
payment, or change or extend the time of payment of or renew or alter
the Senior Indebtedness or the commitment or obligation to issue or
fund any Senior Indebtedness, or amend or supplement in any manner any
instrument evidencing the Senior Indebtedness or the commitment or
obligation to issue or fund any Senior Indebtedness, any agreement
pursuant to which the Senior Indebtedness was issued or incurred or
any instrument securing or relating to the Senior Indebtedness or the
commitment or obligation to issue or fund any Senior Indebtedness;
release any person liable in any manner for the payment or collection
of the Senior Indebtedness; exercise or refrain from exercising any
rights in respect of the Senior Indebtedness against the Company or
any other person; apply any money or other property paid by any person
or released in any manner to the Senior Indebtedness; accept or
release any security for the Senior Indebtedness; sell, exchange,
release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; or exercise or refrain from
exercising any rights against the Company or any other person; all
without thereby impairing in any respect the rights of such holders of
Senior Indebtedness as provided in this Article VIII.
SECTION 8.03 No Waiver of Subordination Provision. No right of any
present or future holder of any Senior Indebtedness of the Company to enforce
subordination, as herein provided, shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Note, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 8.04 Payments to Noteholder. Nothing contained in this Article
VIII or elsewhere in this Note, shall, however, affect the obligation of the
Company to make, or prevent the Company from making, at any time, except as
provided in Section 8.02, payments of principal of or interest on this Note.
SECTION 8.05 Authorization of Noteholder to Company to Effect
Subordination. The holder of this Note by his acceptance hereof irrevocably
authorizes and directs the Company on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article VIII and appoints the Company his attorney-in-fact for such purpose.
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SECTION 8.06 All Provisions of Note Qualified by Article VIII.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Article VIII, so far as the same may be applicable thereto.
ARTICLE IX.
Miscellaneous Provisions
SECTION 9.01 Successors and Assigns of Company Bound. All the
covenants, stipulations, promises and agreements in this Note contained by or
in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 9.02 Notice to Noteholder. When this Note provides for notice
to the holder of any event, such notice shall be sufficiently given (unless
otherwise expressly herein provided) if in writing and mailed, first class,
postage prepaid, to the holder at his address as it appears on the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any notice which is mailed to
the holder in the manner herein provided shall be conclusively presumed to have
been duly given. Where this Note provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 9.03 TEXAS CONTRACT. THIS NOTE SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF TEXAS, AND FOR ALL PURPOSES SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 9.04 Legal Holidays. In any case where the date of maturity of
interest on or principal of this Note or the date fixed for redemption of this
Note shall not be a Business Day, then payment of interest on or principal of
this Note need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such prior date.
SECTION 9.05 Severability. In case any provision of this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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ARTICLE X.
Definitions
SECTION 10.01 Definitions. The terms defined in this Section 10.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Note shall have the respective meanings
specified in this Section 10.01.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
United States Code ss. 101 et seq. or any successor statute thereto.
"Board of Directors", when used with reference to the Company, shall
mean the Board of Directors of the Company, or any committee of such Board
authorized to exercise the powers and authority of such Board with respect to
the action purportedly taken by such committee.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in the City of Houston, Texas are authorized or
required by law to close.
"Indebtedness" shall mean the following, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed, (a) the
principal of, premium if any, and interest on (i) indebtedness of the Company
for money borrowed, (ii) indebtedness of the Company evidenced by bonds, notes,
debentures or similar obligations, (iii) capitalized lease obligations, (iv)
indebtedness or obligations incurred, assumed or guaranteed by the Company in
connection with the acquisition or improvement of any property or asset or the
acquisition by it or by a Subsidiary of any business, (v) indebtedness of
others of the kinds described in the preceding clauses (i), (ii), (iii), and
(iv), assumed or guaranteed by the Company or in effect guaranteed by the
Company through an agreement to purchase or otherwise, (vi) obligations which
would be classified as liabilities on the balance sheet of the Company in
accordance with generally accepted accounting principles, evidencing the
purchase price for the acquisition of assets of any kind, tangible or
intangible, by the Company or a Subsidiary, except in the ordinary course of
business, and (b) any increases, refundings, renewals, rearrangements or
extensions of and amendments, modifications and supplements to any
indebtedness, liability or obligation described in clause (a) above.
"Junior Indebtedness" shall mean Indebtedness which, by the terms of
the instrument by which such Indebtedness is created or evidenced, ranks junior
and subordinate in right of payment to the Notes.
"Note" shall mean this Note and any Note issued on exchange or
transfer hereof.
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"Noteholder," "holder of this Note" or other similar terms mean any
person in whose name at the time this Note shall be registered in the Note
Register kept for that purpose in accordance with the terms hereof.
"Pari Passu Debt" shall mean any Indebtedness other than (a) Senior
Indebtedness and (b) Junior Indebtedness.
"Senior Bank Lenders" means any commercial lending institution or
group of commercial lending institutions that are or become parties to the
Company's principal working capital, acquisition financing or long-term debt
credit facilities.
"Senior Indebtedness" shall mean whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed, the principal of,
premium if any, and interest on Indebtedness for money borrowed by the Company
in an aggregate amount not exceeding Fifty Million and No/100 Dollars
($50,000,000.00) and owed to Senior Bank Lenders.
"Subsidiary" shall mean any corporation of which the Company, or the
Company and one or more Subsidiaries, or any one or more Subsidiaries, directly
or indirectly own voting securities entitling the holders thereof to elect a
majority of the directors, either at all times or so long as there is no
default or contingency which permits the holders of any other class or classes
of securities to vote for the election of one or more directors.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by a duly authorized officer and has caused a facsimile or its
corporate seal to be imprinted hereon.
ADVANCED COMMUNICATIONS GROUP, INC.
[SEAL]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
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EXHIBIT A
[Form of Conversion Notice]
To Advanced Communications Group, Inc.:
The undersigned registered holder of $_________ principal amount of
10% Senior Convertible Subordinated Notes due [anniversary date of closing],
1999 of Advanced Communications Group, Inc. (the "Note") hereby irrevocably
exercises the option to convert the Note into shares of Common Stock of
Advanced Communications Group, Inc. in accordance with the terms of Section
4.01 of the Note, and directs that the shares issuable and deliverable upon
such conversion, together with a check in payment for any fractional share, be
issued and delivered to the holder hereof unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, this Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to Advanced Communications Group,
Inc. duly executed by, the undersigned, and the undersigned will pay all
transfer taxes payable with respect thereto.
Dated:
----------------------- -----------------------------------
Signature of Noteholder
If different from that of Noteholder, print name, address (including zip code)
and social security or other taxpayer identification number of person in whose
name the Common Stock will be issued:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
(zip code)
- ---------------------------------------
Social Security or other Taxpayer
Identification Number of Noteholder
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ANNEX IV
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES G WARRANT
Total Number of Series G Warrants: 50,000 Warrant No. G
Number of Series G Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time after the
closing and (b) on or before the Expiration Date, to purchase from the Company
one fully paid and nonassessable share of Common Stock at the Exercise Price,
subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Agreement and Plan of Exchange dated as of
October 6, 1997 by and among Company, Firstel and others, including the initial
registered holder of this Warrant Certificate.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of FirsTel as contemplated by the Agreement.
"Closing Date" means the date upon which the Closing occurs.
"Common Stock" means the Common Stock, $.0001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
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"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September 1997.
"Conversion Securities" means the Common Stock or other securities or
property receivable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $_____ [IPO Price].
"Expiration Date" means 5:00 p.m., Houston Time on the fifth
anniversary of the Closing Date.
"FirsTel" means Firstel, Inc., a South Dakota corporation.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other
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cases, the value established by the Board of Directors in good faith; and the
"average" Price per share for any period shall be determined by dividing the
sum of the Prices determined for each Trading Day in such period by the number
of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series G Warrants represented by this Warrant
Certificate.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for the
number of Warrants being exercised. If the holder of this Warrant Certificate
at any time exercises less than all the Warrants evidenced by this Warrant
Certificate, the Company shall issue to such holder a Warrant Certificate
identical in form to this Warrant Certificate, but evidencing a number of
Warrants equal to the number of Warrants originally represented by this Warrant
Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 16 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of this Warrant Certificate, the Warrants
evidenced hereby or the Conversion Securities in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. Each
certificate representing Conversion Securities shall bear a legend
substantially similar to the bold-faced legend appearing in Section 17 of the
Agreement. Reference is made to Sections 16, 17, 18 and 19 of the Agreement
that relate to the non-transferability of the
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Warrants, the type of legend that shall be imprinted on Conversion Securities
and the rights of the holders of Conversion Securities to secure registration
of their securities under the Acts under certain circumstances. Such sections
are incorporated by reference herein. The Company shall deem and treat the
registered holder of this Warrant Certificate as the true and lawful owner of
the Warrants evidenced hereby for all purposes, any claims of another person to
the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Closing Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants evidenced by this Warrant Certificate at any time after the
Closing Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided in paragraph (a)
of this Section 3. The provisions of paragraph (a) of this Section 3 shall
similarly apply to successive reclassifications, changes, consolidations or
mergers.
(b) Subdivisions and Combinations. If the Company, at any time
after the Closing Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of
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the Warrants evidenced by this Warrant Certificate shall be proportionately
increased, as at the effective date of such subdivision, dividend or
distribution or if the Company shall take a record of holders of its Common
Stock for such purpose, as at such record date, whichever is earlier. If the
Company, at any time after the Closing Date, shall combine its shares of Common
Stock into a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall be proportionately increased, and the number of
shares of Common Stock purchasable upon exercise of the Warrants evidenced by
this Warrant Certificate shall be proportionately reduced, as at the effective
date of such combination, or if the Company shall take a record of holders of
its Common Stock for purposes of such combination, as at such record date,
whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any time
after the Closing Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock multiplied by the
Market Price, and (2) the consideration, if any, received and deemed
received by the Company upon the issuance of such additional shares of
Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common
Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common Stock) pursuant to Employee Benefit Plans
shall not exceed 10% of the Company's outstanding Common Stock (on a fully
diluted basis using the treasury stock method) at the time of such issuance;
(w) are issued pursuant to any Common Stock Equivalent (i) which was
outstanding on the Closing Date or (ii) if upon the issuance of any such
Common Stock Equivalent, any such adjustments shall previously have been made
pursuant to paragraph (d) of this Section 3 or (iii) if no adjustment was
required pursuant to paragraph (d) of this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Closing Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which
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additional shares of Common Stock may be issuable thereunder is amended, then
the Exercise Price upon each such issuance or amendment shall be adjusted as
provided in paragraph (c) of this Section 3 on the basis that (i) the maximum
number of additional shares of Common Stock issuable pursuant to all such
Common Stock Equivalents shall be deemed to have been issued as of the earlier
of (a) the date on which the Company shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (b) the date of actual issuance of
such Common Stock Equivalent; and (ii) the aggregate consideration for such
maximum number of additional shares of Common Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the issuance
of such additional shares of Common Stock pursuant to such Common Stock
Equivalent; provided, however, that no adjustment shall be made pursuant to
paragraph (d) of this Section 3 unless the consideration received and
receivable by the Company per share of Common Stock for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent is
less than the Market Price. No adjustment of the Exercise Price shall be made
under paragraph (d) of this Section 3 upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made in the Exercise Price then in effect upon the issuance of such
warrants or other rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be applicable
to the making of adjustments in the Exercise Price hereinbefore provided in
this Section 3:
i. The consideration received by the Company shall be deemed
to be the following: (I) to the extent that any additional shares of
Common Stock or any Common Stock Equivalent shall be issued for cash
consideration, the consideration received by the Company therefor, or,
if such additional shares of Common Stock or Common Stock Equivalent
are offered by the Company for subscription, the subscription price,
or, if such additional shares of Common Stock or Common Stock
Equivalent are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment
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or satisfaction of any dividend upon any class of stock
other than Common Stock, the Company shall be deemed to have received
for such additional shares of Common Stock or Common Stock Equivalent
(which shall not be deemed to be a dividend payable in, or other
distribution of, Common Stock under paragraph (b) of this Section 3)
consideration equal to the amount of such dividend so paid or
satisfied.
ii. Upon the expiration of the right to convert, exchange or
exercise any Common Stock Equivalent the issuance of which effected an
adjustment in the Exercise Price, if any such Common Stock Equivalent
shall not have been converted, exercised or exchanged, the number of
shares of Common Stock deemed to be issued and outstanding because
they were issuable upon conversion, exchange or exercise of any such
Common Stock Equivalent shall no longer be computed as set forth
above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term "shares of
Common Stock" shall mean shares of (i) the class of stock designated
as the Common Stock of the Company at the Closing Date or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrants contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in effect
from time to time shall be calculated to four decimal places and
rounded to the nearest thousandth.
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4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer,
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dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, issuance, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Common Stock (and other securities), for the
purpose of enabling it to satisfy any obligation to issue shares of Common
Stock (and other securities) upon the exercise of the Warrants evidenced by
this Warrant Certificate, the number of shares of Common Stock (and other
securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued
upon exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
FirsTel, Inc.
110 South Phillips, Suite 202
Souix Falls, South Dakota 57104
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and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this _____ day of __________, 1997 by its Chairman and Chief
Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced by this
Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate Exercise Price
thereof, and requests that the certificate representing the securities issuable
hereunder be issued in the name of _____________________ and delivered to ,
whose address is_______________________________. .
Dated:___________________ ___________________________________________
________________________________________
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written on
the face of this Warrant Certificate in
every particular, without alteration or
enlargement or any change whatsoever.
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ANNEX V
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of ___________,
1997, by Fred L. Thurman ("Employee") and FirsTel, Inc., a South Dakota
corporation ("Company") (collectively referred to as the "Parties"). The
Company and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and the Company, the Company
employs Employee, and Employee accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc. ("ACG"), a Delaware corporation. Unless the
context otherwise clearly requires, all references to ACG in this Agreement
shall include ACG, the Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the fifth anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to the Company under this Agreement,
the Company shall pay to Employee during the term of this Agreement a
base salary ("Base Salary") of $175,000 per annum, payable in equal
semi-monthly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions
applied generally to employees of the Company for any employee benefit
plans.
3.2 After the first twelve consecutive months of employment after the date
first set forth above, and after every consecutive twelve-month period
thereafter, Employee shall be eligible to receive a potential cash
bonus up to 50% of Employee's Base Salary ("Bonus") to be based upon
his performance as determined by the Compensation Committee of the
Board of Directors ("Compensation Committee") of ACG. Employee agrees
that the decision as to whether to award a Bonus and the percentage
amount thereof will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
<PAGE>
3.3 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.4 Employee will be awarded one hundred thousand (100,000) options to
acquire common stock in Advanced Communications Group, Inc. at an
exercise price equal to the initial public offering price per share.
The options shall have a term of five years and shall become
exercisable in one-third increments on each anniversary date of the
date hereof. Accordingly, the options shall become fully vested three
years from the date hereof; provided, however, that the vesting of
such options will be accelerated in the event of the termination of
Employee's employment hereunder pursuant to Sections 6.1(b),(d) or
(f), and in the event of any other termination, no options shall vest
after the date of termination. The options shall, except as provided
herein, be granted pursuant to ACG's 1997 Stock Awards Plan, a copy of
which has heretofore been delivered to Employee. The options shall,
except as provided herein, be subject to such terms and conditions as
may be prescribed by the Compensation Committee.
3.5 Employee shall receive benefits commensurate with his level of
employment under the executive employee benefits plans of ACG.
4. Duties and Extent of Service.
Employee shall hold the office of President of the Company. At no additional
compensation, Employee shall also serve Advanced Communications Group, Inc. as
its President -- Telecommunications Group. Employee agrees to perform the
duties incidental to his positions, as determined from time to time by the
Chief Executive Officer of Advanced Communications Group, Inc. Employee shall
devote such time, attention, and energy to the business of ACG as are required
to perform his duties and responsibilities. Employee shall not after the date
hereof and during the remaining term of this Agreement -- except in connection
with (i) Employee's ownership interest in Thurman, Comes, Foley & Co., P.C.,
(ii) the occasional services provided with respect thereto, (iii) his
director's positions held on the Family Bank and SGL Holding Co. boards of
directors, and (iv) his indirect involvement with Larsen Designs, Ltd., which
is his wife's gift store -- be engaged, directly or indirectly, in any other
business activity if pursued for gain, profit, or other pecuniary advantage
without the prior written consent of the Chief Executive Officer of Advanced
Communications Group, Inc. In any event after the date hereof, Employee shall
not take any action inconsistent with Employee's relationship and
responsibilities as an employee of the Company and ACG, or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
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<PAGE>
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
names and information relating to potential acquisition candidates;
financing sources and other business relationships; information
relating to confidential or secret designs, processes, formulae,
plans, devices, or materials of ACG's business and marketing plans,
confidential information and trade secrets relating to the
distribution and marketing of ACG's products and services; patents
pending; confidential characteristics of ACG's products and services;
customer comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG; management,
accounting, and reporting systems, procedures, and programs; off net
contracts, leases, marketing agreements, sales employee compensation
information, plans, and programs; marketing and financial analysis,
plans, research, programs, and related information and data; forms,
agreements, and legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and other
similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
5.3 Employee will not, at any time during or within five years after the
term of this Agreement or his employment with ACG, disclose any
Confidential Information to any person, firm, corporation,
association, or other entity for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG, the
Company or the Company's predecessor in interest; or (b) information
that is or shall lawfully be published or become part of the general
knowledge through no act or omission of Employee. The Confidential
Information disclosed to Employee under this Agreement is not within
the foregoing exceptions merely because such information is embraced
by more general information in the public domain or in Employee's
possession; or merely because portions thereof are in the public
domain or in Employee's possession.
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<PAGE>
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by ACG and for a period of
one year (in the case of involuntary termination) or two years ( in
the case of termination that is not involuntary termination)
immediately after the termination of this Agreement or his employment
with ACG, he will not, for himself, or on behalf of any other person,
firm, partnership, company, or corporation (i) generally compete in
any manner whatsoever with ACG or solicit, accept, divert, or take
away from ACG the business of any person, company, or business; (ii)
directly or indirectly induce or attempt to influence any employee,
officer, director, consultant, agent, vendor or other entity related
to ACG to terminate his or her employment or association in any manner
whatsoever with ACG; or (iii) engage in any commercial or technical
activity involving the development, formulation, manufacture,
production, distribution, marketing or sale of any product and
services that ACG designs, produces, manufactures, distributes,
markets or sells during the term of this Agreement or Employee's
employment with ACG. The prescribed territory in which Employee shall
not compete with ACG as outlined in this Paragraph 5.5 shall consist
of all of those areas of the United States in which ACG is doing
business at the time of Employee's termination of employment. The
obligations of Employee pursuant hereto are additional to the
obligations described in Section 15 of the Agreement and Plan of
Exchange dated contemporaneously herewith.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by ACG, including
the special training, knowledge, and confidential information that
will be acquired in the course of such employment, will give Employee
distinct and substantial advantages for potential sales activities
concerning such products and services. Employee further understands
and acknowledges that: because of the definition of products and
services covered by this Agreement, the highly specialized nature of
those products and services, the limited size and number of business
entities in the business of developing and/or selling those products
and services, and the much more numerous opportunities for Employee to
work in his trade with respect to products and services not covered by
this Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly onerous
on Employee. Employee therefore agrees that the limitations as to
time, geographic area, and scope of activity contained in Paragraph
5.5 do not impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business interests of
ACG. Employee also
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<PAGE>
agrees that in light of the facts acknowledged above, the substantial
investment of ACG in developing its business and providing special
training to Employee, and the certain and substantial harm that ACG
would suffer if Employee were to engage in any of the activities
described in Paragraph 5.5, ACG's need for the protection afforded by
Paragraph 5.5 is greater than any hardship Employee might experience
by complying with its terms. Employee also agrees that, if any
provision of the covenant set forth in Paragraph 5.5 is found to be
invalid in part or whole, ACG may elect, but shall not be required, to
have such provision reformed, whether as to time, geographic area,
scope of activity, or otherwise, as and to the extent required for its
validity under applicable law, and, as so reformed, such provisions
shall be enforceable.
5.7 Employee acknowledges that a violation or attempted violation on his
part of any provision in this Paragraph 5 may cause irreparable damage
to ACG. Accordingly, in the event of a breach or threatened breach by
Employee of the provisions of this Paragraph 5, Employee agrees that
ACG shall be entitled as a matter of right to an injunction, out of
any court of competent jurisdiction, restraining any violation or
further violation of such agreements by Employee or his agents,
without showing any evidence of actual monetary loss resulting from
such breach, including, but not limited to, restraining Employee from
using or disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any person,
firm, corporation, or other entity to whom any of such information may
have been disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be construed as
prohibiting ACG from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages
and attorneys' fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled such that he no longer is reasonably able to perform his
duties as contemplated by this Agreement, the Company shall pay
to Employee, or to the estate of Employee if he dies, that part
of his
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<PAGE>
Base Salary which would otherwise be payable to Employee through
the end of the month in which his death or disability occurs,
after giving effect to accrued sick leave benefits and accrued
vacation time, if any. Upon such payment, as well as applicable
insurance benefits, if any, all obligations of ACG to the
Employee or his estate shall be fully satisfied, and this
Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and the Company shall pay to Employee that part of
his Base Salary which would otherwise be payable to Employee
through the effective date of his resignation. Upon such payment,
all obligations in any manner whatsoever of ACG to Employee shall
be fully satisfied.
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of ACG after
the date hereof, and either of these changes significantly alters
Employee's job responsibilities or compensation, Employee may
resign from his positions within 60 days of such a change. If
Employee resigns pursuant to this paragraph, the Company will
continue to provide Employee with his monthly compensation for a
period of two years after the initial date of any such change.
Employee is not entitled to receive any Bonus if he resigns as
provided in this paragraph. For the period after Employee's
resignation during which Employee will be paid, Employee will not
have any authority to act on behalf of ACG. If such a change in
control and either job responsibilities or compensation occurs
and Employee's employment under this Agreement is terminated
without cause or Employee resigns pursuant to this paragraph, any
of Employee's options that have not vested shall immediately
become fully vested.
(e) Termination by the Company "With Cause." If Employee (i) violates
any material provision of this Agreement; (ii) fails to perform
the services required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; and/or (iv) is
convicted of a crime other than a routine traffic violation, ACG
may terminate the employment of Employee with cause. If Employee
is terminated "with cause," Employee shall not be entitled to
receive any further salary or benefits under this Agreement other
than payment for that part of Employee's compensation that would
otherwise be payable to Employee through the last date of his
employment with ACG. Upon
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<PAGE>
such payment, all obligations of ACG to Employee shall be fully
satisfied, and this Agreement will terminate. Employee shall not
be entitled to receive any Bonus or accrued vacation pay if his
termination is "with cause."
(f) Termination by the Company Without Cause. In the event the
Company terminates Employee's employment for any reason other
than as described in (d) or (e) above, Employee shall be entitled
to the Base Salary for a period of one year from termination.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraph 5.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of ACG shall be
the sole and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies thereof,
shall be retained by Employee upon termination of his employment. This
ACG property shall not be removed from ACG premises without ACG's
prior written consent.
7.2 Upon termination of this Agreement or whenever requested by ACG,
Employee immediately shall deliver to ACG all of the ACG property or
any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes, accounting machines, and all office
furniture and fixtures, supplies, equipment, and other personal
property placed in the office of ACG. No copies of any such data shall
be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at FirsTel, Inc., 110 South Phillips Avenue,
Suite 202, Sioux Falls, South Dakota 57104-6727 (Telecopy No.: 605-332-8004),
and to the Company, c/o Rod K. Cutsinger, 3355 West Alabama, Suite 580,
Houston, Texas 77098, or to such other address as either party shall designate
by written notice to the other. Notices may be sent by
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<PAGE>
messenger or by registered or certified mail, postage prepaid, addressed to the
party or parties to be notified, with return receipt requested. Notices sent by
messenger shall be deemed received upon their actual receipt of the party to
whom they are directed. Notices sent by registered or certified mail shall be
deemed received on the third day following their deposit with the United States
Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by ACG or Employee concerning the subject matter contained in this
Agreement, including, but not limited to, Employee's employment, termination
from, and/or affiliation with ACG shall be settled by arbitration in Houston,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his or
her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. Any and all charges that may be made for the cost
of the arbitration and the fees and expenses of the arbitrator shall be borne
equally by the parties; attorneys' fees and witness expenses shall be borne by
the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of ACG under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of
ACG. This Agreement shall be binding upon the Employee and his agents,
heirs, executors, administrators and legal representatives. The rights
and obligations of Employee hereunder shall not be assignable by
Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among ACG, the Employee and Rod K. Cutsinger in connection
with the subject matter hereof.
10.5 The waiver by ACG of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by ACG of any
subsequent breach by Employee.
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<PAGE>
10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the remainder of this Agreement, but the effect
thereof shall be confined to the clause, sentence, subparagraph,
paragraph, or section so adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day
and year first above written.
"COMPANY" "EMPLOYEE"
FIRSTEL, INC.
- ---------------------------------- ----------------------------------
By: Rod K. Cutsinger Fred L. Thurman
Its: Chairman
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<PAGE>
ANNEX VI
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of ___________,
1997, by W. Bradley Van Leur ("Employee") and FirsTel, Inc., a South Dakota
corporation ("Company") (collectively referred to as the "Parties"). The
Company and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and the Company, the Company
employs Employee, and Employee accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc. ("ACG"), a Delaware corporation. Unless the
context otherwise clearly requires, all references to ACG in this Agreement
shall include ACG, the Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the fifth anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to the Company under this Agreement,
the Company shall pay to Employee during the term of this Agreement a
base salary ("Base Salary") of $110,000 per annum, payable in equal
semi-monthly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions
applied generally to employees of the Company for any employee benefit
plans.
3.2 After the first twelve consecutive months of employment after the date
first set forth above, and after every consecutive twelve-month period
thereafter, Employee shall be eligible to receive a potential cash
bonus up to 50% of Employee's Base Salary ("Bonus") to be based upon
his performance as determined by the Compensation Committee of the
Board of Directors ("Compensation Committee") of ACG. Employee agrees
that the decision as to whether to award a Bonus and the percentage
amount thereof will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
<PAGE>
3.3 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.4 Employee will be awarded fifty thousand (50,000) options to acquire
common stock in Advanced Communications Group, Inc. at an exercise
price equal to the initial public offering price per share. The
options shall have a term of five years and shall become exercisable
in one-third increments on each anniversary date of the date hereof.
Accordingly, the options shall become fully vested three years from
the date hereof; provided, however, that the vesting of such options
will be accelerated in the event of the termination of Employee's
employment hereunder pursuant to Section 6.1(d) or Section 6.1(f), and
in the event of any other termination, no options shall vest after the
date of termination. The options shall, except as provided herein, be
granted pursuant to ACG's 1997 Stock Awards Plan, a copy of which has
heretofore been delivered to Employee. The options shall, except as
provided herein, be subject to such terms and conditions as may be
prescribed by the Compensation Committee.
3.5 Employee shall receive benefits commensurate with his level of
employment under the executive employee benefits plans of ACG.
3.6 Until the first anniversary of this Agreement, Employee shall be
entitled to a sales bonus ("Sales Bonus") each month equal to ten
percent (10%) of the amount that (a) the monthly sales achieved by the
Company in that calendar month exceeds (b) Thirty-Five Thousand
Dollars ($35,000.00) (the "Sales Target"). Adjustments to the Sales
Target subsequent to the first anniversary shall be made from time to
time, but in no event less frequently than annually, in order to
account for new factors bearing directly on the Employee's efforts and
contributions to sales (e.g., inflation, increase in the number of
salespersons reporting directly or indirectly to Employee, the effects
of future acquisitions, market conditions, prior performance, etc.).
If the President of the Company and the Employee are unable to agree
upon the Sales Target for any particular period following the first
anniversary, then it shall be finally determined in good faith by the
Compensation Committee.
3.7 Employee shall be entitled to an additional bonus ("Annual Billed
Usage Bonus") paid annually, commencing on the first anniversary of
this Agreement, equal to the sum of the Excess Usage for the prior
twelve calendar months. "Excess Usage" means, in any particular
calendar month, five tenths of a percent (0.5%) of the amount that (a)
the monthly sales achieved by the Company in that calendar month
exceeds (b) Eight Hundred Thousand Dollars ($800,000.00) (the "Monthly
Billed Usage Target").
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<PAGE>
Adjustments to the Monthly Billed Usage Target subsequent to the first
anniversary shall be made from time to time, but in no event less
frequently than annually, in order to account for new factors bearing
directly on the Employee's efforts and contributions to annual billed
usage (e.g., inflation, increase in the number of salespersons
reporting directly or indirectly to Employee, the effects of future
acquisitions, market conditions, prior performance, etc.). If the
President of the Company and the Employee are unable to agree upon the
Monthly Billed Usage Target for any particular period following the
first anniversary, then it shall be finally determined in good faith
by the Compensation Committee.
3.8 Employee shall be entitled to an automobile allowance of $400 per
month.
4. Duties and Extent of Service.
Employee shall hold the office of ______________ of the Company. At no
additional compensation, Employee shall also serve Advanced Communications
Group, Inc. as its Vice President -- Sales and Marketing / Telecommunications
Group. Employee agrees to perform the duties incidental to his positions, as
determined from time to time by the Chief Executive Officer of Advanced
Communications Group, Inc. Employee shall devote such time, attention, and
energy to the business of ACG as are required to perform his duties and
responsibilities. Employee shall not after the date hereof and during the
remaining term of this Agreement be engaged, directly or indirectly, in any
other business activity if pursued for gain, profit, or other pecuniary
advantage without the prior written consent of the Chief Executive Officer of
Advanced Communications Group, Inc. In any event after the date hereof,
Employee shall not take any action inconsistent with Employee's relationship
and responsibilities as an employee of the Company and ACG or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
names and information relating to potential acquisition candidates;
financing sources and other business relationships; information
relating to confidential or secret designs, processes, formulae,
plans, devices, or materials of ACG's business and marketing plans,
confidential information and trade secrets relating to the
distribution and
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<PAGE>
marketing of ACG's products and services; patents pending;
confidential characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG; management,
accounting, and reporting systems, procedures, and programs; off net
contracts, leases, marketing agreements, sales employee compensation
information, plans, and programs; marketing and financial analysis,
plans, research, programs, and related information and data; forms,
agreements, and legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and other
similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
5.3 Employee will not, at any time during or after the term of this
Agreement or his employment with ACG disclose any Confidential
Information to any person, firm, corporation, association, or other
entity for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG, the
Company or the Company's predecessor in interest; or (b) information
that is or shall lawfully be published or become part of the general
knowledge through no act or omission of Employee. The Confidential
Information disclosed to Employee under this Agreement is not within
the foregoing exceptions merely because such information is embraced
by more general information in the public domain or in Employee's
possession, or merely because portions thereof are in the public
domain or in Employee's possession.
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by ACG and for a period of
one year immediately after the termination of this Agreement or his
employment with ACG, regardless of whether such termination of
employment is voluntary or involuntary, he will not, for himself, or
on behalf of any other person, firm, partnership, company, or
corporation (i) generally compete in any manner whatsoever with ACG or
solicit, accept, divert, or take away from ACG the business of any
person, company, or business; (ii) directly or indirectly induce or
attempt to influence any employee, officer, director, consultant,
agent, vendor or other entity related to ACG to terminate his or her
employment or association in any manner whatsoever with ACG; or (iii)
engage in any commercial or technical activity involving the
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<PAGE>
development, formulation, manufacture, production, distribution,
marketing or sale of any product and services that ACG designs,
produces, manufactures, distributes, markets or sells during the term
of this Agreement or Employee's employment with ACG. The prescribed
territory in which Employee shall not compete with ACG as outlined in
this Paragraph 5.5 shall consist of all of those areas of the United
States in which ACG is doing business at the time of Employee's
termination of employment. The obligations of Employee pursuant hereto
are additional to the obligations described in Section 15 of the
Agreement and Plan of Merger dated contemporaneously herewith.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by ACG, including
the special training, knowledge, and confidential information that
will be acquired in the course of such employment, will give Employee
distinct and substantial advantages for potential sales activities
concerning such products and services. Employee further understands
and acknowledges that: because of the definition of products and
services covered by this Agreement, the highly specialized nature of
those products and services, the limited size and number of business
entities in the business of developing and/or selling those products
and services, and the much more numerous opportunities for Employee to
work in his trade with respect to products and services not covered by
this Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly onerous
on Employee. Employee therefore agrees that the limitations as to
time, geographic area, and scope of activity contained in Paragraph
5.5 do not impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business interests of
ACG. Employee also agrees that in light of the facts acknowledged
above, the substantial investment of ACG in developing its business
and providing special training to Employee, and the certain and
substantial harm that ACG would suffer if Employee were to engage in
any of the activities described in Paragraph 5.5, ACG's need for the
protection afforded by Paragraph 5.5 is greater than any hardship
Employee might experience by complying with its terms. Employee also
agrees that, if any provision of the covenant set forth in Paragraph
5.5 is found to be invalid in part or whole, ACG may elect, but shall
not be required, to have such provision reformed, whether as to time,
geographic area, scope of activity, or otherwise, as and to the extent
required for its validity under applicable law, and, as so reformed,
such provisions shall be enforceable.
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<PAGE>
5.7 Employee acknowledges that a violation or attempted violation on his
part of any provision in this Paragraph 5 may cause irreparable damage
to ACG. Accordingly, in the event of a breach or threatened breach by
Employee of the provisions of this Paragraph 5, Employee agrees that
ACG shall be entitled as a matter of right to an injunction, out of
any court of competent jurisdiction, restraining any violation or
further violation of such agreements by Employee or his agents,
without showing any evidence of actual monetary loss resulting from
such breach, including, but not limited to, restraining Employee from
using or disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any person,
firm, corporation, or other entity to whom any of such information may
have been disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be construed as
prohibiting ACG from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages
and attorneys' fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled such that he no longer is reasonably able to perform his
duties as contemplated by this Agreement, the Company shall pay
to Employee, or to the estate of Employee if he dies, that part
of his Base Salary which would otherwise be payable to Employee
through the end of the month in which his death or disability
occurs, after giving effect to accrued sick leave benefits and
accrued vacation time, if any. Upon such payment, as well as
applicable insurance benefits, if any, all obligations of ACG to
the Employee or his estate shall be fully satisfied, and this
Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and the Company shall pay to Employee that part of
his Base Salary which would otherwise be payable to Employee
through the effective date of his resignation. Upon such payment,
all obligations in any manner whatsoever of ACG to Employee shall
be fully satisfied.
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<PAGE>
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of ACG after
the date hereof, and either of these changes significantly alters
Employee's job responsibilities or compensation, Employee may
resign from his positions within 60 days of such a change. If
Employee resigns pursuant to this paragraph, the Company will
continue to provide Employee with his monthly compensation for a
period of two years after the initial date of any such change.
Employee is not entitled to receive any Bonus, Sales Bonus, or
Annual Billed Usage Bonus (collectively, "Benefits") if he
resigns as provided in this paragraph. For the period after
Employee's resignation during which Employee will be paid,
Employee will not have any authority to act on behalf of ACG. If
such a change in control and either job responsibilities or
compensation occurs and Employee's employment under this
Agreement is terminated without cause or Employee resigns
pursuant to this paragraph, any of Employee's options that have
not vested shall immediately become fully vested.
(e) Termination by the Company "With Cause." If Employee (i) violates
any material provision of this Agreement; (ii) fails to perform
the services required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; and/or (iv) is
convicted of a crime other than a routine traffic violation, ACG
may terminate the employment of Employee with cause. If Employee
is terminated "with cause," Employee shall not be entitled to
receive any further salary or benefits under this Agreement other
than payment for that part of Employee's compensation that would
otherwise be payable to Employee through the last date of his
employment with ACG. Upon such payment, all obligations of ACG to
Employee shall be fully satisfied, and this Agreement will
terminate. Employee shall not be entitled to receive any Benefits
or accrued vacation pay if his termination is "with cause."
(f) Termination by the Company Without Cause. In the event the
Company terminates Employee's employment for any reason other
than as described in (d) or (e) above, Employee shall be entitled
to the Base Salary for a period of one year from termination.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraph 5.
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<PAGE>
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of ACG shall be
the sole and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies thereof,
shall be retained by Employee upon termination of his employment. This
ACG property shall not be removed from ACG premises without ACG's
prior written consent.
7.2 Upon termination of this Agreement or whenever requested by ACG,
Employee immediately shall deliver to ACG all of the ACG property or
any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes, accounting machines, and all office
furniture and fixtures, supplies, equipment, and other personal
property placed in the office of ACG. No copies of any such data shall
be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at FirsTel, Inc., 110 South Phillips Avenue,
Suite 202, Sioux Falls, South Dakota 57104-6727 (Telecopy No.: 605-332-8004),
and to the Company, c/o Rod K. Cutsinger, 3355 West Alabama, Suite 580,
Houston, Texas 77098, or to such other address as either party shall designate
by written notice to the other. Notices may be sent by messenger or by
registered or certified mail, postage prepaid, addressed to the party or
parties to be notified, with return receipt requested. Notices sent by
messenger shall be deemed received upon their actual receipt of the party to
whom they are directed. Notices sent by registered or certified mail shall be
deemed received on the third day following their deposit with the United States
Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by ACG or Employee concerning the subject matter contained in this
Agreement, including, but not limited to, Employee's employment, termination
from, and/or affiliation with ACG shall be settled by arbitration in Houston,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his
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<PAGE>
or her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. Any and all charges that may be made for the cost
of the arbitration and the fees and expenses of the arbitrator shall be borne
equally by the parties; attorneys' fees and witness expenses shall be borne by
the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of ACG under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of
ACG. This Agreement shall be binding upon the Employee and his agents,
heirs, executors, administrators and legal representatives. The rights
and obligations of Employee hereunder shall not be assignable by
Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among ACG, the Employee and Rod K. Cutsinger in connection
with the subject matter hereof.
10.5 The waiver by ACG of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by ACG of any
subsequent breach by Employee.
10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the
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<PAGE>
remainder of this Agreement, but the effect thereof shall be confined
to the clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day and
year first above written.
"COMPANY" "EMPLOYEE"
FIRSTEL, INC.
- ---------------------------------- ----------------------------------
By: Rod K. Cutsinger W. Bradley Van Leur
Its: Chairman
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<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF EXCHANGE
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(Parent)
and
ADVANCED COMMUNICATIONS CORP.
(Old ACG)
and
ACG ACQUISITION II CORP.
(Newco)
and
TELE-SYSTEMS, INC.
(Company)
and
DAVID MITCHELL, EARL BROWN, CRAIG MCILVAIN,
BOB PAGE AND GARY GAMM
(Stockholders of Tele-Systems, Inc.)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE, SALE AND EXCHANGE...............................................7
4. CLOSING...................................................................8
5. SECTION 351 EXCHANGE PLAN.................................................8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS..................................................8
6.1 Due Organization....................................................8
6.2 Authorization.......................................................9
6.3 Capital Stock of the Company........................................9
6.4 Transactions in Capital Stock.......................................9
6.5 No Bonus Shares.....................................................9
6.6 Subsidiaries........................................................9
6.7 Predecessor Status; etc............................................10
6.8 Spinoff by Company.................................................10
6.9 Financial Statements...............................................10
6.10 Liabilities and Obligations........................................10
6.11 Accounts and Notes Receivable......................................11
6.12 Permits and Intangibles............................................11
6.13 Environmental Matters..............................................12
6.14 Personal Property..................................................12
6.15 Significant Customers; Material Contracts and Commitments..........13
6.16 Real Property......................................................14
6.17 Insurance..........................................................14
6.18 Compensation; Organized Labor Matters..............................15
6.19 Employee Plans.....................................................15
6.20 Compliance with ERISA..............................................16
6.21 Conformity with Law; Litigation....................................17
6.22 Tax Matters........................................................18
6.23 No Violations......................................................19
6.24 Absence of Changes................................................19
6.26 Relations with Governments.........................................21
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6.27 Disclosure.........................................................21
6.28 Prohibited Activities..............................................22
6.29 Draft Registration Statement.......................................22
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF STOCKHOLDERS...............................................22
7.1 Authority..........................................................22
7.2 Preemptive Rights..................................................22
7.3 Tax Matters........................................................23
7.4 No Plan of Distribution............................................23
7.5 No Retained Rights.................................................23
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT AND OLD ACG.......................................................23
8.1 Due Organization...................................................23
8.2 Authorization......................................................23
8.3 Capital stock......................................................24
8.4 Transactions in Capital Stock, Organization Accounting.............24
8.5 Subsidiaries.......................................................24
8.6 Financial Statements...............................................24
8.7 Liabilities and Obligations........................................25
8.8 Conformity with Law; Litigation....................................25
8.9 No Violations......................................................25
8.10 Validity of Obligations............................................26
8.11 Parent Securities..................................................26
8.12 Business; Real Property; Material Agreement........................26
8.13 Tax Matters........................................................27
8.14 Draft Registration Statement.......................................27
9. OTHER COVENANTS PRIOR TO CLOSING.........................................27
9.1 Access and Cooperation; Due Diligence; Audits......................27
9.2 Conduct of Business Pending Closing................................28
9.3 Prohibited Activities..............................................29
9.4 Exclusivity........................................................30
9.6 Notification of Certain Matters....................................31
9.7 Amendment of Schedules.............................................31
9.8 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................32
9.9 Further Assurance..................................................32
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS......................32
10.1 Representations and Warranties Performance of Obligations..........32
10.2 Satisfaction.......................................................33
10.3 No Litigation......................................................33
10.4 Opinion of Counsel.................................................33
10.5 Consents and Approvals.............................................33
10.6 Good Standing Certificates.........................................33
10.7 No Material Adverse Change.........................................33
10.8 Secretary's Certificates...........................................33
10.9 Employment Agreement...............................................34
10.10 Closing of IPO.....................................................34
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............................34
11.1 Representations and Warranties; Performance of Obligations.........34
11.2 No Litigation......................................................34
11.3 Secretary's Certificate............................................35
11.4 No Material Adverse Effect.........................................35
11.5 Stockholders' Release..............................................35
11.6 Satisfaction.......................................................35
11.7 Termination of Related Party Agreements............................35
11.8 Opinion of Counsel.................................................35
11.9 Consents and Approvals.............................................35
11.10 Good Standing Certificates.........................................36
11.11 FIRPTA Certificate.................................................36
11.12 Closing of IPO.....................................................36
11.13 Noncompetition Covenants of Key Employees..........................36
11.14 Employment Agreement...............................................36
12. COVENANTS OF PARENT WITH STOCKHOLDERS AFTER CLOSING......................36
12.1 Release From Guarantees............................................36
12.2 Preparation and Filing of Tax Returns..............................36
12.3 Preservation of Employee Benefit Plans.............................37
12.4 Rule 144 Filing....................................................37
13. TERMINATION OF AGREEMENT.................................................37
13.1 Termination........................................................37
13.2 Liabilities in Event of Termination................................38
14. NONCOMPETITION...........................................................38
14.1 Prohibited Activities..............................................38
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<PAGE>
14.2 Damages............................................................39
14.3 Reasonable Restraint...............................................40
14.4 Severability, Reformation..........................................40
14.5 Independent Covenant...............................................40
14.6 Materiality........................................................40
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................40
15.1 Stockholders.......................................................40
15.2 Parent.............................................................41
15.3 Damages............................................................42
15.4 Survival...........................................................42
16. TRANSFER RESTRICTIONS....................................................42
16.1 Parent Stock.......................................................42
16.2 Warrants and Warrant Stock.........................................42
16.3 Legend.............................................................43
17. INVESTMENT REPRESENTATIONS...............................................43
17.1 Parent Stock.......................................................43
17.2 Warrant Stock......................................................44
18. REGISTRATION RIGHTS......................................................45
18.1 PiggyBack Registration Rights......................................45
18.2 Demand Registration Rights.........................................46
18.3 Registration Procedures............................................47
18.4 Other Registration Matters.........................................49
18.5 Indemnification....................................................50
18.6 Contribution.......................................................53
18.7 Underwriting Agreement.............................................54
18.8 Availability of Rule 144...........................................54
19. GENERAL..................................................................54
19.1 Cooperation........................................................54
19.2 Successors and Assigns.............................................54
19.3 Entire Agreement...................................................54
19.4 Counterparts.......................................................55
19.5 Brokers and Agents.................................................55
19.6 Expenses...........................................................55
19.7 Notices............................................................55
19.8 Governing Law......................................................56
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<PAGE>
19.9 Survival of Representations and Warranties.........................57
19.10 Exercise of Rights and Remedies....................................57
19.11 Time...............................................................57
19.12 Reformation and Severability.......................................57
19.13 Remedies Cumulative................................................57
19.14 Captions...........................................................57
19.15 Public Statements..................................................57
19.16 Amendments and Waivers.............................................57
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<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is dated as of
October 6, 1997 by and among ADVANCED COMMUNICATIONS GROUP, INC., a Delaware
corporation organized in September 1997 ("Parent"), ADVANCED COMMUNICATIONS
CORP. (formerly named Advanced Communications Group, Inc.), a Delaware
corporation organized in June 1996 ("Old ACG"), ACG ACQUISITION II CORP., a
Delaware corporation ("Newco"), TELE-SYSTEMS, INC., a Kansas corporation (the
"Company"), and DAVID MITCHELL, EARL BROWN, CRAIG MCILVAIN, BOB PAGE and GARY
GAMM, the only stockholders of the Company (collectively, the "Stockholders"),
and the owners of 395,834 shares of common stock, no par value, of Company
("Company Stock"), representing all the issued and outstanding capital stock of
the Company on the date of this Agreement ("Shares").
RECITALS
WHEREAS, Old ACG has entered into agreements for, or negotiated the terms
of, the acquisition by merger, asset purchase or stock purchase of ten
companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock and
other consideration, including cash, one of such agreements being the Agreement
and Plan of Merger dated as of June 2, 1997 among Old ACG, Newco, Company and
the Stockholders (the "Original Agreement"); and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an initial
underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September 1997
to serve as the vehicle for the acquisition of the Founding Companies
substantially contemporaneously with the consummation of an initial
underwritten public offering ("IPO") of Common Stock, $.0001 par value, of
Parent ("Parent Stock") at the price to the public reflected in the final
prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the stockholders
of the Founding Companies, including
<PAGE>
Stockholders and Old ACG, will transfer, by stock or asset purchase or reverse
triangular merger, the stock or substantially all the assets of certain
companies and other assets in which they own an interest to Parent in exchange
for voting capital stock of Parent and other consideration, including cash,
voting stock, options, warrants, notes, convertible notes and other property of
Parent, under circumstances that will constitute a tax-free transfer of
property under Section 351 of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder ("Code"), to the extent of their
receipt of voting capital stock of Parent; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective acquisition
agreements; and (b) Parent and Old ACG are entering into a merger agreement
pursuant to which Old ACG will become a wholly-owned subsidiary of Parent
substantially contemporaneously with the consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO, Old
ACG will effect an approximately one-for-two reverse stock split, the exact
magnitude of which will be dependent upon the ultimate post IPO valuation of
Parent by the managing underwriters in the IPO and the anticipated IPO Price;
and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old ACG
are described in the Registration Statement on Form S-1 of Parent (draft of
October 2, 1997), a copy of which is attached to this Agreement as Annex I
("Draft Registration Statement"); and
WHEREAS, Parent, Old ACG, Newco, Company and the Stockholders desire to
amend and restate the Original Agreement in its entirety and transform it into
this Agreement; and
WHEREAS, Parent desires to acquire all the Company Stock directly from
Stockholders for the consideration set forth in Section 2 of this Agreement,
and Stockholders have agreed to sell the Company Stock to Parent on the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained, the
parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this
Agreement.
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<PAGE>
"Affiliates" has the meaning set forth in Section 6.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.11.
"Balance Sheet Date" has the meaning set forth in Section 6.9.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.9.
"Company Stock" has the meaning set forth in first paragraph of this
Agreement.
"Controlled Group" has the meaning set forth in Section 6.20(Z).
"Demand Registration" has the meaning set forth in Section 18.2.
"Draft Registration Statement" is defined in the eighth recital of this
Agreement.
"Environmental Laws" has the meaning set forth in Section 6.13.
"ERISA" has the meaning set forth in Section 6.19.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
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<PAGE>
"Founding Stockholders" has the meaning set forth in Section 18.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Hart-Scott Act" has the meaning set forth in Section 9.8.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Initial Disclosure Date" means March 31, 1997.
"June Balance Sheet" has the meaning set forth in Section 6.9.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Material Adverse Effect" has the meaning set forth in Section 6.1.
"Material Documents" has the meaning set forth in Section 6.23.
"Newco" is defined in the first paragraph of this Agreement.
"Old ACG" is defined in the first paragraph of this Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 8.6.
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"Original Agreement" has the meaning set forth in the first recital of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.9.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Prohibited Activities" has the meaning set forth in Paragraph 6.28.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registerable Securities covered by such Registration
Statement, and by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Qualified Plans" has the meaning set forth in Section 6.20.
"Registerable Securities" means the shares of Parent Stock acquired by
Stockholders pursuant to this Agreement.
"Registration Statement" shall mean any registration statement of the
Parent and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the 1933 Act
which covers any of the Registerable Securities, and all amendments and
supplements to such registration statement, including post-effective
amendments in each case including the Prospectus contained therein, all
exhibits thereto and all materials incorporated by reference therein.
"Restricted Securities" has the meaning set forth in Section 17.1(i).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE>
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means a Section 351 Exchange Plan in the form
of Annex II.
"Series E Warrants" means the 18,000 non-transferrable Warrants,
substantially in the form of Annex V, to purchase a like number of shares
of Parent Stock after the first anniversary of the Closing Date and on or
before the tenth anniversary of the Closing Date at an initial exercise
price per share equal to the IPO Price.
"Series F Warrants" means the 18,000 non-transferrable Warrants,
substantially in the form of Annex VI, to purchase a like number of shares
of Parent Stock after the second anniversary of the Closing Date and on or
before the tenth anniversary of the Closing Date at an initial exercise
price per share equal to the IPO Price.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 14.1(i).
"Transfer Taxes" has the meaning set forth in Section 19.6.
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"Warrant Holders" means Messrs. David Mitchell and Bob Page as the initial
registered holders of the Warrants.
"Warrant Stock" means the shares of Parent Stock issued upon the exercise
of Warrants.
"Warrants" means the Series E Warrants and the Series F Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. PURCHASE, SALE AND EXCHANGE
Pursuant to the terms of this Agreement, at the Closing, (a) Stockholders
will transfer, convey, assign and deliver to Parent the Company Stock, together
with stock powers duly endorsed by Stockholders so that the Company Stock may
be duly registered in Parent's name, and (b) Parent will acquire the Company
Stock from Stockholders for an aggregate consideration of such number of shares
of Parent Stock (rounded to the nearest whole share) as shall be equal to $1.2
million divided by the IPO Price ("Total Shares"). The number of shares to be
exchanged by each Stockholder and the number of shares of Parent Stock
deliverable to each Stockholder are set forth below opposite the name of such
Stockholder:
- -------------------------------------------------------------------------------
NUMBER OF
NAME OF STOCKHOLDER NUMBER OF SHARES TOTAL SHARES (1)
- -------------------------------------------------------------------------------
David Mitchell 71,250 18
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Earl Brown 79,167 20
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Craig McIlvain 95,000 24
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Bob Page 71,250 18
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Gary Gamm 79,167 20
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TOTAL 395,834 100.00%
- -------------------------------------------------------------------------------
- --------------
(1) Expressed as a percentage of Total Shares.
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<PAGE>
3. [INTENTIONALLY OMITTED]
4. CLOSING
The Closing of the transactions contemplated by this Agreement ("Closing")
shall take place on the date on which the closing of the sale of shares of
Parent Stock in the IPO, or such other date as the parties hereto may designate
(the "Closing Date"), at such place in New York City as the parties may
mutually agree. Parent shall take all steps that are reasonably necessary to
assure that the Closing Date occurs within the first fifteen days of a calendar
month.
5. SECTION 351 EXCHANGE PLAN
By executing this Agreement, each Stockholder is deemed to have approved
and adopted the Section 351 Exchange Plan to the same extent as if he or she
had subscribed his or her signature thereon.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, severally and not jointly, represent,
warrant, covenant and agree (i) that all of the following representations and
warranties in this Section 6 are true at the date of the Original Agreement
(except as otherwise expressly noted) and, subject to Section 9.7, shall be
true at the Closing Date and (ii) that all of the covenants and agreements in
this Section 6 shall be materially complied with or performed at and as of the
Closing Date. None of the representations and warranties set forth in this
Section 6 shall survive the Closing Date. For purposes of this Section 6, the
term "Company" shall mean and refer to Company and all of its Subsidiaries, if
any.
6.1 Due Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise) of Company taken as a whole (as used herein with respect to Company,
or with respect to any other Person, a "Material Adverse Effect"). Schedule 6.1
sets forth the jurisdiction in which Company is incorporated and contains a
list of all such jurisdictions in which Company is authorized or qualified to
do business. True, complete and correct copies of the Charter Documents and
bylaws, each as amended, of Company are all attached hereto as Schedule 6.1.
The stock records of Company, as heretofore made available to Parent, are
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correct and complete in all material respects. To the knowledge of Company and
Stockholders, there are no minutes in the possession of Company or Stockholders
which have not been made available to Parent, and all of such minutes are
correct and complete in all material respects.
6.2 Authorization. Company has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by Company of this Agreement and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 Capital Stock of the Company. The authorized capital stock of Company
is as set forth in Section 2. All of the issued and outstanding shares of the
capital stock of Company are owned of record by Stockholders in the amounts set
forth in Section 2 and further, except as set forth on Schedule 6.3, are owned
free and clear of all mortgages, liens, security interests, pledges, voting
trusts, restrictions, encumbrances and claims of every kind (collectively, the
"Liens"). All of the issued and outstanding shares of the capital stock of
Company (i) have been duly authorized and validly issued and (ii) are fully
paid and nonassessable. Further, none of such shares was issued in violation of
the preemptive rights of any past or present stockholder.
6.4 Transactions in Capital Stock. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1994. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of Company nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated by this Agreement. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list
of all outstanding options, warrants or other rights to acquire shares of
Company Stock.
6.5 No Bonus Shares. Except as set forth on Schedule 6.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
6.6 Subsidiaries. Except as set forth in Schedule 6.6, (i) Company has no
Subsidiaries, (ii) Company does not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person, and
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(iii) Company is not directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
6.7 Predecessor Status; etc. Set forth in Schedule 6.7 is a listing of all
names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired material assets in
excess of $25,000, in any case, since January 1, 1990. Except as disclosed on
Schedule 6.7, Company has not been, within such period of time, a Subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
6.8 Spinoff by Company. Except as set forth on Schedule 6.8, there has not
been any sale, spin-off or split-up of material assets in excess of $25,000 of
either Company or any other Person, which indirectly or through one or more
intermediaries, controls, or is controlled by, or is under common control with,
Company ("Affiliates") since January 1, 1994.
6.9 Financial Statements. Attached hereto as Schedule 6.9 are copies of the
following financial statements of the Company (the "Company Financial
Statements"): the Company's audited balance sheets as of December 31, 1996 and
1995, its unaudited balance sheet as of June 30, 1997 ("June Balance Sheet"),
its audited statements of income, retained earnings and cash flows and any
related notes thereto for each of the years in the two-year period ended
December 31, 1996 and its unaudited statements of income, retained earnings and
cash flows and any related notes thereto for the six months ended June 30, 1997
and 1996 (June 30, 1997 being hereinafter referred to as the "Balance Sheet
Date"). The unaudited Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.9). Except as set forth on Schedule 6.9, the balance sheets
referred to in this Section 6.9 present fairly the financial position of
Company as of the dates indicated thereon, and the statements of income,
retained earnings and cash flows referred to in this Section 6.9 present fairly
the results of operations for the periods indicated thereon in accordance with
generally accepted accounting principles.
6.10 Liabilities and Obligations. Company has no material liabilities of
any kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, that are not reflected on the June Balance
Sheet or otherwise reflected in the Company Financial Statements at the Balance
Sheet Date, all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements. Except as set forth on
Schedule 6.10, since the Initial Disclosure Date Company has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. Company has also disclosed to
Parent on
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Schedule 6.10, in the case of those contingent liabilities related to pending
or threatened litigation or other liabilities which are not fixed or otherwise
accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.11 Accounts and Notes Receivable. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.11) of the accounts and notes
receivable of Company, as of the Initial Disclosure Date, including receivables
from and advances to employees and Stockholders. The Company shall also provide
Parent (x) an accurate list of all receivables generated subsequent to the
Initial Disclosure Date and (y) an aging of all accounts and notes receivable
showing amounts due in 30 day aging categories, and each such list and aging
report (the "A/R Aging Reports") shall be current as of a date reasonably
requested by Parent. Except to the extent reflected on Schedule 6.11 or as
disclosed by Company to Parent in a writing accompanying the A/R Aging Reports,
such accounts, notes and other receivables either are collectible in the
amounts shown on Schedule 6.11, and shall be collectible in the amounts shown
on the A/R Aging Reports, net of reserves reflected in the June Balance Sheet
and as of the date of the A/R Aging Reports, respectively.
6.12 Permits and Intangibles. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.12) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.13). To
the knowledge of Company, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 6.12 and 6.13 are valid in all
material respects, and Company has not received any notice
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that any governmental authority intends to cancel, terminate or not renew any
such license, franchise, permit or other governmental authorization. Company
has conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
6.12 and 6.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on
Company. Except as specifically provided in Schedule 6.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to Company by, any such license, franchise, permit or
government authorization.
6.13 Environmental Matters. Except as set forth on Schedule 6.13, (i)
Company has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances including petroleum and petroleum products (as
such terms are defined in any applicable Environmental Law); (ii) Company has
obtained and substantially adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Wastes and Hazardous Substances, a list of all of which permits and approvals
is set forth on Schedule 6.13, and has reported to the appropriate authorities,
to the extent required by all Environmental Laws, all past and present sites
owned and operated by Company where Hazardous Wastes or Hazardous Substances
have been treated, stored, disposed of or otherwise handled; (iii) there have
been no releases or threats of releases (as defined in Environmental Laws) at,
from, in or on any property owned or operated by Company except as permitted by
Environmental Laws; (iv) to the knowledge of Company, no on-site or off-site
location to which Company has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state, local or
foreign enforcement action or any other investigation which could lead to any
material claim against Company or Parent for any clean-up cost, remedial work,
damage to natural resources, property damage or personal injury, including, but
not limited to, any claim under the comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
6.14 Personal Property. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.14) of (i) all personal property included in
(or that will be included in)
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"depreciable plant, property and equipment" on the balance sheet of Company,
(ii) all other personal property owned by Company with a value in excess of
$10,000 (x) as of the Initial Disclosure Date and (y) acquired since the
Initial Disclosure Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), (1) true,
complete and correct copies of all such Leases and (2) an indication as to
which assets are currently owned, or were formerly owned, by Stockholders,
relatives of Stockholders, or Affiliates of Company. Except as set forth on
Schedule 6.14, (a) all personal property used by Company in its business is
either owned by Company or leased by Company pursuant to a Lease included on
Schedule 6.14, (b) all of the personal property listed on Schedule 6.14 is in
good working order and condition, ordinary wear and tear excepted and (c) all
leases and agreements included on Schedule 6.14 are in full force and effect in
all material respects and to the knowledge of Company constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
6.15 Significant Customers; Material Contracts and Commitments. Company has
delivered to Parent an accurate list (which is set forth on Schedule 6.15) of
all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this sentence, means a customer (or
person or entity) (i) representing 2% or more of Company's annual revenues as
of the Initial Disclosure Date or (ii) reasonably expected to represent 2% or
more of Company's revenues during the twelve-month period ending June 30, 1998.
Except to the extent set forth on Schedule 6.15, none of the Company's
significant customers (or persons or entities that are sources of a significant
number of customers) have canceled or substantially reduced or, to the
knowledge of Company, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by
Company.
Company has listed on Schedule 6.15 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.10, 6.14 or 6.16, (x) in existence as of the
Initial Disclosure Date and (y) entered into since the Initial Disclosure Date,
and in each case has delivered true, complete and correct copies of such
agreements to Parent. Company has complied with all material commitments and
obligations pertaining to it, and is not in material default under any contract
or agreement listed on Schedule 6.15 and no notice of default under any such
contract or agreement has been received. Company has also indicated on Schedule
6.15 a summary description of all plans or projects involving the acquisition
of any personal property, business or assets requiring, in any event, the
payment of more than $10,000 by Company.
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<PAGE>
6.16 Real Property. Schedule 6.16 includes a list of all real property
owned or leased by Company (i) as of the Initial Disclosure Date and (ii)
acquired since the Initial Disclosure Date, and all other real property, if
any, used by Company in the conduct of its business. Company has good and
insurable title to the real property owned by it, including those reflected on
Schedule 6.16, subject to no Lien except for:
(w) Liens reflected on Schedules 6.10 or 6.15 as securing
specified liabilities (with respect to which no material default
exists);
(x) Liens for current taxes not yet payable and assessments not
in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 6.16 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of Company with respect to real property owned by Company, (2) true,
complete and correct copies of all Leases and agreements in respect of such
real property leased by Company (which copies are attached to Schedule 6.16),
and (3) an indication as to which such properties, if any, are currently owned,
or were formerly owned, by Stockholders or business or personal Affiliates of
Company or Stockholders.
Except as set forth on Schedule 6.16, all of such Leases included on Schedule
6.16 are in full force and effect in all material respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.17 Insurance. Company has delivered to Parent, as set forth on and
attached to Schedule 6.17, (i) an accurate list as of the Initial Disclosure
Date of all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
material respects and shall remain in full force and
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<PAGE>
effect in all material respect through the Closing Date. No insurance carried
by Company has been canceled by the insurer and the Company has never been
denied coverage.
6.18 Compensation; Organized Labor Matters. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.18) showing all officers,
directors and other key employees of Company and the rate of compensation (and
the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Initial Disclosure Date and
(ii) the date of the Original Agreement. Since the Initial Disclosure Date,
there have been no increases in the compensation payable or any special bonuses
to any officer, director, key employee or other employee, except ordinary
salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 6.18, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group
of its employees nor has Company experienced any labor interruption over the
past three years.
6.19 Employee Plans. The Stockholders have delivered to Parent an accurate
list (which is set forth on Schedule 6.19) showing all employee benefit plans
of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Initial Disclosure Date.
Except for the employee benefit plans, if any, described on Schedule 6.19, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of
1974, as amended "ERISA") or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. Company has not sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 6.19, nor is
Company required to contribute to any retirement plan pursuant to the
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provisions of any collective bargaining agreement establishing the terms and
conditions or employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.19 have either been fulfilled in their
entirety or are fully reflected on the June Balance Sheet.
6.20 Compliance with ERISA. All employee benefit plans listed on Schedule
6.19 that are intended to qualify (the "Qualified Plans") under Section 401(a)
of the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are included as part of Schedule 6.19. Except as disclosed on Schedule
6.19, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or Returns) have been
timely filed or distributed, and copies thereof are included as part of
Schedule 6.19. Neither Stockholders, any such plan listed in Schedule 6.19, nor
Company has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No employee benefit plan
listed on Schedule 6.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and Company
has not incurred (i) any liability for excise tax or penalty payable to the
Internal Revenue Service or (ii) any liability to the Pension Benefit Guaranty
Corporation (other than for premium payments). The Stockholders further
represent that:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under Section
401(a) of the Code without notice to and approval by the Internal
Revenue Service;
(w) no plan listed on Schedule 6.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
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(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee benefit
plans listed in Schedule 6.19;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) no circumstances exist pursuant to which Company could
reasonably be expected to have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer plan or the Pension Benefit Guaranty Corporation under
Title IV of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory Lien to secure
payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group has not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.21 or 6.13, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 6.10 or 6.13, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of
Company, threatened, against or affecting Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
Company and no notice of any claim, action, suit or proceeding, whether pending
or threatened, has been received by Company or any Stockholder. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 6.12
and 6.13, and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
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6.22 Tax Matters.
(i) Company is currently taxed under Subchapter S of the Code.
Stockholders have filed all income Tax Returns that they were required to
file with respect to Company, and Company has filed all Tax Returns that it
was required to file. All such Tax Returns filed by Company were correct
and complete in all material respects. All Taxes owed by Company (whether
or not shown on any Tax Return) have been paid or reserved for on its
books. Except as set forth on Schedule 6.22, Company is not currently the
beneficiary of any extension of time within which to file any Tax Return.
Since January 1, 1994, no claim with respect to Company has been made by an
authority in a jurisdiction where Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Company's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
(iii) Company does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of Company either claimed or raised by any authority in writing or as to
which Company has knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.22(iii) lists all income Tax Returns relating to
income Tax of Company for taxable periods ended on or after January 1,
1993, indicates those Returns of which Company is aware that have been
audited and indicates those Returns that currently are the subject of
audit. Company has delivered to Parent correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies assessed
against or agreed to by Company for any taxable period ended on or after
January 1, 1993.
(iv) Except as set forth on Schedule 6.22(iv), neither Stockholders
nor Company has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any material
payments, is not obligated to make any material payments and is not a party
to any agreement that under certain
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circumstances could obligate it to make any material payments that
will not be fully deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing authority that
would, individually or in the aggregate, apply to the Company after the
Closing Date.
6.23 No Violations. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of Company, any other party thereto, is
in material default under any Lease, instrument, agreement, license, or permit
set forth on Schedule 6.12, 6.13, 6.14, 6.15 or 6.16, or any other material
agreement to which it is a party or by which its properties are bound (the
"Material Documents"); and, except as set forth in Schedule 6.23, (i) the
rights and benefits of Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 6.23, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect in all material respect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material
right or benefit. Except as set forth on Schedule 6.23, to the knowledge of
Company none of the Material Documents prohibits the use or publication by
Company or Parent of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts Company from freely
providing services to any other customer or potential customer of Company,
Parent, or any other Founding Company.
6.24 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 6.24 or disclosed in the Draft Registration Statement, there
has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company taken
as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Company;
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(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its officers,
directors, stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character, materially
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the ordinary
course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of Company's business;
(xi) any waiver of any material rights or claims of Company;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company is a party:
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(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.25 Deposit Accounts; Powers of Attorney. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.25) as of the date of the
Original Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power. Upon Parent's request, Company shall
update Schedule 6.25 to the date of this Agreement.
6.26 Relations with Governments. Except for political contributions made in
a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect. If political contributions made by Company have exceeded $10,000 per
year for each year in which any Stockholder has been a stockholder of Company,
each contribution in the amount of $5,000 or more shall be described on
Schedule 6.26.
6.27 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
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pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which Company is a party, or to which its properties are subject,
or by any other fact or circumstance regarding Company (which fact or
circumstance was, or should reasonably, after due inquiry, have been known to
Company) that is not disclosed pursuant hereto or thereto.
6.28 Prohibited Activities. Except as set forth on Schedule 9.3 or
disclosed in the Draft Registration Statement, Company has not, between the
Initial Disclosure Date and the date of this Agreement, taken any of the
actions set forth in Section 9.3 ("Prohibited Activities").
6.29 Draft Registration Statement. The text, of and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Company expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder severally represents, warrants, covenants and agrees (i)
that the representations and warranties set forth below are true as of the date
of the Original Agreement and, subject to Section 9.7, shall be true at the
Closing Date, (ii) that all of the covenants and agreements in this Section 7
shall be materially complied with or performed at and as of the Closing Date
and (iii) that by executing this Agreement each Stockholder shall be deemed to
have approved the terms of the transaction. The representations, warranties,
covenants and agreements set forth in this Section 7 shall not survive the
Closing Date.
7.1 Authority. Each Stockholder has the full legal right, power and
authority to enter into and perform this Agreement. This Agreement has been
executed and delivered by each Stockholder and constitutes a legal, valid and
binding obligation of such Stockholder in accordance with its terms.
7.2 Preemptive Rights. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent
Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent or Old ACG.
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7.3 Tax Matters. The Stockholders have been advised by their counsel and
are satisfied, as of the date hereof, that certain aspects of the transactions
contemplated by this Agreement qualify for the deferral of gain pursuant to
Section 351 of the Code.
7.4 No Plan of Distribution. No Stockholder has any intention or
arrangement to sell or otherwise dispose of any Parent Stock to be received
pursuant to this Agreement and the Section 351 Exchange Plan.
7.5 No Retained Rights. No Stockholder will retain any right after the
Closing in any Company Stock to be transferred by him at the Closing but, to
the extent that such right may exist upon the consummation of the Closing, such
right shall be deemed to have been released and extinguished.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND OLD ACG
Parent and Old ACG, jointly and severally, represent, warrant, covenant and
agree: (i) that, except as disclosed in the Draft Registration Statement, which
qualifies the following representations and warranties, all of the following
representations and warranties in this Section 8 are true as of the date of
this Agreement and, subject to Section 9.7, shall be true at the Closing Date
and (ii) that all of the covenants and agreements in this Section 8 shall be
complied with or performed at and as of the Closing Date. The representations,
warranties, covenants and agreements set forth in this Section 8 shall not
survive the Closing Date.
8.1 Due Organization. Parent and Old ACG are corporations duly organized,
validly existing and in good standing under the laws of the state of Delaware
and are duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on their
respective businesses in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Charter Documents and
by-laws of Parent and Old ACG (collectively, the "Parent Charter Documents")
are all attached hereto as Schedule 8.1.
8.2 Authorization. Each of Parent and Old ACG has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by each of Parent and
Old ACG and their consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Old ACG.
This Agreement has been duly executed and delivered by each of Parent and
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Old ACG and is a valid and binding obligation of each of Parent and Old ACG,
enforceable against each of them in accordance with its terms.
8.3 Capital stock. The authorized capital stock of Old ACG is as set forth
in Schedule 8.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, (iii) are owned of record and beneficially by the
persons set forth on Schedule 8.3 and (iv) were offered, issued, sold and
delivered by Old ACG in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Old ACG. Subject to the consummation of the reverse
stock split referred to in the seventh recital of this Agreement and the
consummation of Parent's acquisition of Old ACG in the reverse triangular
merger, the capitalization of Parent will be identical to the capitalization of
Old ACG immediately prior to the consummation of the IPO.
8.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 8.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 8.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
8.5 Subsidiaries. Neither Parent nor ACG has any Subsidiaries, except for
the companies identified on Schedule 8.5. Except as set forth in the preceding
sentence, neither Parent nor Old ACG presently owns, of record or beneficially,
or controls, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person and neither
Parent nor Old ACG is, directly or indirectly, a participant in any joint
venture, partnership or other non-corporation entity.
8.6 Financial Statements. Included within the Draft Registration Statement
attached hereto are copies of the following financial statements of Old ACG,
which reflect the results of its operations from inception in June 1996 (the
"Old ACG Financial Statements"): Old ACG's audited balance sheet as of December
31, 1996, its unaudited balance sheet as of June 30, 1997, its audited
statement of income, cash flows and retained earnings and any related notes
thereto for the period from June 10, 1996 through December 31, 1996 and its
unaudited statement of income, cash flows and retained earnings and any related
notes thereto for the six months ended June 30, 1997. Such
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Old ACG Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated (except as noted thereon or on Schedule 8.6). Such balance
sheets present fairly the financial position of Old ACG as of such dates, and
such statements of income, cash flows and retained earnings present fairly the
results of its operations for the periods indicated. The Old ACG Financial
Statements at December 31, 1996 and for the fiscal period ended December 31,
1996 have been examined by KPMG Peat Marwick LLP, independent public
accountants.
8.7 Liabilities and Obligations. Except as set forth on Schedule 8.7,
neither Parent nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
8.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 8.8 or in the Draft Registration Statement, neither Parent nor Old ACG
is in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Material Adverse Effect; and except to the extent set forth in Schedule
8.8 or in the Draft Registration Statement, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of either Parent or
Old ACG, threatened, against or affecting either Parent or Old ACG, at law or
in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Each of Parent
and Old ACG has conducted and is conducting its respective business in
substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
8.9 No Violations. Neither Parent nor Old ACG is in violation of any Parent
Charter Document. Neither Parent nor Old ACG nor, to the knowledge of Parent or
Old ACG, or any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Old ACG is a party, or by
which Parent or Old ACG, or any of their properties, is bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Old ACG
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Parent Documents or the
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Parent Charter Documents. Except as set forth on Schedule 8.9, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit.
8.10 Validity of Obligations. Parent and Old ACG have all requisite
corporate power and authority to enter into this Agreement and to perform their
respective obligations hereunder. The execution and delivery of this Agreement
by Parent and Old ACG and their consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Parent
and Old ACG and is a legal, valid and binding obligation of Parent and Old ACG,
enforceable against each of them in accordance with its terms.
8.11 Parent Securities.
(i) Parent Stock. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized
prior to the Closing by all necessary corporate action of Parent. Upon the
execution and delivery of the Parent Stock deliverable pursuant to this
Agreement and the transfer of the Company Stock in consideration thereof,
all in accordance with this Agreement, the Parent Stock will be validly
issued, fully paid and nonassessable.
(ii) Warrant Stock. The execution and delivery by Parent of the Series
E Warrants and Series F Warrants (collectively, the "Warrants") have been
duly authorized by all necessary corporate action of Parent. Upon the
execution and delivery of the Warrants at the Closing in accordance with
the terms of this Agreement, the Warrants will be valid and binding
obligations of Parent, enforceable against Parent in accordance with their
terms. The shares of Parent Stock issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance and such shares, when
issued upon the consummation of the transaction contemplated by this
Agreement and upon the exercise of the Warrants in accordance with the
terms thereof, respectively, will be validly issued, fully paid and
nonassessable.
8.12 Business; Real Property; Material Agreement Old ACG was formed in June
1997, and Parent was formed in September 1997. Nether Parent nor Old ACG has
not conducted any material business since the date of its inception, except
raising capital and in connection with this Agreement and the Original
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.12, neither Parent nor Old ACG owns, and has not at any
time
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owned, any real property or any material personal property and neither is a
party to any other material agreement.
8.13 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
8.14 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Parent or Old ACG but not otherwise, are
true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of Parent and
Old ACG access to all of Company's sites, properties, books and records and
will furnish Parent and Old ACG with such additional financial and
operating data and other information as to the business and
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properties of Company as Parent and Old ACG may from time to time
reasonably request. Company will cooperate with Parent and Old ACG and
their respective representatives, auditors and counsel in the preparation
of any documents or other material that may be required in connection with
any documents or materials required by this Agreement. Parent and Old ACG
will treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the
provisions of Section 15.
(ii) Between the date of this Agreement and the Closing, Parent and
Old ACG will afford to the officers and authorized representatives of
Company and Stockholders access to each of Parent's, Old ACG's and the
other Founding Companies' sites, properties, books and records and will
furnish Company and Stockholders with such additional financial and
operating data and other information as to the business and properties of
Parent, Old ACG and the Founding Companies as Company and Stockholders may
from time to time reasonably request. Parent and Old ACG will cooperate
with Company and Stockholders' representatives, auditors and counsel in the
preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement.
Company and Stockholders will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 15.
(iii) Company agrees to permit an independent accounting firm selected
by Parent to audit and render a report on the Company Financial Statements,
provided that all the costs and expenses of such audits are paid by Parent.
9.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
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(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
9.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Company will not, without prior written consent of Parent:
(i) make any change in its Charter Documents or by-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of
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$10,000 as necessary or desirable for the conduct of its businesses, (y)
(1) Liens for Taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested Taxes adequate reserves
have been established and are being maintained) or (2) materialmen's,
mechanics', workers', repairmen's, employees' or other like Liens arising
in the ordinary course of business, or (3) Liens set forth on Schedule 6.10
or 6.15;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 6.11 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
9.4 Exclusivity. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with, the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to any acquisition or purchase of all or a
material amount of the assets of, or
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any equity interest in, Company or merger, consolidation or business
combination of Company.
Stockholders represent and warrant that neither any Stockholder nor the Company
has, during the period commencing on the date of the Original Agreement and
ending on the date of this Agreement, performed any such action described in
this Section 9.4.
9.5 Agreements. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the Company and any employee listed on
Schedule 6.18 and (ii) any existing agreement between Company and any
Stockholder, on or prior to the Closing Date. Copies of such termination
agreements are listed on Schedule 9.5 and copies thereof are attached thereto.
9.6 Notification of Certain Matters. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would likely cause any representation
or warranty of Company or Stockholders contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing Date and (ii) any
material failure of any Stockholder or Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such
Person hereunder as of such date. Parent shall give prompt notice to Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely cause any representation or warranty of
Parent or Old ACG contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date and (ii) any material failure of Parent
or Old ACG to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder as of such date. The delivery of any
notice pursuant to this Section 9.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 9.7, (ii) modify the
conditions set forth in Sections 10 and 11, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
9.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by Company, Old ACG or Parent that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect may be made
unless Parent and Old ACG or Company, as the case may be, consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for
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purposes of determining whether the conditions set forth in Sections 10.1 and
11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 9.7. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 13(v). Neither the entry by
Parent into any other agreement, such as this Agreement, after the date hereof
for the acquisition of one or more companies involved in or assets associated
with the telephone business and related activities nor the performance by
Parent of its obligations thereunder shall be deemed to require the amendment
to or a supplementation of any Schedule hereto.
9.8 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by Stockholders and the Company
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 11 of this Agreement, and such compliance by Parent and
Old ACG shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 10 of this Agreement, (iii) the parties agree to
cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made, and (iv) Parent shall be responsible for all filing
fees under the Hart-Scott Act.
9.9 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of Stockholders with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived:
10.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Parent and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Parent or Old ACG on or
before the Closing Date shall have been duly complied with or performed in all
material respects; and a certificate to the
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foregoing effect dated the Closing Date, and signed by the President or any
Vice President of each of Parent and Old ACG shall have been delivered to the
Stockholders.
10.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Stockholders and their
counsel.
10.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Company
as a result of which the management of Company deems it inadvisable to proceed
with the transactions hereunder.
10.4 Opinion of Counsel. The Stockholders shall have received an opinion
from counsel for Parent and Old ACG, dated the Closing Date, in the form and
substance reasonably acceptable to Company and the Stockholders, relating to,
insofar as Parent and Old ACG is concerned, as the case may be, the
authorization, execution, delivery, performance and enforceability of this
Agreement and such other legal matters as Company and the Stockholders may
reasonably request.
10.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
10.6 Good Standing Certificates. Parent shall have delivered to the
Stockholders a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and, unless
waived by the Company, in each state in which Parent is authorized to do
business, showing that Parent is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for Parent for
all periods prior to the Closing Date have been filed and paid to the extent
required.
10.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Parent that would constitute a Material Adverse
Effect.
10.8 Secretary's Certificates. Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of each of Parent and Old ACG, certifying the completeness and accuracy of the
attached copies of Parent's and Old ACG's respective Charter Documents
(including amendments thereto), by-laws (including amendments thereto), and
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resolutions of the boards of directors and approving Parent's and Old ACG's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
10.9 Employment Agreement. Earl Brown shall have been afforded an
opportunity to enter into an employment agreement substantially in the form of
Annex IV.
10.10 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
10.11 Warrants. Parent shall have issued to each of David Mitchell and Bob
Page, in consideration of the relinquishment as of the Closing of his annual
salary as a member of Company's Executive Committee, the Warrants set forth in
the table below:
Name Number of Warrants
---- --------------------------
Series E Series F
-------- --------
David Mitchell 9,000 9,000
Bob Page 9,000 9,000
------ ------
18,000 18,000
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT.
The obligations of Parent with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
11.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Stockholders and Company on
or before the Closing Date shall have been duly performed or complied with in
all material respects; and Stockholders and Company shall have delivered to
Parent a certificate dated the Closing Date and signed by them to such effect.
11.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made
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any request of Parent as a result of which the management of Parent deems it
inadvisable to proceed with the transactions hereunder.
11.3 Secretary's Certificate. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of Company, certifying the
completeness and accuracy of the attached copies of Company's Charter Documents
(including amendments thereto), by-laws (including amendments thereto), and
resolutions of the board of directors approving Company's entering into this
Agreement and the consummation of the transactions contemplated hereby.
11.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Company which would constitute a Material Adverse
Effect, and Company shall not have suffered any material loss or damages to any
of its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of Company to conduct
its business.
11.5 Stockholders' Release. Stockholders shall have delivered to Parent an
instrument dated the Closing Date releasing Company from (i) any and all claims
of Stockholders against Company and Parent and (ii) any and all obligations of
Company, Parent or Old ACG to Stockholders, except for (x) items specifically
identified on Schedules 6.10 and 6.15 as being claims of or obligations to
Stockholders and (y) obligations arising under this Agreement or the
transactions contemplated hereby.
11.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Parent and its counsel.
11.7 Termination of Related Party Agreements. Except as set forth on
Schedule 11.7, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.8 Opinion of Counsel. Parent shall have received an opinion from counsel
to Stockholders, dated the Closing Date, in the form and substance reasonably
acceptable to the Parent, relating to, insofar as Company and Stockholders are
concerned, the authorization, execution, delivery, performance and
enforceability of the Agreement and such other matters as Parent shall
reasonably request.
11.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated
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herein shall have been obtained and made; and all consents and approvals of
third parties listed on Schedule 6.23 shall have been obtained.
11.10 Good Standing Certificates. The Stockholders shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Parent, in each state in
which Company is authorized to do business, showing Company is in good standing
and authorized to do business and that all state franchise and/or income Tax
returns and Taxes for Company for all periods prior to the Closing have been
filed and paid.
11.11 FIRPTA Certificate Each Stockholder shall have delivered to Parent a
certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
11.12 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
11.13 Noncompetition Covenants of Key Employees. Each of the Persons
designated on Schedule 6.18 as a key employee shall have executed and delivered
to Parent a noncompetition agreement that contains all the substantive
provisions of Section 14.
11.14 Employment Agreement. Earl Brown shall have executed an employment
agreement with Company substantially in the form of Annex IV.
12. COVENANTS OF PARENT WITH STOCKHOLDERS AFTER CLOSING
12.1 Release From Guarantees. Parent shall, within 90 days after the
Closing Date, secure the full release of Stockholders from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of Company.
12.2 Preparation and Filing of Tax Returns.
(i) Stockholders shall file or cause to be filed all separate Federal
income Tax Returns (and any state and local Tax Returns filed on the basis
similar to that of S corporations under Federal income Tax rules) of
Company for all taxable periods that end on or before the Closing Date.
Each Stockholder shall pay or cause to be paid all Tax
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liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the Company
Financial Statements) shown by such Returns to be due.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the Closing
Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together with relevant
accompanying schedules and work papers, relevant documents relating to
rulings or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
12.3 Preservation of Employee Benefit Plans. Following the Closing Date,
Parent shall not cause the Company to terminate any health insurance, life
insurance or 401(k) plan in effect at Company until such time as Parent is able
to replace such plan with a plan that is applicable to Parent and all of its
then existing Subsidiaries; provided that Parent shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans; provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions.
12.4 Rule 144 Filing. Parent, from and after the IPO, shall use its efforts
to assure that Rule 144 under the Securities Act will be available for sales of
shares by Stockholders after the first anniversary of the Closing Date.
13. TERMINATION OF AGREEMENT
13.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
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(ii) by Company (acting through its board of directors), on the one
hand, or by Parent (acting through its board of directors), on the other
hand, if the transactions contemplated by the Agreement to take place at
the Closing shall not have been consummated by January 31, 1998, unless the
failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of
its obligations under the Agreement to the extent required to be performed
by its prior to or on the Closing Date; or
(iii) by Stockholders, on the one hand, or by Parent (acting through
its board of directors), on the other hand, if, prior to October 16, 1997,
a Registration Statement on Form S-1 relating to the IPO has not been filed
by Parent with the SEC pursuant to the 1933 Act;
(iv) by Stockholders, on the one hand, or by Parent, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the material
covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date; or
(v) by Stockholders, on the one hand, or by Parent, on the other hand,
if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 9.7 because such proposed amendment constitutes or reflects an
event or occurrence that would have a Material Adverse Effect on the party
or parties proposing the same.
13.2 Liabilities in Event of Termination. Except as provided in Section
9.7, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
14. NONCOMPETITION
14.1 Prohibited Activities. Each Stockholder will not, for a period of
three years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other
Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or
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advisor, or as a sales representative, in the sale or marketing of
yellow page publishing, telecommunication services, interconnect services
and natural gas or electrical goods and services within the states of
Arkansas, California, Kansas, Missouri, Oklahoma and Texas (the
"Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of Parent (including the
Subsidiaries thereof); provided that each Stockholder shall be permitted to
call upon and hire any member of his immediate family;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the Subsidiaries
thereof) within the Territory for the purpose of soliciting or selling
products or services in direct competition with Parent within the
Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent in the
long-distance telephone business, which candidate, to the knowledge of such
Stockholder after due inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of such Stockholder
after due inquiry, Parent (or any Subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than one
percent of the capital stock of a competing business whose stock is traded on a
national securities exchange.
14.2 Damages. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
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14.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 14 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
14.4 Severability, Reformation. The covenants in this Section 14 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
14.5 Independent Covenant. All of the covenants in this Section 14 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 14, during which the agreements
and covenants of each Stockholder made in this Section 14 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 14. The covenants
contained in Section 14 shall not be affected by any breach of any other
provision hereof by any party hereto and shall be of no force and effect if the
transactions contemplated by this Agreement are not consummated.
14.6 Materiality. Stockholders hereby agree that the covenants set forth in
this Section 14 are a material and substantial part of the transactions
contemplated by this Agreement.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 Stockholders. Stockholders recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information of Company and/or Parent and Old ACG, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company and/or Parent and Old ACG. Stockholders agree that
they will not disclose such confidential information to any Person for any
purpose or reason whatsoever, except (i) to authorized representatives of
Parent; (ii) following the Closing, such information may be disclosed by
Stockholders as is required in the course of performing their duties for Parent
or the Company; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 15.1, unless (x) such information
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becomes known to the public generally through no fault of Stockholders, (y)
disclosure is required by law or the order of any governmental authority under
color of law; provided, that prior to disclosing any information pursuant to
this clause (y), Stockholders, if possible, shall give immediate prior written
notice thereof to Parent and provide Parent with the opportunity to contest
such disclosure, or (z) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any
Stockholder of the provisions of this Section 15.1, Parent shall be entitled to
an injunction (without the posting of bond or proof of actual damages)
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Parent from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, (1) the abovementioned
restrictions on each Stockholder's ability to disseminate confidential
information with respect to Company shall be of no force and effect and (2)
each Stockholder (including his representatives, advisors and legal counsel)
shall within ten business days of the Parent's request, deliver all copies of
the confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal
counsel).
15.2 Parent. Each of Parent and Old ACG recognizes and acknowledges that it
had in the past and currently has and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Each of Parent and Old ACG agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
15.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Old ACG, (y) disclosure is required by law or the order
of any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), Parent shall, if
possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party. In the event of a breach or threatened breach by Parent
or Old ACG of the provisions of this Section 15.2, Company and Stockholders
shall be entitled to an injunction (without the posting of bond or proof of
actual damages) restraining Parent or Old ACG from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Company and Stockholders from pursuing any other available remedy
for such breach or threatened
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breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, Parent and Old ACG
(including their respective representatives, advisors and legal counsel) shall
within ten business days after Company's request, deliver all copies of the
confidential information of Company in either of their possession in any form
whatsoever (including, but not limited to, any reports, memoranda, or other
materials prepared by either Parent or Old ACG or either of their
representatives, advisors or legal counsel at the direction of Parent).
15.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 15.1 and 15.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
15.4 Survival. The obligations of the parties under this Section 15 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 13.
16. TRANSFER RESTRICTIONS
16.1 Parent Stock. Except for transfers to immediate family members who
agree to be bound by the restrictions set forth in this Section 16.1 (or trusts
for the benefit of Stockholders or family members, the trustees of which so
agree), for a period of one year from the Closing, except pursuant to Section
18, no Stockholder shall sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any Parent Stock received by such
Stockholder in this the transactions contemplated herein. The Parent Stock
delivered to the Stockholders pursuant to Section 2 of this Agreement will bear
a legend substantially in the form set forth in Section 16.3 and containing
such other information as Parent may deem necessary or appropriate.
16.2 Warrants and Warrant Stock. WARRANT HOLDERS ACKNOWLEDGE THAT THE
WARRANTS ARE NON-TRANSFERRABLE AND HENCE CANNOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF BY ANY WARRANT HOLDER EXCEPT PURSUANT TO THE LAWS OF DESCENT AND
DISTRIBUTION OR IN CONNECTION WITH A TENDER OFFER OR EXCHANGE OFFER FOR ALL THE
PARENT STOCK. In addition, Warrant Holders further acknowledge that for a
period of one year from the date of the original issuance of any Warrant Stock
upon the exercise of a Warrant, except pursuant to Section 18, no Warrant
Holder may sell, assign, exchange, transfer, encumber, pledge, distribute,
appoint, or otherwise dispose of any Warrant Stock. The Warrant Stock delivered
to the
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Warrant Holders upon exercise of the Warrants will bear a legend substantially
in the form set forth in Section 16.3 and containing such other information as
Parent may deem necessary or appropriate.
16.3 Legend. The legend referred to in Sections 16.1 and 16.2 is as set
forth below:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF DATE OF ORIGINAL ISSUANCE]. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
17. INVESTMENT REPRESENTATIONS
17.1 Parent Stock.
(i) Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have
not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the requirements of the 1933 Act and
applicable state securities laws. All of the Restricted Securities are
being acquired by Stockholders solely for their own respective accounts,
for investment purposes only, and not with a view to the distribution
thereof.
(ii) Stockholders represent, warrant, covenant and agree that none of
the Restricted Securities will be offered, sold, assigned, exchanged,
transferred, encumbered, distributed, appointed or otherwise disposed of
except after full compliance with all of the applicable provisions of the
1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the
legend required under Section 16.1 of this Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS AND UNTIL (A) THESE SECURITIES SHALL
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HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR (B) THE
HOLDER OF THESE SECURITIES PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT
THAT THE PROPOSED DISPOSITION OF THESE SECURITIES MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE ACTS.
(iii) Each Stockholder represents that he or she has received, has
read and understands the Draft Registration Statement, and in particular,
the risk factors described therein. Each of the Stockholders further
represent that he is able to bear the economic risk of an investment in the
Restricted Securities and can afford to sustain a total loss of such
investment and that each of the Stockholders either (i) has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of the proposed investment in Parent or
(ii) together with the senior executives of the Company, with whom he has
consulted, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the
proposed investment in Parent. Stockholders have had an adequate
opportunity to ask questions and receive answers from the officers of
Parent and the Company concerning any and all matters relating to the
transactions described herein including, without limitation, the background
and experience of the current and proposed officers and directors of
Parent, the plans for the operations of the business of Parent and any
plans for additional acquisitions and the like. Stockholders have asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17.2 Warrant Stock.
(i) Warrant Holders acknowledge that the Warrant Stock will not be
registered under the 1933 Act and therefore may not be resold without
compliance with the requirements of the 1933 Act and applicable state
securities laws. All of the Warrant Stock will be acquired by Warrant
Holders solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of such securities in connection with a distribution.
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(ii) Warrant Holders represent, warrant, covenant and agree that none
of the Warrant Stock will be offered, sold, assigned, exchanged,
transferred, encumbered, distributed, appointed or otherwise disposed of
except after full compliance with all of the applicable provisions of the
1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the legend set forth in Section 17.1(ii)
in addition to the legend required under Section 16.3 of this Agreement:
(iii) Each Warrant Holder represents that he or she has received, has
read and understands the Draft Registration Statement, and in particular,
the risk factors described therein. The Warrant Holders further represent
that they are each able to bear the economic risk of an investment in the
Warrant Stock and can afford to sustain a total loss of such investment and
that each of the Warrant Holders either (i) has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in Parent or
(ii) together with the senior executives of the Company, with whom he or
she has consulted, has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in Parent. Warrant Holders have had an
adequate opportunity to ask questions and receive answers from the officers
of Parent and the Company concerning any and all matters relating to the
transactions described herein including, without limitation, the background
and experience of the current and proposed officers and directors of
Parent, the plans for the operations of the business of Parent and any
plans for additional acquisitions and the like. Warrant Holders have asked
any and all questions in the nature described in the preceding sentence and
all questions have been answered to their satisfaction. Parent agrees to
afford Warrant Holders another opportunity to ask similar questions
regarding Parent prior to any exercise of their Warrants. At the time of
any such exercise, Parent may, as a condition to the issuance of any
Warrant Stock upon the exercise of Warrants, require the reaffirmation of
the statements contained in this Section 17.2(iii) by the Warrant Holder
seeking to exercise Warrants.
18. REGISTRATION RIGHTS
18.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Parent proposes to register any Parent Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Parent and (ii) registrations relating to employee
benefit plans, Parent shall give each Stockholder prompt written notice of its
intent to do so. Upon the written request of any Stockholder given within 15
business days after receipt of such notice, Parent
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shall cause to be included in such registration all Registrable Securities
(including any shares of Parent Stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Registerable Securities) which any Stockholder requests; provided, however, if
Parent is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
Registration Statement under this Section 18.1 that the number of shares to be
sold by Persons other than Parent is greater than the number of such shares
which can be offered without adversely affecting the offering, Parent may
reduce pro rata the number of shares offered for the accounts of such Persons
(based upon the number of shares held by such Person) to a number deemed
satisfactory by such managing underwriter.
18.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Parent Stock (i)
representing Registerable Securities owned by the Stockholders or their
permitted transferees or (ii) representing Registrable Securities (as defined
in the agreements similar to this Agreement mentioned below) acquired by other
Stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement (or upon exercise or conversion of securities of Parent
received pursuant to such agreement) (the persons referred to in clauses (i)
and (ii) being collectively referred to as the "Founding Stockholders"), which
shares have not been previously registered or sold and which shares are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, may request in writing that Parent file a
Registration Statement under the 1933 Act covering the registration of such
shares of Parent Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a Registration
Statement covering all such shares. Parent shall be obligated to effect only
one Demand Registration for all Founding Stockholders and will keep such Demand
Registration current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the Registration Statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a Registration
Statement covering the sale of any of its securities
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in a public offering under the 1933 Act, no registration of the Parent Stock
shall be initiated under this Section 18.2 until 90 days after the effective
date of such Registration Statement unless Parent is no longer proceeding
diligently to secure the effectiveness of such Registration Statement; provided
that Parent shall provide the Founding Stockholders the right to participate in
such public offering pursuant to, and subject to, Section 18.1.
18.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 18.3 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 18.1 and 18.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a Registration Statement with
respect to Registerable Securities and use its best efforts to cause such
Registration Statement to become and remain effective; provided that Parent
may discontinue any registration of its securities that is being effected
pursuant to Section 18.2 at any time prior to the effective date of the
Registration Statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such Registration Statement
and the prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective for a period as may be requested by
the stockholders of Parent holding a majority of the Registerable
Securities covered thereby not exceeding 90 days and to comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such Registration Statement; provided, that
before filing a Registration Statement or prospectus relating to the sale
of such Registerable Securities, or any amendments or supplements thereto,
Parent will furnish to counsel to each holder of Registerable Securities
covered by such Registration Statement or prospectus, copies of all
documents proposed to be filed, which documents will be subject to the
review of such counsel, and Parent will give reasonable consideration in
good faith to any comments of such counsel.
(iii) Furnish to each holder of Registerable Securities covered by the
Registration Statement and to each underwriter, if any, of such
Registerable Securities, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements of the 1933
Act, and such other documents, as such Person may reasonably
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request, in order to facilitate the public sale or other disposition
of such Registerable Securies.
(iv) Use its best efforts to register or qualify the Registerable
Securies covered by such Registration Statement under such other securities
or blue sky laws of such jurisdictions as each seller shall reasonably
request, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition
of the Registerable Securies owned by such seller, in such jurisdictions,
except that Parent shall not for any such purpose be required (x) to
qualify to do business as a foreign corporation in any jurisdiction where,
but for the requirements of this Section 18.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such jurisdiction,
or (z) to take any action which would subject it to general or unlimited
service of process in any such jurisdiction where it is not then so
subject.
(v) Use its best efforts to cause the Registerable Securies covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such
Registerable Securies.
(vi) Immediately notify each seller of Registerable Securies covered
by such Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 18.3(ii), if Parent becomes aware
that the prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, at the request of any such seller, deliver a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registerable Securies, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
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(viii) Use its best efforts in cooperation with the underwriters to
list such Registerable Securies on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registerable
Securies covered by the Registration Statement may reasonably request in
order to effect an underwritten public offering of such Registerable
Securities.
(xi) Make available for inspection by the seller of such Registerable
Securities covered by such Registration Statement, by any underwriter
participating in any disposition to be effected pursuant to such
Registration Statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
Registration Statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
18.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registerable Securities covered
by a Registration Statement referred to in this Section 18 will, upon
receipt of any notice from Parent of the happening of any event of the kind
described in Section 18.3(vi), forthwith discontinue disposition of the
Registerable Securities pursuant to the Registration Statement covering
such Registerable Securities until such holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 18.3(vi).
(ii) If a registration pursuant to Section 18.1 or 18.2 involves an
underwritten offering, each of the Stockholders agrees, whether or not his
shares of Registerable Securities
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are included in such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the 1933 Act,
of any Registerable Securities, or of any security convertible into or
exchangeable or exercisable for any Registerable Securities (other than as
part of such underwritten offering), without the consent of the managing
underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration. Similarly,
each of the Stockholders agrees not to effect any sale or distribution,
including any sale pursuant to the registration rights provided in Section
16.1 of any Registrable Securities, without the consent of the managing
underwriter of the IPO during a period commencing on the effective date of
the Draft Registration Statement and ending 365 calendar days (or such
lesser number as such managing underwriter shall designate) after such
Effective Date.
18.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 18.1 or 18.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
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(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Parent may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section
18.1 or 18.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 18.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to Parent by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Parent or any such director,
officer or controlling person and shall survive the transfer of such
securities by such seller. In that event, the obligations of the Parent and
such sellers pursuant to this Section 18.5 are to be several and not joint;
provided, however, that, with respect to each claim pursuant to this
Section 18.5, Parent shall be liable for the full amount of such claim, and
each such seller's liability under this Section 18.5 shall be limited to an
amount equal to the net proceeds (after
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deducting the underwriting discount and expenses) received by such
seller from the sale of Registrable Securities held by such seller pursuant
to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 18.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 18.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registrable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and the indemnified
party would be inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between them. In the
event that the indemnifying party does not assume the defense of a claim
pursuant to this Section 18.5(iii), the indemnified party will have the
right to defend such claim by all appropriate proceedings, and will have
control of such defense and proceedings, and the indemnified party shall
have the right to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause its legal
counsel to, provide reasonable cooperation to the indemnifying party and
its legal counsel in connection
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with its assuming the defense of any claim, including the furnishing
of the indemnifying party with all papers served in such proceeding. In the
event that an indemnifying party assumes the defense of an action under
this Section 18.5(iii), then such indemnifying party shall, subject to the
provisions of this Section 18.5, indemnify and hold harmless the
indemnified party from any and all losses, claims, damages or liabilities
by reason of such settlement or judgment.
(iv) Parent and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
18.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 18.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each person selling securities agree with each
other that no seller of Registrable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 18.5(ii) were available.
Parent and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount bears to the initial public offering
price of the Registrable Securities. For purposes of this Section 19.6, each
person, if any, who controls an underwriter within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as such underwriter,
and each director and each officer of Parent who signed the registration
statement, and each person, if any, who controls Parent or a
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seller of Registrable Securities within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as Parent or a seller of
Registrable Securities, as the case may be.
18.7 Underwriting Agreement. In connection with each registration pursuant
to Section 18.1 or 18.2 covering an underwritten public offering, Parent and
each participating holder agree to enter into a written agreement with the
managing underwriter or underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriter or underwriters and companies of Parent's
size and investment stature, including appropriate indemnity, contributions and
stock lock-up provisions.
18.8 Availability of Rule 144. Parent shall not be obligated to register
shares of Registerable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act are available to such Stockholder.
19. GENERAL
19.1 Cooperation. Company, each Stockholder, Old ACG and Parent shall
deliver or cause to be delivered to the other on the Closing Date and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax Return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
19.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent, Old ACG and Company,
and the heirs and legal representatives of Stockholders. Notwithstanding the
foregoing, any Stockholder may assign his shares of Parent Stock and rights
thereunder, to a family or children's trust; provided that the assignee agrees
to be bound by the terms of this Agreement to the same extent as his or its
assignor.
19.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among Stockholders, Company, Newco, Old ACG and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and
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delivery, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by Stockholders, by Company, Parent, Newco and
Old ACG acting through their respective officers or representatives, duly
authorized by their respective Boards of Directors in the cases of Company, Old
ACG, Parent, and Newco. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby; provided that Company shall make a good faith effort
to cross reference disclosures, as necessary or advisable, between related
Schedules.
19.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19.5 Brokers and Agents. Except as disclosed on Schedule 19.5, each party
represents and warrants that it employed no broker or agent in connection with
the transactions contemplated by this agreement and agrees to indemnify the
other parties hereto against all loss, cost, damage or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
19.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Parent will pay the fees, expenses and disbursements of Parent,
Company and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by Parent and
Company under this Agreement. Each Stockholder shall pay all sales, use,
transfer, real property transfer, gains, stock transfer and other similar taxes
("Transfer Taxes") imposed in connection with this transaction, the fees and
expenses of Stockholders' legal counsel and all other costs and expenses
incurred by Stockholders in their performance and compliance with all
conditions to be performed by them under this Agreement. Each Stockholder shall
file all necessary documentation and Returns with respect to such Transfer
Taxes. In addition, each Stockholder acknowledges that he, and not Company or
Parent, will pay any Taxes due upon receipt of the consideration payable
pursuant to Section 2, and will assume all Tax risks and liabilities of the
Company in connection with the transactions contemplated hereby.
19.7 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by
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telecopying the same if receipt thereof is confirmed or (iii) by delivering the
same in person to an officer or agent of such party.
(x) If to Parent, Old ACG, or Newco addressed to Parent at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to Stockholders, addressed to them at their addresses set forth
on Schedule 6.3, with copies to such counsel as is set forth with respect to
each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
TELE-SYSTEMS, Inc.
442 S. Ellis
Wichita, Kansas 67211
Attn: Earl Brown
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.7 from time to time.
19.8 Governing Law. This Agreement Shall be construed in accordance with
the laws of the State of Delaware.
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19.9 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made herein and at the
Closing Date or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated
hereby and any examination on behalf of the parties until the Expiration Date.
19.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.11 Time. Time is of the essence with respect to this Agreement.
19.12 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
19.13 Remedies Cumulative. Except as otherwise provided in Section ?, no
right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
19.14 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
19.15 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
19.16 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Parent, Company, Old ACG, Newco and Stockholders. Any
amendment or waiver effected in accordance with this Section 19.16 be binding
upon each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
TELE-SYSTEMS, INC.
BY:
-------------------------------------
NAME: EARL BROWN
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
STOCKHOLDERS:
----------------------------------------
DAVID MITCHELL
----------------------------------------
EARL BROWN
----------------------------------------
CRAIG MCILVAIN
----------------------------------------
BOB PAGE
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----------------------------------------
GARY GAMM
ADVANCED COMMUNICATIONS CORP.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
ACG ACQUISITION II CORP.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: PRESIDENT
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ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the
<PAGE>
Acquisitions and the IPO will possess immediately after the completion of the
Acquisitions, at least 80% of the total combined voting power of all classes of
capital stock of the Company entitled to vote and at least 80% of the total
number of shares of all other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED ASSET PURCHASE AGREEMENT
dated as of the 6th day of October, 1997
by and between
ADVANCED COMMUNICATIONS GROUP, INC.
(PURCHASER)
and
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
LONG DISTANCE MANAGEMENT II, INC.
(SELLER)
and
BOBBY ALEXANDER
(SHAREHOLDER)
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<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN....................10
2.1 Purchase and Sale of Purchased Assets..............................10
2.2 Assumption of Liabilities..........................................10
2.3 Purchase Price.....................................................10
2.4 Allocation of Purchase Price.......................................11
2.5 Post-Closing Adjustment............................................11
2.6 Section 351 Exchange Plan..........................................12
2.7 Closing............................................................12
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE SELLER AND THE SHAREHOLDER...........................................12
3.1 Due Organization...................................................12
3.2 Authority..........................................................13
3.3 Equity Interests in the Seller.....................................13
3.4 Subsidiaries.......................................................13
3.5 Financial Statements...............................................13
3.6 Liabilities and Obligations........................................14
3.7 Accounts and Notes Receivable......................................14
3.8 Permits and Intangibles............................................15
3.9 Environmental Matters..............................................15
3.10 Personal Property..................................................16
3.11 Significant Customers; Material Contracts and Commitments..........16
3.12 Real Property......................................................17
3.13 Insurance..........................................................17
3.14 Intellectual Property..............................................18
3.15 Labor Relations....................................................18
3.16 Employee Benefits..................................................18
3.17 Tax Matters........................................................19
3.18 Prior or Preferential Rights.......................................20
3.19 Sufficiency of Assets..............................................20
3.20 Conformity with Law; Litigation....................................21
3.21 No Violations......................................................21
3.22 Government Contracts...............................................22
3.23 Absence of Changes.................................................22
3.24 Disclosure.........................................................23
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3.25 Prohibited Activities..............................................23
3.26 Draft Registration Statement.......................................23
3.27 Tax Matters........................................................23
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE PURCHASER AND OLD ACG................................................24
4.1 Due Organization...................................................24
4.3 Capital Stock......................................................24
4.4 Transactions in Capital Stock, Organization Accounting.............25
4.5 Subsidiaries.......................................................25
4.6 Financial Statements...............................................25
4.7 Liabilities and Obligations........................................25
4.8 Conformity with Law; Litigation....................................26
4.9 No Violations......................................................26
4.10 Business; Real Property; Material Agreement........................26
4.11 Tax Matters........................................................27
4.12 Draft Registration Statement.......................................27
5. OTHER COVENANTS PRIOR TO CLOSING.........................................27
5.1 Access and Cooperation; Due Diligence; Audits......................27
5.2 Conduct of Business Pending Closing................................28
5.3 Prohibited Activities..............................................29
5.4 Exclusivity........................................................30
5.5 Notice to Bargaining Agents........................................30
5.6 Notification of Certain Matters....................................30
5.7 Amendment of Schedules.............................................31
5.8 Bulk Sales Laws....................................................31
5.9 Transfer Taxes and Recording Fees..................................31
5.10 Certain Provisions Relating to Consents............................32
5.11 Further Assurance..................................................33
5.12 Survival...........................................................33
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER........................33
6.1 Representations and Warranties Performance of Obligations..........33
6.2 Satisfaction.......................................................33
6.3 No Litigation......................................................33
6.4 Opinion of Counsel.................................................33
6.5 Consents and Approvals.............................................34
6.6 No Material Adverse Change.........................................34
6.7 Secretary's Certificates...........................................34
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6.8 Other Agreement....................................................34
6.9 Closing of IPO.....................................................34
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.....................34
7.1 Representations and Warranties; Performance of Obligations.........34
7.2 No Litigation......................................................35
7.3 No Material Adverse Effect.........................................35
7.4 Shareholder Release................................................35
7.5 Satisfaction.......................................................35
7.6 Termination of Related Party Agreements............................35
7.7 Opinion of Counsel.................................................35
7.8 Consents and Approvals.............................................36
7.9 FIRPTA Certificate.................................................36
7.10 Other Agreement....................................................36
7.11 Closing of IPO.....................................................36
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE
SHAREHOLDER AFTER CLOSING................................................36
8.1 Release From Guarantees............................................36
8.2 Employment.........................................................36
8.3 Health and Welfare Benefits........................................38
8.4 Change of Name.....................................................39
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................39
9. INTENTIONALLY OMITTED....................................................39
10. TERMINATION OF AGREEMENT.................................................39
10.1 Termination........................................................39
10.2 Liabilities in Event of Termination................................40
10.3 Retention of Prepayment............................................40
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................40
11.1 The Shareholder and the Seller.....................................40
11.2 The Purchaser......................................................41
11.3 Damages............................................................41
11.4 Survival...........................................................42
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12. NONCOMPETITION...........................................................42
12.1 Prohibited Activities..............................................42
12.2 Damages............................................................43
12.3 Reasonable Restraint...............................................43
12.4 Severability, Reformation..........................................43
12.5 Independent Covenant...............................................43
12.6 Materiality........................................................43
13. PURCHASE OF SWITCH.......................................................44
13.1 Consideration......................................................44
13.2 Shareholder's Agreements Regarding Switch..........................44
13.3 Purchaser's Further Agreements.....................................44
14. GENERAL..................................................................45
14.1 Cooperation........................................................45
14.2 Successors and Assigns.............................................45
14.3 Entire Agreement...................................................45
14.4 Counterparts.......................................................45
14.5 Brokers and Agents.................................................45
14.6 Expenses...........................................................46
14.7 Notices............................................................46
14.8 Governing Law......................................................47
14.9 Exercise of Rights and Remedies....................................47
14.10 Time...............................................................48
14.11 Reformation and Severability.......................................48
14.12 Remedies Cumulative................................................48
14.13 Captions...........................................................48
14.14 Public Statement...................................................48
14.15 Form of Payment....................................................48
14.16 Receivables........................................................48
14.17 Amendments and Waivers.............................................49
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<PAGE>
RESTATED ASSET PURCHASE AGREEMENT
THIS RESTATED ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
6th day of October, 1997, by and between ADVANCED COMMUNICATIONS GROUP, INC., a
Delaware corporation organized in September 1997 ("Purchaser"), ADVANCED
COMMUNICATIONS CORP., (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG"), LONG DISTANCE
MANAGEMENT II, INC., an Oklahoma corporation ("Seller"), and BOBBY ALEXANDER,
an individual resident of Oklahoma ("Shareholder") and the owner of all the
issued and outstanding shares of capital stock of Seller.
RECITALS
WHEREAS, the Seller is engaged in the business of reselling
long-distance telephone services ("Business"); and
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Asset Purchase Agreement dated as of January 29, 1997, as amended, among
Old ACG, Seller, and Shareholder (collectively, the "Original Agreement");
and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Purchaser as a new Delaware corporation in
September 1997 to serve as the vehicle for the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering ("IPO") of Common Stock, $.0001 par
value, of Purchaser ("Purchaser Stock") at the price to the public
reflected in the final prospectus of Purchaser relating to the IPO ("IPO
Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Shareholder and Old ACG,
will transfer, by stock or asset
<PAGE>
purchase or reverse triangular merger, the stock or substantially all the
assets of certain companies and other assets in which they own an interest
to Purchaser in exchange for voting capital stock of Purchaser and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Purchaser, under circumstances that
will constitute a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder ("Code"), to the extent of their receipt of voting capital stock
of Purchaser; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Purchaser and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Purchaser substantially contemporaneously with the
consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Purchaser by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Purchaser
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Shareholder and the Seller desire to
amend and restate the Original Agreement in its entirety and transform it
into this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
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<PAGE>
"Accounts Payable" as of any date means the sum of (i) the Seller's
accounts and notes payable and (ii) the Seller's expenses incurred but not
invoiced.
"Accounts Receivable" as of any date means the sum of (i) the Seller's
accounts and notes receivable and (ii) the Seller's revenues that are
earned but not invoiced.
"Affiliate" means, with respect to any specific Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. The term
"control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreed Rate" means the prime rate of interest reported in The Wall Street
Journal on the Closing Date.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement
"A/R Aging Reports" has the meaning set forth in Section 3.7.
"Arbitration" has the meaning set forth in Section 2.5(ii).
"Assumed Liabilities" refers to, collectively, all liabilities and
obligations of the Seller (i) relating to accounts and notes payable
arising in the ordinary course of the Business as of the Closing Date, (ii)
arising after the Closing Date with respect to the performance of the terms
of and the payment of all amounts due under the Contracts and the Leases,
excluding any liability or obligation resulting from any breach, violation,
failure to comply, act, omission, condition or circumstance with respect
thereto prior to the Closing Date and (iii) relating to Employees and
employee benefits to the extent specifically provided in Section 8.2.
"Assumption Agreement" refers to the Assumption Agreement to be executed at
Closing by the Purchaser.
"Balance Sheet Date" has the meaning set forth in Section 3.5.
"Base Price" and "Purchase Price" each means the aggregate amount of cash
payable to the Seller by the Purchaser pursuant to Section 2.3(ii).
"Bill of Sale" refers to the Bill of Sale to be executed at the Closing by
the Seller.
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<PAGE>
"Business" has the meaning set forth in the first recital to this
Agreement.
"Business Day" means any day, other than a Saturday or a Sunday, on which
commercial banks are not required or authorized to close in New York City.
"Cash" as of any date means the sum of the Seller's collected cash and cash
equivalents.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
limited liability company, partnership or other business entity that is a
signatory to, or the subject of, this Agreement was formed or organized in
accordance with applicable law.
"Closing" has the meaning set forth in Section 2.7.
"Closing Date" has the meaning set forth in Section 2.7.
"Code" is defined in the sixth recital of this Agreement.
"Contracts" means, collectively, the documents and other matters listed on
Schedule 3.11.
"Controlled Group Member" has the meaning set forth in Section 3.16(ii).
"Disputed Matter" has the meaning set forth in Section 2.5(i).
"Draft Registration Statement" has the meaning set forth in the ninth
recital of this Agreement.
"Effective Time" means 12:01 a.m. on the Closing Date.
"Employees" has the meaning set forth in Section 8.2(i).
"Employee Benefit Plan" means an Employee Pension Benefit Plan, Employee
Welfare Benefit Plan (where no distinction is required by the context in
which the term is used), or any compensation plan, incentive plan (whether
or not stock related), bonus plan or fringe benefit plan.
"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2)
of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1)
of ERISA.
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<PAGE>
"Environmental Laws" has the meaning set forth in Section 3.9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means, collectively (i) any rights of the Seller or any
of its Affiliates to any Tax refund with respect to periods prior to the
Closing Date, (ii) any assets of any Employee Benefit Plan maintained by
the Seller, (iii) any property, casualty, workers' compensation or other
insurance policy or related insurance services contract relating to the
Seller and any rights of Seller or any of its Affiliates under such
insurance policy or contract, other than rights or proceeds under such
insurance policies or contracts with respect to any Assumed Liability or
any casualty affecting any of the Purchased Assets, (iv) any rights of the
Seller under this Agreement or under any other agreement between the Seller
and the Purchaser and (v) any assets, properties or rights of the Seller
listed on Schedule A.
"Excluded Liabilities" refers to, collectively, all obligations and
liabilities of the Seller and its Affiliates, contingent or direct, known
or unknown, other than the Assumed Liabilities. Without limiting the
generality of the foregoing, the Excluded Liabilities include (i) any
liability or obligation arising prior to, on or after the Closing Date in
connection with any Excluded Asset, (ii) any liability or obligation
arising prior to the Closing Date with respect to the Purchased Assets,
(iii) any liability or obligation arising under any Environmental Law in
connection with the ownership, use, maintenance or operation of any of the
present or former facilities or properties of the Seller or any of its
predecessors or otherwise in connection with the operation of the Business,
(iv) any liability or obligation (whether assessed or unassessed) of the
Seller or any of its Affiliates with respect to Taxes for any period prior
to the Closing Date, (v) any liability or obligation with respect to any
checks issued by the Seller prior to the Closing Date which are outstanding
as of the Closing Date, (vi) any liability or obligation of the Seller with
respect to employees or employee benefits not specifically assumed by the
Purchaser pursuant to Section 8.2 and (vii) any liabilities listed on
Schedule B.
"Final Schedule" has the meaning set forth in Section 2.5(iii)
"Founding Companies" has the meaning set in the second recital of this
Agreement.
"Hart-Scott Act" has the meaning set forth in Section 8.5.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 3.9.
"IPO" has the meaning set forth in the fifth recital of this Agreement.
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<PAGE>
"IPO Price" has the meaning set forth in the fifth recital of this
Agreement.
"Initial Disclosure Date" means November 30, 1996.
"Intellectual Property" means all patents, trademarks, service marks,
copyrights and applications therefor, all tradenames, brand names, logos,
inventions, discoveries, improvements, processes, technologies, know-how,
formulae, drawings, specifications, trade secrets, plans, computer software
(including source codes and other documentation thereof), files, programs,
notebooks and records, all other proprietary, technical and other
information, data and intellectual property, and all licenses, Permits and
other rights to use the foregoing, whether patentable or unpatentable, used
or held for use in or associated with the ownership of the Purchased
Assets, or the conduct of the Business (or, if the Seller does not own any
such proprietary, technical or other information, data and intellectual
property, a paid-up or royalty-free, irrevocable license, permit or other
right to use the same), including, without limitation, the Intellectual
Property described in Schedule 3.14.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by the Seller and
used, useful or held for use in connection with the Business.
"Liens" means all mortgages, liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
"Material Adverse Effect" means a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial
or otherwise) of a Person.
"Material Documents" has the meaning set forth in Section 3.21.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"November Balance Sheet" has the meaning set forth in Section 3.5.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 4.6.
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<PAGE>
"Other Agreement" means the Restated Asset Purchase Agreement dated as of
October 6, 1997 by and between the Purchaser, Old ACG, Long Distance
Management of Kansas, Inc., the Shareholder and others.
"Permit" means any permit, approval, authorization, license, franchise,
variance, certificate of occupancy or permission required by a governmental
authority under any applicable law.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a joint stock company, a trust or any
incorporated organization.
"Prepayment" has the meaning set forth in Section 2.3(iii).
"Prohibited Activities" has the meaning set forth in Section 3.25.
"Proscribed Business" has the meaning set forth in Section 12.1(i).
"Purchased Assets" means all the Seller's assets associated with the
Business or used, useful or held for use in connection with the operations
historically conducted by Seller at or in conjunction therewith, all as the
same may exist on the Closing Date, including, without limitation, the
following:
(i) all real property that is owned by the Seller, in each case together
with all improvements, fixtures, construction in process and all
other easements, rights and privileges appurtenant thereto and
rights in respect thereof;
(ii) all inventories of supplies and spare parts, all machinery, test
equipment, computers, telephone systems, expendables, vehicles,
furniture, file cabinets, office materials and other tangible
personal property, including the items listed on Schedule 3.10;
(iii) all Intellectual Property and all accounts and notes receivable;
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<PAGE>
(iv) all right, title and interest in, to and under all Contracts and
Leases (including all options to renew or extend the term of such
Leases or purchase all or any part of the leased property), subject
in each case to the terms of such Contracts and Leases;
(v) all books and records of the Business (including such books and
records as are contained in computerized storage media), including
books and records related to inventories, purchasing, accounting,
sales, research, engineering, maintenance, repairs, marketing,
banking, Intellectual Property, shipping records, personnel files
for Transferred Employees and all files, records, literature and
correspondence;
(vi) to the extent legally assignable, all Permits;
(vii) to the extent any of the following relate to any Assumed Liability
or any of the Purchased Assets: claims, deposits, prepayments,
prepaid assets, refunds (excluding Tax refunds with respect to
periods prior to the Closing Date), causes of action, rights of
recovery, rights of setoff and rights of recoupment of the Seller as
of the Closing Date, including all rights of the Seller under any
property, casualty, workers' compensation or other insurance policy
or related insurance services contract;
(viii) any other tangible assets of the Seller which are used primarily in
the Business and which are of a nature not customarily reflected in
the books and records of a business, such as assets which have been
written off for accounting purposes but which are still used by or
of value to the Business;
(ix) all goodwill associated with the Business;
(x) all supplier lists, files, records and data relating to the
Business;
(xi) all customer lists, files, records and data relating to the
Business;
(xii) all capital expenditure plans and studies, engineering studies,
accounting, real property, environmental, Tax, employment, health
and safety, and other books, records, files, ledgers, documents and
correspondence used or held for use in or associated with the
operation of the Purchased Assets, the ownership of the Purchased
Assets, or the conduct of the Business, other than Excluded Assets;
(xiii) all rights to the use of the name Long Distance Management;
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<PAGE>
(xiv) all rights under express or implied warranties from the providers of
goods and services in connection with the operation of the Purchased
Assets, the ownership of the Purchased Assets, or the conduct of the
Business; and
(xv) all cash and cash equivalents of the Seller (including for this
purpose all collected funds and items in the process of collection
received in bank accounts associated with the Seller);
excluding in every instance all Excluded Assets.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section 4.1.
"Purchaser Documents" has the meaning set forth in Section 4.9.
"Purchaser Stock" has the meaning set forth in the fifth recital of this
Agreement.
"Return" means any return, report or statement (including any information
return) required to be filed for purposes of a particular Tax.
"Schedule" has the meaning set forth in Section 2.5(i).
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Seller Financial Statements" has the meaning set forth in Section 3.5.
"Shareholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
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<PAGE>
"Switch" means (i) the Stromberg DSO Digital Tandem Switch located on the
5th floor of the Bank of Oklahoma Plaza, 201 Robert S. Kerr Avenue, Suite
502, Oklahoma City, Oklahoma 73102 and (ii) all related peripheral
equipment, supplies and software used or held for use in connection
thereafter.
"Switch Agreement" has the meaning set forth in Section 6.10.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1(i).
"Transferred Employee" has the meaning set forth in Section 8.2(ii).
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN
2.1 Purchase and Sale of Purchased Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Purchaser will
purchase from the Seller, and the Seller will sell, transfer, assign, convey
and deliver to the Purchaser the Purchased Assets pursuant to the Bill of Sale.
2.2 Assumption of Liabilities. On the terms and subject to the conditions
set forth in this Agreement, at the Closing, the Purchaser will assume and
become responsible for all of the Assumed Liabilities pursuant to the
Assumption Agreement.
2.3 Purchase Price.
(i) The total consideration to be provided by the Purchaser to the
Seller for the Purchased Assets shall be the sum of the following items: (i)
cash in the amount of the Base Price and (ii) the assumption of the Assumed
Liabilities.
(ii) Old ACG delivered to the Seller cash in the amount of $80,000
(the "Prepayment") in partial payment of the purchase price for the Purchased
Assets, the receipt of which is acknowledged by the Seller. At the Closing, the
Purchaser shall deliver or cause to be delivered to the Seller cash in the
amount of $1,560,000.
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2.4 Allocation of Purchase Price. The Seller and the Purchaser agree to
allocate the Purchase Price and the Assumed Liabilities among the Purchased
Assets in accordance with Schedule 2.4. The parties agree to file all Tax
reports, Returns and claims and other statements consistent with the allocation
set forth on Schedule 2.4 (and in particular to report the information required
by Section 1060(b) of the Code) in a manner consistent with such allocation and
shall not make any inconsistent written statement or take any inconsistent
position on any Returns, in any refund claim, during the course of any IRS or
other Tax audit, for any financial or regulatory purpose, in any litigation or
investigation or otherwise, so long as there exists a reasonable basis in law
to maintain such position. Each party shall notify the other party if it
receives notice that the IRS proposes any allocation different from Schedule
2.4.
2.5 Post-Closing Adjustment.
(i) As promptly as practicable following the Closing Date, but in no
event later than 15 days following the Closing Date, the Seller shall prepare a
schedule setting forth (i) the Seller's Cash as of the Closing Date, (ii) the
Seller's Accounts Receivable as of the Closing Date and (iii) the Seller's
Accounts Payable as of the Closing Date (the "Schedule"). A copy of the
Schedule shall be delivered to the Purchaser. Representatives of the Purchaser
shall have access to the Seller's books and records in order to verify the
accuracy of the Schedule. The parties shall endeavor to resolve any
disagreements relating to the Schedule within five days following its delivery
to the Purchaser. If all disagreements relating to the Schedule cannot be
resolved by the parties within the foregoing time period, all matters in
dispute (collectively, the "Disputed Matter") shall be resolved by arbitration
as set forth in Section 2.5(ii).
(ii) Any Disputed Matter shall be promptly submitted to and reviewed
by Deloitte & Touche LLP, or other nationally recognized independent accounting
firm mutually acceptable to the Seller and the Purchaser ("Arbitrator"). The
Arbitrator shall consider only the Disputed Matter and shall act promptly to
resolve in writing the Disputed Matter. The Arbitrator's decision with respect
to the Disputed Matter shall be final and binding on the Seller and the
Purchaser. The Seller and the Purchaser shall each be responsible for and pay
one-half of the fees and expenses of the Arbitrator. Each party shall be
responsible for and pay its own expenses incurred in connection with the
resolution of any Disputed Matter.
(iii) As promptly as practicable following the first to occur of (x)
an agreement between the Purchaser and the Seller with respect to the accuracy
of the Schedule or (y) a decision by the Arbitrator with respect to the
appropriate figures for inclusion in the Schedule (in either event, the "Final
Schedule"), the following action shall be taken:
(1) If the sum of the Accounts Receivable and the Cash reflected
in the Final Schedule exceeds the Accounts Payable reflected therein, the
amount of such excess,
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together with simple interest thereon from the Closing Date at the Agreed Rate
(calculated on the basis of a 365-day year), shall be promptly remitted by the
Purchaser to the Seller; or
(2) If the Accounts Payable reflected in the Final Schedule
exceed the sum of the Accounts Receivable and the Cash reflected therein, the
amount of such excess, together with simple interest thereon from the Closing
Date at the Agreed Rate (calculated on the basis of a 365-day year), shall be
promptly remitted by the Seller to the Purchaser.
(iv) The agreements and covenants in this Section 2.5 shall survive
the Closing.
2.6 Section 351 Exchange Plan. By executing this Agreement, the Shareholder
is deemed to have approved and adopted the Section 351 Exchange Plan to the
same extent as if he had subscribed his signature thereon and Seller is deemed
to have approved and adopted the Section 351 Exchange Plan to the same extent
as if a duly authorized officer of Seller had executed the Section 351 Exchange
Plan for and in the name of and on behalf of Seller.
2.7 Closing. The closing of the transactions contemplated by this Agreement
("Closing") shall take place on or before January 31, 1998 on the date of the
closing of the sale of shares of the Purchaser Stock in the IPO, or such other
date as the parties hereto may designate (the "Closing Date"), at such place in
New York City as the parties may mutually agree.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE SELLER AND
THE SHAREHOLDER
The Seller and the Shareholder jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 3 are true at the date of this Agreement and, subject to
Section 5.7, shall be true at the Closing Date and (ii) that all of the
covenants and agreements in this Section 3 shall be complied with or performed
at and as of the Closing Date. None of the representations, warranties,
covenants and agreements set forth in this Section 3 shall survive the Closing.
For purposes of this Section 3, the term Seller shall mean and refer to the
Seller and all of its Subsidiaries, if any.
3.1 Due Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Oklahoma, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except (i) as set
forth on Schedule 3.1 or (ii) where the failure to be so authorized or
qualified would not have a Material Adverse Effect. Schedule 3.1 sets forth all
jurisdictions in which the Seller is authorized or qualified
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to do business. True, complete and correct copies of the Charter Documents and
Bylaws, each as amended, of the Seller are attached hereto as Schedule 3.1.
3.2 Authority. The Seller has full corporate power and authority to execute
and deliver this Agreement, and execution and delivery by the Seller of this
Agreement and its consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Seller (including all requisite shareholder approval), and this
Agreement constitutes the legal, valid and binding obligation of the Seller.
The Shareholder has the full legal right, power and authority to enter into
this Agreement. This Agreement has been duly executed and delivered by the
Shareholder and constitutes a legal, valid and binding obligation of the
Shareholder.
3.3 Equity Interests in the Seller. The authorized capital stock of the
Seller is as set forth in Schedule 3.3. All of the issued and outstanding
shares of capital stock the Seller are owned of record and beneficially by the
Shareholder in the amount set forth in Schedule 3.3. Further, none of such
shares was issued in violation of the preemptive rights of any past or present
stockholder of the Seller.
3.4 Subsidiaries. Except as set forth in Schedule 3.4, (i) the Seller has
no Subsidiary, (ii) the Seller does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any Person and
(iii) the Seller is not directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
3.5 Financial Statements. Attached hereto as Schedule 3.5 are copies of the
following cash basis financial statements of the Seller beginning with the year
ended December 31, 1993 (the "Seller Financial Statements"): the Seller's
unaudited Balance Sheets as of December 31, 1995, 1994 and 1993 and its
unaudited Statements of Income, Cash Flows and Retained Earnings and any
related notes thereto for each of the years in the three-year period ended
December 31, 1995; the Seller's unaudited Balance Sheet as of November 30, 1996
("November Balance Sheet") (such November 30, 1996 being hereinafter also
referred to as the "Balance Sheet Date"); and unaudited Statements of Income,
Cash Flows and Retained Earnings and any related notes thereto for the eleven
months ended November 30, 1995 and 1996. The Seller Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 3.5). Except as set forth on Schedule 3.5, the foregoing
Balance Sheets present fairly the financial position of the Seller as of the
dates indicated thereon, and the foregoing Statements of Income, Retained
Earnings and Cash Flow present fairly the results of operations for the periods
indicated thereon, all on the cash basis of accounting in conformity with
generally recognized industry standards.
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3.6 Liabilities and Obligations. Seller has no material liabilities of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise that are not reflected on the November
Balance Sheet or otherwise reflected in the Seller Financial Statements at the
Balance Sheet Date, including all loan agreements, indemnity or guaranty
agreements, bonds, mortgages, Liens, pledges or other security agreements. The
Seller has also disclosed to the Purchaser on Schedule 3.6, in the case of
those contingent liabilities of the Seller related to pending or threatened
litigation or other liabilities which are not fixed or otherwise accrued or
reserved, the following information:
(w) a summary description of the liability together with the
following:
(1) copies of all relevant documentation relating thereto;
(2) amounts claimed and any other action or relief sought; and
(3) name of claimant and all other parties to the claim, suit or
proceeding;
(x) the name of each court or agency before which such claim, suit or
proceeding is pending;
(y) the date such claim, suit or proceeding was instituted; and
(z) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
3.7 Accounts and Notes Receivable. The Seller has delivered to the
Purchaser an accurate list (which is set forth on Schedule 3.7) of the accounts
and notes receivable of the Seller, as of the Initial Disclosure Date,
including receivables from and advances to employees and the Shareholder or its
Affiliates. The Seller shall also provide the Purchaser (x) an accurate list of
all receivables generated subsequent to the Initial Disclosure Date and (y) an
aging of all accounts and notes receivable showing amounts due in 30 day aging
categories, and such list and such aging report (the "A/R Aging Reports") shall
be current as of the Balance Sheet Date and shall be supplemented as of a date
five business days prior to the Closing Date. Except to the extent reflected on
Schedule 3.7 or as disclosed by the Seller to the Purchaser in a writing
accompanying the A/R Aging Reports, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 3.7, and shall be collectible
in the amounts shown on the A/R Aging Reports, net of reserves reflected in the
November Balance Sheet and as of the date of the A/R Aging Reports,
respectively.
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3.8 Permits and Intangibles. The Seller holds all Permits the absence of
any of which could have a Material Adverse Effect on its Business, and the
Seller has delivered to the Purchaser an accurate list and summary description
(which is set forth on Schedule 3.8) of all Permits owned or held by the Seller
(it being understood and agreed that a list of all environmental Permits and
other environmental approvals is set forth on Schedule 3.9). To the knowledge
of the Seller, (i) the Permits listed on Schedules 3.8 and 3.9 are valid, and
(ii) the Seller has not received any notice that any governmental authority
intends to cancel, terminate or not renew any such Permit. The Seller has
conducted and is conducting the Business in compliance with the requirements,
standards, criteria and conditions set forth in the Permits listed on Schedules
3.8 and 3.9 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Seller. Except as specifically provided in Schedule 3.8, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Seller by, any such Permit.
3.9 Environmental Matters. Except as set forth on Schedule 3.9, (i) the
Seller has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, Permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the Seller has obtained
and adhered to all Permits necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which Permits is set forth on Schedule 3.9, and has reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Seller where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined
in Environmental Laws) at, from, in or on any property owned or operated by the
Seller except as permitted by Environmental Laws; (iv) the Seller knows of no
on-site or off-site location to which the Seller has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Seller or the Purchaser, for any
clean-up cost, remedial work, damage to natural resources, property damage or
personal injury, including, but not limited to, any claim under the
comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended; and (v) the Seller has no contingent liability in connection with
any release of any Hazardous Waste or Hazardous Substance into the environment.
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3.10 Personal Property. The Seller has delivered to the Purchaser an
accurate list (which is set forth on Schedule 3.10) of (i) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" on the balance sheet of the Seller, (ii) all personal property
owned by the Seller with a value in excess of $5,000 (x) as of the Initial
Disclosure Date and (y) acquired since the Initial Disclosure Date and (iii)
all Leases and agreements in respect of personal property, including, in the
case of each of (i), (ii) and (iii), (1) true, complete and correct copies of
all such Leases and (2) an indication as to which assets are currently owned,
or were formerly owned, by the Shareholder, relatives of the Shareholder, or
Affiliates of the Seller. Except as set forth on Schedule 3.10, (a) all
personal property used by the Seller in the Business is either owned by the
Seller or leased by the Seller pursuant to a Lease included on Schedule 3.10,
(b) all of the personal property listed on Schedule 3.10 is in good working
order and condition, ordinary wear and tear excepted and (c) all Leases and
agreements included on Schedule 3.10 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.11 Significant Customers; Material Contracts and Commitments. The Seller
has delivered to the Purchaser an accurate list (which is set forth on Schedule
3.11) of all significant customers, or Persons that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 3.11, means a customer (or
Person) (i) representing 2% or more of the Seller's annual revenues as of the
Initial Disclosure Date or (ii) reasonably expected to represent 2% or more of
the Seller's revenues during the twelve-month period ending September 30, 1997.
Except to the extent set forth on Schedule 3.11, none of the Seller's
significant customers (or Persons that are sources of a significant number of
customers) has canceled or substantially reduced or, to the knowledge of the
Seller, is currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Seller.
The Seller has listed on Schedule 3.11 all material contracts, commitments
and similar agreements to which the Seller is a party or by which it or any of
its properties are bound (including, but not limited to, any contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 3.6, 3.10 or 3.12, (x) in existence as
of the Initial Disclosure Date and (y) entered into since the Initial
Disclosure Date, and in each case have delivered true, complete and correct
copies of such agreements to the Purchaser. The Seller has complied with all
material commitments and obligations pertaining to it, and is not in default
under any contract or agreement listed on Schedule 3.11 and no notice of
default or termination under any such contract or agreement has been received.
The Seller has also indicated on Schedule 3.11 a summary description of all
plans or projects involving the acquisition of any personal property, business
or assets requiring, in any event, the payment of more than $5,000 by the
Seller.
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Except as set forth on Schedule 3.11, all of the contracts, commitments and
similar agreements listed on Schedule 3.11 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.12 Real Property. Schedule 3.12 includes a list of all real property
owned or held pursuant to Leases by the Seller (i) as of the Initial Disclosure
Date and (ii) acquired since the Initial Disclosure Date, and all other
property, if any, used by the Seller in the conduct of its business. The Seller
has good and insurable title to the real property owned by it, including those
reflected on Schedule 3.12, subject to no Lien except for:
(w) Liens reflected on Schedules 3.6 or 3.11 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current Taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 3.12 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Seller with respect to real property owned by the Seller, (2)
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Seller (which copies are attached to Schedule
3.12), and (3) an indication as to which such properties, if any, are currently
owned, or were formerly owned, by the Shareholder or business or personal
Affiliates of the Seller or the Shareholder.
Except as set forth on Schedule 3.12, all Leases included on Schedule 3.12 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
3.13 Insurance. The Seller has delivered to the Purchaser, as set forth on
and attached to Schedule 3.13, (i) an accurate list as of the Initial
Disclosure Date of all insurance policies carried by the Seller, (ii) an
accurate list of all insurance loss runs on workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Seller is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All of such insurance policies are currently in full force and effect and shall
remain in full force and
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effect through the Closing Date. No insurance carried by the Seller has ever
been canceled by the insurer and the Seller has never been denied coverage.
3.14 Intellectual Property. Except as set forth in Schedule 3.14, the
Seller either owns or has the right to use by license, sublicense, agreement,
or permission all of the Seller's inventions, improvements, domestic and
foreign patents and applications therefor, customer lists, copyrights,
copyright registrations and applications therefor, trademarks, tradenames,
service marks, trade dress, logos, rights in computer software, and all rights
granted or retained in licenses under any of the foregoing which are used in
connection with the conduct of the Business as presently conducted. Except as
set forth on Schedule 3.14, none of the Intellectual Property which is used in
connection with the conduct of the Business is, or has been in the past five
years involved in, or the subject of, any pending or, to the knowledge of the
Seller, threatened infringement, interference, opposition or similar action,
suit or proceeding or, to the knowledge of Seller, has otherwise been
challenged in any way. Except as set forth on Schedule 3.14, the Intellectual
Property will afford the Purchaser the right to use all technology, know-how,
technical and other information, data and other intellectual property, whether
patentable or unpatentable, and whether owned by the Seller, any other Person
or others, necessary for the conduct of the Business in a manner consistent
with the Seller's prior practice. The license fees, royalties and other amounts
payable by the Seller in connection with the use of the Intellectual Property,
together with the terms and conditions on which and periods for which such
amounts are payable, are described in Schedule 3.14. Any licenses fees,
royalties or other amounts payable as a result of the transfer of any item of
Intellectual Property by the Seller to the Purchaser pursuant to this Agreement
shall be paid by the Purchaser.
3.15 Labor Relations. Except as set forth on Schedule 3.15, the Seller is
not a party to any collective bargaining agreement; and there are no
controversies pending or, to the Seller's knowledge, threatened between the
Seller and any of its current or former employees or any labor or other
collective bargaining unit representing any current or former employee of the
Seller that could reasonably be expected to result in a labor strike, dispute,
slow-down or work stoppage or otherwise have a Material Adverse Effect. Seller
is not aware of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Seller. To the
Seller's knowledge, no executive, key employee or group of employees of the
Seller has any plan to terminate employment with the Seller.
3.16 Employee Benefits.
(i) Schedule 3.16 lists all Employee Benefit Plans that the Seller
maintains or to which the Seller contributes for the benefit of any current
or former employee of the Seller in existence as of the Initial Disclosure
Date.
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(ii) Neither the Seller nor any other organization that is a member of
a controlled group of organizations within the meaning of Code Sections
414(b), (c), (m) or (o) of which the Seller is a member ("Controlled Group
Member") contributes, or has contributed in the past, to any Employee
Pension Benefit Plan subject to Title IV of ERISA or any Multiemployer Plan
for the benefit of any current or former employee of the Seller or any
Controlled Group Member.
(iii) The Seller has delivered to the Purchaser complete and accurate
copies of all plans or summary plan descriptions for each Employee Benefit
Plan listed on Schedule 3.16. For each Employee Pension Benefit Plan listed
on Schedule 3.16 intended to qualify under Section 401(a) of the Code, the
Seller has delivered to the Purchaser (w) the three most recent annual
reports, (x) the three most recent annual and periodic accountings of plan
assets, (y) the most recent determination letter received from the IRS and
(z) where applicable, the three most recent actuarial valuations.
(iv) There are no liabilities, breaches, violations or defaults under
any Employee Benefit Plan sponsored or maintained by the Seller or any
Controlled Group Member that would subject the Purchaser to any Taxes or
other liabilities.
(v) With respect to each Employee Welfare Benefit Plan listed on
Schedule 3.16, the Seller or an Affiliate has complied with the
requirements of Code Section 4980B.
3.17 Tax Matters.
(i) The Seller is currently taxed under Subchapter C of the Code. The
Seller has filed all Tax Returns that it was required to file. All such Tax
Returns filed by the Seller were correct and complete in all material
respects or reserved for on its books. All Taxes owed by the Seller
(whether or not shown on any Tax Return) have been paid. Except as set
forth on Schedule 3.17, the Seller is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since January 1,
1994, no claim with respect to the Seller has been made by an authority in
a jurisdiction where the Seller does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There is no Lien affecting any
of the Purchased Assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
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(iii) The Seller does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of the Seller either claimed or raised by any authority in writing or as to
which Seller has knowledge based upon direct inquiry by any agent of such
authority. Schedule 3.17(iii) lists all income Tax Returns of the Seller
for taxable periods ended on or after January 1, 1992, indicates those Tax
Returns of which the Seller is aware that have been audited and indicates
those Tax Returns that currently are the subject of audit. The Seller has
delivered to the Purchaser correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by the Seller for any taxable period ended on or after January 1,
1993.
(iv) Except as set forth on Schedule 3.17(iv), neither the Shareholder
nor the Seller has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(v) The Seller has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Seller has not made any
payments, is not obligated to make any payments and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be fully deductible under Section 280G of the Code.
(vi) Except as set forth on Schedule 3.17(vi), none of the Purchased
Assets secures any debt, the interest on which is tax-exempt under Section
103(a) of the Code. None of the Purchased Assets are "tax-exempt use
property" within the meaning of Section 168(h) of the Code. The
transactions contemplated by this Agreement are not subject to Tax
withholding pursuant to the provisions of Section 3406 or Subchapter A of
Chapter 3 of the Code or any other provision of applicable law.
(vii) The Seller has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to the Business, or the
Purchased Assets or the Purchaser after the Closing Date.
3.18 Prior or Preferential Rights. There are no prior or preferential
rights, rights of first refusal, or other similar rights in any party (other
than the Purchaser) to purchase or otherwise acquire the Business or any
Purchased Assets.
3.19 Sufficiency of Assets. The Purchased Assets are all of the assets,
properties and rights of the Seller (other than the Excluded Assets and
Excluded Liabilities) whether tangible or intangible, real, personal or mixed,
and known or unknown, and wherever located, used or held for
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use in or associated with the conduct of the Business. The Purchased Assets are
sufficient to conduct the Business as a going concern on a basis consistent
with the Seller's prior practice, provided Purchaser supplies working capital
to the Business in an amount comparable to that maintained by the Seller prior
to the Closing.
3.20 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 3.9 or 3.20, the Seller is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Seller which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 3.6 or 3.9, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of the
Seller, threatened, against or affecting the Seller, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Seller and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Seller or the Shareholder. The
Seller has conducted and is conducting its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances and Permits, including
all such Permits set forth on Schedules 3.8 and 3.9, and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
3.21 No Violations. The Seller is not in violation of its Charter
Documents. Neither the Seller nor, to the knowledge of the Seller, any other
party thereto, is in default under any Lease, Contract, Permit or other
instrument set forth on Schedule 3.8, 3.9, 3.10, 3.11 or 3.12, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 3.21, (i) the
rights and benefits of the Seller under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 3.21, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 3.21, none of the Material Documents prohibits the use or
publication by the Seller or the Purchaser of the name of any other party to
such Material Document, and none of the Material Documents prohibits or
restricts the Seller from freely providing services to any other customer or
potential customer of the Seller, any of the other Founding Companies or
Purchaser.
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3.22 Government Contracts. Except as set forth on Schedule 3.22, the Seller
is not a party to any governmental contract subject to price determination or
renegotiation.
3.23 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 3.11 or 3.23, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Seller;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Seller;
(iii) any change in the authorized capital stock of the Seller or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the Seller to any of its
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the Seller;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Seller to any Person, including,
without limitation, the Shareholder and its Affiliate;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Seller, including without limitation any
indebtedness or obligation of the Shareholder or his Affiliate;
(viii) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of the Seller or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of the Seller's business;
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(x) any waiver of any material rights or claims of the Seller;
(xi) any material breach, amendment or termination of any contract,
agreement, license, Permit or other right to which the Seller is a party;
(xii) any transaction by the Seller outside the ordinary course of its
respective businesses;
(xiii) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xiv) any other distribution of property or assets by the Seller.
3.24 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to the
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of the Seller for the time periods with respect to
which such information was requested. The Seller's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Seller is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Seller (which fact
or circumstance was, or should reasonably, after due inquiry, have been known
to the Seller) that is not disclosed pursuant hereto or thereto.
3.25 Prohibited Activities. Except as set forth on Schedule 3.25, the
Seller has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Sections 5.3 ("Prohibited
Activities") or 5.4 or failed to take the actions required in Sections 5.1 and
5.2.
3.26 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Seller expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.27 Tax Matters. Shareholder has been advised by his counsel that the
transactions contemplated by this Agreement are taxable sales of property under
the Code.
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4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PURCHASER
AND OLD ACG
Purchaser and Old ACG, jointly and severally, represent, warrant, covenant
and agree: (i) that, except as disclosed in the Draft Registration Statement,
which supplements and qualifies the following representations and warranties,
all of the following representations and warranties in this Section 4 are true
at the date of this Agreement and, subject to Section 5.7, shall be true at the
Closing Date and (ii) that all of the covenants and agreements in this Section
4 shall be complied with or performed at and as of the Closing Date. None of
the representations and warranties of the Purchaser in this Section 6 shall
survive the Closing.
4.1 Due Organization. The Purchaser and Old ACG each is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Charter Documents and
By-laws, each as amended, of the Purchaser and Old ACG (collectively the
"Purchaser Charter Documents") are attached hereto as Schedule 4.1.
4.2 Authorization. Each of Purchaser and Old ACG has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by each of Purchaser and Old
ACG of this Agreement and its consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Purchaser
and Old ACG. This Agreement has been duly executed and delivered by each of
Purchaser and Old ACG and is a valid and binding obligation of each of
Purchaser and Old ACG, enforceable against each of them in accordance with its
terms.
4.3 Capital Stock. The authorized capital stock of Old ACG is as set forth
in Schedule 4.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) has been duly authorized and validly issued, (ii) is fully paid
and nonassessable, (iii) is owned of record and beneficially by the Persons set
forth on Schedule 4.3, and (iv) was offered, issued, sold and delivered by Old
ACG in compliance with all applicable state and Federal laws concerning the
offer, issuance, sale and delivery of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of Old ACG. Subject to the consummation of the reverse stock split
referred to in the ninth recital of this Agreement and the consummation of
Purchaser's acquisition of Old ACG in the reverse triangular merger, the
capitalization of Purchaser will be identical to the capitalization of Old ACG
immediately prior to the consummation of the IPO.
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4.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 4.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 4.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
4.5 Subsidiaries. Neither Purchaser nor Old ACG has any Subsidiaries,
except for each of the companies identified on Schedule 4.5. Except as set
forth in the preceding sentence, neither Purchaser nor Old ACG presently owns,
of record or beneficially, or controls, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and neither Purchaser nor
Old ACG, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
4.6 Financial Statements. Old ACG was formed in June 1996, and Purchaser
was formed in September 1997. Neither has conducted any material business since
the date of its inception, except raising capital and in connection with this
Agreement and similar agreements with other companies involved in the
communications business and associated activities. Attached hereto as Schedule
4.6 are copies of the following financial statements of the Old ACG, which
reflect the results of its operations from inception in June 1996 (the "Old ACG
Financial Statements"): Old ACG's audited Balance Sheet as of December 31, 1996
and its unaudited Balance Sheet as of June 30, 1997, and audited Statements of
Operations, Shareholder's Equity and Cash Flows and related notes thereto for
the period from June 10, 1996 through December 31, 1996 and unaudited Statement
of Operations, Shareholder's Equity and Cash Flows for the six months ended
June 30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 4.6). Except as set forth on Schedule 4.6, the foregoing Balance
Sheets presents fairly the financial position of Old ACG as of such dates, and
the foregoing Statement of Revenue and Expense presents fairly the results of
its operations for the period indicated, all on a cash basis of accounting. Old
ACG's Financial Statements at and for the period ended December 31, 1996 have
been examined by KPMG Peat Marwick LLP, independent public accountants.
4.7 Liabilities and Obligations. Except as set forth on Schedule 4.7,
neither the Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
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4.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 4.8, neither Purchaser nor Old ACG is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 4.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of either Purchaser
or Old ACG, threatened, against or affecting either Purchaser or Old ACG, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Each of Purchaser
and Old ACG has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, Permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
4.9 No Violations. Neither Purchaser nor Old ACG is in violation of any
Purchaser Charter Document. Neither Purchaser nor Old ACG, nor to the knowledge
of Purchaser or Old ACG, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit to which the Purchaser or Old
ACG is a party, or by which the Purchaser or Old ACG or any of its respective
properties, are bound (collectively, the "Purchaser Documents"); and (i) the
rights and benefits of the Purchaser and Old ACG under the Purchaser Documents
will not be adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Purchaser Documents or the Purchaser Charter
Documents. Except as set forth on Schedule 4.9, none of the Purchaser Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
4.10 Business; Real Property; Material Agreement. For the reasons set forth
in Section 4.6 and except as disclosed in Section 4.6 or on Schedule 4.10, the
Purchaser has not conducted any material business since the date of its
inception, the Purchaser does not own, nor has it at any time owned, any real
property or any material personal property, and the Purchaser is not a party to
any material agreement.
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4.11 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
4.12 Draft Registration Statement. The text of and the financial statements
and other financial information contained in the Draft Registration Statement,
insofar as they relate to the Purchaser or Old ACG, but not otherwise, are
true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
5. OTHER COVENANTS PRIOR TO CLOSING
5.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Seller and the Shareholder will afford to the officers and authorized
representatives of the Purchaser access to all of the Seller's sites,
properties, books and records and furnish the Purchaser with such
additional financial and operating data and other information as to the
business and properties of the Seller as the Purchaser may from time to
time reasonably request. The Seller and the Shareholder will cooperate with
the Purchaser, its representatives, auditors and counsel in the preparation
of any documents or other material that may be required in connection with
any documents or materials required by this Agreement, including the
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preparation for and consummation of the IPO. The Purchaser will treat
all information obtained in connection with the negotiation and performance
of this Agreement as confidential in accordance with the provisions of
Section 11.
(ii) Between the date of this Agreement and the Closing, the Purchaser
will afford to the Shareholder and to the officers and authorized
representatives of the Seller and Shareholder access to all of the
Purchaser's sites, properties, books and records and will furnish the
Seller and the Shareholder with such additional financial and operating
data and other information as to the business and properties of Purchaser,
Old ACG and the other Founding Companies as Seller and Shareholder may from
time to time reasonably request. The Purchaser will cooperate with the
Seller, the Shareholder and their representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with (x) any documents or materials required by this Agreement
or (y) the preparation for and consummation of the IPO. The Seller and the
Shareholder and their respective Affiliates will treat all information
obtained in connection with the negotiation and performance of this
Agreement as confidential in accordance with the provisions of Section 11.
(iii) The Seller agrees to permit an independent accounting firm
selected by the Purchaser to audit and render a report on the Seller
Financial Statements and the comparable financial statements at and for the
year ending December 31, 1996, and any other period selected by the
Purchaser, provided that all the costs and expenses of such audits are paid
by the Purchaser.
5.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by the Purchaser, between the date of this Agreement and the Closing
Date, the Seller will:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
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(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain compliance with all material Permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
5.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Seller will not, without prior written consent of the
Purchaser:
(i) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $5,000;
(ii) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $5,000 necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 3.6 or 3.11;
(iii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(iv) negotiate for the acquisition of any business or the start-up of
any new business;
(v) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
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(vi) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice; provided, further, that such
adjustments shall not be deemed to be included in Schedule 3.7 unless
specifically listed thereon;
(vii) commit a material breach or amend or terminate any material
agreement, Permit, license or other right; or
(viii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
5.4 Exclusivity. Neither the Shareholder, nor Seller, nor any agent,
officer, director, trustee or any representative of the Seller or the
Shareholder, during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than the Purchaser
or its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Seller or merger, consolidation or business
combination of the Seller.
5.5 Notice to Bargaining Agents. Prior to the Closing Date, the Seller
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide the Purchaser with proof that any required notice has been sent.
5.6 Notification of Certain Matters. The Seller or the Shareholder shall
give prompt notice to the Purchaser of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Seller or the Shareholder contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing Date
and (ii) any material failure of the Seller or the Shareholder to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder as of such date. The Purchaser shall give prompt
notice to the Seller and the Shareholder of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would
likely cause any representation or warranty of the Purchaser and Old ACG
contained herein to be untrue or inaccurate
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in any material respect at or prior to the Closing Date and (ii) any material
failure of the Purchaser or Old ACG to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder as of
such date. The delivery of any notice pursuant to this Section 5.6 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
5.7, (ii) modify the conditions set forth in Sections 6 and 7, or (iii) limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
5.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the Seller and the Shareholder or the Purchaser that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless Purchaser and Old ACG or Shareholder and
Seller, as the case may be, consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6.1 and 7.1 have been
fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 5.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 10.1(v). Neither the entry by the Purchaser into any
other agreement, such as this Agreement, after the date hereof for the
acquisition of one or more companies involved in or assets associated with the
telecommunication business, yellow page publishing business or related
activities nor the performance by the Purchaser of its obligations thereunder
shall be deemed to require the amendment to or the supplementation of any
Schedule hereto.
5.8 Bulk Sales Laws. The Purchaser hereby waives compliance with the
provisions of any bulk transfer laws applicable to the transactions
contemplated by this Agreement including, without limitation, bulk sales laws
under the Uniform Commercial Code or relating to the right or obligation of the
Purchaser to withhold any portion of the Purchase Price pending determination
by any governmental entities of the Seller's liability for any Tax obligations
to any such governmental entities.
5.9 Transfer Taxes and Recording Fees. Any sales, transfer, use or other
similar Taxes imposed as a result of the sale of the Purchased Assets to the
Purchaser pursuant to this Agreement shall be paid by the Purchaser. At the
Closing, the Purchaser shall remit to the Seller such properly completed resale
exemption certificates and other similar certificates or instruments as are
necessary to claim available exemptions from the payment of sales, transfer,
use or other similar Taxes under applicable law. All recording, transfer and
other similar Taxes and fees payable as a result of the
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public recordation of the instruments of conveyance or transfer of the
Purchased Assets executed and delivered to Purchaser pursuant to this Agreement
shall be paid by the Seller.
5.10 Certain Provisions Relating to Consents.
(i) The Seller will obtain, at its expense, and the Purchaser will use
its reasonable cooperative efforts (including furnishing financial
information on a confidential basis, where required) prior to and after the
Closing Date to assist the Seller in obtaining all third party consents
that are required in connection with the transactions contemplated by this
Agreement. The Seller will use reasonable efforts to obtain, and the
Purchaser will use its reasonable cooperative efforts prior to and after
the Closing Date to assist the Seller in obtaining from the landlords of
all of the Leases, estoppel agreements in form and substance reasonably
acceptable to the Purchaser containing to the extent necessary consents
from such landlords to the assignment of the Leases to the Purchaser. All
expenses incurred in connection with obtaining such consents and estoppel
agreements shall be paid by the party incurring the same. To the extent
such consents and/or estoppel agreements are not obtained by Closing, the
Seller shall continue to assist the Purchaser in obtaining such consents
and/or estoppel agreements after Closing and shall pay the costs thereof.
(ii) To the extent that any Contract, Permit or Lease is not capable
of being transferred by the Seller to the Purchaser pursuant to this
Agreement without the consent of a third party (including a governmental
entity) and such consent is not obtained prior to Closing, or if such
transfer or attempted transfer would constitute a breach or a violation of
any law, nothing in this Agreement will constitute a transfer or an
attempted transfer thereof.
(iii) In the event that any such consent is not obtained on or prior
to the Closing Date, the Seller will (x) provide to the Purchaser the
benefits of the applicable Contract, Permit or Lease if reasonably
possible, (y) cooperate in any reasonable and lawful arrangement designed
to provide such benefits to the Purchaser and (iii) enforce at the request
and expense of the Purchaser and for the account of the Purchaser, any
rights of the Seller arising from any such Contract or Lease (including the
right to elect to terminate such Contract or Lease in accordance with the
terms thereof upon the request of the Purchaser). If any Permit required
for the operation of the Business or the ownership or use of the Purchased
Assets is not transferred to the Purchaser at Closing, the Seller
authorizes (to the extent permitted by law) the Purchaser to operate under
any such Permit until the necessary consent to transfer or a new Permit is
obtained.
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(iv) The Purchaser will perform the obligations arising under all
Contracts, Permits and Leases referred to in Section 5.10(ii) for the
benefit of the Seller and the other party or parties thereto, except for
any obligation under such Contract, Permit or Lease that constitutes an
Excluded Liability.
5.11 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement or the IPO.
5.12 Survival. None of the covenants and agreements set forth in Sections
5.1 through 5.9 shall survive the Closing.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligations of the Seller with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
6.1 Representations and Warranties Performance of Obligations. All
representations and warranties of the Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by the Purchaser and Old ACG on
or before the Closing Date shall have been duly complied with or performed in
all material respects; and a certificate to the foregoing effect, dated the
Closing Date and signed by the President or any Vice President of each of
Purchaser and Old ACG shall have been delivered to the Seller.
6.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Seller and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit consummation of the transactions contemplated in this
Agreement and no governmental agency or body shall have taken any other action
or made any request of the Seller, the Shareholder or the Purchaser as a result
of which the Seller deems it inadvisable to proceed with the transactions
hereunder.
6.4 Opinion of Counsel. The Seller shall have received an opinion from
counsel for the Purchaser and Old ACG, dated the Closing Date, in form and
substance reasonably acceptable to
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the Seller, relating to, insofar as the Purchaser and Old ACG are concerned, as
the case may be, (a) the authorization, execution, delivery, performance and
enforceability of the Agreement, (b) the receipt of all required consents and
approvals, and (c) such other legal matters as the Seller may reasonably
request.
6.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
6.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to the Purchaser that would constitute a Material Adverse
Effect.
6.7 Secretary's Certificates. The Seller shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of each of
Purchaser and Old ACG, certifying the completeness and accuracy of the attached
copies of the Purchaser's Charter Documents (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the board of
directors approving the Purchaser's and Old ACG's entering into this Agreement
their consummation of the transactions contemplated hereby.
6.8 Other Agreement. The transaction contemplated by the Other Agreement
shall close substantially contemporaneously with the consummation of the
transactions contemplated herein.
6.9 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived:
7.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Seller and the Shareholder contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Seller and
the Shareholder on or before the Closing Date shall have been duly performed or
complied with in all material respects; and the Seller and the Shareholder
shall have delivered to the Purchaser a certificate dated the Closing Date and
signed by them to such effect.
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7.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated herein
and no governmental agency or body shall have taken any other action or made
any request of the Purchaser, the Seller or the Shareholder as a result of
which the management of the Purchaser deems it inadvisable to proceed with the
transactions hereunder.
7.3 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the Seller which would constitute a Material Adverse
Effect, and the Seller shall not have suffered any material loss or damage to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Seller
to conduct its business.
7.4 Shareholder Release. The Shareholder shall have delivered to the
Purchaser an instrument dated the Closing Date releasing (i) the Purchased
Assets from any and all claims of the Shareholder and (ii) the obligations of
the Purchaser and Old ACG to the Shareholder, except for obligations arising
under this Agreement, the Other Agreement or the transactions contemplated
hereby and thereby.
7.5 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to the Purchaser and its counsel.
7.6 Termination of Related Party Agreements. Except as set forth on
Schedule 7.6, all existing agreements between the Seller and the Shareholder
affecting in any respect the Purchased Assets shall have been canceled
effective prior to or as of the Closing Date.
7.7 Opinion of Counsel. The Purchaser shall have received an opinion from
counsel to the Seller and the Shareholder, dated the Closing Date, in form and
substance reasonably acceptable to the Purchaser, relating to, insofar as the
Seller and the Shareholder are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the receipt
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of all required consents and approvals, (c) the consummation of the
transactions contemplated herein and (d) such other legal matters as the
Purchaser may reasonably request.
7.8 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 3.21 shall have been
obtained.
7.9 FIRPTA Certificate. The Shareholder shall have delivered to the
Purchaser a certificate to the effect that it is not a foreign Person under
Section 1.1445-2(b) of the Treasury regulations promulgated pursuant to the
Code.
7.10 Other Agreement. The transaction contemplated by the Other Agreement
shall close substantially contemporaneously with the consummation of the
transactions contemplated herein.
7.11 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE SHAREHOLDER AFTER
CLOSING
8.1 Release From Guarantees. The Purchaser shall use its best efforts to
have the Shareholder released from any and all guarantees on any indebtedness
relating to the Purchased Assets that it personally guaranteed and from any and
all pledges of assets that it pledged to secure such indebtedness for the
benefit of the Seller, with all such guarantees on indebtedness being assumed
by the Purchaser.
8.2 Employment.
(i) The Purchaser shall offer to hire, effective as of the Closing
Date, the active operating employees of the Business on the day immediately
prior to the Closing Date, and only those inactive operating employees on
temporary leave for purposes of jury duty, family and short-term medical
leave, vacation or annual two-week national military duty (such employees
who are to be given offers of hire being hereafter referred to as the
"Employees"). The Seller shall deliver to the Purchaser, at least 30 days
prior to the Closing Date, a schedule designating all Employees and all
inactive employees of the Business. Any person who has retired from the
Seller shall be considered an inactive employee. The Seller shall use its
reasonable efforts to cause such employees to accept the Purchaser's offers
of employment.
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(ii) The Employees who accept and commence employment with the
Purchaser shall be referred to herein as the "Transferred Employees".
(iii) Except as expressly provided otherwise in this Section 8.2 and
in Section 8.3, the terms of the Transferred Employees' employment shall be
upon such terms and conditions as the Purchaser, in its sole discretion
shall determine. Upon request of the Purchaser, the Seller shall provide
the Purchaser reasonable access to data (including computer data) regarding
the ages, dates of hire, compensation and job description of Employees. The
Seller hereby authorizes the Purchaser to enter into discussions with and
to advise any of the Employees concerning the terms of any future
employment of such individuals by the Purchaser and will permit the
Purchaser reasonable access to Employees for such purpose.
(iv) In the event that an individual (x) retires from the Seller after
the date of this Agreement and prior to the Closing Date and (y)
subsequently commences employment with the Purchaser, such individual will
cease receiving post-retirement medical benefits from the Seller. The
Seller will advise such individuals of this condition before retirement.
The Purchaser shall not assume any liability for providing post-retirement
medical benefits upon such individual's termination of employment with the
Purchaser.
(v) (x) Except for liabilities and claims to be assumed by the
Purchaser under Section 8.3(v)(y), the Seller shall discharge all
liabilities to and claims of Transferred Employees or Employees of the
Seller arising out of their employment with the Seller, including but not
limited to, claims arising out of any Employee Benefit Plan maintained by
the Seller or for retiree medical benefits promised, provided or subsidized
by the Seller after the Closing Date.
(y) The Purchaser shall discharge all liabilities and claims based on
occurrences or conditions first occurring or commencing on or after the
Closing Date of Transferred Employees or employees of the Purchaser arising
out of their employment with the Purchaser after the Closing Date,
including but not limited to, any claims arising out of any employee
benefit plan maintained by the Purchaser.
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(vi) The Seller and the Purchaser shall comply with Section 4 of the
Revenue Procedure 84-77, 1984-2 C.B. 753. The Seller shall furnish (or
cause to be furnished) to each Transferred Employee in accordance with
Section 4 of the Revenue Procedure a Treasury Form W-2 for 1997 for the
wages paid by the Seller, no later than January 31, 1998. The Purchaser
shall furnish (or cause to be furnished) to each Transferred Employee in
accordance with Section 4 of the Revenue Procedure a Treasury Form W-2 for
1997 for the wages paid by the Purchaser. The Purchaser shall file (or
cause to be filed) appropriate Treasury Forms W-2 and W-3 covering the
Transferred Employee with the Social Security Administration for wages paid
and amounts withheld by the Purchaser during 1997.
(vii) Nothing contained in this Agreement (x) shall confer upon any
former, current or future employee of the Seller or the Purchaser or any
legal representative or beneficiary thereof any rights or remedies,
including, without limitation, any right to employment or continued
employment of any nature, for any specified period, or (y) shall cause the
employment status of any former, present or future employee of the
Purchaser to be other than terminable at will.
8.3 Health and Welfare Benefits.
(i) The Seller shall provide all notices and fulfill all of its
obligations, if any, under Section 4980B(f) of the Code with respect to the
Transferred Employees. The Seller shall deliver to the Purchaser's present
or proposed insurance carriers or third-party administrators, on a census
basis, at least 20 days prior to the Closing Date, information with respect
to all health, accident, workers' compensation, disability and related
claims filed by the Transferred Employees (including, without limitation,
information regarding the total number of claims filed by, the total amount
of benefits claimed by, and the total amount of benefits paid to such
persons) since January 1, 1993, to the extent requested by any such
carriers. The Seller shall deliver to the Purchaser's health insurance
carriers or third-party administrators, on a census basis, to the extent
requested by any such carriers or administrators, an update of such
information through the Closing Date as soon as practicable but no later
than 15 days after the Closing Date. Such information, which may be
provided directly from the Seller's computer database, shall be
satisfactory in form and substance to such carriers and administrators.
(ii) Effective on the Closing Date, the Transferred Employees shall be
eligible for health and welfare benefits substantially equivalent to those
the Purchaser provides to similarly situated new employees hired by the
Purchaser after the Closing Date; provided, however, that the Purchaser
reserves the right to modify or terminate such benefits from time to time
after the Closing Date. Such Transferred Employees shall be eligible to
participate under the Purchaser's health and welfare benefit plans as of
the Closing Date, and the Purchaser shall not be responsible for any
hospitalization, medical, survivor benefits, life
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insurance, or disability claims based upon occurrences or conditions
commencing, occurring or existing before the Closing Date, regardless of
whether such occurrences or conditions continue after the Closing Date, and
regardless of whether such claims are made before or after the Closing
Date. In no event shall the Purchaser be required to provide
post-retirement medical benefits to Transferred Employees.
8.4 Change of Name. Promptly after the Closing, the Seller shall change its
name to a name that does not conflict with the Purchaser's use of the name
"Long Distance Management".
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein and in the Other Agreement. If it is
determined by the parties to this Agreement that compliance with the Hart-Scott
Act is required, then: (i) each of the parties hereto agrees to cooperate and
use its best efforts to comply with the Hart-Scott Act, (ii) such compliance by
the Seller shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 7 of this Agreement, and such compliance by the
Purchaser shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 6 of this Agreement, and (iii) the parties agree
to cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made.
9. INTENTIONALLY OMITTED
10. TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of the Purchaser and
the Seller;
(ii) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the Securities and
Exchange Commission pursuant to the Securities Act of 1933;
(iii) by the Seller, if a material breach or default shall be made by
the Purchaser in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date;
(iv) by the Purchaser, if a material breach or default shall be made
by the Seller or the Shareholder in the observance or in the due and timely
performance of any of the covenants,
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agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date;
(v) by the Seller, on the one hand, or by Purchaser, on the other
hand, if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 5.7 because such proposed amendment constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the party or parties
proposing the same.
(vi) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if the transactions contemplated by the Agreement to take place at the
Closing shall not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its obligations
under the Agreement to the extent required to be performed by its prior to or
on the Closing Date;
10.2 Liabilities in Event of Termination. No party to this Agreement whose
breach or default with respect to any of its representations, warranties,
covenants or agreements in this Agreement occasions a termination of this
Agreement by another party hereto shall have any obligation or liability
arising therefrom to any other party to this Agreement, unless such breach or
default is due to a willful failure to perform. The failure of the Purchaser to
pay the balance of the Base Price at the Closing shall not constitute a default
due to a willful failure to perform.
10.3 Retention of Prepayment. The Seller shall be under no obligation to
refund the Prepayment upon termination of the Agreement, except where the
Purchaser elects to terminate the Agreement pursuant to Section 10.1(v).
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 The Shareholder and the Seller. The Shareholder and the Seller
recognize and acknowledge that they had in the past, currently have, and in the
future may have, access to certain confidential information of the Seller
and/or the Purchaser and Old ACG, such as operational policies, and pricing and
cost policies that are valuable, special and unique assets of the Seller and/or
the Purchaser and Old ACG. The Shareholder and the Seller agree that they will
not disclose such confidential information to any Person for any purpose or
reason whatsoever, except (i) to authorized representatives of the Purchaser;
(ii) following the Closing, such information may be disclosed by the
Shareholder as is required in the course of performing its duties for the
Purchaser or the Seller; and (iii) to counsel and other advisers; provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 11.1, unless (w) such information becomes known to the public
generally through no fault of the Shareholder or the Seller, (x) disclosure is
required by law or the order of any governmental authority under color of law;
provided, that prior to disclosing any
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information pursuant to this clause (y), the Shareholder or the Seller shall
give prior written notice thereof to the Purchaser and provide the Purchaser
with the opportunity to contest such disclosure, or (z) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by the Shareholder or the Seller of the provisions of this
Section 11.1, the Purchaser shall be entitled to an injunction restraining the
Shareholder and the Seller from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting (1)
the Shareholder from using information acquired as the owner of the Seller in
connection with activities permitted under Section 12 or (2) the Purchaser from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, the abovementioned restrictions on the
Shareholder's or the Seller's ability to disseminate confidential information
with respect to the Seller shall become void.
11.2 The Purchaser. Each of Purchaser and Old ACG recognizes and
acknowledges that it has in the past, currently has and in the future may have,
prior to the Closing access to certain confidential information of the Seller,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Seller. Each of Purchaser and Old ACG agrees
that, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, it will not disclose such confidential
information to any Person for any purpose or reason whatsoever, except (i) to
authorized representatives of Seller, other Founding Companies or the
Shareholder; and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 11.2, unless (x) such information becomes known to the public generally
through no fault of the Purchaser and Old ACG (y) disclosure is required by law
or the order of any governmental authority under color of law; provided, that
prior to disclosing any information pursuant to this clause (y), the Purchaser
shall, if possible, give prior written notice thereof to the Seller and provide
the Seller with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by the Purchaser or Old ACG of the
provisions of this Section 11.2, the Seller shall be entitled to an injunction
restraining the Purchaser or Old ACG from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
11.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 11.1 and 11.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
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11.4 Survival. The obligations of the parties under this Article 11 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 11.
12. NONCOMPETITION
12.1 Prohibited Activities. The Shareholder will not, for a period of 36
calendar months following the Closing Date, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
Person:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in the sale or
marketing of any communications, natural gas or electrical goods and services
(collectively, the "Proscribed Business"), within the States of Arkansas,
Kansas, Missouri, Oklahoma and Texas (the "Territory");
(ii) call upon any Person within the Territory who is employee of the
Purchaser (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of the Purchaser (including the
Subsidiaries thereof); provided that the Shareholder shall be permitted to call
upon and hire immediate family members;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date or the Termination Date, as the case may be, a
customer of the Purchaser (including the Subsidiaries thereof), or of the
Seller within the Territory, for the purpose of soliciting or selling products
or services in direct competition with the Purchaser (including the
Subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on the Shareholder's
own behalf or on behalf of any competitor of the Purchaser (including the
Subsidiaries thereof) engaged in a Proscribed Business, which candidate, to the
actual knowledge of the Shareholder after due inquiry, was called upon by the
Purchaser (including the Subsidiaries thereof) or for which, to the actual
knowledge of the Shareholder after due inquiry, the Purchaser (or any
Subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
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(v) disclose existing or prospective customers of the Company to any Person
for any reason or purpose whatsoever except to the extent that the Seller has
in the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Shareholder from acquiring and holding as a passive investment not
more than five percent of the capital stock of a competing business whose stock
is traded on a national securities exchange.
12.2 Damages. Because of the difficulty of measuring economic losses to the
Purchaser as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Purchaser for
which it would have no other adequate remedy, the Shareholder agrees that the
foregoing covenant may be enforced by the Purchaser in the event of breach by
the Shareholder, by injunction and restraining order.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 12 impose a reasonable restraint on the
Shareholder in light of the activities and business of the Purchaser (including
the Subsidiaries thereof) on the date of the execution of this Agreement and
the reasonably foreseeable plans of the Purchaser.
12.4 Severability, Reformation. The covenants in this Section 12 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
12.5 Independent Covenant. All of the covenants in this Section 12 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Shareholder against
the Purchaser (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Purchaser of such covenants. It is specifically agreed that the period of
36 calendar months stated at the beginning of this Section 12, during which the
agreements and covenants of the Shareholder made in this Section 12 shall be
effective, shall be computed by excluding from such computation any time during
which the Shareholder is in violation of any provision of this Section 12. The
covenants contained in Section 11 shall not be affected by any breach of any
other provision hereof by any party hereto and shall become void if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Shareholder hereby agrees that the covenants set
forth in this Section 12 are a material and substantial part of the
transactions contemplated by this Agreement.
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13. PURCHASE OF SWITCH
13.1 Consideration. Pursuant to the terms of this Agreement and in addition
to the Purchaser's acquisition of the Purchased Assets, at the Closing (x) the
Shareholder, in his individual capacity and not as the owner of all the
outstanding capital stock of the Seller, will bargain, sell, transfer convey
and deliver to the Purchaser, free and clear of any Liens, the Switch and (y)
the Purchaser will acquire the Switch from the Shareholder for an aggregate
consideration of $1,200,000 in immediately available funds.
13.2 Shareholder's Agreements Regarding Switch. Except as otherwise set
forth on Schedule 13.2, the Shareholder, in his individual capacity and not as
the owner of all the outstanding capital stock of the Seller:
(i) represents and warrants to the Purchaser that the representations
and warranties set forth in Sections 3.6, 3.8, 3.9, 3.10, 3.13, 3.14, 3.16,
3.19, 3.20, 3.21, 3.23 and 3.25 are applicable, mutatis mutandis, to the Switch
and the Shareholder's operation thereof and, as such, are true as of the date
of this Amendment and, subject to Section 7.6, shall be true as of the Closing
Date;
(ii) covenants and agrees with the Purchaser that the covenants and
agreements set forth in Sections 5.1(i), 5.2, 5.3, 5.4, 5.6, 5.7, 5.10 and 5.11
are applicable, mutatis mutandis, to the Shareholder's operation of the Switch
and, as such, shall be materially complied with or performed at and as of the
Closing Date;
(iii) agrees with the Purchaser that his obligation to sell the Switch
is subject to the satisfaction or waiver of the conditions set forth in Section
6; and
(iv) acknowledges to the Purchaser that the other provisions of this
Agreement are applicable, mutatis mutandis, to the purchase and sale of the
Switch.
13.3 Purchaser's Further Agreements. Except as set forth on Schedule 13.3,
the Purchaser covenants and agrees with the Shareholder that:
(y) its obligation to purchase the Switch is subject to the
satisfaction or waiver of the conditions set forth in Section 7; and
(z) the other provisions of this Agreement are applicable, mutatis
mutandis, to the purchase and sale of the Switch.
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14. GENERAL
14.1 Cooperation. The Seller, the Shareholder, Old ACG and the Purchaser
shall deliver or cause to be delivered to each other on the Closing Date and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Seller will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Seller
cooperate with the Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
14.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of the Purchaser and the Seller
and the heirs and legal representatives of the Shareholder. Notwithstanding the
foregoing, the Purchaser may assign, convey, transfer or otherwise dispose of
all or any portion of its interest in, or its rights and obligations under,
this Agreement and such other documents and instruments to any Affiliate of the
Purchaser.
14.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Seller, the Shareholder and the Purchaser and Old ACG,
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Seller, the Shareholder and the Purchaser and Old
ACG, acting through their respective officers or representatives, duly
authorized by their respective Boards of Directors in the cases of Seller,
Purchaser and Old ACG. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby; provided that each party to this Agreement shall make
a good faith effort to cross reference disclosures, as necessary or advisable,
between related Schedules.
14.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
14.5 Brokers and Agents. Except as disclosed on Schedule 14.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to
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indemnify the other parties hereto against all loss, cost, damage or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
14.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, the Purchaser will pay the fees, expenses and disbursements of
Purchaser, Old ACG and Seller and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by
Purchaser, Old ACG and the Seller under this Agreement. The Shareholder shall
pay the respective fees and expenses of its legal counsel, and all other costs
and expenses incurred by it in its performance and compliance with all
conditions to be performed by it under this Agreement. In addition, the
Shareholder acknowledges that it, and not the Seller or the Purchaser, will pay
all Taxes due upon receipt of the consideration payable pursuant to Section 2,
and will assume all Tax risks and liabilities of the Seller in connection with
the transactions contemplated hereby.
14.7 Notices. All notices of communications required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
(x) If to the Purchaser, addressed to it at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
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(y) If to the Seller, addressed to it at:
Long Distance Management II, Inc.
1312 Sovereign Row
Oklahoma City, Oklahoma 73108
Attn: Bobby Alexander
Telecopy No.: 405-945-8207
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
(z) If to the Shareholder, addressed to him as follows:
Bobby Alexander
2908 34th Street
Woodward, Oklahoma 73801
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 14.7 from time to time.
14.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
14.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or
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remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default occurring before or after that waiver.
14.10 Time. Time is of the essence with respect to this Agreement.
14.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
14.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
14.13 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
14.14 Public Statement. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
14.15 Form of Payment. All payments hereunder shall be made in United
States dollars and, unless the parties making and receiving such payments shall
agree otherwise or the provisions hereof provide otherwise, shall be made by
wire or interbank transfer of immediately available funds by 12:00 Noon, New
York time, on the date such payment is due to such account as the party
receiving payment may designate at least three business days prior to the
proposed date of payment.
14.16 Receivables. If any monies or other assets are received by the
Purchaser to which the Seller is entitled and that are not included in the
Purchased Assets, the Purchaser shall hold such monies and assets in trust for
the Seller and shall account for and pay the same to the Seller within 15 days
after receipt. If any monies or other assets are received by the Seller to
which the Purchaser is entitled and that are included in the Purchased Assets,
the Seller shall hold such monies and assets received by the Seller in trust
for the Purchaser and shall account for and pay the same to the Purchaser
within 15 days after receipt.
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<PAGE>
14.17 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of the Purchaser, Old ACG, the Seller and the Shareholder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PURCHASER:
ADVANCED COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
ADVANCED COMMUNICATIONS CORP.
By:
------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
SELLER:
LONG DISTANCE MANAGEMENT II, INC.
By:
------------------------------------
Name: Bobby Alexander
Title: President
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<PAGE>
SHAREHOLDER:
---------------------------------------
Bobby Alexander
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least 80% of the total combined
voting power of all classes of capital stock of the Company entitled to
<PAGE>
vote and at least 80% of the total number of shares of all other classes of
capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED ASSET PURCHASE AGREEMENT
dated as of the 6th day of October, 1997
by and between
ADVANCED COMMUNICATIONS GROUP, INC.
(PURCHASER)
and
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
LONG DISTANCE MANAGEMENT OF KANSAS, INC.
(SELLER)
and
BOBBY ALEXANDER, MARK BEALL AND CAROL COASH
(SHAREHOLDERS)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN....................10
2.1 Purchase and Sale of Purchased Assets..............................10
2.2 Assumption of Liabilities..........................................10
2.3 Purchase Price.....................................................10
2.4 Allocation of Purchase Price.......................................10
2.5 Post-Closing Adjustment............................................11
2.6 Section 351 Exchange Plan..........................................12
2.7 Closing............................................................12
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE SELLER AND THE SHAREHOLDERS..........................................12
3.1 Due Organization...................................................12
3.2 Authority..........................................................12
3.3 Equity Interests in the Seller.....................................13
3.4 Subsidiaries.......................................................13
3.5 Financial Statements...............................................13
3.6 Liabilities and Obligations........................................13
3.7 Accounts and Notes Receivable......................................14
3.8 Permits and Intangibles............................................14
3.9 Environmental Matters..............................................15
3.10 Personal Property..................................................16
3.11 Significant Customers; Material Contracts and Commitments..........16
3.12 Real Property......................................................17
3.13 Insurance..........................................................17
3.14 Intellectual Property..............................................18
3.15 Labor Relations....................................................18
3.16 Employee Benefits..................................................18
3.17 Tax Matters........................................................19
3.18 Prior or Preferential Rights.......................................20
3.19 Sufficiency of Assets..............................................20
3.20 Conformity with Law; Litigation....................................21
3.21 No Violations......................................................21
3.22 Government Contracts...............................................22
3.23 Absence of Changes................................................22
3.24 Disclosure.........................................................23
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<PAGE>
3.25 Prohibited Activities..............................................23
3.26 Draft Registration Statement.......................................23
3.27 Tax Matters........................................................23
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE PURCHASER AND OLD ACG................................................24
4.1 Due Organization...................................................24
4.3 Capital Stock......................................................24
4.4 Transactions in Capital Stock, Organization Accounting.............25
4.5 Subsidiaries.......................................................25
4.6 Financial Statements...............................................25
4.7 Liabilities and Obligations........................................25
4.8 Conformity with Law; Litigation....................................26
4.9 No Violations......................................................26
4.10 Business; Real Property; Material Agreement........................26
4.11 Tax Matters........................................................27
4.12 Draft Registration Statement.......................................27
5. OTHER COVENANTS PRIOR TO CLOSING.........................................27
5.1 Access and Cooperation; Due Diligence; Audits......................27
5.2 Conduct of Business Pending Closing................................28
5.3 Prohibited Activities..............................................29
5.4 Exclusivity........................................................30
5.5 Notice to Bargaining Agents........................................30
5.6 Notification of Certain Matters....................................30
5.7 Amendment of Schedules.............................................31
5.8 Bulk Sales Laws....................................................31
5.9 Transfer Taxes and Recording Fees..................................31
5.10 Certain Provisions Relating to Consents............................32
5.11 Further Assurance..................................................33
5.12 Survival...........................................................33
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER........................33
6.1 Representations and Warranties Performance of Obligations..........33
6.2 Satisfaction.......................................................33
6.3 No Litigation......................................................33
6.4 Opinion of Counsel.................................................33
6.5 Consents and Approvals.............................................34
6.6 No Material Adverse Change.........................................34
6.7 Secretary's Certificates...........................................34
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<PAGE>
6.8 Other Agreement....................................................34
6.9 Closing of IPO.....................................................34
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.....................34
7.1 Representations and Warranties; Performance of Obligations.........34
7.2 No Litigation......................................................35
7.3 No Material Adverse Effect.........................................35
7.4 Shareholders' Releases.............................................35
7.5 Satisfaction.......................................................35
7.6 Termination of Related Party Agreements............................35
7.7 Opinion of Counsel.................................................35
7.8 Consents and Approvals.............................................36
7.9 FIRPTA Certificate.................................................36
7.10 Other Agreement....................................................36
7.11 Closing of IPO.....................................................36
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE
SHAREHOLDERS AFTER CLOSING...............................................36
8.1 Release From Guarantees............................................36
8.2 Employment.........................................................36
8.3 Health and Welfare Benefits........................................38
8.4 Change of Name.....................................................39
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................39
9. TERMINATION OF AGREEMENT.................................................39
9.1 Termination........................................................39
9.2 Liabilities in Event of Termination................................40
9.3 Retention of Prepayment............................................40
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................40
10.1 The Shareholders and the Seller....................................40
10.2 The Purchaser......................................................41
10.3 Damages............................................................41
10.4 Survival...........................................................42
11. NONCOMPETITION...........................................................42
11.1 Prohibited Activities..............................................42
11.2 Damages............................................................43
11.3 Reasonable Restraint...............................................43
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<PAGE>
11.4 Severability, Reformation..........................................43
11.5 Independent Covenant...............................................43
11.6 Materiality........................................................43
12. GENERAL..................................................................44
12.1 Cooperation........................................................44
12.2 Successors and Assigns.............................................44
12.3 Entire Agreement...................................................44
12.4 Counterparts.......................................................44
12.5 Brokers and Agents.................................................44
12.6 Expenses...........................................................45
12.7 Notices............................................................45
12.8 Governing Law......................................................47
12.9 Exercise of Rights and Remedies....................................47
12.10 Time...............................................................47
12.11 Reformation and Severability.......................................47
12.12 Remedies Cumulative................................................47
12.13 Captions...........................................................47
12.14 Public Statement...................................................47
12.15 Form of Payment....................................................48
12.16 Receivables........................................................48
12.17 Amendments and Waivers.............................................48
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<PAGE>
RESTATED ASSET PURCHASE AGREEMENT
THIS RESTATED ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
6th day of October, 1997, by and between ADVANCED COMMUNICATIONS GROUP, INC., a
Delaware corporation organized in September 1997 ("Purchaser"), ADVANCED
COMMUNICATIONS CORP., (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG"), LONG DISTANCE
MANAGEMENT OF KANSAS, INC., an Oklahoma corporation ("Seller"), and BOBBY
ALEXANDER, MARK BEALL, and CAROL COASH (individually, a "Shareholder" and,
collectively, the "Shareholders"), the owners of all the issued and outstanding
shares of capital stock of Seller.
RECITALS
WHEREAS, the Seller is engaged in the business of reselling
long-distance telephone services ("Business"); and
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Asset Purchase Agreement dated as of January 29, 1997, as amended, among
Old ACG, Seller, and Shareholders (collectively, the "Original Agreement");
and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Purchaser as a new Delaware corporation in
September 1997 to serve as the vehicle for the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering ("IPO") of Common Stock, $.0001 par
value, of Purchaser ("Purchaser Stock") at the price to the public
reflected in the final prospectus of Purchaser relating to the IPO ("IPO
Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the
<PAGE>
Founding Companies, including Shareholders and Old ACG, will transfer,
by stock or asset purchase or reverse triangular merger, the stock or
substantially all the assets of certain companies and other assets in which
they own an interest to Purchaser in exchange for voting capital stock of
Purchaser and other consideration, including cash, voting stock, options,
warrants, notes, convertible notes and other property of Purchaser, under
circumstances that will constitute a tax-free transfer of property under
Section 351 of the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder ("Code"), to the extent of their receipt of
voting capital stock of Purchaser; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Purchaser and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Purchaser substantially contemporaneously with the
consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Purchaser by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Purchaser
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Shareholders and the Seller desire to
amend and restate the Original Agreement in its entirety and transform it
into this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
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<PAGE>
"Accounts Payable" as of any date means the sum of (i) the Seller's
accounts and notes payable and (ii) the Seller's expenses incurred but not
invoiced.
"Accounts Receivable" as of any date means the sum of (i) the Seller's
accounts and notes receivable and (ii) the Seller's revenues that are
earned but not invoiced.
"Affiliate" means, with respect to any specific Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. The term
"control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreed Rate" means the prime rate of interest reported in The Wall Street
Journal on the Closing Date.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement
"A/R Aging Reports" has the meaning set forth in Section 3.7.
"Arbitration" has the meaning set forth in Section 2.5(ii).
"Assumed Liabilities" refers to, collectively, all liabilities and
obligations of the Seller (i) relating to accounts and notes payable
arising in the ordinary course of the Business as of the Closing Date, (ii)
arising after the Closing Date with respect to the performance of the terms
of and the payment of all amounts due under the Contracts and the Leases,
excluding any liability or obligation resulting from any breach, violation,
failure to comply, act, omission, condition or circumstance with respect
thereto prior to the Closing Date and (iii) relating to Employees and
employee benefits to the extent specifically provided in Section 8.2.
"Assumption Agreement" refers to the Assumption Agreement to be executed at
Closing by the Purchaser.
"Balance Sheet Date" has the meaning set forth in Section 3.5.
"Base Price" and "Purchase Price" each means the aggregate amount of cash
payable to the Seller by the Purchaser pursuant to Section 2.3(ii).
"Bill of Sale" refers to the Bill of Sale to be executed at the Closing by
the Seller.
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<PAGE>
"Business" has the meaning set forth in the first recital to this
Agreement.
"Business Day" means any day, other than a Saturday or a Sunday, on which
commercial banks are not required or authorized to close in New York City.
"Cash" as of any date means the sum of the Seller's collected cash and cash
equivalents.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
limited liability company, partnership or other business entity that is a
signatory to, or the subject of, this Agreement was formed or organized in
accordance with applicable law.
"Closing" has the meaning set forth in Section 2.7.
"Closing Date" has the meaning set forth in Section 2.7.
"Code" is defined in the sixth recital of this Agreement.
"Contracts" means, collectively, the documents and other matters listed on
Schedule 3.11.
"Controlled Group Member" has the meaning set forth in Section 3.16(ii).
"Disputed Matter" has the meaning set forth in Section 2.5(i).
"Draft Registration Statement" has the meaning set forth in the ninth
recital of this Agreement.
"Effective Time" means 12:01 a.m. on the Closing Date.
"Employees" has the meaning set forth in Section 8.2(i).
"Employee Benefit Plan" means an Employee Pension Benefit Plan, Employee
Welfare Benefit Plan (where no distinction is required by the context in
which the term is used), or any compensation plan, incentive plan (whether
or not stock related), bonus plan or fringe benefit plan.
"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2)
of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1)
of ERISA.
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<PAGE>
"Environmental Laws" has the meaning set forth in Section 3.9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means, collectively (i) any rights of the Seller or any
of its Affiliates to any Tax refund with respect to periods prior to the
Closing Date, (ii) any assets of any Employee Benefit Plan maintained by
the Seller, (iii) any property, casualty, workers' compensation or other
insurance policy or related insurance services contract relating to the
Seller and any rights of Seller or any of its Affiliates under such
insurance policy or contract, other than rights or proceeds under such
insurance policies or contracts with respect to any Assumed Liability or
any casualty affecting any of the Purchased Assets, (iv) any rights of the
Seller under this Agreement or under any other agreement between the Seller
and the Purchaser and (v) any assets, properties or rights of the Seller
listed on Schedule A.
"Excluded Liabilities" refers to, collectively, all obligations and
liabilities of the Seller and its Affiliates, contingent or direct, known
or unknown, other than the Assumed Liabilities. Without limiting the
generality of the foregoing, the Excluded Liabilities include (i) any
liability or obligation arising prior to, on or after the Closing Date in
connection with any Excluded Asset, (ii) any liability or obligation
arising prior to the Closing Date with respect to the Purchased Assets,
(iii) any liability or obligation arising under any Environmental Law in
connection with the ownership, use, maintenance or operation of any of the
present or former facilities or properties of the Seller or any of its
predecessors or otherwise in connection with the operation of the Business,
(iv) any liability or obligation (whether assessed or unassessed) of the
Seller or any of its Affiliates with respect to Taxes for any period prior
to the Closing Date, (v) any liability or obligation with respect to any
checks issued by the Seller prior to the Closing Date which are outstanding
as of the Closing Date, (vi) any liability or obligation of the Seller with
respect to employees or employee benefits not specifically assumed by the
Purchaser pursuant to Section 8.2 and (vii) any liabilities listed on
Schedule B.
"Final Schedule" has the meaning set forth in Section 2.5(iii)
"Founding Companies" has the meaning set in the second recital of this
Agreement.
"Hart-Scott Act" has the meaning set forth in Section 8.5.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 3.9.
"IPO" has the meaning set forth in the fifth recital of this Agreement.
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<PAGE>
"IPO Price" has the meaning set forth in the fifth recital of this
Agreement.
"Initial Disclosure Date" means November 30, 1996.
"Intellectual Property" means all patents, trademarks, service marks,
copyrights and applications therefor, all tradenames, brand names, logos,
inventions, discoveries, improvements, processes, technologies, know-how,
formulae, drawings, specifications, trade secrets, plans, computer software
(including source codes and other documentation thereof), files, programs,
notebooks and records, all other proprietary, technical and other
information, data and intellectual property, and all licenses, Permits and
other rights to use the foregoing, whether patentable or unpatentable, used
or held for use in or associated with the ownership of the Purchased
Assets, or the conduct of the Business (or, if the Seller does not own any
such proprietary, technical or other information, data and intellectual
property, a paid-up or royalty-free, irrevocable license, permit or other
right to use the same), including, without limitation, the Intellectual
Property described in Schedule 3.14.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by the Seller and
used, useful or held for use in connection with the Business.
"Liens" means all mortgages, liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
"Material Adverse Effect" means a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial
or otherwise) of a Person.
"Material Documents" has the meaning set forth in Section 3.21.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"November Balance Sheet" has the meaning set forth in Section 3.5.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 4.6.
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<PAGE>
"Other Agreement" means the Restated Asset Purchase Agreement dated as of
October 6, 1997 by and between the Purchaser, Old ACG, Long Distance
Management II, Inc. and Bobby Alexander.
"Permit" means any permit, approval, authorization, license, franchise,
variance, certificate of occupancy or permission required by a governmental
authority under any applicable law.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a joint stock company, a trust or any
incorporated organization.
"Prepayment" has the meaning set forth in Section 2.3(iii).
"Prohibited Activities" has the meaning set forth in Section 3.25.
"Proscribed Business" has the meaning set forth in Section 11.1(i).
"Purchased Assets" means all the Seller's assets associated with the
Business or used, useful or held for use in connection with the operations
historically conducted by Seller at or in conjunction therewith, all as the
same may exist on the Closing Date, including, without limitation, the
following:
(i) all real property that is owned by the Seller, in each case together
with all improvements, fixtures, construction in process and all
other easements, rights and privileges appurtenant thereto and
rights in respect thereof;
(ii) all inventories of supplies and spare parts, all machinery, test
equipment, computers, telephone systems, expendables, vehicles,
furniture, file cabinets, office materials and other tangible
personal property, including the items listed on Schedule 3.10;
(iii) all Intellectual Property and all accounts and notes receivable;
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<PAGE>
(iv) all right, title and interest in, to and under all Contracts and
Leases (including all options to renew or extend the term of such
Leases or purchase all or any part of the leased property), subject
in each case to the terms of such Contracts and Leases;
(v) all books and records of the Business (including such books and
records as are contained in computerized storage media), including
books and records related to inventories, purchasing, accounting,
sales, research, engineering, maintenance, repairs, marketing,
banking, Intellectual Property, shipping records, personnel files
for Transferred Employees and all files, records, literature and
correspondence;
(vi) to the extent legally assignable, all Permits;
(vii) to the extent any of the following relate to any Assumed Liability
or any of the Purchased Assets: claims, deposits, prepayments,
prepaid assets, refunds (excluding Tax refunds with respect to
periods prior to the Closing Date), causes of action, rights of
recovery, rights of setoff and rights of recoupment of the Seller as
of the Closing Date, including all rights of the Seller under any
property, casualty, workers' compensation or other insurance policy
or related insurance services contract;
(viii) any other tangible assets of the Seller which are used primarily in
the Business and which are of a nature not customarily reflected in
the books and records of a business, such as assets which have been
written off for accounting purposes but which are still used by or
of value to the Business;
(ix) all goodwill associated with the Business;
(x) all supplier lists, files, records and data relating to the
Business;
(xi) all customer lists, files, records and data relating to the
Business;
(xii) all capital expenditure plans and studies, engineering studies,
accounting, real property, environmental, Tax, employment, health
and safety, and other books, records, files, ledgers, documents and
correspondence used or held for use in or associated with the
operation of the Purchased Assets, the ownership of the Purchased
Assets, or the conduct of the Business, other than Excluded Assets;
(xiii) all rights to the use of the name Long Distance Management of
Kansas;
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(xiv) all rights under express or implied warranties from the providers of
goods and services in connection with the operation of the Purchased
Assets, the ownership of the Purchased Assets, or the conduct of the
Business; and
(xv) all cash and cash equivalents of the Seller (including for this
purpose all collected funds and items in the process of collection
received in bank accounts associated with the Seller);
excluding in every instance all Excluded Assets.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section 4.1.
"Purchaser Documents" has the meaning set forth in Section 4.9.
"Purchaser Stock" has the meaning set forth in the fifth recital of this
Agreement.
"Return" means any return, report or statement (including any information
return) required to be filed for purposes of a particular Tax.
"Schedule" has the meaning set forth in Section 2.5(i).
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Seller Financial Statements" has the meaning set forth in Section 3.5.
"Shareholder" and "Shareholders" have the meanings set forth in the first
paragraph of this Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other
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organization is directly or indirectly owned or controlled by such Person,
by any one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 11.1(i).
"Transferred Employee" has the meaning set forth in Section 8.2(ii).
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN
2.1 Purchase and Sale of Purchased Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Purchaser will
purchase from the Seller, and the Seller will sell, transfer, assign, convey
and deliver to the Purchaser the Purchased Assets pursuant to the Bill of Sale.
2.2 Assumption of Liabilities. On the terms and subject to the conditions
set forth in this Agreement, at the Closing, the Purchaser will assume and
become responsible for all of the Assumed Liabilities pursuant to the
Assumption Agreement.
2.3 Purchase Price.
(i) The total consideration to be provided by the Purchaser to the
Seller for the Purchased Assets shall be the sum of the following items: (i)
cash in the amount of the Base Price and (ii) the assumption of the Assumed
Liabilities.
(ii) Old ACG delivered to the Seller cash in the amount of $20,000
(the "Prepayment") in partial payment of the purchase price for the Purchased
Assets, the receipt of which is acknowledged by the Seller. At the Closing, the
Purchaser shall deliver or cause to be delivered to the Seller cash in the
amount of $615,000.
2.4 Allocation of Purchase Price. The Seller and the Purchaser agree to
allocate the Purchase Price and the Assumed Liabilities among the Purchased
Assets in accordance with Schedule 2.4. The parties agree to file all Tax
reports, Returns and claims and other statements consistent with the allocation
set forth on Schedule 2.4 (and in particular to report the information
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required by Section 1060(b) of the Code) in a manner consistent with such
allocation and shall not make any inconsistent written statement or take any
inconsistent position on any Returns, in any refund claim, during the course of
any IRS or other Tax audit, for any financial or regulatory purpose, in any
litigation or investigation or otherwise, so long as there exists a reasonable
basis in law to maintain such position. Each party shall notify the other party
if it receives notice that the IRS proposes any allocation different from
Schedule 2.4.
2.5 Post-Closing Adjustment.
(i) As promptly as practicable following the Closing Date, but in no
event later than 15 days following the Closing Date, the Seller shall prepare a
schedule setting forth (i) the Seller's Cash as of the Closing Date, (ii) the
Seller's Accounts Receivable as of the Closing Date and (iii) the Seller's
Accounts Payable as of the Closing Date (the "Schedule"). A copy of the
Schedule shall be delivered to the Purchaser. Representatives of the Purchaser
shall have access to the Seller's books and records in order to verify the
accuracy of the Schedule. The parties shall endeavor to resolve any
disagreements relating to the Schedule within five days following its delivery
to the Purchaser. If all disagreements relating to the Schedule cannot be
resolved by the parties within the foregoing time period, all matters in
dispute (collectively, the "Disputed Matter") shall be resolved by arbitration
as set forth in Section 2.5(ii).
(ii) Any Disputed Matter shall be promptly submitted to and reviewed
by Deloitte & Touche LLP, or other nationally recognized independent accounting
firm mutually acceptable to the Seller and the Purchaser ("Arbitrator"). The
Arbitrator shall consider only the Disputed Matter and shall act promptly to
resolve in writing the Disputed Matter. The Arbitrator's decision with respect
to the Disputed Matter shall be final and binding on the Seller and the
Purchaser. The Seller and the Purchaser shall each be responsible for and pay
one-half of the fees and expenses of the Arbitrator. Each party shall be
responsible for and pay its own expenses incurred in connection with the
resolution of any Disputed Matter.
(iii) As promptly as practicable following the first to occur of (x)
an agreement between the Purchaser and the Seller with respect to the accuracy
of the Schedule or (y) a decision by the Arbitrator with respect to the
appropriate figures for inclusion in the Schedule (in either event, the "Final
Schedule"), the following action shall be taken:
(1) If the sum of the Accounts Receivable and the Cash reflected
in the Final Schedule exceeds the Accounts Payable reflected therein, the
amount of such excess, together with simple interest thereon from the Closing
Date at the Agreed Rate (calculated on the basis of a 365-day year), shall be
promptly remitted by the Purchaser to the Seller; or
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(2) If the Accounts Payable reflected in the Final Schedule
exceed the sum of the Accounts Receivable and the Cash reflected therein, the
amount of such excess, together with simple interest thereon from the Closing
Date at the Agreed Rate (calculated on the basis of a 365-day year), shall be
promptly remitted by the Seller to the Purchaser.
(iv) The agreements and covenants in this Section 2.5 shall survive
the Closing.
2.6 Section 351 Exchange Plan. By executing this Agreement, each
Shareholder is deemed to have approved and adopted the Section 351 Exchange
Plan to the same extent as if he had subscribed his signature thereon and
Seller is deemed to have approved and adopted the Section 351 Exchange Plan to
the same extent as if a duly authorized officer of Seller had executed the
Section 351 Exchange Plan for and in the name of and on behalf of Seller.
2.7 Closing. The closing of the transactions contemplated by this Agreement
("Closing") shall take place on or before January 31, 1998 on the date of the
closing of the sale of shares of the Purchaser Stock in the IPO, or such other
date as the parties hereto may designate (the "Closing Date"), at such place in
New York City as the parties may mutually agree.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE SELLER AND
THE SHAREHOLDERS
The Seller and the Shareholders jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 3 are true at the date of this Agreement and, subject to
Section 5.7, shall be true at the Closing Date and (ii) that all of the
covenants and agreements in this Section 3 shall be complied with or performed
at and as of the Closing Date. None of the representations, warranties,
covenants and agreements set forth in this Section 3 shall survive the Closing.
For purposes of this Section 3, the term Seller shall mean and refer to the
Seller and all of its Subsidiaries, if any.
3.1 Due Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Oklahoma, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except (i) as set
forth on Schedule 3.1 or (ii) where the failure to be so authorized or
qualified would not have a Material Adverse Effect. Schedule 3.1 sets forth all
jurisdictions in which the Seller is authorized or qualified to do business.
True, complete and correct copies of the Charter Documents and Bylaws, each as
amended, of the Seller are attached hereto as Schedule 3.1.
3.2 Authority. The Seller has full corporate power and authority to execute
and deliver this Agreement, and execution and delivery by the Seller of this
Agreement and its consummation
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of the transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of the Seller (including all
requisite shareholder approval), and this Agreement constitutes the legal,
valid and binding obligation of the Seller. Each Shareholder has the full legal
right, power and authority to enter into this Agreement. This Agreement has
been duly executed and delivered by each Shareholder and constitutes a legal,
valid and binding obligation of each Shareholder.
3.3 Equity Interests in the Seller. The authorized capital stock of the
Seller is as set forth in Schedule 3.3. All of the issued and outstanding
shares of capital stock the Seller are owned of record and beneficially by the
Shareholders in the amounts set forth in Schedule 3.3. Further, none of such
shares was issued in violation of the preemptive rights of any past or present
stockholder of the Seller.
3.4 Subsidiaries. Except as set forth in Schedule 3.4, (i) the Seller has
no Subsidiary, (ii) the Seller does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any Person and
(iii) the Seller is not directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
3.5 Financial Statements. Attached hereto as Schedule 3.5 are copies of the
following cash basis financial statements of the Seller beginning with the year
ended December 31, 1993 (the "Seller Financial Statements"): the Seller's
unaudited Balance Sheets as of December 31, 1995, 1994 and 1993 and its
unaudited Statements of Income, Cash Flows and Retained Earnings and any
related notes thereto for each of the years in the three-year period ended
December 31, 1995; the Seller's unaudited Balance Sheet as of November 30, 1996
("November Balance Sheet") (such November 30, 1996 being hereinafter also
referred to as the "Balance Sheet Date"); and unaudited Statements of Income,
Cash Flows and Retained Earnings and any related notes thereto for the eleven
months ended November 30, 1995 and 1996. The Seller Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 3.5). Except as set forth on Schedule 3.5, the foregoing
Balance Sheets present fairly the financial position of the Seller as of the
dates indicated thereon, and the foregoing Statements of Income, Retained
Earnings and Cash Flow present fairly the results of operations for the periods
indicated thereon, all on the cash basis of accounting in conformity with
generally recognized industry standards.
3.6 Liabilities and Obligations. Seller has no material liabilities of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise that are not reflected on the November
Balance Sheet or otherwise reflected in the Seller Financial Statements at the
Balance Sheet Date, including all loan agreements, indemnity or guaranty
agreements, bonds, mortgages, Liens, pledges or other security agreements. The
Seller has also disclosed to the
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Purchaser on Schedule 3.6, in the case of those contingent liabilities of the
Seller related to pending or threatened litigation or other liabilities which
are not fixed or otherwise accrued or reserved, the following information:
(w) a summary description of the liability together with the
following:
(1) copies of all relevant documentation relating thereto;
(2) amounts claimed and any other action or relief sought; and
(3) name of claimant and all other parties to the claim, suit or
proceeding;
(x) the name of each court or agency before which such claim, suit or
proceeding is pending;
(y) the date such claim, suit or proceeding was instituted; and
(z) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
3.7 Accounts and Notes Receivable. The Seller has delivered to the
Purchaser an accurate list (which is set forth on Schedule 3.7) of the accounts
and notes receivable of the Seller, as of the Initial Disclosure Date,
including receivables from and advances to employees and the Shareholders or
their Affiliates. The Seller shall also provide the Purchaser (x) an accurate
list of all receivables generated subsequent to the Initial Disclosure Date and
(y) an aging of all accounts and notes receivable showing amounts due in 30 day
aging categories, and such list and such aging report (the "A/R Aging Reports")
shall be current as of the Balance Sheet Date and shall be supplemented as of a
date five business days prior to the Closing Date. Except to the extent
reflected on Schedule 3.7 or as disclosed by the Seller to the Purchaser in a
writing accompanying the A/R Aging Reports, such accounts, notes and other
receivables are collectible in the amounts shown on Schedule 3.7, and shall be
collectible in the amounts shown on the A/R Aging Reports, net of reserves
reflected in the November Balance Sheet and as of the date of the A/R Aging
Reports, respectively.
3.8 Permits and Intangibles. The Seller holds all Permits the absence of
any of which could have a Material Adverse Effect on its Business, and the
Seller has delivered to the Purchaser an accurate list and summary description
(which is set forth on Schedule 3.8) of all Permits owned or held by the Seller
(it being understood and agreed that a list of all environmental Permits and
other environmental approvals is set forth on Schedule 3.9). To the knowledge
of the Seller, (i) the
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Permits listed on Schedules 3.8 and 3.9 are valid, and (ii) the Seller has not
received any notice that any governmental authority intends to cancel,
terminate or not renew any such Permit. The Seller has conducted and is
conducting the Business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits listed on Schedules 3.8 and
3.9 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Seller. Except as specifically provided in Schedule 3.8, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Seller by, any such Permit.
3.9 Environmental Matters. Except as set forth on Schedule 3.9, (i) the
Seller has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, Permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the Seller has obtained
and adhered to all Permits necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which Permits is set forth on Schedule 3.9, and has reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Seller where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined
in Environmental Laws) at, from, in or on any property owned or operated by the
Seller except as permitted by Environmental Laws; (iv) the Seller knows of no
on-site or off-site location to which the Seller has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Seller or the Purchaser, for any
clean-up cost, remedial work, damage to natural resources, property damage or
personal injury, including, but not limited to, any claim under the
comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended; and (v) the Seller has no contingent liability in connection with
any release of any Hazardous Waste or Hazardous Substance into the environment.
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3.10 Personal Property. The Seller has delivered to the Purchaser an
accurate list (which is set forth on Schedule 3.10) of (i) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" on the balance sheet of the Seller, (ii) all personal property
owned by the Seller with a value in excess of $2,500 (x) as of the Initial
Disclosure Date and (y) acquired since the Initial Disclosure Date and (iii)
all Leases and agreements in respect of personal property, including, in the
case of each of (i), (ii) and (iii), (1) true, complete and correct copies of
all such Leases and (2) an indication as to which assets are currently owned,
or were formerly owned, by Shareholders, relatives of any Shareholder, or
Affiliates of the Seller. Except as set forth on Schedule 3.10, (a) all
personal property used by the Seller in the Business is either owned by the
Seller or leased by the Seller pursuant to a Lease included on Schedule 3.10,
(b) all of the personal property listed on Schedule 3.10 is in good working
order and condition, ordinary wear and tear excepted and (c) all Leases and
agreements included on Schedule 3.10 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.11 Significant Customers; Material Contracts and Commitments. The Seller
has delivered to the Purchaser an accurate list (which is set forth on Schedule
3.11) of all significant customers, or Persons that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 3.11, means a customer (or
Person) (i) representing 2% or more of the Seller's annual revenues as of the
Initial Disclosure Date or (ii) reasonably expected to represent 2% or more of
the Seller's revenues during the twelve-month period ending September 30, 1997.
Except to the extent set forth on Schedule 3.11, none of the Seller's
significant customers (or Persons that are sources of a significant number of
customers) has canceled or substantially reduced or, to the knowledge of the
Seller, is currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Seller.
The Seller has listed on Schedule 3.11 all material contracts, commitments
and similar agreements to which the Seller is a party or by which it or any of
its properties are bound (including, but not limited to, any contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 3.6, 3.10 or 3.12, (x) in existence as
of the Initial Disclosure Date and (y) entered into since the Initial
Disclosure Date, and in each case have delivered true, complete and correct
copies of such agreements to the Purchaser. The Seller has complied with all
material commitments and obligations pertaining to it, and is not in default
under any contract or agreement listed on Schedule 3.11 and no notice of
default or termination under any such contract or agreement has been received.
The Seller has also indicated on Schedule 3.11 a summary description of all
plans or projects involving the acquisition of any personal property, business
or assets requiring, in any event, the payment of more than $2,500 by the
Seller.
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Except as set forth on Schedule 3.11, all of the contracts, commitments and
similar agreements listed on Schedule 3.11 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.12 Real Property. Schedule 3.12 includes a list of all real property
owned or held pursuant to Leases by the Seller (i) as of the Initial Disclosure
Date and (ii) acquired since the Initial Disclosure Date, and all other
property, if any, used by the Seller in the conduct of its business. The Seller
has good and insurable title to the real property owned by it, including those
reflected on Schedule 3.12, subject to no Lien except for:
(w) Liens reflected on Schedules 3.6 or 3.11 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current Taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 3.12 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Seller with respect to real property owned by the Seller, (2)
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Seller (which copies are attached to Schedule
3.12), and (3) an indication as to which such properties, if any, are currently
owned, or were formerly owned, by any Shareholder or business or personal
Affiliates of the Seller or any Shareholder.
Except as set forth on Schedule 3.12, all Leases included on Schedule 3.12 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
3.13 Insurance. The Seller has delivered to the Purchaser, as set forth on
and attached to Schedule 3.13, (i) an accurate list as of the Initial
Disclosure Date of all insurance policies carried by the Seller, (ii) an
accurate list of all insurance loss runs on workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Seller is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All of such insurance policies are currently in full force and effect and shall
remain in full force and
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effect through the Closing Date. No insurance carried by the Seller has ever
been canceled by the insurer and the Seller has never been denied coverage.
3.14 Intellectual Property. Except as set forth in Schedule 3.14, the
Seller either owns or has the right to use by license, sublicense, agreement,
or permission all of the Seller's inventions, improvements, domestic and
foreign patents and applications therefor, customer lists, copyrights,
copyright registrations and applications therefor, trademarks, tradenames,
service marks, trade dress, logos, rights in computer software, and all rights
granted or retained in licenses under any of the foregoing which are used in
connection with the conduct of the Business as presently conducted. Except as
set forth on Schedule 3.14, none of the Intellectual Property which is used in
connection with the conduct of the Business is, or has been in the past five
years involved in, or the subject of, any pending or, to the knowledge of the
Seller, threatened infringement, interference, opposition or similar action,
suit or proceeding or, to the knowledge of Seller, has otherwise been
challenged in any way. Except as set forth on Schedule 3.14, the Intellectual
Property will afford the Purchaser the right to use all technology, know-how,
technical and other information, data and other intellectual property, whether
patentable or unpatentable, and whether owned by the Seller, any other Person
or others, necessary for the conduct of the Business in a manner consistent
with the Seller's prior practice. The license fees, royalties and other amounts
payable by the Seller in connection with the use of the Intellectual Property,
together with the terms and conditions on which and periods for which such
amounts are payable, are described in Schedule 3.14. Any licenses fees,
royalties or other amounts payable as a result of the transfer of any item of
Intellectual Property by the Seller to the Purchaser pursuant to this Agreement
shall be paid by the Purchaser.
3.15 Labor Relations. Except as set forth on Schedule 3.15, the Seller is
not a party to any collective bargaining agreement; and there are no
controversies pending or, to the Seller's knowledge, threatened between the
Seller and any of its current or former employees or any labor or other
collective bargaining unit representing any current or former employee of the
Seller that could reasonably be expected to result in a labor strike, dispute,
slow-down or work stoppage or otherwise have a Material Adverse Effect. Seller
is not aware of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Seller. To the
Seller's knowledge, no executive, key employee or group of employees of the
Seller has any plan to terminate employment with the Seller.
3.16 Employee Benefits.
(i) Schedule 3.16 lists all Employee Benefit Plans that the Seller
maintains or to which the Seller contributes for the benefit of any current
or former employee of the Seller in existence as of the Initial Disclosure
Date.
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(ii) Neither the Seller nor any other organization that is a member of
a controlled group of organizations within the meaning of Code Sections
414(b), (c), (m) or (o) of which the Seller is a member ("Controlled Group
Member") contributes, or has contributed in the past, to any Employee
Pension Benefit Plan subject to Title IV of ERISA or any Multiemployer Plan
for the benefit of any current or former employee of the Seller or any
Controlled Group Member.
(iii) The Seller has delivered to the Purchaser complete and accurate
copies of all plans or summary plan descriptions for each Employee Benefit
Plan listed on Schedule 3.16. For each Employee Pension Benefit Plan listed
on Schedule 3.16 intended to qualify under Section 401(a) of the Code, the
Seller has delivered to the Purchaser (w) the three most recent annual
reports, (x) the three most recent annual and periodic accountings of plan
assets, (y) the most recent determination letter received from the IRS and
(z) where applicable, the three most recent actuarial valuations.
(iv) There are no liabilities, breaches, violations or defaults under
any Employee Benefit Plan sponsored or maintained by the Seller or any
Controlled Group Member that would subject the Purchaser to any Taxes or
other liabilities.
(v) With respect to each Employee Welfare Benefit Plan listed on
Schedule 3.16, the Seller or an Affiliate has complied with the
requirements of Code Section 4980B.
3.17 Tax Matters.
(i) The Seller is currently taxed under Subchapter C of the Code. The
Seller has filed all Tax Returns that it was required to file. All such Tax
Returns filed by the Seller were correct and complete in all material
respects or reserved for on its books. All Taxes owed by the Seller
(whether or not shown on any Tax Return) have been paid. Except as set
forth on Schedule 3.17, the Seller is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since January 1,
1994, no claim with respect to the Seller has been made by an authority in
a jurisdiction where the Seller does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There is no Lien affecting any
of the Purchased Assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
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(iii) The Seller does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of the Seller either claimed or raised by any authority in writing or as to
which Seller has knowledge based upon direct inquiry by any agent of such
authority. Schedule 3.17(iii) lists all income Tax Returns of the Seller
for taxable periods ended on or after January 1, 1992, indicates those Tax
Returns of which the Seller is aware that have been audited and indicates
those Tax Returns that currently are the subject of audit. The Seller has
delivered to the Purchaser correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by the Seller for any taxable period ended on or after January 1,
1993.
(iv) Except as set forth on Schedule 3.17(iv), neither any Shareholder
nor the Seller has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(v) The Seller has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Seller has not made any
payments, is not obligated to make any payments and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be fully deductible under Section 280G of the Code.
(vi) Except as set forth on Schedule 3.17(vi), none of the Purchased
Assets secures any debt, the interest on which is tax-exempt under Section
103(a) of the Code. None of the Purchased Assets are "tax-exempt use
property" within the meaning of Section 168(h) of the Code. The
transactions contemplated by this Agreement are not subject to Tax
withholding pursuant to the provisions of Section 3406 or Subchapter A of
Chapter 3 of the Code or any other provision of applicable law.
(vii) The Seller has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to the Business, or the
Purchased Assets or the Purchaser after the Closing Date.
3.18 Prior or Preferential Rights. There are no prior or preferential
rights, rights of first refusal, or other similar rights in any party (other
than the Purchaser) to purchase or otherwise acquire the Business or any
Purchased Assets.
3.19 Sufficiency of Assets. The Purchased Assets are all of the assets,
properties and rights of the Seller (other than the Excluded Assets and
Excluded Liabilities) whether tangible or intangible, real, personal or mixed,
and known or unknown, and wherever located, used or held for
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use in or associated with the conduct of the Business. The Purchased Assets are
sufficient to conduct the Business as a going concern on a basis consistent
with the Seller's prior practice, provided Purchaser supplies working capital
to the Business in an amount comparable to that maintained by the Seller prior
to the Closing.
3.20 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 3.9 or 3.20, the Seller is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Seller which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 3.6 or 3.9, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of the
Seller, threatened, against or affecting the Seller, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Seller and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Seller or the Shareholders. The
Seller has conducted and is conducting its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances and Permits, including
all such Permits set forth on Schedules 3.8 and 3.9, and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
3.21 No Violations. The Seller is not in violation of its Charter
Documents. Neither the Seller nor, to the knowledge of the Seller, any other
party thereto, is in default under any Lease, Contract, Permit or other
instrument set forth on Schedule 3.8, 3.9, 3.10, 3.11 or 3.12, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 3.21, (i) the
rights and benefits of the Seller under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 3.21, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 3.21, none of the Material Documents prohibits the use or
publication by the Seller or the Purchaser of the name of any other party to
such Material Document, and none of the Material Documents prohibits or
restricts the Seller from freely providing services to any other customer or
potential customer of the Seller, any of the other Founding Companies or
Purchaser.
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3.22 Government Contracts. Except as set forth on Schedule 3.22, the Seller
is not a party to any governmental contract subject to price determination or
renegotiation.
3.23 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 3.11 or 3.23, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Seller;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Seller;
(iii) any change in the authorized capital stock of the Seller or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the Seller to any of its
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the Seller;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Seller to any Person, including,
without limitation, any Shareholder and its Affiliate;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Seller, including without limitation any
indebtedness or obligation of any Shareholder or his Affiliate;
(viii) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of the Seller or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of the Seller's business;
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(x) any waiver of any material rights or claims of the Seller;
(xi) any material breach, amendment or termination of any contract,
agreement, license, Permit or other right to which the Seller is a party;
(xii) any transaction by the Seller outside the ordinary course of its
respective businesses;
(xiii) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xiv) any other distribution of property or assets by the Seller.
3.24 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to the
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of the Seller for the time periods with respect to
which such information was requested. The Seller's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Seller is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Seller (which fact
or circumstance was, or should reasonably, after due inquiry, have been known
to the Seller) that is not disclosed pursuant hereto or thereto.
3.25 Prohibited Activities. Except as set forth on Schedule 3.25, the
Seller has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Sections 5.3 ("Prohibited
Activities") or 5.4 or failed to take the actions required in Sections 5.1 and
5.2.
3.26 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Seller expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.27 Tax Matters. Each Shareholder has been advised by his or her counsel
that the transactions contemplated by this Agreement are taxable sales of
property under the Code.
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4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PURCHASER AND
OLD ACG
Purchaser and Old ACG, jointly and severally, represent, warrant, covenant
and agree: (i) that, except as disclosed in the Draft Registration Statement,
which supplements and qualifies the following representations and warranties,
all of the following representations and warranties in this Section 4 are true
at the date of this Agreement and, subject to Section 5.7, shall be true at the
Closing Date and (ii) that all of the covenants and agreements in this Section
4 shall be complied with or performed at and as of the Closing Date. None of
the representations and warranties of the Purchaser in this Section 6 shall
survive the Closing.
4.1 Due Organization. The Purchaser and Old ACG each is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Charter Documents and
By-laws, each as amended, of the Purchaser and Old ACG (collectively the
"Purchaser Charter Documents") are attached hereto as Schedule 4.1.
4.2 Authorization. Each of Purchaser and Old ACG has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by each of Purchaser and Old
ACG of this Agreement and its consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Purchaser
and Old ACG. This Agreement has been duly executed and delivered by each of
Purchaser and Old ACG and is a valid and binding obligation of each of
Purchaser and Old ACG, enforceable against each of them in accordance with its
terms.
4.3 Capital Stock. The authorized capital stock of Old ACG is as set forth
in Schedule 4.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) has been duly authorized and validly issued, (ii) is fully paid
and nonassessable, (iii) is owned of record and beneficially by the Persons set
forth on Schedule 4.3, and (iv) was offered, issued, sold and delivered by Old
ACG in compliance with all applicable state and Federal laws concerning the
offer, issuance, sale and delivery of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of Old ACG. Subject to the consummation of the reverse stock split
referred to in the ninth recital of this Agreement and the consummation of
Purchaser's acquisition of Old ACG in the reverse triangular merger, the
capitalization of Purchaser will be identical to the capitalization of Old ACG
immediately prior to the consummation of the IPO.
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4.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 4.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 4.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
4.5 Subsidiaries. Neither Purchaser nor Old ACG has any Subsidiaries,
except for each of the companies identified on Schedule 4.5. Except as set
forth in the preceding sentence, neither Purchaser nor Old ACG presently owns,
of record or beneficially, or controls, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and neither Purchaser nor
Old ACG, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
4.6 Financial Statements. Old ACG was formed in June 1996, and Purchaser
was formed in September 1997. Neither has conducted any material business since
the date of its inception, except raising capital and in connection with this
Agreement and similar agreements with other companies involved in the
communications business and associated activities. Attached hereto as Schedule
4.6 are copies of the following financial statements of the Old ACG, which
reflect the results of its operations from inception in June 1996 (the "Old ACG
Financial Statements"): Old ACG's audited Balance Sheet as of December 31, 1996
and its unaudited Balance Sheet as of June 30, 1997, and audited Statements of
Operations, Shareholders' Equity and Cash Flows and related notes thereto for
the period from June 10, 1996 through December 31, 1996 and unaudited Statement
of Operations, Shareholders' Equity and Cash Flows for the six months ended
June 30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 4.6). Except as set forth on Schedule 4.6, the foregoing Balance
Sheets presents fairly the financial position of Old ACG as of such dates, and
the foregoing Statement of Revenue and Expense presents fairly the results of
its operations for the period indicated, all on a cash basis of accounting. Old
ACG's Financial Statements at and for the period ended December 31, 1996 have
been examined by KPMG Peat Marwick LLP, independent public accountants.
4.7 Liabilities and Obligations. Except as set forth on Schedule 4.7,
neither the Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
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4.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 4.8, neither Purchaser nor Old ACG is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 4.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of either Purchaser
or Old ACG, threatened, against or affecting either Purchaser or Old ACG, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Each of Purchaser
and Old ACG has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, Permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
4.9 No Violations. Neither Purchaser nor Old ACG is in violation of any
Purchaser Charter Document. Neither Purchaser nor Old ACG, nor to the knowledge
of Purchaser or Old ACG, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit to which the Purchaser or Old
ACG is a party, or by which the Purchaser or Old ACG or any of its respective
properties, are bound (collectively, the "Purchaser Documents"); and (i) the
rights and benefits of the Purchaser and Old ACG under the Purchaser Documents
will not be adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Purchaser Documents or the Purchaser Charter
Documents. Except as set forth on Schedule 4.9, none of the Purchaser Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
4.10 Business; Real Property; Material Agreement. For the reasons set forth
in Section 4.6 and except as disclosed in Section 4.6 or on Schedule 4.10, the
Purchaser has not conducted any material business since the date of its
inception, the Purchaser does not own, nor has it at any time owned, any real
property or any material personal property, and the Purchaser is not a party to
any material agreement.
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4.11 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
4.12 Draft Registration Statement. The text of and the financial statements
and other financial information contained in the Draft Registration Statement,
insofar as they relate to the Purchaser or Old ACG, but not otherwise, are
true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
5. OTHER COVENANTS PRIOR TO CLOSING
5.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Seller and the Shareholders will afford to the officers and authorized
representatives of the Purchaser access to all of the Seller's sites,
properties, books and records and furnish the Purchaser with such
additional financial and operating data and other information as to the
business and properties of the Seller as the Purchaser may from time to
time reasonably request. The Seller and the Shareholders will cooperate
with the Purchaser, its representatives, auditors and counsel in the
preparation of any documents or other material that may be required in
connection with any documents or materials required by this Agreement,
including the
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preparation for and consummation of the IPO. The Purchaser will treat
all information obtained in connection with the negotiation and performance
of this Agreement as confidential in accordance with the provisions of
Section 10.
(ii) Between the date of this Agreement and the Closing, the Purchaser
will afford to the Shareholders and to the officers and authorized
representatives of the Seller and Shareholders access to all of the
Purchaser's sites, properties, books and records and will furnish the
Seller and the Shareholders with such additional financial and operating
data and other information as to the business and properties of Purchaser,
Old ACG and the other Founding Companies as Seller and Shareholders may
from time to time reasonably request. The Purchaser will cooperate with the
Seller, the Shareholders and their representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with (x) any documents or materials required by this Agreement
or (y) the preparation for and consummation of the IPO. The Seller and the
Shareholders and their respective Affiliates will treat all information
obtained in connection with the negotiation and performance of this
Agreement as confidential in accordance with the provisions of Section 10.
(iii) The Seller agrees to permit an independent accounting firm
selected by the Purchaser to audit and render a report on the Seller
Financial Statements and the comparable financial statements at and for the
year ending December 31, 1996, and any other period selected by the
Purchaser, provided that all the costs and expenses of such audits are paid
by the Purchaser.
5.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by the Purchaser, between the date of this Agreement and the Closing
Date, the Seller will:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
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(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain compliance with all material Permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
5.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Seller will not, without prior written consent of the
Purchaser:
(i) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $2,500;
(ii) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $2,500 necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 3.6 or 3.11;
(iii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(iv) negotiate for the acquisition of any business or the start-up of
any new business;
(v) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
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(vi) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice; provided, further, that such
adjustments shall not be deemed to be included in Schedule 3.7 unless
specifically listed thereon;
(vii) commit a material breach or amend or terminate any material
agreement, Permit, license or other right; or
(viii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
5.4 Exclusivity. Neither the Shareholders, nor Seller, nor any agent,
officer, director, trustee or any representative of the Seller or the
Shareholders, during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than the Purchaser
or its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Seller or merger, consolidation or business
combination of the Seller.
5.5 Notice to Bargaining Agents. Prior to the Closing Date, the Seller
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide the Purchaser with proof that any required notice has been sent.
5.6 Notification of Certain Matters. The Seller or the Shareholders shall
give prompt notice to the Purchaser of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Seller or the Shareholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (ii) any material failure of the Seller or the Shareholders to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder as of such date. The Purchaser shall give prompt
notice to the Seller and the Shareholders of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would
likely cause any representation or warranty of the Purchaser and Old ACG
contained herein to be untrue or inaccurate
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in any material respect at or prior to the Closing Date and (ii) any material
failure of the Purchaser or Old ACG to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder as of
such date. The delivery of any notice pursuant to this Section 5.6 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
5.7, (ii) modify the conditions set forth in Sections 6 and 7, or (iii) limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
5.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the Seller and the Shareholders or the Purchaser that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless Purchaser and Old ACG or Shareholders and
Seller, as the case may be, consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6.1 and 7.1 have been
fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 5.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 9.1(v). Neither the entry by the Purchaser into any other
agreement, such as this Agreement, after the date hereof for the acquisition of
one or more companies involved in or assets associated with the
telecommunication business, yellow page publishing business or related
activities nor the performance by the Purchaser of its obligations thereunder
shall be deemed to require the amendment to or the supplementation of any
Schedule hereto.
5.8 Bulk Sales Laws. The Purchaser hereby waives compliance with the
provisions of any bulk transfer laws applicable to the transactions
contemplated by this Agreement including, without limitation, bulk sales laws
under the Uniform Commercial Code or relating to the right or obligation of the
Purchaser to withhold any portion of the Purchase Price pending determination
by any governmental entities of the Seller's liability for any Tax obligations
to any such governmental entities.
5.9 Transfer Taxes and Recording Fees. Any sales, transfer, use or other
similar Taxes imposed as a result of the sale of the Purchased Assets to the
Purchaser pursuant to this Agreement shall be paid by the Purchaser. At the
Closing, the Purchaser shall remit to the Seller such properly completed resale
exemption certificates and other similar certificates or instruments as are
necessary to claim available exemptions from the payment of sales, transfer,
use or other similar Taxes under applicable law. All recording, transfer and
other similar Taxes and fees payable as a result of the
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public recordation of the instruments of conveyance or transfer of the
Purchased Assets executed and delivered to Purchaser pursuant to this Agreement
shall be paid by the Seller.
5.10 Certain Provisions Relating to Consents.
(i) The Seller will obtain, at its expense, and the Purchaser will use
its reasonable cooperative efforts (including furnishing financial
information on a confidential basis, where required) prior to and after the
Closing Date to assist the Seller in obtaining all third party consents
that are required in connection with the transactions contemplated by this
Agreement. The Seller will use reasonable efforts to obtain, and the
Purchaser will use its reasonable cooperative efforts prior to and after
the Closing Date to assist the Seller in obtaining from the landlords of
all of the Leases, estoppel agreements in form and substance reasonably
acceptable to the Purchaser containing to the extent necessary consents
from such landlords to the assignment of the Leases to the Purchaser. All
expenses incurred in connection with obtaining such consents and estoppel
agreements shall be paid by the party incurring the same. To the extent
such consents and/or estoppel agreements are not obtained by Closing, the
Seller shall continue to assist the Purchaser in obtaining such consents
and/or estoppel agreements after Closing and shall pay the costs thereof.
(ii) To the extent that any Contract, Permit or Lease is not capable
of being transferred by the Seller to the Purchaser pursuant to this
Agreement without the consent of a third party (including a governmental
entity) and such consent is not obtained prior to Closing, or if such
transfer or attempted transfer would constitute a breach or a violation of
any law, nothing in this Agreement will constitute a transfer or an
attempted transfer thereof.
(iii) In the event that any such consent is not obtained on or prior
to the Closing Date, the Seller will (x) provide to the Purchaser the
benefits of the applicable Contract, Permit or Lease if reasonably
possible, (y) cooperate in any reasonable and lawful arrangement designed
to provide such benefits to the Purchaser and (iii) enforce at the request
and expense of the Purchaser and for the account of the Purchaser, any
rights of the Seller arising from any such Contract or Lease (including the
right to elect to terminate such Contract or Lease in accordance with the
terms thereof upon the request of the Purchaser). If any Permit required
for the operation of the Business or the ownership or use of the Purchased
Assets is not transferred to the Purchaser at Closing, the Seller
authorizes (to the extent permitted by law) the Purchaser to operate under
any such Permit until the necessary consent to transfer or a new Permit is
obtained.
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(iv) The Purchaser will perform the obligations arising under all
Contracts, Permits and Leases referred to in Section 5.10(ii) for the
benefit of the Seller and the other party or parties thereto, except for
any obligation under such Contract, Permit or Lease that constitutes an
Excluded Liability.
5.11 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement or the IPO.
5.12 Survival. None of the covenants and agreements set forth in Sections
5.1 through 5.9 shall survive the Closing.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligations of the Seller with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
6.1 Representations and Warranties Performance of Obligations. All
representations and warranties of the Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by the Purchaser and Old ACG on
or before the Closing Date shall have been duly complied with or performed in
all material respects; and a certificate to the foregoing effect, dated the
Closing Date and signed by the President or any Vice President of each of
Purchaser and Old ACG shall have been delivered to the Seller.
6.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Seller and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit consummation of the transactions contemplated in this
Agreement and no governmental agency or body shall have taken any other action
or made any request of the Seller, the Shareholders or the Purchaser as a
result of which the Seller deems it inadvisable to proceed with the
transactions hereunder.
6.4 Opinion of Counsel. The Seller shall have received an opinion from
counsel for the Purchaser and Old ACG, dated the Closing Date, in form and
substance reasonably acceptable to
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the Seller, relating to, insofar as the Purchaser and Old ACG are concerned, as
the case may be, (a) the authorization, execution, delivery, performance and
enforceability of the Agreement, (b) the receipt of all required consents and
approvals, and (c) such other legal matters as the Seller may reasonably
request.
6.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
6.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to the Purchaser that would constitute a Material Adverse
Effect.
6.7 Secretary's Certificates. The Seller shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of each of
Purchaser and Old ACG, certifying the completeness and accuracy of the attached
copies of the Purchaser's Charter Documents (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the board of
directors approving the Purchaser's and Old ACG's entering into this Agreement
their consummation of the transactions contemplated hereby.
6.8 Other Agreement. The transaction contemplated by the Other Agreement
shall close substantially contemporaneously with the consummation of the
transactions contemplated herein.
6.9 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived:
7.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Seller and the Shareholders contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Seller and
the Shareholders on or before the Closing Date shall have been duly performed
or complied with in all material respects; and the Seller and the Shareholders
shall have delivered to the Purchaser a certificate dated the Closing Date and
signed by them to such effect.
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7.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated herein
and no governmental agency or body shall have taken any other action or made
any request of the Purchaser, the Seller or the Shareholders as a result of
which the management of the Purchaser deems it inadvisable to proceed with the
transactions hereunder.
7.3 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the Seller which would constitute a Material Adverse
Effect, and the Seller shall not have suffered any material loss or damage to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Seller
to conduct its business.
7.4 Shareholders' Releases. The Shareholders shall have delivered to the
Purchaser an instrument dated the Closing Date releasing (i) the Purchased
Assets from any and all claims of the Shareholders and (ii) the obligations of
the Purchaser and Old ACG to the Shareholders, except for obligations arising
under this Agreement, the Other Agreement or the transactions contemplated
hereby and thereby.
7.5 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to the Purchaser and its counsel.
7.6 Termination of Related Party Agreements. Except as set forth on
Schedule 7.6, all existing agreements between the Seller and the Shareholders
affecting in any respect the Purchased Assets shall have been canceled
effective prior to or as of the Closing Date.
7.7 Opinion of Counsel. The Purchaser shall have received an opinion from
counsel to the Seller and the Shareholders, dated the Closing Date, in form and
substance reasonably acceptable to the Purchaser, relating to, insofar as the
Seller and the Shareholders are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the receipt
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of all required consents and approvals, (c) the consummation of the
transactions contemplated herein and (d) such other legal matters as the
Purchaser may reasonably request.
7.8 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 3.21 shall have been
obtained.
7.9 FIRPTA Certificate. Each Shareholder shall have delivered to the
Purchaser a certificate to the effect that it is not a foreign Person under
Section 1.1445-2(b) of the Treasury regulations promulgated pursuant to the
Code.
7.10 Other Agreement. The transaction contemplated by the Other Agreement
shall close substantially contemporaneously with the consummation of the
transactions contemplated herein.
7.11 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE SHAREHOLDERS AFTER
CLOSING
8.1 Release From Guarantees. The Purchaser shall use its best efforts to
have the Shareholders released from any and all guarantees on any indebtedness
relating to the Purchased Assets that any of them personally guaranteed and
from any and all pledges of assets that any of them pledged to secure such
indebtedness for the benefit of the Seller, with all such guarantees on
indebtedness being assumed by the Purchaser.
8.2 Employment.
(i) The Purchaser shall offer to hire, effective as of the Closing
Date, the active operating employees of the Business on the day immediately
prior to the Closing Date, and only those inactive operating employees on
temporary leave for purposes of jury duty, family and short-term medical
leave, vacation or annual two-week national military duty (such employees
who are to be given offers of hire being hereafter referred to as the
"Employees"). The Seller shall deliver to the Purchaser, at least 30 days
prior to the Closing Date, a schedule designating all Employees and all
inactive employees of the Business. Any person who has retired from the
Seller shall be considered an inactive employee. The Seller shall use its
reasonable efforts to cause such employees to accept the Purchaser's offers
of employment.
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(ii) The Employees who accept and commence employment with the
Purchaser shall be referred to herein as the "Transferred Employees".
(iii) Except as expressly provided otherwise in this Section 8.2 and
in Section 8.3, the terms of the Transferred Employees' employment shall be
upon such terms and conditions as the Purchaser, in its sole discretion
shall determine. Upon request of the Purchaser, the Seller shall provide
the Purchaser reasonable access to data (including computer data) regarding
the ages, dates of hire, compensation and job description of Employees. The
Seller hereby authorizes the Purchaser to enter into discussions with and
to advise any of the Employees concerning the terms of any future
employment of such individuals by the Purchaser and will permit the
Purchaser reasonable access to Employees for such purpose.
(iv) In the event that an individual (x) retires from the Seller after
the date of this Agreement and prior to the Closing Date and (y)
subsequently commences employment with the Purchaser, such individual will
cease receiving post-retirement medical benefits from the Seller. The
Seller will advise such individuals of this condition before retirement.
The Purchaser shall not assume any liability for providing post-retirement
medical benefits upon such individual's termination of employment with the
Purchaser.
(v) (x) Except for liabilities and claims to be assumed by the
Purchaser under Section 8.3(v)(y), the Seller shall discharge all
liabilities to and claims of Transferred Employees or Employees of the
Seller arising out of their employment with the Seller, including but not
limited to, claims arising out of any Employee Benefit Plan maintained by
the Seller or for retiree medical benefits promised, provided or subsidized
by the Seller after the Closing Date.
(y) The Purchaser shall discharge all liabilities and claims based on
occurrences or conditions first occurring or commencing on or after the
Closing Date of Transferred Employees or employees of the Purchaser arising
out of their employment with the Purchaser after the Closing Date,
including but not limited to, any claims arising out of any employee
benefit plan maintained by the Purchaser.
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(vi) The Seller and the Purchaser shall comply with Section 4 of the
Revenue Procedure 84-77, 1984-2 C.B. 753. The Seller shall furnish (or
cause to be furnished) to each Transferred Employee in accordance with
Section 4 of the Revenue Procedure a Treasury Form W-2 for 1997 for the
wages paid by the Seller, no later than January 31, 1998. The Purchaser
shall furnish (or cause to be furnished) to each Transferred Employee in
accordance with Section 4 of the Revenue Procedure a Treasury Form W-2 for
1997 for the wages paid by the Purchaser. The Purchaser shall file (or
cause to be filed) appropriate Treasury Forms W-2 and W-3 covering the
Transferred Employee with the Social Security Administration for wages paid
and amounts withheld by the Purchaser during 1997.
(vii) Nothing contained in this Agreement (x) shall confer upon any
former, current or future employee of the Seller or the Purchaser or any
legal representative or beneficiary thereof any rights or remedies,
including, without limitation, any right to employment or continued
employment of any nature, for any specified period, or (y) shall cause the
employment status of any former, present or future employee of the
Purchaser to be other than terminable at will.
8.3 Health and Welfare Benefits.
(i) The Seller shall provide all notices and fulfill all of its
obligations, if any, under Section 4980B(f) of the Code with respect to the
Transferred Employees. The Seller shall deliver to the Purchaser's present
or proposed insurance carriers or third-party administrators, on a census
basis, at least 20 days prior to the Closing Date, information with respect
to all health, accident, workers' compensation, disability and related
claims filed by the Transferred Employees (including, without limitation,
information regarding the total number of claims filed by, the total amount
of benefits claimed by, and the total amount of benefits paid to such
persons) since January 1, 1993, to the extent requested by any such
carriers. The Seller shall deliver to the Purchaser's health insurance
carriers or third-party administrators, on a census basis, to the extent
requested by any such carriers or administrators, an update of such
information through the Closing Date as soon as practicable but no later
than 15 days after the Closing Date. Such information, which may be
provided directly from the Seller's computer database, shall be
satisfactory in form and substance to such carriers and administrators.
(ii) Effective on the Closing Date, the Transferred Employees shall be
eligible for health and welfare benefits substantially equivalent to those
the Purchaser provides to similarly situated new employees hired by the
Purchaser after the Closing Date; provided, however, that the Purchaser
reserves the right to modify or terminate such benefits from time to time
after the Closing Date. Such Transferred Employees shall be eligible to
participate under the Purchaser's health and welfare benefit plans as of
the Closing Date, and the Purchaser shall not be responsible for any
hospitalization, medical, survivor benefits, life
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insurance, or disability claims based upon occurrences or conditions
commencing, occurring or existing before the Closing Date, regardless of
whether such occurrences or conditions continue after the Closing Date, and
regardless of whether such claims are made before or after the Closing
Date. In no event shall the Purchaser be required to provide
post-retirement medical benefits to Transferred Employees.
8.4 Change of Name. Promptly after the Closing, the Seller shall change its
name to a name that does not conflict with the Purchaser's use of the name
"Long Distance Management of Kansas".
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein and in the Other Agreement. If it is
determined by the parties to this Agreement that compliance with the Hart-Scott
Act is required, then: (i) each of the parties hereto agrees to cooperate and
use its best efforts to comply with the Hart-Scott Act, (ii) such compliance by
the Seller shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 7 of this Agreement, and such compliance by the
Purchaser shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 6 of this Agreement, and (iii) the parties agree
to cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made.
9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of the Purchaser and
the Seller;
(ii) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the Securities and
Exchange Commission pursuant to the Securities Act of 1933;
(iii) by the Seller, if a material breach or default shall be made by
the Purchaser in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date;
(iv) by the Purchaser, if a material breach or default shall be made
by the Seller or the Shareholders in the observance or in the due and timely
performance of any of the covenants,
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agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date;
(v) by the Seller, on the one hand, or by Purchaser, on the other
hand, if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 5.7 because such proposed amendment constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the party or parties
proposing the same.
(vi) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if the transactions contemplated by the Agreement to take place at the
Closing shall not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its obligations
under the Agreement to the extent required to be performed by its prior to or
on the Closing Date;
9.2 Liabilities in Event of Termination. No party to this Agreement whose
breach or default with respect to any of its representations, warranties,
covenants or agreements in this Agreement occasions a termination of this
Agreement by another party hereto shall have any obligation or liability
arising therefrom to any other party to this Agreement, unless such breach or
default is due to a willful failure to perform. The failure of the Purchaser to
pay the balance of the Base Price at the Closing shall not constitute a default
due to a willful failure to perform.
9.3 Retention of Prepayment. The Seller shall be under no obligation to
refund the Prepayment upon termination of the Agreement, except where the
Purchaser elects to terminate the Agreement pursuant to Section 9.1(v).
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 The Shareholders and the Seller. The Shareholders and the Seller
recognize and acknowledge that they had in the past, currently have, and in the
future may have, access to certain confidential information of the Seller
and/or the Purchaser and Old ACG, such as operational policies, and pricing and
cost policies that are valuable, special and unique assets of the Seller and/or
the Purchaser and Old ACG. The Shareholders and the Seller agree that they will
not disclose such confidential information to any Person for any purpose or
reason whatsoever, except (i) to authorized representatives of the Purchaser;
(ii) following the Closing, such information may be disclosed by the
Shareholders as is required in the course of performing its duties for the
Purchaser or the Seller; and (iii) to counsel and other advisers; provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 10.1, unless (w) such information becomes known to the public
generally through no fault of a Shareholder or the Seller, (x) disclosure is
required by law or the order of any governmental authority under color of law;
provided, that prior to disclosing any
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information pursuant to this clause (y), the affected Shareholder or the Seller
shall give prior written notice thereof to the Purchaser and provide the
Purchaser with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Shareholders or the Seller
of the provisions of this Section 10.1, the Purchaser shall be entitled to an
injunction restraining such Shareholder and such Seller, as the case may be,
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting (1) any Shareholder from using
information acquired as the owner of the Seller in connection with activities
permitted under Section 11 or (2) the Purchaser from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages. In the event the transactions contemplated by this Agreement are
not consummated, the abovementioned restrictions on the Shareholders' or the
Seller's ability to disseminate confidential information with respect to the
Seller shall become void.
10.2 The Purchaser. Each of Purchaser and Old ACG recognizes and
acknowledges that it has in the past, currently has and in the future may have,
prior to the Closing access to certain confidential information of the Seller,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Seller. Each of Purchaser and Old ACG agrees
that, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, it will not disclose such confidential
information to any Person for any purpose or reason whatsoever, except (i) to
authorized representatives of Seller, other Founding Companies or the
Shareholders; and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 10.2, unless (x) such information becomes known to the public generally
through no fault of the Purchaser and Old ACG (y) disclosure is required by law
or the order of any governmental authority under color of law; provided, that
prior to disclosing any information pursuant to this clause (y), the Purchaser
shall, if possible, give prior written notice thereof to the Seller and provide
the Seller with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by the Purchaser or Old ACG of the
provisions of this Section 10.2, the Seller shall be entitled to an injunction
restraining the Purchaser or Old ACG from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
10.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 10.1 and 10.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
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10.4 Survival. The obligations of the parties under this Article 10 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 10.
11. NONCOMPETITION
11.1 Prohibited Activities. Each of the Shareholders will not, for a period
of 36 calendar months following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or herself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in the sale or
marketing of any communications, natural gas or electrical goods and services
(collectively, the "Proscribed Business"), within the States of Arkansas,
Kansas, Missouri, Oklahoma and Texas (the "Territory");
(ii) call upon any Person within the Territory who is employee of the
Purchaser (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of the Purchaser (including the
Subsidiaries thereof); provided that a Shareholder shall be permitted to call
upon and hire immediate family members;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date or the Termination Date, as the case may be, a
customer of the Purchaser (including the Subsidiaries thereof), or of the
Seller within the Territory, for the purpose of soliciting or selling products
or services in direct competition with the Purchaser (including the
Subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on a Shareholder's
own behalf or on behalf of any competitor of the Purchaser (including the
Subsidiaries thereof) engaged in a Proscribed Business, which candidate, to the
actual knowledge of such Shareholder after due inquiry, was called upon by the
Purchaser (including the Subsidiaries thereof) or for which, to the actual
knowledge of such Shareholder after due inquiry, the Purchaser (or any
Subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
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(v) disclose existing or prospective customers of the Company to any Person
for any reason or purpose whatsoever except to the extent that the Seller has
in the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Shareholder from acquiring and holding as a passive investment not
more than five percent of the capital stock of a competing business whose stock
is traded on a national securities exchange.
11.2 Damages. Because of the difficulty of measuring economic losses to the
Purchaser as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Purchaser for
which it would have no other adequate remedy, each Shareholder agrees that the
foregoing covenant may be enforced by the Purchaser in the event of breach by
such Shareholder, by injunction and restraining order.
11.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 11 impose a reasonable restraint on the
Shareholders in light of the activities and business of the Purchaser
(including the Subsidiaries thereof) on the date of the execution of this
Agreement and the reasonably foreseeable plans of the Purchaser.
11.4 Severability, Reformation. The covenants in this Section 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
11.5 Independent Covenant. All of the covenants in this Section 11 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of a Shareholder against the
Purchaser (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Purchaser of such covenants. It is specifically agreed that the period of
36 calendar months stated at the beginning of this Section 11, during which the
agreements and covenants of a Shareholder made in this Section 11 shall be
effective, shall be computed by excluding from such computation any time during
which such Shareholder is in violation of any provision of this Section 11. The
covenants contained in Section 11 shall not be affected by any breach of any
other provision hereof by any party hereto and shall become void if the
transactions contemplated by this Agreement are not consummated.
11.6 Materiality. Such Shareholder hereby agrees that the covenants set
forth in this Section 12 are a material and substantial part of the
transactions contemplated by this Agreement.
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12. GENERAL
12.1 Cooperation. The Seller, the Shareholders, Old ACG and the Purchaser
shall deliver or cause to be delivered to each other on the Closing Date and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Seller will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Seller
cooperate with the Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
12.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of the Purchaser and the Seller
and the heirs and legal representatives of the Shareholders. Notwithstanding
the foregoing, the Purchaser may assign, convey, transfer or otherwise dispose
of all or any portion of its interest in, or its rights and obligations under,
this Agreement and such other documents and instruments to any Affiliate of the
Purchaser.
12.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Seller, the Shareholders and the Purchaser and Old ACG,
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Seller, the Shareholders and the Purchaser and Old
ACG, acting through their respective officers or representatives, duly
authorized by their respective Boards of Directors in the cases of Seller,
Purchaser and Old ACG. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby; provided that each party to this Agreement shall make
a good faith effort to cross reference disclosures, as necessary or advisable,
between related Schedules.
12.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.5 Brokers and Agents. Except as disclosed on Schedule 12.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to
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<PAGE>
indemnify the other parties hereto against all loss, cost, damage or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
12.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, the Purchaser will pay the fees, expenses and disbursements of
Purchaser, Old ACG and Seller and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by
Purchaser, Old ACG and the Seller under this Agreement. The Shareholders shall
pay the respective fees and expenses of their legal counsel, and all other
costs and expenses incurred by them in their performance and compliance with
all conditions to be performed by them under this Agreement. In addition, the
Shareholders acknowledge that they, and not the Seller or the Purchaser, will
pay all Taxes due upon receipt of the consideration payable pursuant to Section
2, and will assume all Tax risks and liabilities of the Seller in connection
with the transactions contemplated hereby.
12.7 Notices. All notices of communications required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
(x) If to the Purchaser, addressed to it at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
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<PAGE>
(y) If to the Seller, addressed to it at:
Long Distance Management of Kansas, Inc.
1312 Sovereign Row
Oklahoma City, Oklahoma 73108
Attn: Bobby Alexander
Telecopy No.: 405-945-8207
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
(z) If to the Shareholders, addressed to them as follows:
Bobby Alexander
2908 34th Street
Woodward, Oklahoma 73801
Mark Beall
Switchboard of Oklahoma City, Inc.
Bank of Oklahoma Building, Suite 825
201 Robert S. Kerr
Oklahoma City, Oklahoma 73102
Carol Coash
c/o Bobby Alexander
2908 34th Street
Woodward, Oklahoma 73800
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<PAGE>
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.7 from time to time.
12.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
12.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.10 Time. Time is of the essence with respect to this Agreement.
12.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
12.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.13 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
12.14 Public Statement. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or
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<PAGE>
statement, after seeking such consent from the other parties, obtains advice
from legal counsel that a public announcement or statement is required by
applicable law.
12.15 Form of Payment. All payments hereunder shall be made in United
States dollars and, unless the parties making and receiving such payments shall
agree otherwise or the provisions hereof provide otherwise, shall be made by
wire or interbank transfer of immediately available funds by 12:00 Noon, New
York time, on the date such payment is due to such account as the party
receiving payment may designate at least three business days prior to the
proposed date of payment.
12.16 Receivables. If any monies or other assets are received by the
Purchaser to which the Seller is entitled and that are not included in the
Purchased Assets, the Purchaser shall hold such monies and assets in trust for
the Seller and shall account for and pay the same to the Seller within 15 days
after receipt. If any monies or other assets are received by the Seller to
which the Purchaser is entitled and that are included in the Purchased Assets,
the Seller shall hold such monies and assets received by the Seller in trust
for the Purchaser and shall account for and pay the same to the Purchaser
within 15 days after receipt.
12.17 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of the Purchaser, Old ACG, the Seller and the Shareholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PURCHASER:
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
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<PAGE>
ADVANCED COMMUNICATIONS CORP.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
SELLER:
LONG DISTANCE MANAGEMENT OF
KANSAS, INC.
By:
-------------------------------------
Name: Bobby Alexander
Title: President
SHAREHOLDERS:
----------------------------------------
Bobby Alexander
----------------------------------------
Mark Beall
----------------------------------------
Carol Coash
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least 80% of the total combined
voting power of all classes of capital stock of the Company entitled to
<PAGE>
vote and at least 80% of the total number of shares of all other classes of
capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED ASSET PURCHASE AGREEMENT
dated as of the 6th day of October, 1997
by and between
ADVANCED COMMUNICATIONS GROUP, INC.
(PURCHASER)
and
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
SWITCHBOARD OF OKLAHOMA CITY, INC.
(SELLER)
and
MARK BEALL, DONALD HUNTER, CHARLES JOHNSON AND
JAMES HUNTER, AS ATTORNEY-IN-FACT FOR JAMIE HUNTER, A MINOR
(SHAREHOLDERS)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN.....................9
2.1 Purchase and Sale of Purchased Assets...............................9
2.2 Assumption of Liabilities..........................................10
2.3 Purchase Price.....................................................10
2.4 Allocation of Purchase Price.......................................10
2.5 Post-Closing Adjustment............................................10
2.6 Section 351 Exchange Plan..........................................11
2.7 Closing............................................................11
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
SELLER AND THE SHAREHOLDERS..............................................12
3.1 Due Organization...................................................12
3.2 Authority..........................................................12
3.3 Equity Interests in the Seller.....................................12
3.4 Subsidiaries.......................................................12
3.5 Financial Statements...............................................13
3.6 Liabilities and Obligations........................................13
3.7 Accounts and Notes Receivable......................................14
3.8 Permits and Intangibles............................................14
3.9 Environmental Matters..............................................15
3.10 Personal Property..................................................15
3.11 Significant Customers; Material Contracts and Commitments..........16
3.12 Real Property......................................................16
3.13 Insurance..........................................................17
3.14 Intellectual Property..............................................17
3.15 Labor Relations....................................................18
3.16 Employee Benefits..................................................18
3.17 Tax Matters........................................................19
3.18 Prior or Preferential Rights.......................................20
3.19 Sufficiency of Assets..............................................20
3.20 Conformity with Law; Litigation....................................20
3.21 No Violations......................................................21
3.22 Government Contracts...............................................21
3.23 Absence of Changes................................................21
3.24 Disclosure.........................................................22
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3.25 Prohibited Activities..............................................23
3.26 Draft Registration Statement.......................................23
3.27 Tax Matters........................................................23
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
PURCHASER AND OLD ACG....................................................23
4.1 Due Organization...................................................23
4.3 Capital Stock......................................................24
4.4 Transactions in Capital Stock, Organization Accounting.............24
4.5 Subsidiaries.......................................................24
4.6 Financial Statements...............................................24
4.7 Liabilities and Obligations........................................25
4.8 Conformity with Law; Litigation....................................25
4.9 No Violations......................................................25
4.10 Business; Real Property; Material Agreement........................26
4.11 Tax Matters........................................................26
4.12 Draft Registration Statement.......................................26
5. OTHER COVENANTS PRIOR TO CLOSING.........................................27
5.1 Access and Cooperation; Due Diligence; Audits......................27
5.2 Conduct of Business Pending Closing................................28
5.3 Prohibited Activities..............................................28
5.4 Exclusivity........................................................29
5.5 Notice to Bargaining Agents........................................30
5.6 Notification of Certain Matters....................................30
5.7 Amendment of Schedules.............................................30
5.8 Bulk Sales Laws....................................................31
5.9 Transfer Taxes and Recording Fees..................................31
5.10 Certain Provisions Relating to Consents............................31
5.11 Further Assurance..................................................32
5.12 Survival...........................................................32
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER........................32
6.1 Representations and Warranties Performance of Obligations..........32
6.2 Satisfaction.......................................................33
6.3 No Litigation......................................................33
6.4 Opinion of Counsel.................................................33
6.5 Consents and Approvals.............................................33
6.6 No Material Adverse Change.........................................33
6.7 Secretary's Certificates...........................................33
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6.8 Closing of IPO.....................................................33
6.9 Employment Arrangements............................................33
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.....................34
7.1 Representations and Warranties; Performance of Obligations.........34
7.2 No Litigation......................................................34
7.3 No Material Adverse Effect.........................................34
7.4 Shareholders' Releases.............................................34
7.5 Satisfaction.......................................................34
7.6 Termination of Related Party Agreements............................34
7.7 Opinion of Counsel.................................................35
7.8 Consents and Approvals.............................................35
7.9 FIRPTA Certificate.................................................35
7.10 Closing of IPO.....................................................35
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE
SHAREHOLDERS AFTER CLOSING...............................................35
8.1 Release From Guarantees............................................35
8.2 Employment.........................................................35
8.3 Health and Welfare Benefits........................................37
8.4 Change of Name.....................................................38
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................38
9. TERMINATION OF AGREEMENT.................................................38
9.1 Termination........................................................38
9.2 Liabilities in Event of Termination................................39
9.3 Retention of Prepayment............................................39
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................39
10.1 The Shareholders and the Seller....................................39
10.2 The Purchaser......................................................40
10.3 Damages............................................................40
10.4 Survival...........................................................40
11. NONCOMPETITION...........................................................41
11.1 Prohibited Activities..............................................41
11.2 Damages............................................................42
11.3 Reasonable Restraint...............................................42
11.4 Severability, Reformation..........................................42
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11.5 Independent Covenant...............................................42
11.6 Materiality........................................................42
12. GENERAL..................................................................42
12.1 Cooperation........................................................42
12.2 Successors and Assigns.............................................43
12.3 Entire Agreement...................................................43
12.4 Counterparts.......................................................43
12.5 Brokers and Agents.................................................43
12.6 Expenses...........................................................43
12.7 Notices............................................................44
12.8 Governing Law......................................................45
12.9 Exercise of Rights and Remedies....................................45
12.10 Time...............................................................45
12.11 Reformation and Severability.......................................46
12.12 Remedies Cumulative................................................46
12.13 Captions...........................................................46
12.14 Public Statement...................................................46
12.15 Form of Payment....................................................46
12.16 Receivables........................................................46
12.17 Amendments and Waivers.............................................46
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<PAGE>
RESTATED ASSET PURCHASE AGREEMENT
THIS RESTATED ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
6th day of October, 1997, by and between ADVANCED COMMUNICATIONS GROUP, INC., a
Delaware corporation organized in September 1997 ("Purchaser"), ADVANCED
COMMUNICATIONS CORP., (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG"), SWITCHBOARD OF
OKLAHOMA CITY, INC., an Oklahoma corporation ("Seller"), and each of MARK
BEALL, DONALD HUNTER, CHARLES JOHNSON AND JAMES HUNTER, AS ATTORNEY-IN-FACT FOR
JAMIE HUNTER, A MINOR (individually, a "Shareholder" and, collectively, the
"Shareholders"), the owners of all the issued and outstanding shares of capital
stock of Seller.
RECITALS
WHEREAS, the Seller is engaged in the business of reselling
long-distance telephone services ("Business"); and
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Asset Purchase Agreement dated as of January 29, 1997, as amended, among
Old ACG, Seller, and Shareholders (collectively, the "Original Agreement");
and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Purchaser as a new Delaware corporation in
September 1997 to serve as the vehicle for the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering ("IPO") of Common Stock, $.0001 par
value, of Purchaser ("Purchaser Stock") at the price to the public
reflected in the final prospectus of Purchaser relating to the IPO ("IPO
Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the
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<PAGE>
Founding Companies, including Shareholders and Old ACG, will transfer,
by stock or asset purchase or reverse triangular merger, the stock or
substantially all the assets of certain companies and other assets in which
they own an interest to Purchaser in exchange for voting capital stock of
Purchaser and other consideration, including cash, voting stock, options,
warrants, notes, convertible notes and other property of Purchaser, under
circumstances that will constitute a tax-free transfer of property under
Section 351 of the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder ("Code"), to the extent of their receipt of
voting capital stock of Purchaser; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Purchaser and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Purchaser substantially contemporaneously with the
consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Purchaser by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Purchaser
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Shareholders and the Seller desire to
amend and restate the Original Agreement in its entirety and transform it
into this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
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<PAGE>
"Accounts Payable" as of any date means the sum of (i) the Seller's
accounts and notes payable and (ii) the Seller's expenses incurred but not
invoiced.
"Accounts Receivable" as of any date means the sum of (i) the Seller's
accounts and notes receivable and (ii) the Seller's revenues that are
earned but not invoiced.
"Affiliate" means, with respect to any specific Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. The term
"control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreed Rate" means the prime rate of interest reported in The Wall Street
Journal on the Closing Date.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement
"A/R Aging Reports" has the meaning set forth in Section 3.7.
"Arbitration" has the meaning set forth in Section 2.5(ii).
"Assumed Liabilities" refers to, collectively, all liabilities and
obligations of the Seller (i) relating to accounts and notes payable
arising in the ordinary course of the Business as of the Closing Date, (ii)
arising after the Closing Date with respect to the performance of the terms
of and the payment of all amounts due under the Contracts and the Leases,
excluding any liability or obligation resulting from any breach, violation,
failure to comply, act, omission, condition or circumstance with respect
thereto prior to the Closing Date and (iii) relating to Employees and
employee benefits to the extent specifically provided in Section 8.2.
"Assumption Agreement" refers to the Assumption Agreement to be executed at
Closing by the Purchaser.
"Balance Sheet Date" has the meaning set forth in Section 3.5.
"Base Price" and "Purchase Price" each means the aggregate amount of cash
payable to the Seller by the Purchaser pursuant to Section 2.3(ii).
"Bill of Sale" refers to the Bill of Sale to be executed at the Closing by
the Seller.
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<PAGE>
"Business" has the meaning set forth in the first recital to this
Agreement.
"Business Day" means any day, other than a Saturday or a Sunday, on which
commercial banks are not required or authorized to close in New York City.
"Cash" as of any date means the sum of the Seller's collected cash and cash
equivalents.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
limited liability company, partnership or other business entity that is a
signatory to, or the subject of, this Agreement was formed or organized in
accordance with applicable law.
"Closing" has the meaning set forth in Section 2.7.
"Closing Date" has the meaning set forth in Section 2.7.
"Code" is defined in the sixth recital of this Agreement.
"Contracts" means, collectively, the documents and other matters listed on
Schedule 3.11.
"Controlled Group Member" has the meaning set forth in Section 3.16(ii).
"Disputed Matter" has the meaning set forth in Section 2.5(i).
"Draft Registration Statement" has the meaning set forth in the ninth
recital of this Agreement.
"Effective Time" means 12:01 a.m. on the Closing Date.
"Employees" has the meaning set forth in Section 8.2(i).
"Employee Benefit Plan" means an Employee Pension Benefit Plan, Employee
Welfare Benefit Plan (where no distinction is required by the context in
which the term is used), or any compensation plan, incentive plan (whether
or not stock related), bonus plan or fringe benefit plan.
"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2)
of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1)
of ERISA.
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<PAGE>
"Environmental Laws" has the meaning set forth in Section 3.9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means, collectively (i) any rights of the Seller or any
of its Affiliates to any Tax refund with respect to periods prior to the
Closing Date, (ii) any assets of any Employee Benefit Plan maintained by
the Seller, (iii) any property, casualty, workers' compensation or other
insurance policy or related insurance services contract relating to the
Seller and any rights of Seller or any of its Affiliates under such
insurance policy or contract, other than rights or proceeds under such
insurance policies or contracts with respect to any Assumed Liability or
any casualty affecting any of the Purchased Assets, (iv) any rights of the
Seller under this Agreement or under any other agreement between the Seller
and the Purchaser and (v) any assets, properties or rights of the Seller
listed on Schedule A.
"Excluded Liabilities" refers to, collectively, all obligations and
liabilities of the Seller and its Affiliates, contingent or direct, known
or unknown, other than the Assumed Liabilities. Without limiting the
generality of the foregoing, the Excluded Liabilities include (i) any
liability or obligation arising prior to, on or after the Closing Date in
connection with any Excluded Asset, (ii) any liability or obligation
arising prior to the Closing Date with respect to the Purchased Assets,
(iii) any liability or obligation arising under any Environmental Law in
connection with the ownership, use, maintenance or operation of any of the
present or former facilities or properties of the Seller or any of its
predecessors or otherwise in connection with the operation of the Business,
(iv) any liability or obligation (whether assessed or unassessed) of the
Seller or any of its Affiliates with respect to Taxes for any period prior
to the Closing Date, (v) any liability or obligation with respect to any
checks issued by the Seller prior to the Closing Date which are outstanding
as of the Closing Date, (vi) any liability or obligation of the Seller with
respect to employees or employee benefits not specifically assumed by the
Purchaser pursuant to Section 8.2 and (vii) any liabilities listed on
Schedule B.
"Final Schedule" has the meaning set forth in Section 2.5(iii)
"Founding Companies" has the meaning set in the second recital of this
Agreement.
"Hart-Scott Act" has the meaning set forth in Section 8.5.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 3.9.
"IPO" has the meaning set forth in the fifth recital of this Agreement.
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<PAGE>
"IPO Price" has the meaning set forth in the fifth recital of this
Agreement.
"Initial Disclosure Date" means November 30, 1996.
"Intellectual Property" means all patents, trademarks, service marks,
copyrights and applications therefor, all tradenames, brand names, logos,
inventions, discoveries, improvements, processes, technologies, know-how,
formulae, drawings, specifications, trade secrets, plans, computer software
(including source codes and other documentation thereof), files, programs,
notebooks and records, all other proprietary, technical and other
information, data and intellectual property, and all licenses, Permits and
other rights to use the foregoing, whether patentable or unpatentable, used
or held for use in or associated with the ownership of the Purchased
Assets, or the conduct of the Business (or, if the Seller does not own any
such proprietary, technical or other information, data and intellectual
property, a paid-up or royalty-free, irrevocable license, permit or other
right to use the same), including, without limitation, the Intellectual
Property described in Schedule 3.14.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by the Seller and
used, useful or held for use in connection with the Business.
"Liens" means all mortgages, liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
"Material Adverse Effect" means a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial
or otherwise) of a Person.
"Material Documents" has the meaning set forth in Section 3.21.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"November Balance Sheet" has the meaning set forth in Section 3.5.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 4.6.
"Permit" means any permit, approval, authorization, license, franchise,
variance, certificate of occupancy or permission required by a governmental
authority under any applicable law.
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"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a joint stock company, a trust or any
incorporated organization.
"Prepayment" has the meaning set forth in Section 2.3(iii).
"Prohibited Activities" has the meaning set forth in Section 3.25.
"Proscribed Business" has the meaning set forth in Section 11.1(i).
"Purchased Assets" means all the Seller's assets associated with the
Business or used, useful or held for use in connection with the operations
historically conducted by Seller at or in conjunction therewith, all as the
same may exist on the Closing Date, including, without limitation, the
following:
(i) all real property that is owned by the Seller, in each case together
with all improvements, fixtures, construction in process and all
other easements, rights and privileges appurtenant thereto and
rights in respect thereof;
(ii) all inventories of supplies and spare parts, all machinery, test
equipment, computers, telephone systems, expendables, vehicles,
furniture, file cabinets, office materials and other tangible
personal property, including the items listed on Schedule 3.10;
(iii) all Intellectual Property and all accounts and notes receivable;
(iv) all right, title and interest in, to and under all Contracts and
Leases (including all options to renew or extend the term of such
Leases or purchase all or any part of the leased property), subject
in each case to the terms of such Contracts and Leases;
(v) all books and records of the Business (including such books and
records as are contained in computerized storage media), including
books and records related to inventories, purchasing, accounting,
sales, research, engineering, maintenance, repairs, marketing,
banking, Intellectual Property, shipping records, personnel files
for Transferred Employees and all files, records, literature and
correspondence;
(vi) to the extent legally assignable, all Permits;
(vii) to the extent any of the following relate to any Assumed Liability
or any of the Purchased Assets: claims, deposits, prepayments,
prepaid assets, refunds (excluding Tax refunds with respect to
periods prior to the Closing Date), causes of action, rights of
recovery, rights of setoff and rights of recoupment of the Seller as
of the Closing
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Date, including all rights of the Seller under any property,
casualty, workers' compensation or other insurance policy or related
insurance services contract;
(viii) any other tangible assets of the Seller which are used primarily in
the Business and which are of a nature not customarily reflected in
the books and records of a business, such as assets which have been
written off for accounting purposes but which are still used by or
of value to the Business;
(ix) all goodwill associated with the Business;
(x) all supplier lists, files, records and data relating to the
Business;
(xi) all customer lists, files, records and data relating to the
Business;
(xii) all capital expenditure plans and studies, engineering studies,
accounting, real property, environmental, Tax, employment, health
and safety, and other books, records, files, ledgers, documents and
correspondence used or held for use in or associated with the
operation of the Purchased Assets, the ownership of the Purchased
Assets, or the conduct of the Business, other than Excluded Assets;
(xiii) all rights to the use of the name Switchboard of Oklahoma City;
(xiv) all rights under express or implied warranties from the providers of
goods and services in connection with the operation of the Purchased
Assets, the ownership of the Purchased Assets, or the conduct of the
Business; and
(xv) all cash and cash equivalents of the Seller (including for this
purpose all collected funds and items in the process of collection
received in bank accounts associated with the Seller);
excluding in every instance all Excluded Assets.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section 4.1.
"Purchaser Documents" has the meaning set forth in Section 4.9.
"Purchaser Stock" has the meaning set forth in the fifth recital of this
Agreement.
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"Return" means any return, report or statement (including any information
return) required to be filed for purposes of a particular Tax.
"Schedule" has the meaning set forth in Section 2.5(i).
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Seller Financial Statements" has the meaning set forth in Section 3.5.
"Shareholder" and "Shareholders" have the meanings set forth in the first
paragraph of this Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 11.1(i).
"Transferred Employee" has the meaning set forth in Section 8.2(ii).
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN
2.1 Purchase and Sale of Purchased Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Purchaser will
purchase from the Seller, and the Seller
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will sell, transfer, assign, convey and deliver to the Purchaser the Purchased
Assets pursuant to the Bill of Sale.
2.2 Assumption of Liabilities. On the terms and subject to the conditions
set forth in this Agreement, at the Closing, the Purchaser will assume and
become responsible for all of the Assumed Liabilities pursuant to the
Assumption Agreement.
2.3 Purchase Price.
(i) The total consideration to be provided by the Purchaser to the
Seller for the Purchased Assets shall be the sum of the following items: (i)
cash in the amount of the Base Price and (ii) the assumption of the Assumed
Liabilities.
(ii) Old ACG delivered to the Seller cash in the amount of $51,000
(the "Prepayment") in partial payment of the purchase price for the Purchased
Assets, the receipt of which is acknowledged by the Seller. At the Closing, the
Purchaser shall deliver or cause to be delivered to the Seller cash in the
amount of $1,580,000.
2.4 Allocation of Purchase Price. The Seller and the Purchaser agree to
allocate the Purchase Price and the Assumed Liabilities among the Purchased
Assets in accordance with Schedule 2.4. The parties agree to file all Tax
reports, Returns and claims and other statements consistent with the allocation
set forth on Schedule 2.4 (and in particular to report the information required
by Section 1060(b) of the Code) in a manner consistent with such allocation and
shall not make any inconsistent written statement or take any inconsistent
position on any Returns, in any refund claim, during the course of any IRS or
other Tax audit, for any financial or regulatory purpose, in any litigation or
investigation or otherwise, so long as there exists a reasonable basis in law
to maintain such position. Each party shall notify the other party if it
receives notice that the IRS proposes any allocation different from Schedule
2.4.
2.5 Post-Closing Adjustment.
(i) As promptly as practicable following the Closing Date, but in no
event later than 15 days following the Closing Date, the Seller shall prepare a
schedule setting forth (i) the Seller's Cash as of the Closing Date, (ii) the
Seller's Accounts Receivable as of the Closing Date and (iii) the Seller's
Accounts Payable as of the Closing Date (the "Schedule"). A copy of the
Schedule shall be delivered to the Purchaser. Representatives of the Purchaser
shall have access to the Seller's books and records in order to verify the
accuracy of the Schedule. The parties shall endeavor to resolve any
disagreements relating to the Schedule within five days following its delivery
to the Purchaser. If all disagreements relating to the Schedule cannot be
resolved by the parties within the
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foregoing time period, all matters in dispute (collectively, the "Disputed
Matter") shall be resolved by arbitration as set forth in Section 2.5(ii).
(ii) Any Disputed Matter shall be promptly submitted to and reviewed
by Deloitte & Touche LLP, or other nationally recognized independent accounting
firm mutually acceptable to the Seller and the Purchaser ("Arbitrator"). The
Arbitrator shall consider only the Disputed Matter and shall act promptly to
resolve in writing the Disputed Matter. The Arbitrator's decision with respect
to the Disputed Matter shall be final and binding on the Seller and the
Purchaser. The Seller and the Purchaser shall each be responsible for and pay
one-half of the fees and expenses of the Arbitrator. Each party shall be
responsible for and pay its own expenses incurred in connection with the
resolution of any Disputed Matter.
(iii) As promptly as practicable following the first to occur of (x)
an agreement between the Purchaser and the Seller with respect to the accuracy
of the Schedule or (y) a decision by the Arbitrator with respect to the
appropriate figures for inclusion in the Schedule (in either event, the "Final
Schedule"), the following action shall be taken:
(1) If the sum of the Accounts Receivable and the Cash reflected
in the Final Schedule exceeds the Accounts Payable reflected therein, the
amount of such excess, together with simple interest thereon from the Closing
Date at the Agreed Rate (calculated on the basis of a 365-day year), shall be
promptly remitted by the Purchaser to the Seller; or
(2) If the Accounts Payable reflected in the Final Schedule
exceed the sum of the Accounts Receivable and the Cash reflected therein, the
amount of such excess, together with simple interest thereon from the Closing
Date at the Agreed Rate (calculated on the basis of a 365-day year), shall be
promptly remitted by the Seller to the Purchaser.
(iv) The agreements and covenants in this Section 2.5 shall survive
the Closing.
2.6 Section 351 Exchange Plan. By executing this Agreement, each
Shareholder is deemed to have approved and adopted the Section 351 Exchange
Plan to the same extent as if he had subscribed his signature thereon and
Seller is deemed to have approved and adopted the Section 351 Exchange Plan to
the same extent as if a duly authorized officer of Seller had executed the
Section 351 Exchange Plan for and in the name of and on behalf of Seller.
2.7 Closing. The closing of the transactions contemplated by this Agreement
("Closing") shall take place on or before January 31, 1998 on the date of the
closing of the sale of shares of the Purchaser Stock in the IPO, or such other
date as the parties hereto may designate (the "Closing Date"), at such place in
New York City as the parties may mutually agree.
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3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE SELLER AND
THE SHAREHOLDERS
The Seller and the Shareholders jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 3 are true at the date of this Agreement and, subject to
Section 5.7, shall be true at the Closing Date and (ii) that all of the
covenants and agreements in this Section 3 shall be complied with or performed
at and as of the Closing Date. None of the representations, warranties,
covenants and agreements set forth in this Section 3 shall survive the Closing.
For purposes of this Section 3, the term Seller shall mean and refer to the
Seller and all of its Subsidiaries, if any.
3.1 Due Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Oklahoma, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except (i) as set
forth on Schedule 3.1 or (ii) where the failure to be so authorized or
qualified would not have a Material Adverse Effect. Schedule 3.1 sets forth all
jurisdictions in which the Seller is authorized or qualified to do business.
True, complete and correct copies of the Charter Documents and Bylaws, each as
amended, of the Seller are attached hereto as Schedule 3.1.
3.2 Authority. The Seller has full corporate power and authority to execute
and deliver this Agreement, and execution and delivery by the Seller of this
Agreement and its consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Seller (including all requisite shareholder approval), and this
Agreement constitutes the legal, valid and binding obligation of the Seller.
Each Shareholder has the full legal right, power and authority to enter into
this Agreement. This Agreement has been duly executed and delivered by each
Shareholder and constitutes a legal, valid and binding obligation of each
Shareholder.
3.3 Equity Interests in the Seller. The authorized capital stock of the
Seller is as set forth in Schedule 3.3. All of the issued and outstanding
shares of capital stock the Seller are owned of record and beneficially by the
Shareholders in the amounts set forth in Schedule 3.3. Further, none of such
shares was issued in violation of the preemptive rights of any past or present
stockholder of the Seller.
3.4 Subsidiaries. Except as set forth in Schedule 3.4, (i) the Seller has
no Subsidiary, (ii) the Seller does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any Person and
(iii) the Seller is not directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
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3.5 Financial Statements. Attached hereto as Schedule 3.5 are copies of the
following cash basis financial statements of the Seller beginning with the year
ended December 31, 1993 (the "Seller Financial Statements"): the Seller's
unaudited Balance Sheets as of December 31, 1995, 1994 and 1993 and its
unaudited Statements of Income, Cash Flows and Retained Earnings and any
related notes thereto for each of the years in the three-year period ended
December 31, 1995; the Seller's unaudited Balance Sheet as of November 30, 1996
("November Balance Sheet") (such November 30, 1996 being hereinafter also
referred to as the "Balance Sheet Date"); and unaudited Statements of Income,
Cash Flows and Retained Earnings and any related notes thereto for the eleven
months ended November 30, 1995 and 1996. The Seller Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 3.5). Except as set forth on Schedule 3.5, the foregoing
Balance Sheets present fairly the financial position of the Seller as of the
dates indicated thereon, and the foregoing Statements of Income, Retained
Earnings and Cash Flow present fairly the results of operations for the periods
indicated thereon, all on the cash basis of accounting in conformity with
generally recognized industry standards.
3.6 Liabilities and Obligations. Seller has no material liabilities of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise that are not reflected on the November
Balance Sheet or otherwise reflected in the Seller Financial Statements at the
Balance Sheet Date, including all loan agreements, indemnity or guaranty
agreements, bonds, mortgages, Liens, pledges or other security agreements. The
Seller has also disclosed to the Purchaser on Schedule 3.6, in the case of
those contingent liabilities of the Seller related to pending or threatened
litigation or other liabilities which are not fixed or otherwise accrued or
reserved, the following information:
(w) a summary description of the liability together with the following:
(1) copies of all relevant documentation relating thereto;
(2) amounts claimed and any other action or relief sought; and
(3) name of claimant and all other parties to the claim, suit or
proceeding;
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(x) the name of each court or agency before which such claim, suit or
proceeding is pending;
(y) the date such claim, suit or proceeding was instituted; and
(z) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
3.7 Accounts and Notes Receivable. The Seller has delivered to the
Purchaser an accurate list (which is set forth on Schedule 3.7) of the accounts
and notes receivable of the Seller, as of the Initial Disclosure Date,
including receivables from and advances to employees and the Shareholders or
their Affiliates. The Seller shall also provide the Purchaser (x) an accurate
list of all receivables generated subsequent to the Initial Disclosure Date and
(y) an aging of all accounts and notes receivable showing amounts due in 30 day
aging categories, and such list and such aging report (the "A/R Aging Reports")
shall be current as of the Balance Sheet Date and shall be supplemented as of a
date five business days prior to the Closing Date. Except to the extent
reflected on Schedule 3.7 or as disclosed by the Seller to the Purchaser in a
writing accompanying the A/R Aging Reports, such accounts, notes and other
receivables are collectible in the amounts shown on Schedule 3.7, and shall be
collectible in the amounts shown on the A/R Aging Reports, net of reserves
reflected in the November Balance Sheet and as of the date of the A/R Aging
Reports, respectively.
3.8 Permits and Intangibles. The Seller holds all Permits the absence of
any of which could have a Material Adverse Effect on its Business, and the
Seller has delivered to the Purchaser an accurate list and summary description
(which is set forth on Schedule 3.8) of all Permits owned or held by the Seller
(it being understood and agreed that a list of all environmental Permits and
other environmental approvals is set forth on Schedule 3.9). To the knowledge
of the Seller, (i) the Permits listed on Schedules 3.8 and 3.9 are valid, and
(ii) the Seller has not received any notice that any governmental authority
intends to cancel, terminate or not renew any such Permit. The Seller has
conducted and is conducting the Business in compliance with the requirements,
standards, criteria and conditions set forth in the Permits listed on Schedules
3.8 and 3.9 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Seller. Except as specifically provided in Schedule 3.8, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Seller by, any such Permit.
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3.9 Environmental Matters. Except as set forth on Schedule 3.9, (i) the
Seller has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, Permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the Seller has obtained
and adhered to all Permits necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which Permits is set forth on Schedule 3.9, and has reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the Seller where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined
in Environmental Laws) at, from, in or on any property owned or operated by the
Seller except as permitted by Environmental Laws; (iv) the Seller knows of no
on-site or off-site location to which the Seller has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Seller or the Purchaser, for any
clean-up cost, remedial work, damage to natural resources, property damage or
personal injury, including, but not limited to, any claim under the
comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended; and (v) the Seller has no contingent liability in connection with
any release of any Hazardous Waste or Hazardous Substance into the environment.
3.10 Personal Property. The Seller has delivered to the Purchaser an
accurate list (which is set forth on Schedule 3.10) of (i) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" on the balance sheet of the Seller, (ii) all personal property
owned by the Seller with a value in excess of $5,000 (x) as of the Initial
Disclosure Date and (y) acquired since the Initial Disclosure Date and (iii)
all Leases and agreements in respect of personal property, including, in the
case of each of (i), (ii) and (iii), (1) true, complete and correct copies of
all such Leases and (2) an indication as to which assets are currently owned,
or were formerly owned, by Shareholders, relatives of any Shareholder, or
Affiliates of the Seller. Except as set forth on Schedule 3.10, (a) all
personal property used by the Seller in the Business is either owned by the
Seller or leased by the Seller pursuant to a Lease included on Schedule 3.10,
(b) all of the personal property listed on Schedule 3.10 is in good working
order and condition, ordinary wear and tear excepted and (c) all Leases and
agreements included on Schedule 3.10 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
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3.11 Significant Customers; Material Contracts and Commitments. The Seller
has delivered to the Purchaser an accurate list (which is set forth on Schedule
3.11) of all significant customers, or Persons that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 3.11, means a customer (or
Person) (i) representing 2% or more of the Seller's annual revenues as of the
Initial Disclosure Date or (ii) reasonably expected to represent 2% or more of
the Seller's revenues during the twelve-month period ending September 30, 1997.
Except to the extent set forth on Schedule 3.11, none of the Seller's
significant customers (or Persons that are sources of a significant number of
customers) has canceled or substantially reduced or, to the knowledge of the
Seller, is currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Seller.
The Seller has listed on Schedule 3.11 all material contracts, commitments
and similar agreements to which the Seller is a party or by which it or any of
its properties are bound (including, but not limited to, any contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 3.6, 3.10 or 3.12, (x) in existence as
of the Initial Disclosure Date and (y) entered into since the Initial
Disclosure Date, and in each case have delivered true, complete and correct
copies of such agreements to the Purchaser. The Seller has complied with all
material commitments and obligations pertaining to it, and is not in default
under any contract or agreement listed on Schedule 3.11 and no notice of
default or termination under any such contract or agreement has been received.
The Seller has also indicated on Schedule 3.11 a summary description of all
plans or projects involving the acquisition of any personal property, business
or assets requiring, in any event, the payment of more than $5,000 by the
Seller.
Except as set forth on Schedule 3.11, all of the contracts, commitments and
similar agreements listed on Schedule 3.11 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.12 Real Property. Schedule 3.12 includes a list of all real property
owned or held pursuant to Leases by the Seller (i) as of the Initial Disclosure
Date and (ii) acquired since the Initial Disclosure Date, and all other
property, if any, used by the Seller in the conduct of its business. The Seller
has good and insurable title to the real property owned by it, including those
reflected on Schedule 3.12, subject to no Lien except for:
(w) Liens reflected on Schedules 3.6 or 3.11 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current Taxes not yet payable and assessments not in
default;
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(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 3.12 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Seller with respect to real property owned by the Seller, (2)
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Seller (which copies are attached to Schedule
3.12), and (3) an indication as to which such properties, if any, are currently
owned, or were formerly owned, by any Shareholder or business or personal
Affiliates of the Seller or any Shareholder.
Except as set forth on Schedule 3.12, all Leases included on Schedule 3.12 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
3.13 Insurance. The Seller has delivered to the Purchaser, as set forth on
and attached to Schedule 3.13, (i) an accurate list as of the Initial
Disclosure Date of all insurance policies carried by the Seller, (ii) an
accurate list of all insurance loss runs on workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Seller is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws.
All of such insurance policies are currently in full force and effect and shall
remain in full force and effect through the Closing Date. No insurance carried
by the Seller has ever been canceled by the insurer and the Seller has never
been denied coverage.
3.14 Intellectual Property. Except as set forth in Schedule 3.14, the
Seller either owns or has the right to use by license, sublicense, agreement,
or permission all of the Seller's inventions, improvements, domestic and
foreign patents and applications therefor, customer lists, copyrights,
copyright registrations and applications therefor, trademarks, tradenames,
service marks, trade dress, logos, rights in computer software, and all rights
granted or retained in licenses under any of the foregoing which are used in
connection with the conduct of the Business as presently conducted. Except as
set forth on Schedule 3.14, none of the Intellectual Property which is used in
connection with the conduct of the Business is, or has been in the past five
years involved in, or the subject of, any pending or, to the knowledge of the
Seller, threatened infringement, interference, opposition or similar action,
suit or proceeding or, to the knowledge of Seller, has otherwise been
challenged in any way. Except as set forth on Schedule 3.14, the Intellectual
Property will afford the Purchaser the right to use all technology, know-how,
technical and other information, data and other
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intellectual property, whether patentable or unpatentable, and whether owned by
the Seller, any other Person or others, necessary for the conduct of the
Business in a manner consistent with the Seller's prior practice. The license
fees, royalties and other amounts payable by the Seller in connection with the
use of the Intellectual Property, together with the terms and conditions on
which and periods for which such amounts are payable, are described in Schedule
3.14. Any licenses fees, royalties or other amounts payable as a result of the
transfer of any item of Intellectual Property by the Seller to the Purchaser
pursuant to this Agreement shall be paid by the Purchaser.
3.15 Labor Relations. Except as set forth on Schedule 3.15, the Seller is
not a party to any collective bargaining agreement; and there are no
controversies pending or, to the Seller's knowledge, threatened between the
Seller and any of its current or former employees or any labor or other
collective bargaining unit representing any current or former employee of the
Seller that could reasonably be expected to result in a labor strike, dispute,
slow-down or work stoppage or otherwise have a Material Adverse Effect. Seller
is not aware of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Seller. To the
Seller's knowledge, no executive, key employee or group of employees of the
Seller has any plan to terminate employment with the Seller.
3.16 Employee Benefits.
(i) Schedule 3.16 lists all Employee Benefit Plans that the Seller
maintains or to which the Seller contributes for the benefit of any current
or former employee of the Seller in existence as of the Initial Disclosure
Date.
(ii) Neither the Seller nor any other organization that is a member of
a controlled group of organizations within the meaning of Code Sections
414(b), (c), (m) or (o) of which the Seller is a member ("Controlled Group
Member") contributes, or has contributed in the past, to any Employee
Pension Benefit Plan subject to Title IV of ERISA or any Multiemployer Plan
for the benefit of any current or former employee of the Seller or any
Controlled Group Member.
(iii) The Seller has delivered to the Purchaser complete and accurate
copies of all plans or summary plan descriptions for each Employee Benefit
Plan listed on Schedule 3.16. For each Employee Pension Benefit Plan listed
on Schedule 3.16 intended to qualify under Section 401(a) of the Code, the
Seller has delivered to the Purchaser (w) the three most recent annual
reports, (x) the three most recent annual and periodic accountings of plan
assets, (y) the most recent determination letter received from the IRS and
(z) where applicable, the three most recent actuarial valuations.
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(iv) There are no liabilities, breaches, violations or defaults under
any Employee Benefit Plan sponsored or maintained by the Seller or any
Controlled Group Member that would subject the Purchaser to any Taxes or
other liabilities.
(v) With respect to each Employee Welfare Benefit Plan listed on
Schedule 3.16, the Seller or an Affiliate has complied with the
requirements of Code Section 4980B.
3.17 Tax Matters.
(i) The Seller is currently taxed under Subchapter C of the Code. The
Seller has filed all Tax Returns that it was required to file. All such Tax
Returns filed by the Seller were correct and complete in all material
respects or reserved for on its books. All Taxes owed by the Seller
(whether or not shown on any Tax Return) have been paid. Except as set
forth on Schedule 3.17, the Seller is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since January 1,
1994, no claim with respect to the Seller has been made by an authority in
a jurisdiction where the Seller does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There is no Lien affecting any
of the Purchased Assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
(iii) The Seller does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of the Seller either claimed or raised by any authority in writing or as to
which Seller has knowledge based upon direct inquiry by any agent of such
authority. Schedule 3.17(iii) lists all income Tax Returns of the Seller
for taxable periods ended on or after January 1, 1992, indicates those Tax
Returns of which the Seller is aware that have been audited and indicates
those Tax Returns that currently are the subject of audit. The Seller has
delivered to the Purchaser correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by the Seller for any taxable period ended on or after January 1,
1993.
(iv) Except as set forth on Schedule 3.17(iv), neither any Shareholder
nor the Seller has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
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(v) The Seller has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Seller has not made any
payments, is not obligated to make any payments and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be fully deductible under Section 280G of the Code.
(vi) Except as set forth on Schedule 3.17(vi), none of the Purchased
Assets secures any debt, the interest on which is tax-exempt under Section
103(a) of the Code. None of the Purchased Assets are "tax-exempt use
property" within the meaning of Section 168(h) of the Code. The
transactions contemplated by this Agreement are not subject to Tax
withholding pursuant to the provisions of Section 3406 or Subchapter A of
Chapter 3 of the Code or any other provision of applicable law.
(vii) The Seller has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to the Business, or the
Purchased Assets or the Purchaser after the Closing Date.
3.18 Prior or Preferential Rights. There are no prior or preferential
rights, rights of first refusal, or other similar rights in any party (other
than the Purchaser) to purchase or otherwise acquire the Business or any
Purchased Assets.
3.19 Sufficiency of Assets. The Purchased Assets are all of the assets,
properties and rights of the Seller (other than the Excluded Assets and
Excluded Liabilities) whether tangible or intangible, real, personal or mixed,
and known or unknown, and wherever located, used or held for use in or
associated with the conduct of the Business. The Purchased Assets are
sufficient to conduct the Business as a going concern on a basis consistent
with the Seller's prior practice, provided Purchaser supplies working capital
to the Business in an amount comparable to that maintained by the Seller prior
to the Closing.
3.20 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 3.9 or 3.20, the Seller is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Seller which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 3.6 or 3.9, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of the
Seller, threatened, against or affecting the Seller, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Seller and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Seller or the Shareholders. The
Seller has conducted and is conducting its business in substantial
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compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances and Permits,
including all such Permits set forth on Schedules 3.8 and 3.9, and is not in
violation of any of the foregoing which might have a Material Adverse Effect.
3.21 No Violations. The Seller is not in violation of its Charter
Documents. Neither the Seller nor, to the knowledge of the Seller, any other
party thereto, is in default under any Lease, Contract, Permit or other
instrument set forth on Schedule 3.8, 3.9, 3.10, 3.11 or 3.12, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 3.21, (i) the
rights and benefits of the Seller under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 3.21, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 3.21, none of the Material Documents prohibits the use or
publication by the Seller or the Purchaser of the name of any other party to
such Material Document, and none of the Material Documents prohibits or
restricts the Seller from freely providing services to any other customer or
potential customer of the Seller, any of the other Founding Companies or
Purchaser.
3.22 Government Contracts. Except as set forth on Schedule 3.22, the Seller
is not a party to any governmental contract subject to price determination or
renegotiation.
3.23 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 3.11 or 3.23, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Seller;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Seller;
(iii) any change in the authorized capital stock of the Seller or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
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(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the Seller to any of its
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the Seller;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Seller to any Person, including,
without limitation, any Shareholder and its Affiliate;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Seller, including without limitation any
indebtedness or obligation of any Shareholder or his Affiliate;
(viii) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of the Seller or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of the Seller's business;
(x) any waiver of any material rights or claims of the Seller;
(xi) any material breach, amendment or termination of any contract,
agreement, license, Permit or other right to which the Seller is a party;
(xii) any transaction by the Seller outside the ordinary course of its
respective businesses;
(xiii) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xiv) any other distribution of property or assets by the Seller.
3.24 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to the
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of the Seller for the time periods
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with respect to which such information was requested. The Seller's rights under
the documents delivered pursuant hereto would not be materially adversely
affected by, and no statement made herein would be rendered untrue in any
material respect by, any other document to which the Seller is a party, or to
which its properties are subject, or by any other fact or circumstance
regarding the Seller (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Seller) that is not disclosed
pursuant hereto or thereto.
3.25 Prohibited Activities. Except as set forth on Schedule 3.25, the
Seller has not, between the Initial Disclosure Date and the date of this
Agreement, taken any of the actions set forth in Sections 5.3 ("Prohibited
Activities") or 5.4 or failed to take the actions required in Sections 5.1 and
5.2.
3.26 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Seller expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.27 Tax Matters. Each Shareholder has been advised by his or her counsel
that the transactions contemplated by this Agreement are taxable sales of
property under the Code.
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PURCHASER AND
OLD ACG
Purchaser and Old ACG, jointly and severally, represent, warrant, covenant
and agree: (i) that, except as disclosed in the Draft Registration Statement,
which supplements and qualifies the following representations and warranties,
all of the following representations and warranties in this Section 4 are true
at the date of this Agreement and, subject to Section 5.7, shall be true at the
Closing Date and (ii) that all of the covenants and agreements in this Section
4 shall be complied with or performed at and as of the Closing Date. None of
the representations and warranties of the Purchaser in this Section 6 shall
survive the Closing.
4.1 Due Organization. The Purchaser and Old ACG each is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Charter Documents and
By-laws, each as amended, of the Purchaser and Old ACG (collectively the
"Purchaser Charter Documents") are attached hereto as Schedule 4.1.
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4.2 Authorization. Each of Purchaser and Old ACG has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by each of Purchaser and Old
ACG of this Agreement and its consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Purchaser
and Old ACG. This Agreement has been duly executed and delivered by each of
Purchaser and Old ACG and is a valid and binding obligation of each of
Purchaser and Old ACG, enforceable against each of them in accordance with its
terms.
4.3 Capital Stock. The authorized capital stock of Old ACG is as set forth
in Schedule 4.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) has been duly authorized and validly issued, (ii) is fully paid
and nonassessable, (iii) is owned of record and beneficially by the Persons set
forth on Schedule 4.3, and (iv) was offered, issued, sold and delivered by Old
ACG in compliance with all applicable state and Federal laws concerning the
offer, issuance, sale and delivery of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of Old ACG. Subject to the consummation of the reverse stock split
referred to in the ninth recital of this Agreement and the consummation of
Purchaser's acquisition of Old ACG in the reverse triangular merger, the
capitalization of Purchaser will be identical to the capitalization of Old ACG
immediately prior to the consummation of the IPO.
4.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 4.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 4.3 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
4.5 Subsidiaries. Neither Purchaser nor Old ACG has any Subsidiaries,
except for each of the companies identified on Schedule 4.5. Except as set
forth in the preceding sentence, neither Purchaser nor Old ACG presently owns,
of record or beneficially, or controls, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and neither Purchaser nor
Old ACG, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
4.6 Financial Statements. Old ACG was formed in June 1996, and Purchaser
was formed in September 1997. Neither has conducted any material business since
the date of its inception, except raising capital and in connection with this
Agreement and similar agreements with other companies involved in the
communications business and associated activities. Attached hereto as
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Schedule 4.6 are copies of the following financial statements of the Old ACG,
which reflect the results of its operations from inception in June 1996 (the
"Old ACG Financial Statements"): Old ACG's audited Balance Sheet as of December
31, 1996 and its unaudited Balance Sheet as of June 30, 1997, and audited
Statements of Operations, Shareholders' Equity and Cash Flows and related notes
thereto for the period from June 10, 1996 through December 31, 1996 and
unaudited Statement of Operations, Shareholders' Equity and Cash Flows for the
six months ended June 30, 1997. The audited Old ACG Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the period indicated (except as noted
thereon or on Schedule 4.6). Except as set forth on Schedule 4.6, the foregoing
Balance Sheets presents fairly the financial position of Old ACG as of such
dates, and the foregoing Statement of Revenue and Expense presents fairly the
results of its operations for the period indicated, all on a cash basis of
accounting. Old ACG's Financial Statements at and for the period ended December
31, 1996 have been examined by KPMG Peat Marwick LLP, independent public
accountants.
4.7 Liabilities and Obligations. Except as set forth on Schedule 4.7,
neither the Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
4.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 4.8, neither Purchaser nor Old ACG is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it which would have a Material Adverse Effect; and
except to the extent set forth in Schedule 4.8, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of either Purchaser
or Old ACG, threatened, against or affecting either Purchaser or Old ACG, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Each of Purchaser
and Old ACG has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, Permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing which might have a Material Adverse Effect.
4.9 No Violations. Neither Purchaser nor Old ACG is in violation of any
Purchaser Charter Document. Neither Purchaser nor Old ACG, nor to the knowledge
of Purchaser or Old ACG, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit to which the Purchaser or Old
ACG is a party, or by which the Purchaser or Old ACG or any of its respective
properties, are bound (collectively, the "Purchaser Documents"); and (i) the
rights and benefits of the Purchaser and Old ACG under the Purchaser Documents
will not be adversely
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affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Purchaser Documents or the Purchaser Charter Documents.
Except as set forth on Schedule 4.9, none of the Purchaser Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
4.10 Business; Real Property; Material Agreement. For the reasons set forth
in Section 4.6 and except as disclosed in Section 4.6 or on Schedule 4.10, the
Purchaser has not conducted any material business since the date of its
inception, the Purchaser does not own, nor has it at any time owned, any real
property or any material personal property, and the Purchaser is not a party to
any material agreement.
4.11 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
4.12 Draft Registration Statement. The text of and the financial statements
and other financial information contained in the Draft Registration Statement,
insofar as they relate to the Purchaser or Old ACG, but not otherwise, are
true, accurate and complete in all material respects and
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do not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
5. OTHER COVENANTS PRIOR TO CLOSING
5.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Seller and the Shareholders will afford to the officers and authorized
representatives of the Purchaser access to all of the Seller's sites,
properties, books and records and furnish the Purchaser with such
additional financial and operating data and other information as to the
business and properties of the Seller as the Purchaser may from time to
time reasonably request. The Seller and the Shareholders will cooperate
with the Purchaser, its representatives, auditors and counsel in the
preparation of any documents or other material that may be required in
connection with any documents or materials required by this Agreement,
including the preparation for and consummation of the IPO. The Purchaser
will treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the
provisions of Section 10.
(ii) Between the date of this Agreement and the Closing, the Purchaser
will afford to the Shareholders and to the officers and authorized
representatives of the Seller and Shareholders access to all of the
Purchaser's sites, properties, books and records and will furnish the
Seller and the Shareholders with such additional financial and operating
data and other information as to the business and properties of Purchaser,
Old ACG and the other Founding Companies as Seller and Shareholders may
from time to time reasonably request. The Purchaser will cooperate with the
Seller, the Shareholders and their representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with (x) any documents or materials required by this Agreement
or (y) the preparation for and consummation of the IPO. The Seller and the
Shareholders and their respective Affiliates will treat all information
obtained in connection with the negotiation and performance of this
Agreement as confidential in accordance with the provisions of Section 10.
(iii) The Seller agrees to permit an independent accounting firm
selected by the Purchaser to audit and render a report on the Seller
Financial Statements and the comparable financial statements at and for the
year ending December 31, 1996, and any other period selected by the
Purchaser, provided that all the costs and expenses of such audits are paid
by the Purchaser.
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5.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by the Purchaser, between the date of this Agreement and the Closing
Date, the Seller will:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain compliance with all material Permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
5.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Seller will not, without prior written consent of the
Purchaser:
(i) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $5,000;
(ii) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred
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in connection with the acquisition of equipment with an aggregate cost
not in excess of $5,000 necessary or desirable for the conduct of its
businesses, (y) (1) Liens for Taxes either not yet due or being contested
in good faith and by appropriate proceedings (and for which contested Taxes
adequate reserves have been established and are being maintained) or (2)
materialmen's, mechanics', workers', repairmen's, employees' or other like
Liens arising in the ordinary course of business, or (3) Liens set forth on
Schedule 3.6 or 3.11;
(iii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(iv) negotiate for the acquisition of any business or the start-up of
any new business;
(v) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(vi) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice; provided, further, that such
adjustments shall not be deemed to be included in Schedule 3.7 unless
specifically listed thereon;
(vii) commit a material breach or amend or terminate any material
agreement, Permit, license or other right; or
(viii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
5.4 Exclusivity. Neither the Shareholders, nor Seller, nor any agent,
officer, director, trustee or any representative of the Seller or the
Shareholders, during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than the Purchaser
or its authorized agents relating to
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any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Seller or merger, consolidation or business
combination of the Seller.
5.5 Notice to Bargaining Agents. Prior to the Closing Date, the Seller
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide the Purchaser with proof that any required notice has been sent.
5.6 Notification of Certain Matters. The Seller or the Shareholders shall
give prompt notice to the Purchaser of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Seller or the Shareholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (ii) any material failure of the Seller or the Shareholders to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder as of such date. The Purchaser shall give prompt
notice to the Seller and the Shareholders of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would
likely cause any representation or warranty of the Purchaser and Old ACG
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing Date and (ii) any material failure of the Purchaser or Old ACG
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder as of such date. The delivery of any notice
pursuant to this Section 5.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 5.7, (ii) modify the
conditions set forth in Sections 6 and 7, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
5.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the Seller and the Shareholders or the Purchaser that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless Purchaser and Old ACG or Shareholders and
Seller, as the case may be, consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6.1 and 7.1 have been
fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 5.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 9.1(v). Neither the entry by the Purchaser into any other
agreement, such as this Agreement, after the date hereof for the acquisition of
one or more companies involved in or assets associated with the
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telecommunication business, yellow page publishing business or related
activities nor the performance by the Purchaser of its obligations thereunder
shall be deemed to require the amendment to or the supplementation of any
Schedule hereto.
5.8 Bulk Sales Laws. The Purchaser hereby waives compliance with the
provisions of any bulk transfer laws applicable to the transactions
contemplated by this Agreement including, without limitation, bulk sales laws
under the Uniform Commercial Code or relating to the right or obligation of the
Purchaser to withhold any portion of the Purchase Price pending determination
by any governmental entities of the Seller's liability for any Tax obligations
to any such governmental entities.
5.9 Transfer Taxes and Recording Fees. Any sales, transfer, use or other
similar Taxes imposed as a result of the sale of the Purchased Assets to the
Purchaser pursuant to this Agreement shall be paid by the Purchaser. At the
Closing, the Purchaser shall remit to the Seller such properly completed resale
exemption certificates and other similar certificates or instruments as are
necessary to claim available exemptions from the payment of sales, transfer,
use or other similar Taxes under applicable law. All recording, transfer and
other similar Taxes and fees payable as a result of the public recordation of
the instruments of conveyance or transfer of the Purchased Assets executed and
delivered to Purchaser pursuant to this Agreement shall be paid by the Seller.
5.10 Certain Provisions Relating to Consents.
(i) The Seller will obtain, at its expense, and the Purchaser will use
its reasonable cooperative efforts (including furnishing financial
information on a confidential basis, where required) prior to and after the
Closing Date to assist the Seller in obtaining all third party consents
that are required in connection with the transactions contemplated by this
Agreement. The Seller will use reasonable efforts to obtain, and the
Purchaser will use its reasonable cooperative efforts prior to and after
the Closing Date to assist the Seller in obtaining from the landlords of
all of the Leases, estoppel agreements in form and substance reasonably
acceptable to the Purchaser containing to the extent necessary consents
from such landlords to the assignment of the Leases to the Purchaser. All
expenses incurred in connection with obtaining such consents and estoppel
agreements shall be paid by the party incurring the same. To the extent
such consents and/or estoppel agreements are not obtained by Closing, the
Seller shall continue to assist the Purchaser in obtaining such consents
and/or estoppel agreements after Closing and shall pay the costs thereof.
(ii) To the extent that any Contract, Permit or Lease is not capable
of being transferred by the Seller to the Purchaser pursuant to this
Agreement without the consent of a third party (including a governmental
entity) and such consent is not obtained prior to
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Closing, or if such transfer or attempted transfer would constitute a
breach or a violation of any law, nothing in this Agreement will constitute
a transfer or an attempted transfer thereof.
(iii) In the event that any such consent is not obtained on or prior
to the Closing Date, the Seller will (x) provide to the Purchaser the
benefits of the applicable Contract, Permit or Lease if reasonably
possible, (y) cooperate in any reasonable and lawful arrangement designed
to provide such benefits to the Purchaser and (iii) enforce at the request
and expense of the Purchaser and for the account of the Purchaser, any
rights of the Seller arising from any such Contract or Lease (including the
right to elect to terminate such Contract or Lease in accordance with the
terms thereof upon the request of the Purchaser). If any Permit required
for the operation of the Business or the ownership or use of the Purchased
Assets is not transferred to the Purchaser at Closing, the Seller
authorizes (to the extent permitted by law) the Purchaser to operate under
any such Permit until the necessary consent to transfer or a new Permit is
obtained.
(iv) The Purchaser will perform the obligations arising under all
Contracts, Permits and Leases referred to in Section 5.10(ii) for the
benefit of the Seller and the other party or parties thereto, except for
any obligation under such Contract, Permit or Lease that constitutes an
Excluded Liability.
5.11 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement or the IPO.
5.12 Survival. None of the covenants and agreements set forth in Sections
5.1 through 5.9 shall survive the Closing.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligations of the Seller with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
6.1 Representations and Warranties Performance of Obligations. All
representations and warranties of the Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by the Purchaser and Old ACG on
or before the Closing Date shall have been duly complied with or performed in
all material respects; and a
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certificate to the foregoing effect, dated the Closing Date and signed by the
President or any Vice President of each of Purchaser and Old ACG shall have
been delivered to the Seller.
6.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Seller and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit consummation of the transactions contemplated in this
Agreement and no governmental agency or body shall have taken any other action
or made any request of the Seller, the Shareholders or the Purchaser as a
result of which the Seller deems it inadvisable to proceed with the
transactions hereunder.
6.4 Opinion of Counsel. The Seller shall have received an opinion from
counsel for the Purchaser and Old ACG, dated the Closing Date, in form and
substance reasonably acceptable to the Seller, relating to, insofar as the
Purchaser and Old ACG are concerned, as the case may be, (a) the authorization,
execution, delivery, performance and enforceability of the Agreement, (b) the
receipt of all required consents and approvals, and (c) such other legal
matters as the Seller may reasonably request.
6.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
6.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to the Purchaser that would constitute a Material Adverse
Effect.
6.7 Secretary's Certificates. The Seller shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of each of
Purchaser and Old ACG, certifying the completeness and accuracy of the attached
copies of the Purchaser's Charter Documents (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the board of
directors approving the Purchaser's and Old ACG's entering into this Agreement
their consummation of the transactions contemplated hereby.
6.8 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
6.9 Employment Arrangements. The Purchaser shall have taken the actions
referred to on Schedule 6.9.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived:
7.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Seller and the Shareholders contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Seller and
the Shareholders on or before the Closing Date shall have been duly performed
or complied with in all material respects; and the Seller and the Shareholders
shall have delivered to the Purchaser a certificate dated the Closing Date and
signed by them to such effect.
7.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated herein
and no governmental agency or body shall have taken any other action or made
any request of the Purchaser, the Seller or the Shareholders as a result of
which the management of the Purchaser deems it inadvisable to proceed with the
transactions hereunder.
7.3 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the Seller which would constitute a Material Adverse
Effect, and the Seller shall not have suffered any material loss or damage to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Seller
to conduct its business.
7.4 Shareholders' Releases. The Shareholders shall have delivered to the
Purchaser an instrument dated the Closing Date releasing (i) the Purchased
Assets from any and all claims of the Shareholders and (ii) the obligations of
the Purchaser and Old ACG to the Shareholders, except for obligations arising
under this Agreement or the transactions contemplated hereby and thereby.
7.5 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to the Purchaser and its counsel.
7.6 Termination of Related Party Agreements. Except as set forth on
Schedule 7.6, all existing agreements between the Seller and the Shareholders
affecting in any respect the Purchased Assets shall have been canceled
effective prior to or as of the Closing Date.
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7.7 Opinion of Counsel. The Purchaser shall have received an opinion from
counsel to the Seller and the Shareholders, dated the Closing Date, in form and
substance reasonably acceptable to the Purchaser, relating to, insofar as the
Seller and the Shareholders are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the receipt of
all required consents and approvals, (c) the consummation of the transactions
contemplated herein and (d) such other legal matters as the Purchaser may
reasonably request.
7.8 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 3.21 shall have been
obtained.
7.9 FIRPTA Certificate. Each Shareholder shall have delivered to the
Purchaser a certificate to the effect that it is not a foreign Person under
Section 1.1445-2(b) of the Treasury regulations promulgated pursuant to the
Code.
7.10 Closing of IPO. The sale by the Purchaser of shares of Purchaser Stock
in the IPO shall have closed prior to or substantially contemporaneously with
the consummation of the transactions contemplated herein.
8. COVENANTS OF THE PURCHASER WITH THE SELLER AND THE SHAREHOLDERS AFTER
CLOSING
8.1 Release From Guarantees. The Purchaser shall use its best efforts to
have the Shareholders released from any and all guarantees on any indebtedness
relating to the Purchased Assets that any of them personally guaranteed and
from any and all pledges of assets that any of them pledged to secure such
indebtedness for the benefit of the Seller, with all such guarantees on
indebtedness being assumed by the Purchaser.
8.2 Employment.
(i) The Purchaser shall offer to hire, effective as of the Closing
Date, the active operating employees of the Business on the day immediately
prior to the Closing Date, and only those inactive operating employees on
temporary leave for purposes of jury duty, family and short-term medical
leave, vacation or annual two-week national military duty (such employees
who are to be given offers of hire being hereafter referred to as the
"Employees"). The Seller shall deliver to the Purchaser, at least 30 days
prior to the Closing Date, a schedule designating all Employees and all
inactive employees of the Business. Any person who has retired from the
Seller shall be considered an inactive employee. The Seller shall use its
reasonable efforts to cause such employees to accept the Purchaser's offers
of employment.
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(ii) The Employees who accept and commence employment with the
Purchaser shall be referred to herein as the "Transferred Employees".
(iii) Except as expressly provided otherwise in this Section 8.2 and
in Section 8.3, the terms of the Transferred Employees' employment shall be
upon such terms and conditions as the Purchaser, in its sole discretion
shall determine. Upon request of the Purchaser, the Seller shall provide
the Purchaser reasonable access to data (including computer data) regarding
the ages, dates of hire, compensation and job description of Employees. The
Seller hereby authorizes the Purchaser to enter into discussions with and
to advise any of the Employees concerning the terms of any future
employment of such individuals by the Purchaser and will permit the
Purchaser reasonable access to Employees for such purpose.
(iv) In the event that an individual (x) retires from the Seller after
the date of this Agreement and prior to the Closing Date and (y)
subsequently commences employment with the Purchaser, such individual will
cease receiving post-retirement medical benefits from the Seller. The
Seller will advise such individuals of this condition before retirement.
The Purchaser shall not assume any liability for providing post-retirement
medical benefits upon such individual's termination of employment with the
Purchaser.
(v) (x) Except for liabilities and claims to be assumed by the
Purchaser under Section 8.3(v)(y), the Seller shall discharge all
liabilities to and claims of Transferred Employees or Employees of the
Seller arising out of their employment with the Seller, including but not
limited to, claims arising out of any Employee Benefit Plan maintained by
the Seller or for retiree medical benefits promised, provided or subsidized
by the Seller after the Closing Date.
(y) The Purchaser shall discharge all liabilities and claims based on
occurrences or conditions first occurring or commencing on or after the
Closing Date of Transferred Employees or employees of the Purchaser arising
out of their employment with the Purchaser after the Closing Date,
including but not limited to, any claims arising out of any employee
benefit plan maintained by the Purchaser.
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(vi) The Seller and the Purchaser shall comply with Section 4 of the
Revenue Procedure 84-77, 1984-2 C.B. 753. The Seller shall furnish (or
cause to be furnished) to each Transferred Employee in accordance with
Section 4 of the Revenue Procedure a Treasury Form W-2 for 1997 for the
wages paid by the Seller, no later than January 31, 1998. The Purchaser
shall furnish (or cause to be furnished) to each Transferred Employee in
accordance with Section 4 of the Revenue Procedure a Treasury Form W-2 for
1997 for the wages paid by the Purchaser. The Purchaser shall file (or
cause to be filed) appropriate Treasury Forms W-2 and W-3 covering the
Transferred Employee with the Social Security Administration for wages paid
and amounts withheld by the Purchaser during 1997.
(vii) Nothing contained in this Agreement (x) shall confer upon any
former, current or future employee of the Seller or the Purchaser or any
legal representative or beneficiary thereof any rights or remedies,
including, without limitation, any right to employment or continued
employment of any nature, for any specified period, or (y) shall cause the
employment status of any former, present or future employee of the
Purchaser to be other than terminable at will.
8.3 Health and Welfare Benefits.
(i) The Seller shall provide all notices and fulfill all of its
obligations, if any, under Section 4980B(f) of the Code with respect to the
Transferred Employees. The Seller shall deliver to the Purchaser's present
or proposed insurance carriers or third-party administrators, on a census
basis, at least 20 days prior to the Closing Date, information with respect
to all health, accident, workers' compensation, disability and related
claims filed by the Transferred Employees (including, without limitation,
information regarding the total number of claims filed by, the total amount
of benefits claimed by, and the total amount of benefits paid to such
persons) since January 1, 1993, to the extent requested by any such
carriers. The Seller shall deliver to the Purchaser's health insurance
carriers or third-party administrators, on a census basis, to the extent
requested by any such carriers or administrators, an update of such
information through the Closing Date as soon as practicable but no later
than 15 days after the Closing Date. Such information, which may be
provided directly from the Seller's computer database, shall be
satisfactory in form and substance to such carriers and administrators.
(ii) Effective on the Closing Date, the Transferred Employees shall be
eligible for health and welfare benefits substantially equivalent to those
the Purchaser provides to similarly situated new employees hired by the
Purchaser after the Closing Date; provided, however, that the Purchaser
reserves the right to modify or terminate such benefits from time to time
after the Closing Date. Such Transferred Employees shall be eligible to
participate under the Purchaser's health and welfare benefit plans as of
the Closing Date, and the Purchaser shall not be responsible for any
hospitalization, medical, survivor benefits, life
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insurance, or disability claims based upon occurrences or conditions
commencing, occurring or existing before the Closing Date, regardless of
whether such occurrences or conditions continue after the Closing Date, and
regardless of whether such claims are made before or after the Closing
Date. In no event shall the Purchaser be required to provide
post-retirement medical benefits to Transferred Employees.
8.4 Change of Name. Promptly after the Closing, the Seller shall change its
name to a name that does not conflict with the Purchaser's use of the name
"Switchboard of Oklahoma City".
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein and in the Other Agreement. If it is
determined by the parties to this Agreement that compliance with the Hart-Scott
Act is required, then: (i) each of the parties hereto agrees to cooperate and
use its best efforts to comply with the Hart-Scott Act, (ii) such compliance by
the Seller shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 7 of this Agreement, and such compliance by the
Purchaser shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 6 of this Agreement, and (iii) the parties agree
to cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made.
9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of the Purchaser and
the Seller;
(ii) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the Securities and
Exchange Commission pursuant to the Securities Act of 1933;
(iii) by the Seller, if a material breach or default shall be made by
the Purchaser in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date;
(iv) by the Purchaser, if a material breach or default shall be made
by the Seller or the Shareholders in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained herein,
and the curing of such default shall not have been made on or before the
Closing Date;
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(v) by the Seller, on the one hand, or by Purchaser, on the other
hand, if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 5.7 because such proposed amendment constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the party or parties
proposing the same.
(vi) by the Seller (acting through its board of directors), on the one
hand, or by Purchaser (acting through its board of directors), on the other
hand, if the transactions contemplated by the Agreement to take place at the
Closing shall not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its obligations
under the Agreement to the extent required to be performed by its prior to or
on the Closing Date;
9.2 Liabilities in Event of Termination. No party to this Agreement whose
breach or default with respect to any of its representations, warranties,
covenants or agreements in this Agreement occasions a termination of this
Agreement by another party hereto shall have any obligation or liability
arising therefrom to any other party to this Agreement, unless such breach or
default is due to a willful failure to perform. The failure of the Purchaser to
pay the balance of the Base Price at the Closing shall not constitute a default
due to a willful failure to perform.
9.3 Retention of Prepayment. The Seller shall be under no obligation to
refund the Prepayment upon termination of the Agreement, except where the
Purchaser elects to terminate the Agreement pursuant to Section 9.1(v).
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 The Shareholders and the Seller. The Shareholders and the Seller
recognize and acknowledge that they had in the past, currently have, and in the
future may have, access to certain confidential information of the Seller
and/or the Purchaser and Old ACG, such as operational policies, and pricing and
cost policies that are valuable, special and unique assets of the Seller and/or
the Purchaser and Old ACG. The Shareholders and the Seller agree that they will
not disclose such confidential information to any Person for any purpose or
reason whatsoever, except (i) to authorized representatives of the Purchaser;
(ii) following the Closing, such information may be disclosed by the
Shareholders as is required in the course of performing its duties for the
Purchaser or the Seller; and (iii) to counsel and other advisers; provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 10.1, unless (w) such information becomes known to the public
generally through no fault of a Shareholder or the Seller, (x) disclosure is
required by law or the order of any governmental authority under color of law;
provided, that prior to disclosing any information pursuant to this clause (y),
the affected Shareholder or the Seller shall give prior written notice thereof
to the Purchaser and provide the Purchaser with the opportunity to contest such
disclosure, or (z) the disclosing party reasonably believes that such
disclosure is required in
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connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Shareholders or the Seller
of the provisions of this Section 10.1, the Purchaser shall be entitled to an
injunction restraining such Shareholder and such Seller, as the case may be,
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting (1) any Shareholder from using
information acquired as the owner of the Seller in connection with activities
permitted under Section 11 or (2) the Purchaser from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages. In the event the transactions contemplated by this Agreement are
not consummated, the abovementioned restrictions on the Shareholders' or the
Seller's ability to disseminate confidential information with respect to the
Seller shall become void.
10.2 The Purchaser. Each of Purchaser and Old ACG recognizes and
acknowledges that it has in the past, currently has and in the future may have,
prior to the Closing access to certain confidential information of the Seller,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Seller. Each of Purchaser and Old ACG agrees
that, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, it will not disclose such confidential
information to any Person for any purpose or reason whatsoever, except (i) to
authorized representatives of Seller, other Founding Companies or the
Shareholders; and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 10.2, unless (x) such information becomes known to the public generally
through no fault of the Purchaser and Old ACG (y) disclosure is required by law
or the order of any governmental authority under color of law; provided, that
prior to disclosing any information pursuant to this clause (y), the Purchaser
shall, if possible, give prior written notice thereof to the Seller and provide
the Seller with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by the Purchaser or Old ACG of the
provisions of this Section 10.2, the Seller shall be entitled to an injunction
restraining the Purchaser or Old ACG from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
10.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 10.1 and 10.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
10.4 Survival. The obligations of the parties under this Article 10 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 10.
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11. NONCOMPETITION
11.1 Prohibited Activities. Each of the Shareholders will not, for a period
of 36 calendar months following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or herself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in the sale or
marketing of any communications, natural gas or electrical goods and services
(collectively, the "Proscribed Business"), within the States of Arkansas,
Kansas, Missouri, Oklahoma and Texas (the "Territory");
(ii) call upon any Person within the Territory who is employee of the
Purchaser (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of the Purchaser (including the
Subsidiaries thereof); provided that a Shareholder shall be permitted to call
upon and hire immediate family members;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date or the Termination Date, as the case may be, a
customer of the Purchaser (including the Subsidiaries thereof), or of the
Seller within the Territory, for the purpose of soliciting or selling products
or services in direct competition with the Purchaser (including the
Subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on a Shareholder's
own behalf or on behalf of any competitor of the Purchaser (including the
Subsidiaries thereof) engaged in a Proscribed Business, which candidate, to the
actual knowledge of such Shareholder after due inquiry, was called upon by the
Purchaser (including the Subsidiaries thereof) or for which, to the actual
knowledge of such Shareholder after due inquiry, the Purchaser (or any
Subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose existing or prospective customers of the Company to any Person
for any reason or purpose whatsoever except to the extent that the Seller has
in the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Shareholder from acquiring and holding as a passive investment not
more than five percent of the capital stock of a competing business whose stock
is traded on a national securities exchange.
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<PAGE>
11.2 Damages. Because of the difficulty of measuring economic losses to the
Purchaser as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Purchaser for
which it would have no other adequate remedy, each Shareholder agrees that the
foregoing covenant may be enforced by the Purchaser in the event of breach by
such Shareholder, by injunction and restraining order.
11.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 11 impose a reasonable restraint on the
Shareholders in light of the activities and business of the Purchaser
(including the Subsidiaries thereof) on the date of the execution of this
Agreement and the reasonably foreseeable plans of the Purchaser.
11.4 Severability, Reformation. The covenants in this Section 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
11.5 Independent Covenant. All of the covenants in this Section 11 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of a Shareholder against the
Purchaser (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Purchaser of such covenants. It is specifically agreed that the period of
36 calendar months stated at the beginning of this Section 11, during which the
agreements and covenants of a Shareholder made in this Section 11 shall be
effective, shall be computed by excluding from such computation any time during
which such Shareholder is in violation of any provision of this Section 11. The
covenants contained in Section 11 shall not be affected by any breach of any
other provision hereof by any party hereto and shall become void if the
transactions contemplated by this Agreement are not consummated.
11.6 Materiality. Such Shareholder hereby agrees that the covenants set
forth in this Section 12 are a material and substantial part of the
transactions contemplated by this Agreement.
12. GENERAL
12.1 Cooperation. The Seller, the Shareholders, Old ACG and the Purchaser
shall deliver or cause to be delivered to each other on the Closing Date and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Seller will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Seller
cooperate with the Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other
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<PAGE>
assistance in connection with any actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Closing Date.
12.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of the Purchaser and the Seller
and the heirs and legal representatives of the Shareholders. Notwithstanding
the foregoing, the Purchaser may assign, convey, transfer or otherwise dispose
of all or any portion of its interest in, or its rights and obligations under,
this Agreement and such other documents and instruments to any Affiliate of the
Purchaser.
12.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Seller, the Shareholders and the Purchaser and Old ACG,
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Seller, the Shareholders and the Purchaser and Old
ACG, acting through their respective officers or representatives, duly
authorized by their respective Boards of Directors in the cases of Seller,
Purchaser and Old ACG. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby; provided that each party to this Agreement shall make
a good faith effort to cross reference disclosures, as necessary or advisable,
between related Schedules.
12.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.5 Brokers and Agents. Except as disclosed on Schedule 12.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
12.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, the Purchaser will pay the fees, expenses and disbursements of
Purchaser, Old ACG and Seller and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by
Purchaser, Old ACG and the Seller under this Agreement. The Shareholders shall
pay the respective fees and expenses of their legal counsel, and all other
costs and expenses incurred by them
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<PAGE>
in their performance and compliance with all conditions to be performed by them
under this Agreement. In addition, the Shareholders acknowledge that they, and
not the Seller or the Purchaser, will pay all Taxes due upon receipt of the
consideration payable pursuant to Section 2, and will assume all Tax risks and
liabilities of the Seller in connection with the transactions contemplated
hereby.
12.7 Notices. All notices of communications required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
(x) If to the Purchaser, addressed to it at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to the Seller, addressed to it at:
Switchboard of Oklahoma City, Inc.
Bank of Oklahoma Building, Suite 825
201 Robert S. Kerr
Oklahoma City, Oklahoma 73102
Attn: Mark Beall
Telecopy No.: 800-337-0087
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<PAGE>
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
(z) If to the Shareholders, addressed to them as follows:
c/o Mark Beall
Bank of Oklahoma Building, Suite 825
201 Robert S. Kerr
Oklahoma City, Oklahoma 73102
with a copy to:
Triplett, Woolf & Garretson, L.L.P.
151 N. Main
Centre City Plaza, Suite 800
Wichita, Kansas 67202-1409
Attn: Thomas C. Triplett
Telecopy No.: 316-265-6165
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.7 from time to time.
12.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
12.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.10 Time. Time is of the essence with respect to this Agreement.
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<PAGE>
12.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
12.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.13 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
12.14 Public Statement. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
12.15 Form of Payment. All payments hereunder shall be made in United
States dollars and, unless the parties making and receiving such payments shall
agree otherwise or the provisions hereof provide otherwise, shall be made by
wire or interbank transfer of immediately available funds by 12:00 Noon, New
York time, on the date such payment is due to such account as the party
receiving payment may designate at least three business days prior to the
proposed date of payment.
12.16 Receivables. If any monies or other assets are received by the
Purchaser to which the Seller is entitled and that are not included in the
Purchased Assets, the Purchaser shall hold such monies and assets in trust for
the Seller and shall account for and pay the same to the Seller within 15 days
after receipt. If any monies or other assets are received by the Seller to
which the Purchaser is entitled and that are included in the Purchased Assets,
the Seller shall hold such monies and assets received by the Seller in trust
for the Purchaser and shall account for and pay the same to the Purchaser
within 15 days after receipt.
12.17 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of the Purchaser, Old ACG, the Seller and the Shareholders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PURCHASER:
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
ADVANCED COMMUNICATIONS CORP.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
SELLER:
SWITCHBOARD OF OKLAHOMA
CITY, INC.
By:
-------------------------------------
Name: Mark Beall
Title: President
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<PAGE>
SHAREHOLDERS:
----------------------------------------
Mark Beall
----------------------------------------
Donald Hunter
----------------------------------------
Charles Johnson
----------------------------------------
James Hunter, as Attorney-in-Fact for
Jamie Hunter, a Minor
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least 80% of the total combined
voting power of all classes of capital stock of the Company entitled to
<PAGE>
vote and at least 80% of the total number of shares of all other classes of
capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED ASSET PURCHASE AGREEMENT
dated as of the 6th day of October, 1997
by and between
ACG ACQUISITION II CORP.
(PURCHASER)
and
ADVANCED COMMUNICATIONS GROUP, INC.
(PARENT)
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
DANIEL W. PETERS
CHERYL A. PETERS
(SELLERS)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................2
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN.....................9
2.1 Purchase and Sale of Purchased Assets...............................9
2.2 Assumption of Liabilities..........................................10
2.3 Purchase Price.....................................................10
2.4 Allocation of Purchase Price.......................................10
2.5 Closing............................................................10
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE SELLERS..............................................................10
3.1 Authority..........................................................10
3.2 Financial Statements...............................................10
3.3 Liabilities and Obligations........................................11
3.4 Permits and Intangibles............................................12
3.5 Environmental Matters..............................................12
3.6 Personal Property..................................................13
3.7 Significant Customers; Material Contracts and Commitments..........13
3.8 Real Property......................................................14
3.9 Insurance..........................................................14
3.10 Intellectual Property..............................................15
3.11 Labor Relations....................................................15
3.12 Employee Benefits..................................................15
3.13 Tax Matters........................................................16
3.14 Prior or Preferential Rights.......................................17
3.15 Sufficiency of Assets..............................................18
3.16 Conformity with Law; Litigation....................................18
3.17 No Violations......................................................18
3.18 Government Contracts...............................................19
3.19 Absence of Changes.................................................19
3.20 Disclosure.........................................................20
3.21 Prohibited Activities..............................................20
3.22 Draft Registration Statement.......................................20
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE PURCHASER, PARENT AND OLD ACG........................................20
4.1 Due Organization...................................................21
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4.2 Authorization......................................................21
4.3 Capital Stock......................................................21
4.4 Transactions in Capital Stock, Organization Accounting.............21
4.5 Subsidiaries.......................................................22
4.6 Financial Statements...............................................22
4.7 Liabilities and Obligations........................................22
4.8 Conformity with Law; Litigation....................................22
4.9 No Violations......................................................23
4.10 Business; Real Property; Material Agreement........................23
4.11 Taxes..............................................................23
4.12 Draft Registration Statement.......................................24
5. OTHER COVENANTS PRIOR TO CLOSING.........................................24
5.1 Access and Cooperation; Due Diligence; Audits......................24
5.2 Conduct of Business Pending Closing................................25
5.3 Prohibited Activities..............................................26
5.4 Exclusivity........................................................27
5.5 Notice to Bargaining Agents........................................27
5.6 Notification of Certain Matters....................................27
5.7 Amendment of Schedules.............................................28
5.8 Bulk Sales Laws....................................................28
5.9 Transfer Taxes and Recording Fees..................................28
5.10 Certain Provisions Relating to Consents............................29
5.11 Further Assurance..................................................30
5.12 Survival...........................................................30
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS.......................30
6.1 Representations and Warranties Performance of Obligations..........30
6.2 Satisfaction.......................................................30
6.3 No Litigation......................................................30
6.4 Opinion of Counsel.................................................30
6.5 Consents and Approvals.............................................31
6.6 No Material Adverse Change.........................................31
6.7 Secretary's Certificates...........................................31
6.8 Closing of IPO.....................................................31
6.9 Employment Agreements..............................................31
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER AND
PARENT...................................................................31
7.1 Representations and Warranties; Performance of Obligations.........31
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<PAGE>
7.2 No Litigation......................................................31
7.3 No Material Adverse Effect.........................................32
7.4 Sellers' Release...................................................32
7.5 Satisfaction.......................................................32
7.6 Opinion of Counsel.................................................32
7.7 Consents and Approvals.............................................32
7.8 FIRPTA Certificate.................................................32
7.9 Closing of IPO.....................................................32
7.10 Employment Agreements..............................................32
8. COVENANTS OF THE PURCHASER AND PARENT WITH THE SELLERS AFTER
CLOSING..................................................................33
8.1 Release From Guarantees............................................33
8.2 Employment.........................................................33
8.3 Health and Welfare Benefits........................................34
8.4 Use of Name........................................................35
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................35
9. TERMINATION OF AGREEMENT.................................................35
9.1 Termination........................................................35
9.2 Liabilities in Event of Termination................................36
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................36
10.1 The Sellers........................................................36
10.2 The Purchaser, Parent and Old ACG..................................37
10.3 Damages............................................................37
10.4 Survival...........................................................38
11. NONCOMPETITION...........................................................38
11.1 Prohibited Activities..............................................38
11.2 Damages............................................................39
11.3 Reasonable Restraint...............................................39
11.4 Severability, Reformation..........................................39
11.5 Independent Covenant...............................................39
11.6 Materiality........................................................40
12. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND
WARRANT STOCK............................................................40
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<PAGE>
13. OTHER TRANSFER RESTRICTIONS..............................................40
14. INVESTMENT REPRESENTATIONS...............................................41
14.1 Compliance With Law................................................41
14.2 Economic Risk, Sophistication......................................42
15. REGISTRATION RIGHTS......................................................42
15.1 PiggyBack Registration Rights......................................42
15.2 Demand Registration Rights.........................................42
15.3 Registration Procedures............................................43
15.4 Other Registration Matters.........................................46
15.5 Indemnification....................................................46
15.6 Contribution.......................................................49
15.7 Availability of Rule 144...........................................50
16. GENERAL..................................................................50
16.1 Cooperation........................................................50
16.2 Successors and Assigns.............................................50
16.3 Entire Agreement...................................................50
16.4 Counterparts.......................................................51
16.5 Brokers and Agents.................................................51
16.6 Expenses...........................................................51
16.7 Notices............................................................51
16.8 Governing Law......................................................52
16.9 Exercise of Rights and Remedies....................................52
16.10 Time...............................................................53
16.11 Reformation and Severability.......................................53
16.12 Remedies Cumulative................................................53
16.13 Captions...........................................................53
16.14 Public Statement...................................................53
16.15 Form of Payment....................................................53
16.16 Receivables........................................................53
16.17 Amendments and Waivers.............................................54
16.18 Public Statements..................................................54
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<PAGE>
RESTATED ASSET PURCHASE AGREEMENT
THIS RESTATED ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
6th day of October, 1997, by and between ACG ACQUISITION II CORP. a Delaware
corporation ("Purchaser"), ADVANCED COMMUNICATIONS GROUP, INC., a Delaware
corporation organized in September 1997 ("Parent"), ADVANCED COMMUNICATIONS
CORP. (formerly named Advanced Communications Group, Inc.), a Delaware
corporation organized in June 1996 ("Old ACG"), DANIEL W. PETERS and wife
CHERYL A. PETERS, individuals residing in Kansas ("Sellers") , who are engaged
in the business of selling, servicing and installing telephone equipment, or
"interconnect" services and equipment, as a proprietorship under the name
National Telecom ("Business") and owning certain assets associated with the
Business.
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Asset Purchase Agreement dated as of July 18, 1997 among Old ACG, Parent,
Purchaser, and the Sellers ("Original Agreement"); and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September
1997 to serve as the vehicle for the acquisition of the Founding Companies
substantially contemporaneously with the consummation of an initial
underwritten public offering ("IPO") of Common Stock, $.0001 par value, of
Parent ("Parent Stock") at the price to the public reflected in the final
prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Sellers and Old ACG, will
transfer, by stock or asset purchase or reverse triangular merger, the
stock or substantially all the assets of certain companies and other assets
in which they own an interest to Parent in exchange for voting
<PAGE>
capital stock of Parent and other consideration, including cash,
voting stock, options, warrants, notes, convertible notes and other
property of Parent, under circumstances that will constitute a tax-free
transfer of property under Section 351 of the Internal Revenue Code of
1986, as amended, and the rules and regulations thereunder ("Code"), to the
extent of their receipt of voting capital stock of Parent; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Parent and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Parent substantially contemporaneously with the consummation
of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Parent by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Parent
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Parent, Old ACG, Purchaser, and the Sellers desire to amend
and restate the Original Agreement in its entirety and transform it into
this Agreement; and
WHEREAS, the Purchaser desires to purchase from the Sellers, and the
Sellers desire to sell to the Purchaser, substantially all the assets
comprising the Business, all on the terms and subject to the conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
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<PAGE>
"Affiliate" means, with respect to any specific Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. The term
"control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement
"Assumed Liabilities" refers to, collectively, all liabilities and
obligations of the Sellers (i) arising after the Closing Date with respect
to the performance of the terms of and the payment of all amounts due under
the Contracts and the Lease, excluding any liability or obligation
resulting from any breach, violation, failure to comply, act, omission,
condition or circumstance with respect thereto prior to the Closing Date
and (ii) relating to Employees and employee benefits to the extent
specifically provided in Section 8.2.
"Assumption Agreement" refers to the Assumption Agreement to be executed at
Closing by the Purchaser.
"Balance Sheet Date" has the meaning set forth in Section 3.2.
"Bill of Sale" refers to the Bill of Sale to be executed at the Closing by
the Sellers.
"Business" has the meaning set forth in the first paragraph to this
Agreement.
"Business Day" means any day, other than a Saturday or a Sunday, on which
commercial banks are not required or authorized to close in New York City.
"Business Financial Statements" has the meaning set forth in Section 3.2.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
limited liability company, partnership or other business entity that is a
signatory to, or the subject of, this Agreement was formed or organized in
accordance with applicable law.
"Closing" has the meaning set forth in Section 2.5.
"Closing Date" has the meaning set forth in Section 2.5.
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<PAGE>
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Contracts" means, collectively, the documents and other matters listed on
Schedule 3.3 in response to Section 3.3(ii) and on Schedule 3.7.
"Controlled Group Member" has the meaning set forth in Section 3.12(ii).
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this agreement.
"Effective Time" means 12:01 a.m. on the Closing Date.
"Employees" has the meaning set forth in Section 8.2(i).
"Employee Benefit Plan" means an Employee Pension Benefit Plan, Employee
Welfare Benefit Plan (where no distinction is required by the context in
which the term is used), or any compensation plan, incentive plan (whether
or not stock related), bonus plan or fringe benefit plan.
"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2)
of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1)
of ERISA.
"Environmental Laws" has the meaning set forth in Section 3.5.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means, collectively (i) any cash or cash equivalents of
Sellers, (ii) any rights of the Sellers to any Tax refund associated with
the Business with respect to periods prior to the Closing Date, (iii) any
assets of any Employee Benefit Plan maintained by the Sellers, (iv) any
property, casualty, workers' compensation or other insurance policy or
related insurance services contract relating to the Sellers and any rights
of Sellers under such insurance policy or contract, other than rights or
proceeds under such insurance policies or contracts with respect to any
Assumed Liability or any casualty affecting any of the Purchased Assets,
(v) any rights of the Sellers under this Agreement or under any other
agreement between the Sellers and the Purchaser and (vi) any assets,
properties or rights of the Sellers listed on Schedule A.
"Excluded Liabilities" refers to, collectively, all obligations and
liabilities of the Sellers contingent or direct, known or unknown, other
than the Assumed Liabilities. Without
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limiting the generality of the foregoing, the Excluded Liabilities include
(i) any liability or obligation arising prior to, on or after the Closing
Date in connection with any Excluded Asset, (ii) any liability or
obligation arising prior to the Closing Date with respect to the Purchased
Assets, (iii) any liability or obligation arising under any Environmental
Law in connection with the ownership, use, maintenance or operation of any
of the present or former facilities or properties of the Sellers or
otherwise in connection with the operation of the Business, (iv) any
liability or obligation (whether assessed or unassessed) of the Sellers
with respect to Taxes for any period prior to the Closing Date, (v) any
liability or obligation with respect to any checks issued by the Sellers
prior to the Closing Date which are outstanding as of the Closing Date,
(vi) any liability or obligation of the Sellers with respect to employees
or employee benefits not specifically assumed by the Purchaser pursuant to
Section 8.2 and (vii) any liabilities listed on Schedule B.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
"Hart-Scott Act" has the meaning set forth in Section 8.5.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 3.5.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"Intellectual Property" means all patents, trademarks, service marks,
copyrights and applications therefor, all trade names, brand names, logos,
inventions, discoveries, improvements, processes, technologies, know-how,
formulae, drawings, specifications, trade secrets, plans, computer software
(including source codes and other documentation thereof), files, programs,
notebooks and records, all other proprietary, technical and other
information, data and intellectual property, and all licenses, permits and
other rights to use the foregoing, whether patentable or unpatentable, used
or held for use in or associated with the ownership of the Purchased
Assets, or the conduct of the Business (or, if the Sellers do not own any
such proprietary, technical or other information, data and intellectual
property, a paid-up or royalty-free, irrevocable license, permit or other
right to use the same), including, without limitation, the Intellectual
Property described in Schedule 3.10.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"June Balance Sheet" has the meaning set forth in Section 3.2.
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"Lease" means that certain Lease, attached to Schedule 3.8, associated with
the main facility of the Business.
"Liens" means all mortgages, liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
"Material Adverse Effect" means a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial
or otherwise) of a Person.
"Material Documents" has the meaning set forth in Section 3.17.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"Note" means Parent's 7% Installment Note due [Closing Date], 2000 in the
original principal amount of $350,000 and substantially in the form of
Annex III.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 4.6.
"Parent Documents" has the meaning set forth in Section 4.9.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Permit" means any permit, approval, authorization, license, franchise,
variance, certificate of occupancy or permission required by a governmental
authority under any applicable law.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a joint stock company, a trust, any
incorporated organization or a government or political subdivision thereof.
"Prohibited Activities" has the meaning set forth in Section 3.21.
"Proscribed Business" has the meaning set forth in Section 11.1(i).
"Purchased Assets" means all the Sellers' assets associated with the
Business or used, useful or held for use in connection with the operations
historically conducted by Sellers at or in conjunction therewith, all as
the same may exist on the Closing Date, including, without limitation, the
following:
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(i) all real property listed on Schedule 3.8 that is owned by the
Sellers, in each case together with all improvements, fixtures,
construction in process and all other easements, rights and
privileges appurtenant thereto and rights in respect thereof;
(ii) all inventories of supplies and spare parts, all equipment,
machinery, test equipment, computers, telephone systems,
expendables, vehicles, furniture, file cabinets, office materials
and other tangible personal property, including the items listed on
Schedule 3.6;
(iii) all of the Intellectual Property;
(iv) all right, title and interest in, to and under all Contracts and the
Lease (including all options to renew or extend the term of the
Lease or purchase all or any part of the leased property), subject
in each case to the terms of such Contracts and the Lease;
(v) all books and records of the Business (including such books and
records as are contained in computerized storage media), including
books and records related to inventories, purchasing, accounting,
sales, research, engineering, maintenance, repairs, marketing,
banking, Intellectual Property, shipping records, personnel files
for Transferred Employees and all files, records, literature and
correspondence;
(vi) to the extent legally assignable, all Permits;
(vii) to the extent any of the following relate to any Assumed Liability
or any of the Purchased Assets: claims, deposits, prepayments,
prepaid assets, refunds (excluding Tax refunds with respect to
periods prior to the Closing Date), causes of action, rights of
recovery, rights of set off and rights of recoupment of the Sellers
as of the Closing Date, including all rights of the Sellers under
any property, casualty, workers' compensation or other insurance
policy or related insurance services contract;
(viii) any other tangible assets of the Sellers which are used primarily in
the Business and which are of a nature not customarily reflected in
the books and records of a business, such as assets which have been
written off for accounting purposes but which are still used by or
of value to the Business;
(ix) all goodwill associated with the Business;
(x) all supplier lists, files, records and data relating to the
Business;
(xi) all customer lists, files, records and data relating to the
Business;
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(xii) all capital expenditure plans and studies, engineering studies,
accounting, real property, environmental, Tax, employment, health
and safety, and other books, records, files, ledgers, documents and
correspondence used or held for use in or associated with the
operation of the Purchased Assets, the ownership of the Purchased
Assets, or the conduct of the Business, other than Excluded Assets;
(xiii) all rights to the use of the name National Telecom;
(xiv) all rights under express or implied warranties from the providers of
goods and services in connection with the operation of the Purchased
Assets, the ownership of the Purchased Assets, or the conduct of the
Business; and
excluding in every instance all Excluded Assets.
"Purchase Price" means the aggregate amount of cash payable to the Seller
by the Purchaser pursuant to Section 2.3.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Registerable Securities" means the shares of Warrant Stock issuable upon
the Sellers' exercise of the Warrants.
"Restricted Securities" has the meaning set forth in the introductory
paragraph to Section 14.
"Return" means any return, report or statement (including any information
return) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Sellers" has the meaning set forth in the first paragraph of this
Agreement.
"Series H Warrants" means the 6,250 non-transferable warrants,
substantially in the form of Annex IV, to purchase a like number of shares
of Parent Stock at an initial exercise price equal to the IPO Price.
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"Series I Warrants" means the 6,250 non-transferable warrants,
substantially in the form of Annex V, to purchase a like number of shares
of Parent Stock at an initial exercise price equal to the IPO Price.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II
"Subsidiary" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any
nature whatever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 11.1(i).
"Transferred Employee" has the meaning set forth in Section 8.2(ii).
"Warrants" means the Series H Warrants and the Series I Warrants.
"Warrant Stock" means the shares of Parent Stock issuable upon exercise of
the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. PURCHASE AND SALE; CLOSING; SECTION 351 EXCHANGE PLAN
2.1 Purchase and Sale of Purchased Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Purchaser will
purchase from the Sellers, and the Sellers will sell, transfer, assign, convey
and deliver to the Purchaser the Purchased Assets pursuant to the Bill of Sale.
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2.2 Assumption of Liabilities. On the terms and subject to the conditions
set forth in this Agreement, at the Closing, the Purchaser will assume and
become responsible for all of the Assumed Liabilities pursuant to the
Assumption Agreement.
2.3 Purchase Price. The total consideration to be provided by the Purchaser
to the Sellers for the Purchased Assets shall be the sum of the following items
delivered at Closing: (i) immediately available funds in the amount of
$130,000.00, (ii) the assumption of the Assumed Liabilities, (iii) the Note,
(iv) the Series H Warrants and (v) the Series I Warrants.
2.4 Allocation of Purchase Price. The Sellers and the Purchaser agree to
allocate the Purchase Price and the Assumed Liabilities among the Purchased
Assets and the Sellers' covenant not to compete in accordance with Schedule
2.4. The parties agree to file all Tax reports, Returns and claims and other
statements consistent with the allocation set forth on Schedule 2.4 (and in
particular to report the information required by Section 1060(b) of the Code)
in a manner consistent with such allocation and shall not make any inconsistent
written statement or take any inconsistent position on any Returns, in any
refund claim, during the course of any IRS or other Tax audit, for any
financial or regulatory purpose, in any litigation or investigation or
otherwise, so long as there exists a reasonable basis in law to maintain such
position. Each party shall notify the other party if it receives notice that
the IRS proposes any allocation different from Schedule 2.4.
2.5 Closing. The closing of the transactions contemplated by this Agreement
("Closing") shall take place on the date of the closing of the sale of shares
of the Purchaser Stock in the IPO, or such other date as the parties hereto may
designate (the "Closing Date"), at such place as the parties may mutually
agree.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE SELLERS
Each of the Sellers jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 3 are true at the date of this Agreement and, subject to Section 5.7,
shall be true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 3 shall be complied with or performed at and as of
the Closing Date and (iii) that none of the following representations and
warranties shall survive the Closing Date.
3.1 Authority. The Sellers have full authority to execute and deliver this
Agreement and this Agreement constitutes the legal, valid and binding
obligation of the Sellers.
3.2 Financial Statements. Attached hereto as Schedule 3.2 are copies of the
following accrual basis financial statements of the Business beginning with the
year ended December 31, 1994
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(the "Business Financial Statements"): the Business' unaudited Balance Sheets
as of December 31, 1996, 1995, and 1994 and its unaudited Statements of Income
and Retained Earnings and any related notes thereto for each of the years in
the three-year period ended December 31, 1996; the unaudited Balance Sheet of
the Business as of June 30, 1997 ("June Balance Sheet") (such June 30, 1997
Balance Sheet being hereinafter referred to as the "Balance Sheet Date"). The
Business Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 3.2). Except as set
forth on Schedule 3.2, the foregoing Balance Sheets present fairly the
financial position of the Business as of the dates indicated thereon, and the
foregoing Statements of Income and Retained Earnings present fairly the results
of operations for the periods indicated thereon in accordance with generally
accepted accounting principles and in conformity with generally recognized
industry standards.
3.3 Liabilities and Obligations. The Sellers have delivered to the
Purchaser an accurate list (which is set forth on Schedule 3.3) as of the
Balance Sheet Date of (i) all liabilities of the Sellers and the Business that
are not reflected on the June Balance Sheet or otherwise reflected in the
Business Financial Statements at the Balance Sheet Date and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, Liens, pledges
or other security agreements. Except as set forth on Schedule 3.3, since the
Balance Sheet Date neither of the Sellers nor the Business has incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Sellers have also disclosed to
the Purchaser on Schedule 3.3, in the case of those contingent liabilities of
either Sellers or the Business related to pending or threatened litigation or
other liabilities which are not fixed or otherwise accrued or reserved, the
following information:
(w) a summary description of the liability together with the
following:
(1) copies of all relevant documentation relating thereto;
(2) amounts claimed and any other action or relief sought; and
(3) name of claimant and all other parties to the claim, suit or
proceeding;
(x) the name of each court or agency before which such claim, suit or
proceeding is pending;
(y) the date such claim, suit or proceeding was instituted; and
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(z) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
3.4 Permits and Intangibles. The Sellers hold all Permits the absence of
any of which could have a Material Adverse Effect on the Business, and the
Sellers have delivered to the Purchaser an accurate list and summary
description (which is set forth on Schedule 3.4) of all Permits owned or held
by the Sellers associated with the Business (it being understood and agreed
that a list of all environmental Permits and other environmental approvals is
set forth on Schedule 3.5). To the knowledge of the Sellers, (i) the Permits
listed on Schedules 3.4 and 3.5 are valid, and (ii) the Sellers have not
received any notice that any governmental authority intends to cancel,
terminate or not renew any such Permit. The Sellers have conducted and are
conducting the Business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits listed on Schedules 3.4 and
3.5 and are not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Sellers. Except as specifically provided in Schedule 3.4, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Sellers by, any such Permit.
3.5 Environmental Matters. Except as set forth on Schedule 3.5, (i) the
Sellers have complied with and are in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, Permits, judgments, orders and decrees applicable to the
Business or any of Sellers properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the Sellers have obtained and adhered to all Permits necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which Permits is set forth on Schedule
3.5, and have reported to the appropriate authorities, to the extent required
by all Environmental Laws, all past and present sites owned and operated by the
Sellers where Hazardous Wastes or Hazardous Substances have been treated,
stored, disposed of or otherwise handled; (iii) there have been no releases or
threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Sellers except as permitted by Environmental
Laws; (iv) the Sellers know of no on-site or off-site location to which the
Sellers have transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the Sellers or the Purchaser, for any clean-up cost, remedial work,
damage to natural resources, property damage or personal injury, including, but
not limited to, any claim under the
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Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended; and (v) the Sellers have no contingent liability in connection with
any release of any Hazardous Waste or Hazardous Substance into the environment.
3.6 Personal Property. The Sellers have delivered to the Purchaser an
accurate list (which is set forth on Schedule 3.6) of (i) all personal property
included (or that will be included) in "depreciable plant, property and
equipment" on the balance sheet of the Business, (ii) all personal property
owned or currently leased by the Sellers utilized in connection with the
Business with a value in excess of $2,500 (x) as of the Balance Sheet Date and
(y) acquired since the Balance Sheet Date and (iii) all leases and agreements
in respect of personal property, including, in the case of each of (i), (ii)
and (iii), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned,
solely for the personal use of the Sellers. Except as set forth on Schedule
3.6, (a) all personal property used by the Sellers in the Business is either
owned by the Sellers or will be owned by the Sellers upon payment on or before
the Closing Date of the required amount to own such property pursuant to each
lease included on Schedule 3.6, (b) all of the personal property listed on
Schedule 3.6 is in good working order and condition, ordinary wear and tear
excepted.
3.7 Significant Customers; Material Contracts and Commitments. The Sellers
have delivered to the Purchaser an accurate list (which is set forth on
Schedule 3.7) of all significant customers, or Persons that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 3.7, means a customer (or
Person) (i) representing 2% or more of the Sellers' annual revenues as of the
Balance Sheet Date or (ii) reasonably expected to represent 2% or more of the
Business' revenues during the twelve-month period ending June 30, 1998. Except
to the extent set forth on Schedule 3.7, none of the Business' significant
customers (or Persons that are sources of a significant number of customers)
has canceled or substantially reduced or, to the knowledge of the Sellers, is
currently attempting or threatening to cancel a contract or substantially
reduce utilization of the services provided by the Business.
The Sellers have listed on Schedule 3.7 all material contracts, commitments
and similar agreements to which the Sellers are a party in connection with the
Business or by which the Sellers or any of the properties associated with the
Business are bound (including, but not limited to, any contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 3.3, 3.6 or 3.8, (x) in existence as
of the Balance Sheet Date and (y) entered into since the Balance Street Date,
and in each case have delivered true, complete and correct copies of such
agreements to the Purchaser. The Sellers have complied with all material
commitments and obligations pertaining to each of them, and are not in default
under any contract or agreement listed on Schedule 3.7 and no notice of default
or termination under any such contract or agreement has been received. The
Sellers have also indicated on Schedule 3.7 a summary description of all plans
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or projects, in connection with the Business, involving the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than $2,500 by the Sellers.
Except as set forth on Schedule 3.7, all of the contracts, commitments and
similar agreements listed on Schedule 3.7 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
3.8 Real Property. Schedule 3.8 includes a list of all real property owned
or held pursuant to leases by the Sellers in connection with the Business (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date,
and all other property, if any, used by the Sellers in the conduct of the
Business. The Sellers have good and insurable title to such real property owned
by them, and will have good and insurable title in fee simple to any real
property currently leased by them in the conduct of the Business upon Closing,
except for the Lease, including those real properties reflected on Schedule
3.8, subject to no Lien except for:
(w) Liens reflected on Schedules 3.3 or 3.7 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current Taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 3.8 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of the Sellers with respect to real property owned by the Sellers
used in the conduct of the Business, (2) true, complete and correct copies of
all leases and agreements in respect of such real property leased by the
Sellers (which copies are attached to Schedule 3.8), and (3) an indication as
to which such properties, if any, are currently owned, or were formerly owned,
solely for the personal use of the Sellers.
The Lease included on Schedule 3.8 is in full force and effect and constitutes
the valid and binding agreement of the parties (and their successors) thereto
in accordance with its terms.
3.9 Insurance. The Sellers have delivered to the Purchaser, as set forth on
and attached to Schedule 3.9, (i) an accurate list as of the Balance Sheet Date
of all insurance policies carried by the Sellers, (ii) an accurate list of all
insurance loss runs on workers compensation claims received
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for the past three policy years and (iii) true, complete and correct copies of
all insurance policies currently in effect. Such insurance policies evidence
all of the insurance that the Sellers are required to carry pursuant to all of
its contracts and other agreements and pursuant to all applicable laws. All of
such insurance policies are currently in full force and effect and shall remain
in full force and effect through the Closing Date. No insurance carried by the
Sellers has ever been canceled by the insurer and the Sellers have never been
denied coverage.
3.10 Intellectual Property. Except as set forth in Schedule 3.10, the
Sellers either own or have the right to use by license, sublicense, agreement,
or permission all of the Sellers' inventions, improvements, domestic and
foreign patents and applications therefor, customer lists, copyrights,
copyright registrations and applications therefor, trademarks, trade names,
service marks, trade dress, logos, rights in computer software, and all rights
granted or retained in licenses under any of the foregoing which are used in
connection with the conduct of the Business as presently conducted. Except as
set forth on Schedule 3.10, none of the Intellectual Property which is used in
connection with the conduct of the Business is, or has been in the past five
years involved in, or the subject of, any pending or, to the knowledge of the
Sellers, threatened infringement, interference, opposition or similar action,
suit or proceeding or, to the knowledge of Sellers, has otherwise been
challenged in any way. Except as set forth on Schedule 3.10, the Intellectual
Property will afford the Purchaser the right to use all technology, know-how,
technical and other information, data and other intellectual property, whether
patentable or unpatentable, and whether owned by the Sellers, any other Person
or others, necessary for the conduct of the Business in a manner consistent
with the Sellers' prior practice. The license fees, royalties and other amounts
payable by the Sellers in connection with the use of the Intellectual Property,
together with the terms and conditions on which and periods for which such
amounts are payable, are described in Schedule 3.10. Any licenses, fees,
royalties or other amounts payable as a result of the transfer of any item of
Intellectual Property by the Sellers to the Purchaser pursuant to this
Agreement shall be paid by the Purchaser.
3.11 Labor Relations. Except as set forth on Schedule 3.11, the Sellers are
not a party to any collective bargaining agreement; and there are no
controversies pending or, to the Sellers' knowledge, threatened between the
Sellers and any of its current or former employees or any labor or other
collective bargaining unit representing any current or former employee of the
Sellers that could reasonably be expected to result in a labor strike, dispute,
slow-down or work stoppage or otherwise have a Material Adverse Effect. Sellers
are not aware of any organizational effort presently being made or threatened
by or on behalf of any labor union with respect to employees of the Sellers. To
the Sellers' knowledge, no executive, key employee or group of employees of the
Sellers have any plan to terminate employment with the Sellers.
3.12 Employee Benefits.
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(i) Schedule 3.12 lists all Employee Benefit Plans that the Sellers
maintain or to which the Sellers contribute for the benefit of any current
or former employee of the Sellers.
(ii) Neither the Sellers nor any other organization that is a member
of a controlled group of organizations within the meaning of Code Sections
414(b), (c), (m) or (o) of which the Sellers are a member ("Controlled
Group Member") contributes, or has contributed in the past, to any Employee
Pension Benefit Plan subject to Title IV of ERISA or any Multiemployer Plan
for the benefit of any current or former employee of the Sellers or any
Controlled Group Member.
(iii) The Sellers have delivered to the Purchaser complete and
accurate copies of all plans or summary plan descriptions for each Employee
Benefit Plan listed on Schedule 3.12. For each Employee Pension Benefit
Plan listed on Schedule 3.12 intended to qualify under Section 401(a) of
the Code, the Sellers have delivered to the Purchaser (w) the three most
recent annual reports, (x) the three most recent annual and periodic
accountings of plan assets, (y) the most recent determination letter
received from the IRS and (z) where applicable, the three most recent
actuarial valuations.
(iv) There are no liabilities, breaches, violations or defaults under
any Employee Benefit Plan sponsored or maintained by the Sellers or any
Controlled Group Member that would subject the Purchaser to any Taxes or
other liabilities.
(v) With respect to each Employee Welfare Benefit Plan listed on
Schedule 3.12, the Sellers or an Affiliate has complied with the
requirements of Code Section 4980B.
3.13 Tax Matters.
(i) The Sellers, with respect to the Business, are currently taxed as
a proprietorship. The Sellers have filed all Tax Returns that they were
required to file. All such Tax Returns filed by the Sellers were correct
and complete in all material respects or reserved for on its books. All
Taxes owed by the Sellers (whether or not shown on any Tax Return) have
been paid. Except as set forth on Schedule 3.13, the Sellers are not
currently the beneficiaries of any extension of time within which to file
any Tax Return. Since January 1, 1994, no claim with respect to the Sellers
have been made by an authority in a jurisdiction where the Sellers do not
file Tax Returns that they are or may be subject to taxation by that
jurisdiction. There is no Lien affecting any of the Purchased Assets that
arose in connection with any failure or alleged failure to pay any Tax.
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(ii) The Sellers have withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor or other party.
(iii) The Sellers do not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of the Sellers either claimed or raised by any authority in writing or as
to which Sellers have knowledge based upon direct inquiry by any agent of
such authority. Schedule 3.13(iii) lists all income Tax Returns of the
Sellers for taxable periods ended on or after January 1, 1992, indicates
those Tax Returns of which the Sellers are aware that have been audited and
indicates those Tax Returns that currently are the subject of audit. The
Sellers have delivered to the Purchaser correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies assessed
against or agreed to by the Sellers for any taxable period ended on or
after January 1, 1993.
(iv) Except as set forth on Schedule 3.13(iv), the Sellers have not
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) The Sellers have not made any payments, are not obligated to make
any payments and are not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be fully
deductible under Section 280G of the Code.
(vi) Except as set forth on Schedule 3.13(vi), none of the Purchased
Assets secures any debt, the interest on which is tax-exempt under Section
103(a) of the Code. None of the Purchased Assets are "tax-exempt use
property" within the meaning of Section 168(h) of the Code. The
transactions contemplated by this Agreement are not subject to Tax
withholding pursuant to the provisions of Section 3406 or Subchapter A of
Chapter 3 of the Code or any other provision of applicable law.
(vii) The Sellers have not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to the Business, or the
Purchased Assets or the Purchaser after the Closing Date.
3.14 Prior or Preferential Rights. There are no prior or preferential
rights, rights of first refusal, or other similar rights in any party (other
than the Purchaser) to purchase or otherwise acquire the Business or any
Purchased Assets.
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3.15 Sufficiency of Assets. The Purchased Assets are all of the assets,
properties and rights of the Sellers (other than the Excluded Assets and
Excluded Liabilities) whether tangible or intangible, real, personal or mixed,
and known or unknown, and wherever located, used or held for use in or
associated with the conduct of the Business. The Purchased Assets are
sufficient to conduct the Business on a basis consistent with the Sellers'
prior practice, provided Purchaser supplies working capital to the Business in
an amount comparable to that maintained by the Sellers prior to the Closing.
3.16 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 3.5 or 3.16, the Sellers are not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Sellers which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 3.3 or 3.5, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of the
Sellers, threatened, against or affecting the Sellers, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Sellers and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Sellers. The Sellers have
conducted and are conducting the Business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances and Permits, including all such
Permits set forth on Schedules 3.4 and 3.5, and are not in violation of any of
the foregoing which might have a Material Adverse Effect.
3.17 No Violations. Neither the Sellers nor, to the knowledge of the
Sellers, any other party thereto, are in default under any Contract, Permit,
the Lease or other instrument set forth on Schedule 3.4, 3.5, 3.6, 3.7 or 3.8,
or any other material agreement to which it is a party or by which its
properties are bound (the "Material Documents"); and, except as set forth in
Schedule 3.17, (i) the rights and benefits of the Sellers under the Material
Documents will not be materially adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents. Except as set forth on Schedule 3.17, none of the Material
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 3.17, none of the Material Documents
prohibits the use or publication by the Sellers or the Purchaser of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Sellers in the conduct of the Business from freely
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providing services to any other customer or potential customer of the Business,
the Purchaser or any affiliate of the Purchaser.
3.18 Government Contracts. Except as set forth on Schedule 3.18, the
Sellers, in connection with the Business, are not a party to any governmental
contract subject to price determination or renegotiation.
3.19 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 3.7 or 3.19, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income of the Business or the
Sellers;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties used in connection
with the Business;
(iii) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Sellers in the conduct
of the Business to any employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(iv) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
Business of the Sellers;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights used in connection with the conduct of
the Business of the Sellers to any Person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Sellers in connection with the Business;
(vii) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of the Sellers used in connection with the Business or requiring
consent of any party to the transfer and assignment of any such assets,
property or rights;
(viii) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or asset outside of
the ordinary course of the Business;
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(ix) any waiver of any material rights or claims of the Sellers in
connection with the Business;
(x) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the Sellers are a party;
(xi) any transaction by the Sellers outside the ordinary course of the
Business which could have a Material Adverse Effect;
(xii) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xiii) any other distribution of property or assets, associated with
the Business, by the Sellers.
3.20 Disclosure. This Agreement, including the Schedules hereto, together
with all other documents and information made available to the Purchaser or
Parent and their representatives in writing pursuant hereto, present fairly the
Business and operations associated therewith by the Sellers for the time
periods with respect to which such information was requested. The Sellers'
rights under the documents delivered pursuant hereto would not be materially
adversely affected by, and no statement made herein would be rendered untrue in
any material respect by, any other document to which the Sellers is a party, or
to which its properties are subject, or by any other fact or circumstance
regarding the Sellers (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Sellers) that is not disclosed
pursuant hereto or thereto.
3.21 Prohibited Activities. Except as set forth on Schedule 3.21, the
Sellers have not, between the Balance Sheet Date and the date of this
Agreement, taken any of the actions set forth in Section 5.3 ("Prohibited
Activities").
3.22 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Sellers expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PURCHASER,
PARENT AND OLD ACG
The Purchaser, Parent and Old ACG, jointly and severally represent,
warrant, covenant and agree (i) that all of the following representations and
warranties in this Section 4 are true at the date
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of this Agreement and, subject to Section 5.7, shall be true at the Closing
Date and (ii) that all of the covenants and agreements in this Section 4 shall
be complied with or performed at and as of the Closing Date. None of the
representations and warranties of the Purchaser, Parent and Old ACG in this
Agreement shall survive the Closing.
4.1 Due Organization. The Purchaser, Parent and Old ACG are corporations
duly organized, validly existing and in good standing under the laws of the
state of Delaware, and are duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on its business in the places and in the manner as now conducted,
except where the failure to be so authorized or qualified would not have a
Material Adverse Effect. True, complete and correct copies of the Charter
Documents and By-laws, each as amended, of the Purchaser, Parent and Old ACG
(the "Charter Documents") are attached hereto as Schedule 4.1.
4.2 Authorization. Each of the Purchaser, Parent and Old ACG has all
requisite corporate power and authority to enter into the Agreement and to
perform its obligations thereunder. The execution and delivery of the Agreement
by each of the Purchaser, Parent and Old ACG and its consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action of the Purchaser, Parent and Old ACG, respectively. The
Agreement has been duly executed and delivered by the Purchaser, Parent and Old
ACG, and is a valid and binding obligation of the Purchaser, Parent and Old ACG
enforceable against the Purchaser, Parent and Old ACG in accordance with its
terms.
4.3 Capital Stock. The authorized capital stock of Old ACG is as set forth
on Schedule 4.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, (iii) are owned of record and beneficially by the
persons set forth on Schedule 4.3, and (iv) were offered, issued, sold and
delivered by Old ACG in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Old ACG. Subject to the consummation of the reverse
stock split referred to in the eight recital of this Agreement and the
consummation of Parent's acquisition of Old ACG in the reverse triangular
merger, the capitalization of Parent will be identical to the capitalization of
Old ACG immediately prior to the consummation of the IPO.
4.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 4.3 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 4.3 also includes complete and
accurate copies of all stock option or stock purchase plans,
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including a list, accurate as of the date hereof, of all outstanding options,
warrants or other rights to acquire shares of capital stock of Old ACG.
4.5 Subsidiaries. Neither Parent nor Old ACG has any Subsidiaries, except
for each of the companies identified on Schedule 4.5. Except as set forth in
the preceding sentence, neither Parent nor Old ACG presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither Parent, nor Old ACG,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporation entity.
4.6 Financial Statements. The Draft Registration Statement contains copies
of the following financial statements of Old ACG, which reflect the results of
its operations from inception in June 1996 (the "Old ACG Financial
Statements"): Old ACG's audited Balance Sheet as of December 31, 1996 and its
unaudited Balance Sheet as of June 30, 1997, and audited Statements of
Operations, Stockholder's Equity and Cash Flows and related notes thereto for
the period from June 10, 1996 through December 31, 1996 and unaudited
Statements of Operations, Stockholder's Equity and Cash Flows for the six
months ended June 30, 1997. The audited Old ACG Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the period indicated (except as noted thereon or
on Schedule 6.6). The unaudited Old ACG Financial Statements were prepared in
accordance with the books and records of Old ACG in accordance with accounting
principles consistently applied. Old ACG's Balance Sheets present fairly the
financial position of Old ACG as of the dates indicated thereon, and Old ACG's
Statements of Operations, Stockholder's Equity and Cash Flows included in the
Old ACG Financial Statements present fairly the results of operations for the
periods indicated thereon in accordance with generally accepted accounting
principles. Old ACG's Financial Statements at and for the period ended December
31, 1996 have been examined by KPMG Peat Marwick LLP, independent public
accountants.
4.7 Liabilities and Obligations. Except as set forth on Schedule 4.7,
neither the Parent nor Purchaser nor Old ACG has any material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and except for fees incurred in connection with the transactions
contemplated hereby and transactions related to the acquisition of other
companies in preparation for the IPO.
4.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 4.8, neither the Parent nor Purchaser nor Old ACG is in violation of
any law or regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 4.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
the Parent or Purchaser or Old ACG, threatened,
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against or affecting the Parent or Purchaser or Old ACG, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Old ACG has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, Permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
4.9 No Violations. Neither the Parent nor Purchaser nor Old ACG is in
violation of any Charter Document. Neither the Parent, Purchaser or Old ACG
nor, to the knowledge of the Parent, Purchaser or Old ACG, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which the Parent or Purchaser or Old ACG is a party, or by which the
Parent or Purchaser or Old ACG, or any of its respective properties, are bound
(collectively, the "Parent Documents"); and (i) the rights and benefits of the
Parent or Purchaser or Old ACG under the Parent Documents will not be adversely
affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Parent Documents or the Charter Documents. Except as set
forth on Schedule 4.9, none of the Parent Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
4.10 Business; Real Property; Material Agreement. For the reasons set forth
in the Old ACG Financial Statements and except as disclosed therein or on
Schedule 4.10, neither Parent, Purchaser or Old ACG has conducted any material
business since the date of its inception, neither the Purchaser, Parent nor Old
ACG owns, nor have either at any time owned, any real property or any material
personal property, and neither the Purchaser nor the Parent nor ACG is a party
to any material agreement.
4.11 Taxes.
(i) Neither the Purchaser nor the Parent has been required to file any
Federal, state and other Tax Returns for any fiscal period ended on or
before the Balance Sheet Date.
(ii) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is
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not currently the beneficiary of any extension of time within which to
file any Tax Return. Since Old ACG's formation in June 1996 , no claim with
respect to Old ACG has been made by an authority in a jurisdiction where
Old ACG does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There is no Lien affecting any of Old ACG's assets
that arose in connection with any failure or alleged failure to pay any
Tax.
(iii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iv) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
4.12 Draft Registration Statement. The text of and the financial statements
and other financial information contained in the Draft Registration Statement,
insofar as they relate to Parent or Old ACG but not otherwise, are true,
accurate and complete in all material respects and do not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
5. OTHER COVENANTS PRIOR TO CLOSING
5.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, the
Sellers will afford to the officers and authorized representatives of the
Purchaser, Parent or Old ACG access to all of the Business' sites,
properties, books and records and furnish the Purchaser, Parent or Old ACG
with such additional financial and operating data and other information as
to the business and properties of the Sellers as the Purchaser, Parent or
Old ACG may from time to time reasonably request. The Sellers will
cooperate with the Purchaser, Parent, or Old ACG, its representatives,
auditors and counsel in the preparation of any documents or other material
that may be required in connection with any documents or materials required
by this Agreement, including the preparation for and consummation of the
IPO. The Purchaser, Parent or Old ACG will treat all information obtained
in connection with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section 10.
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(ii) Between the date of this Agreement and the Closing, the
Purchaser, Parent or Old ACG will afford to the Sellers and to the
authorized representatives of the Sellers access to all of the sites,
properties, books and records of Purchaser, Parent or Old ACG and will
furnish the Sellers with such additional financial and operating data and
other information as to the business and properties of Purchaser, Parent or
Old ACG as the Sellers may from time to time reasonably request. The
Purchaser, Parent or Old ACG will cooperate with the Sellers, their
representatives, auditors and counsel in the preparation of any documents
or other material which may be required in connection with (x) any
documents or materials required by this Agreement or (y) the preparation
for and consummation of the IPO. The Sellers and their respective
authorized representatives will treat all information obtained in
connection with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section 10.
(iii) The Sellers agree to permit an independent accounting firm
selected by the Purchaser, Parent or Old ACG to audit and render a report
on the Business Financial Statements and the comparable financial
statements at and for the year ending December 31, 1996, and any other
period selected by the Purchaser, Parent or Old ACG, provided that all the
costs and expenses of such audits are paid by the Purchaser, Parent or Old
ACG.
5.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by the Parent or Old ACG, between the date of this Agreement and the
Closing Date, the Sellers will:
(i) carry on the Business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain the properties and facilities used in the conduct of the
Business, including those held under lease, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting the assets,
properties or rights associated with the Business;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
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(v) use its reasonable best efforts to maintain and preserve the
Business, retain the present key employees used in the conduct of the
Business and maintain its respective relationships with suppliers,
customers and others having business relations with the Sellers in
connection with the Business;
(vi) maintain compliance with all material Permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt instruments and the Lease and not enter
into new or amended debt or lease instruments; and
(viii) maintain or reduce present salaries and commission levels for
all employees and agents except for ordinary and customary bonus and salary
increases for employees in accordance with past practices.
5.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, the Sellers will not, without prior written consent of the
Parent:
(i) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice), or involves the
purchase of any real or personal property pursuant to a lease attached to a
Schedule hereto, or involves an amount not in excess of $2,500;
(ii) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $2,500 necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 3.3 or 3.7;
(iii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(iv) negotiate for the acquisition of any business or the start-up of
any new business;
(v) waive any material right or claim;
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(vi) commit a material breach or amend or terminate any material
agreement, Permit, license or other right; or
(vii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
5.4 Exclusivity. Neither the Sellers, nor any agent, officer, director,
trustee or any representative of the Sellers, during the period commencing on
the date of this Agreement and ending with, the earlier to occur of the Closing
Date or the termination of this Agreement in accordance with its terms,
directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than the Purchaser
or Parent or their authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the assets used in connection with the Business of
Sellers.
5.5 Notice to Bargaining Agents. Prior to the Closing Date, the Sellers
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Parent with proof that any required notice has been sent.
5.6 Notification of Certain Matters. The Sellers shall give prompt notice
to the Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of the Sellers contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any material failure
of the Sellers to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder as of such date. The Parent
shall give prompt notice to the Sellers of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of the Purchaser, Parent or Old ACG contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date and (ii) any material failure of the Purchaser, Parent or Old ACG to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder as of such date. The delivery of any notice
pursuant to this Section 5.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to
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Section 5.7, (ii) modify the conditions set forth in Sections 6 and 7, or (iii)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
5.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the Sellers or the Purchaser, Parent or Old ACG that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless the Purchaser, Parent or Old ACG or the
Sellers, as the case may be, consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6.1 and 7.1 have been
fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 5.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 9.1(vi). Neither the entry by the Purchaser, Parent or
Old ACG into any other agreement, such as this Agreement, after the date hereof
for the acquisition of one or more companies involved in or assets associated
with the telephone business and related activities nor the performance by the
Purchaser, Parent or Old ACG of its obligations thereunder shall be deemed to
require the amendment to or the supplementation of any Schedule hereto.
5.8 Bulk Sales Laws. The Purchaser, Parent and Old ACG hereby waive
compliance with the provisions of any bulk transfer laws applicable to the
transactions contemplated by this Agreement including, without limitation, bulk
sales laws under the Uniform Commercial Code or relating to the right or
obligation of the Purchaser, Parent or Old ACG to withhold any portion of the
Purchase Price pending determination by any governmental entities of the
Sellers' liability for any Tax obligations to any such governmental entities.
5.9 Transfer Taxes and Recording Fees. Any sales, transfer, use or other
similar Taxes imposed as a result of the sale of the Purchased Assets to the
Purchaser pursuant to this Agreement shall be paid by the Purchaser. At the
Closing, the Purchaser shall remit to the Sellers such properly completed
resale exemption certificates and other similar certificates or instruments as
are necessary to claim available exemptions from the payment of sales,
transfer, use or other similar Taxes under applicable law. All recording,
transfer and other similar Taxes and fees payable as a result of the public
recordation of the instruments of conveyance or transfer of the Purchased
Assets executed and delivered to Purchaser pursuant to this Agreement shall be
paid by the Sellers.
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5.10 Certain Provisions Relating to Consents.
(i) The Sellers will obtain, at their expense, and the Parent will use
its reasonable cooperative efforts (including furnishing financial
information on a confidential basis, where required) prior to and after the
Closing Date to assist the Sellers in obtaining all third party consents
that are required in connection with the transactions contemplated by this
Agreement. The Sellers will use reasonable efforts to obtain, and the
Parent will use its reasonable cooperative efforts prior to and after the
Closing Date to assist the Sellers in obtaining from the landlord of the
Lease, an estoppel agreement in form and substance reasonably acceptable to
the Parent containing to the extent necessary consent from such landlord to
the assignment of the Lease to the Purchaser. All expenses incurred in
connection with obtaining such consent and estoppel agreement shall be paid
by the party incurring the same. To the extent such consent and/or estoppel
agreement is not obtained by Closing, the Sellers shall continue to assist
the Purchaser in obtaining such consent and/or estoppel agreement after
Closing and shall pay the costs thereof.
(ii) To the extent that any Contract, Permit or the Lease is not
capable of being transferred by the Sellers to the Purchaser pursuant to
this Agreement without the consent of a third party (including a
governmental entity) and such consent is not obtained prior to Closing, or
if such transfer or attempted transfer would constitute a breach or a
violation of any law, nothing in this Agreement will constitute a transfer
or an attempted transfer thereof.
(iii) In the event that any such consent is not obtained on or prior
to the Closing Date, the Sellers will (x) provide to the Purchaser the
benefits of the applicable Contract, Permit or the Lease if reasonably
possible, (y) cooperate in any reasonable and lawful arrangement designed
to provide such benefits to the Purchaser and (iii) enforce at the request
and expense of the Purchaser and for the account of the Purchaser, any
rights of the Sellers arising from any such Contract or the Lease
(including the right to elect to terminate such Contract or the Lease in
accordance with the terms thereof upon the request of the Purchaser). If
any Permit required for the operation of the Business or the ownership or
use of the Purchased Assets is not transferred to the Purchaser at Closing,
the Sellers authorize (to the extent permitted by law) the Purchaser to
operate under any such Permit until the necessary consent to transfer or a
new Permit is obtained.
(iv) The Purchaser will perform the obligations arising under all
Contracts, Permits and the Lease referred to in Section 5.10(ii) for the
benefit of the Sellers and the other party or parties thereto, except for
any obligation under such Contract, Permit or the Lease that constitutes an
Excluded Liability.
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5.11 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement or the IPO.
5.12 Survival. None of the covenants and agreements set forth in Sections
5.1 through 5.9 shall survive the Closing.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. All conditions not satisfied
shall be deemed to have been waived.
6.1 Representations and Warranties Performance of Obligations. All
representations and warranties of the Purchaser, Parent and Old ACG contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Purchaser,
Parent or Old ACG on or before the Closing Date shall have been duly complied
with or performed in all material respects; and a certificate to the foregoing
effect, dated the Closing Date and signed by the President or any Vice
President of the Purchaser, Parent and Old ACG shall have been delivered to the
Sellers.
6.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Sellers and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit consummation of the transactions contemplated in this
Agreement and no governmental agency or body shall have taken any other action
or made any request of the Sellers or the Parent as a result of which the
Sellers deem it inadvisable to proceed with the transactions hereunder.
6.4 Opinion of Counsel. The Sellers shall have received an opinion from
counsel for the Purchaser, Parent and Old ACG, dated the Closing Date, in form
and substance reasonably acceptable to the Sellers, relating to, insofar as the
Purchaser, Parent and Old ACG are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement, (b) the receipt of
all required consents and approvals, and (c) such other legal matters as the
Sellers may reasonably request.
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6.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
6.6 No Material Adverse Change. No event or circumstance shall have
occurred with respect to the Purchaser, Parent or Old ACG that would constitute
a Material Adverse Effect.
6.7 Secretary's Certificates. The Sellers shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of the
Purchaser, Parent and Old ACG, certifying the completeness and accuracy of the
attached copies of the Charter Documents (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the respective board
of directors approving the Purchaser's, Old ACG's and Parent's entering into
this Agreement and the consummation of the transactions contemplated hereby.
6.8 Closing of IPO. The sale by the Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
6.9 Employment Agreements. Each of Daniel W. Peters and Cheryl A. Peters
shall be afforded an opportunity to enter into an employment agreement
substantially in the form of Annex VI and Annex VII, respectively, effective as
of the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER AND PARENT
The obligations of the Purchaser and Parent with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. All conditions not
satisfied shall be deemed to have been waived.
7.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the Sellers contained in this Agreement shall
be true and correct in all material respects as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date; all of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Sellers on or before the Closing Date
shall have been duly performed or complied with in all material respects; and
the Sellers shall have delivered to the Parent a certificate dated the Closing
Date and signed by them to such effect.
7.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated herein
and no governmental agency or body shall have taken any
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other action or made any request of the Purchaser, Parent, Old ACG or the
Sellers as a result of which the management of the Parent deems it inadvisable
to proceed with the transactions hereunder.
7.3 No Material Adverse Effect. No event or circumstance shall have ccurred
with respect to the Sellers which would constitute a Material Adverse Effect,
and the Sellers shall not have suffered any material loss or damage to any of
its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of the Sellers to
conduct its business.
7.4 Sellers' Release. The Sellers shall have delivered to the Purchaser an
instrument dated the Closing Date releasing (i) the Purchased Assets from any
and all claims of the Sellers and (ii) the obligations of the Purchaser to the
Sellers, except for obligations arising under this Agreement, or the
transactions contemplated hereby.
7.5 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to the Parent and its counsel.
7.6 Opinion of Counsel. The Purchaser and Parent shall have received an
opinion from counsel to the Sellers, dated the Closing Date, in form and
substance reasonably acceptable to the Parent, relating to, insofar as the
Sellers are concerned, (a) the receipt of all required consents and approvals,
(b) the consummation of the transactions contemplated herein and (c) such other
legal matters as the Purchaser or Parent may reasonably request.
7.7 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 3.17 shall have been
obtained.
7.8 FIRPTA Certificate. The Sellers shall have delivered to the Purchaser a
certificate to the effect that it is not a foreign Person under Section
1.1445-2(b) of the Treasury regulations promulgated pursuant to the Code.
7.9 Closing of IPO. The sale by the Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
7.10 Employment Agreements. Each of Daniel W. Peters and Cheryl Peters
shall have executed their respective employment agreements substantially in the
forms of Annex VI and VII, respectively.
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8. COVENANTS OF THE PURCHASER AND PARENT WITH THE SELLERS AFTER CLOSING
8.1 Release From Guarantees. The Purchaser and Parent shall use its best
efforts to have the Sellers released from any and all guarantees on any
indebtedness relating to the Purchased Assets that they personally guaranteed
and from any and all pledges of assets that they pledged to secure such
indebtedness for the benefit of the Business, with all such guarantees on
indebtedness being assumed by the Purchaser.
8.2 Employment.
(i) The Purchaser shall offer to hire, effective as of the Closing
Date, the employees listed on Schedule 8.2(i) ("Employees") of the Sellers
on the day immediately prior to the Closing Date. The Sellers shall use its
reasonable efforts to cause such employees to accept the Purchaser's offers
of employment.
(ii) The Employees who accept and commence employment with the
Purchaser shall be referred to herein as the "Transferred Employees".
(iii) Except as expressly provided otherwise in this Section 8.2 and
in Section 8.3, the terms of the Transferred Employees' employment shall be
upon such terms and conditions as the Purchaser in its sole discretion
shall determine. Upon request of the Purchaser, the Sellers shall provide
the Purchaser reasonable access to data (including computer data) regarding
the ages, dates of hire, compensation and job description of Employees. The
Sellers hereby authorize the Purchaser to enter into discussions with and
to advise any of the Employees concerning the terms of any future
employment of such individuals by the Purchaser and will permit the
Purchaser reasonable access to Employees for such purpose.
(iv) In the event that an individual (x) retires from the employ by
Sellers, relating to the Business, after the date of this Agreement and
prior to the Closing Date and (y) subsequently commences employment with
the Purchaser, such individual will cease receiving post-retirement medical
benefits from the Sellers. The Sellers will advise such individuals of this
condition before retirement. The Purchaser shall not assume any liability
for providing post-retirement medical benefits upon such individual's
termination of employment with the Purchaser.
(v) (x) Except for liabilities and claims to be assumed by the
Purchaser under Section 8.2(v)(y), the Sellers shall discharge all
liabilities to and claims of Transferred Employees or Employees of the
Sellers arising out of their employment with the Sellers,
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including but not limited to, claims arising out of any Employee
Benefit Plan maintained by the Sellers or for retiree medical benefits
promised, provided or subsidized by the Sellers after the Closing Date.
(y) The Purchaser shall discharge all liabilities and claims based on
occurrences or conditions first occurring or commencing on or after the
Closing Date of Transferred Employees or employees of the Purchaser arising
out of their employment with the Purchaser after the Closing Date,
including but not limited to, any claims arising out of any employee
benefit plan maintained by the Purchaser.
(vi) The Sellers and the Purchaser shall comply with Section 4 of the
Revenue Procedure 84-77, 1984-2 C.B. 753. The Sellers shall furnish (or
cause to be furnished) to each Transferred Employee in accordance with
Section 4 of the Revenue Procedure a Treasury Form W-2 for 1997 for the
wages paid by the Sellers, no later than January 31, 1998. The Purchaser
shall furnish (or cause to be furnished) to each Transferred Employee in
accordance with Section 4 of the Revenue Procedure a Treasury Form W-2 for
1997 for the wages paid by the Purchaser. The Purchaser shall file (or
cause to be filed) appropriate Treasury Forms W-2 and W-3 covering the
Transferred Employee with the Social Security Administration for wages paid
and amounts withheld by the Purchaser during 1997.
(vii) Nothing contained in this Agreement (x) shall confer upon any
former, current or future employee of the Sellers or the Purchaser or any
legal representative or beneficiary thereof any rights or remedies,
including, without limitation, any right to employment or continued
employment of any nature, for any specified period, or (y) shall cause the
employment status of any former, present or future employee of the
Purchaser to be other than terminable at will.
8.3 Health and Welfare Benefits.
(i) The Sellers shall provide all notices and fulfill all of its
obligations, if any, under Section 4980B(f) of the Code with respect to the
Transferred Employees. The Sellers shall deliver to the Purchaser's present
or proposed insurance carriers or third-party administrators, on a census
basis, at least 20 days prior to the Closing Date, information with respect
to all health, accident, workers' compensation, disability and related
claims filed by the Transferred Employees (including, without limitation,
information regarding the total number of claims filed by, the total amount
of benefits claimed by, and the total amount of benefits paid to such
persons) since January 1, 1993, to the extent requested by any such
carriers. The Sellers shall deliver to the Purchaser's health insurance
carriers or third-party administrators, on a census basis, to the extent
requested by any such carriers or administrators, an update of such
information through the Closing Date as soon as
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practicable but no later than 15 days after the Closing Date. Such
information, which may be provided directly from the Sellers' computer
database, shall be satisfactory in form and substance to such carriers and
administrators.
(ii) Effective on the Closing Date, the Transferred Employees shall be
eligible for health and welfare benefits substantially equivalent to those
the Purchaser provides to similarly situated new employees hired by the
Purchaser after the Closing Date; provided, however, that the Purchaser
reserves the right to modify or terminate such benefits from time to time
after the Closing Date. Such Transferred Employees shall be eligible to
participate under the Purchaser's health and welfare benefit plans as of
the Closing Date, and the Purchaser shall not be responsible for any
hospitalization, medical, survivor benefits, life insurance, or disability
claims based upon occurrences or conditions commencing, occurring or
existing before the Closing Date, regardless of whether such occurrences or
conditions continue after the Closing Date, and regardless of whether such
claims are made before or after the Closing Date. In no event shall the
Purchaser be required to provide post-retirement medical benefits to
Transferred Employees.
8.4 Use of Name. Promptly after the Closing, the Sellers shall not use the
trade name National Telecom.
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) all of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act, (ii) such compliance by the Sellers shall be deemed a
condition precedent in addition to the conditions precedent set forth in
Section 7 of this Agreement, and such compliance by the Purchaser or Parent
shall be deemed a condition precedent in addition to the conditions precedent
set forth in Section 6 of this Agreement, and (iii) the parties agree to
cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made.
9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the board of directors of Parent and the
Sellers;
(ii) by the Sellers, on the one hand, or by the Parent, on the other
hand, if the transactions contemplated by this Agreement to take place at
the Closing shall not have been
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consummated by January 31, 1998, unless the failure of such transactions
to be consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(iii) by the Sellers, on the one hand, or by Parent, on the other
hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Parent with the SEC pursuant to
the 1933 Act;
(iv) by the Sellers, if a material breach or default shall be made by
the Purchaser, Parent or Old ACG in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein, and the curing of such default shall not have been made on or
before the Closing Date;
(v) by the Parent, if a material breach or default shall be made by
the Sellers in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the curing
of such default shall not have been made on or before the Closing Date;
(vi) by the Stockholders, on the one hand, or by Parent, on the other
hand, if either such party declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 5.7 because such proposed amendment constitutes or reflects an
event or occurrence that would have a Material Adverse Effect on the party
or parties proposing the same.
9.2 Liabilities in Event of Termination. No party to this Agreement, whose
breach or default with respect to any of its representations, warranties,
covenants or agreements in this Agreement occasions a termination of this
Agreement by the other party hereto, shall have any obligation or liability
arising therefrom to any other party to this Agreement, unless such breach or
default is due to a willful failure to perform.
10. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 The Sellers. The Sellers recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information relating to the Business and/or the Purchaser, Parent
or Old ACG, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets related to the Business and/or the
Purchaser, Parent or Old ACG. The Sellers agree that they will not disclose
such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of the Purchaser, Parent
or Old ACG; (ii) following the Closing, such information may be disclosed by
the
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Sellers as is required in the course of performing their duties for the
Purchaser, Parent or Old ACG; and (iii) to counsel and other advisers; provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 10.1, unless (w) such information becomes known to the public
generally through no fault of the Sellers, (x) disclosure is required by law or
the order of any governmental authority under color of law; provided, that
prior to disclosing any information pursuant to this clause (y), the Sellers
shall give prior written notice thereof to the Parent and provide the Parent
with the opportunity to contest such disclosure, or (z) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by the Sellers of the provisions of this Section 10.1, the
Purchaser or Parent shall be entitled to an injunction restraining the Sellers
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting (1) the Sellers from using information
acquired in connection with activities permitted under Section 11 or (2) the
Purchaser or Parent from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, the above
mentioned restrictions on the Sellers' ability to disseminate confidential
information with respect to the Business and/or Purchaser, Parent or Old ACG
shall become void.
10.2 The Purchaser, Parent and Old ACG. Each of the Purchaser, Parent and
Old ACG recognize and acknowledge that it has in the past and currently has
access to certain confidential information relating to the Business, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Sellers. The Purchaser, Parent and Old ACG agree that,
prior to the Closing, or if the transactions contemplated by this Agreement are
not consummated, it will not disclose such confidential information to any
Person for any purpose or reason whatsoever, except (i) to authorized
representatives of the Sellers; and (ii) to counsel and other advisers;
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 10.2, unless (x) such information becomes known to
the public generally through no fault of the Purchaser, Parent or Old ACG, (y)
disclosure is required by law or the order of any governmental authority under
color of law; provided, that prior to disclosing any information pursuant to
this clause (y), the Parent shall, if possible, give prior written notice
thereof to the Sellers and provide the Sellers with the opportunity to contest
such disclosure, or (z) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by the
Purchaser, Parent or Old ACG of the provisions of this Section 10.2, the
Sellers shall be entitled to an injunction restraining the Purchaser, Parent or
Old ACG from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Sellers from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
10.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 10.1 and 10.2 and
because of the immediate and
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irreparable damage that would be caused for which no other adequate remedy
exists, the parties hereto agree that, in the event of a breach by any of them
of the foregoing covenants, the covenant may be enforced against the other
parties by injunction and restraining order.
10.4 Survival. The obligations of the parties under this Article 10 shall
survive the termination of this Agreement for a period of 36 calendar months
thereafter.
11. NONCOMPETITION
11.1 Prohibited Activities. Each of the Sellers will not, for a period of
36 calendar months following the later of (a) the termination of their
employment with the Purchaser or (b) the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or herself or on behalf of or
in conjunction with any other Person:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in the sale or
marketing of any communications, natural gas or electrical goods and services
(collectively, the "Proscribed Business"), within the State of Kansas (the
"Territory");
(ii) call upon any Person within the Territory who is an employee of the
Purchaser, Parent or Old ACG (including the Subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Purchaser, Parent
or Old ACG (including the Subsidiaries thereof); provided that Sellers shall be
permitted to call upon and hire immediate family members;
(iii) call upon any Person which is or which has been, within one year
prior to the later of (a) the termination of a Seller's respective employment
with the Purchaser or (b) the Closing Date, a customer of the Purchaser, Parent
or Old ACG (including the Subsidiaries thereof), or of the Sellers within the
Territory, for the purpose of soliciting or selling products or services in
direct competition with the Purchaser, Parent or Old ACG (including the
Subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any Seller's own
behalf or on behalf of any competitor of the Purchaser, Parent and Old ACG
(including the Subsidiaries thereof) engaged in a Proscribed Business, which
candidate was called upon by the Purchaser, Parent or Old ACG (including the
Subsidiaries thereof) or for which, to the actual knowledge of such Seller
after due inquiry, the Purchaser, Parent or Old ACG (or any Subsidiary thereof)
made an acquisition analysis, for the purpose of acquiring such entity; or
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(v) disclose existing or prospective customers of the Purchaser, Parent or
Old ACG to any Person for any reason or purpose whatsoever except to the extent
that either of the Sellers in the past disclosed such information to the public
for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit either Sellers from acquiring and holding as a passive investment not
more than five percent of the capital stock of a competing business whose stock
is traded on a national securities exchange.
11.2 Damages. Because of the difficulty of measuring economic losses to the
Purchaser, Parent or Old ACG as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that could be caused to the
Purchaser, Parent or Old ACG for which it would have no other adequate remedy,
each Seller agrees that the foregoing covenant may be enforced by the
Purchaser, Parent or Old ACG in the event of breach by such Seller, by
injunction and restraining order.
11.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 11 impose a reasonable restraint on the
Sellers in light of the activities and business of the Purchaser, Parent or Old
ACG (including the Subsidiaries thereof) on the date of the execution of this
Agreement and the reasonably foreseeable plans of the Purchaser, Parent or Old
ACG.
11.4 Severability, Reformation. The covenants in this Section 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent the
court deems reasonable, and the Agreement shall thereupon be automatically
reformed.
11.5 Independent Covenant. All of the covenants in this Section 11 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Seller against the
Purchaser, Parent or Old ACG (including the Subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Purchaser, Parent or Old ACG of such covenants. It is
specifically agreed that the period of 36 calendar months stated at the
beginning of this Section 11, during which the agreements and covenants of each
Seller made in this Section 11 shall be effective, shall be computed by
excluding from such computation any time during which such Seller is in
violation of any provision of this Section 11. The covenants contained in
Section 11 shall not be affected by any breach of any other provision hereof by
any party hereto and shall become void if the transactions contemplated by this
Agreement are not consummated.
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11.6 Materiality. The Sellers hereby agree that the covenants set forth in
this Section 11 are a material and substantial part of the transactions
contemplated by this Agreement.
12. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND WARRANT STOCK
SELLERS ACKNOWLEDGE THAT THE WARRANTS ARE NON-TRANSFERRABLE AND HENCE
CANNOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF BY THE SELLERS EXCEPT (I)
PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION, (II) IN CONNECTION WITH A
TENDER OFFER OR EXCHANGE OFFER FOR ALL THE PARENT STOCK OR (III) TO THE
SELLERS' LINEAL DESCENDANTS, OR TRUSTS CREATED FOR THEIR BENEFIT, IN EACH CASE
ONLY IF THE TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF THIS SECTION 12. In
addition, Sellers further acknowledge that for a period of one year from the
date of the original issuance of any Warrant Stock upon the exercise of a
Warrant, except pursuant to Section 14, the Sellers may not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any Warrant Stock. The Warrant Stock delivered to the Sellers upon exercise
of the Warrants will bear a legend substantially in the form set forth below
and containing such other information as Parent may deem necessary or
appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF DATE OF ORIGINAL ISSUANCE]. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
13. OTHER TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 13 (or trusts for the benefit of the
Sellers or family members, the trustees of which so agree), for a period of one
year from the Closing, except pursuant to Section 15, the Sellers may not shall
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of the Note received by the Sellers in the transaction
contemplated herein. The Note delivered to the Sellers pursuant to Section 2.3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as Parent may deem necessary or
appropriate:
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THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
14. INVESTMENT REPRESENTATIONS
Sellers acknowledge that the Notes and the Warrant Stock (collectively, the
"Restricted Securities") have not been and will not be registered under the
1933 Act and therefore may not be resold without compliance with the
requirements of the 1933 Act and applicable state securities laws. All of the
Restricted Securities are being acquired by Sellers solely for their own
account, for investment purposes only, and not with a view to the distribution
thereof.
14.1 Compliance With Law. Sellers represent, warrant, covenant and agree
that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 13 or Section 14 of this Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS AND UNTIL (A) THE SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") OR (B) THE HOLDER OF THESE SECURITIES PROVIDES
THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH
COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF
THESE SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y)
SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE ISSUER
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THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER
THE ACTS.
14.2 Economic Risk, Sophistication. The Sellers represent that they have
received, have read and understand the Draft Registration Statement, and in
particular, the risk factors described therein. The Sellers further represent
that they are able to bear the economic risk of an investment in the Restricted
Securities and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in
Parent. Sellers have had an adequate opportunity to ask questions and receive
answers from the officers of Parent concerning any and all matters relating to
the transactions described herein including, without limitation, the background
and experience of the current and proposed officers and directors of Parent,
the plans for the operations of the business of Parent and any plans for
additional acquisitions and the like. Sellers have asked any and all questions
in the nature described in the preceding sentence and all questions have been
answered to their satisfaction.
15. REGISTRATION RIGHTS
15.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Parent proposes to register any Parent Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Parent and (ii) registrations relating to employee
benefit plans, Parent shall give Sellers prompt written notice of its intent to
do so. Upon the written request of any of Sellers given within 15 business days
after receipt of such notice, Parent shall cause to be included in such
registration all Registrable Securities (including any shares of Parent Stock
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of such Registerable Securities) which Sellers request;
provided, however, if Parent is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 15.1 that the
number of shares to be sold by persons other than Parent is greater than the
number of such shares which can be offered without adversely affecting the
offering, Parent may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such person)
to a number deemed satisfactory by such managing underwriter.
15.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Parent Stock (i)
representing Registerable Securities owned by the Sellers or their permitted
transferees or (ii) representing Registrable Securities (as defined in the
agreements similar to this Agreement mentioned below) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement (or upon exercise or
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conversion of securities of Parent received pursuant to such agreement) (the
persons referred to in clauses (i) and (ii) being collectively referred to as
the "Founding Stockholders"), which shares have not been previously registered
or sold and which shares are not entitled to be sold under Rule 144(k) (or any
similar or successor provision) promulgated under the 1933 Act, may request in
writing that Parent file a registration statement under the 1933 Act covering
the registration of such shares of Parent Stock issued to and held by the
Founding Stockholders or their permitted transferees (including any stock
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of such Parent Stock) (a "Demand Registration"). Within ten
days of the receipt of such request, Parent shall give written notice of such
request to all other Founding Stockholders and shall, as soon as practicable
but in no event later than 45 days after notice from the Founding Stockholders
requesting such registration, file and use its best efforts to cause to become
effective a registration statement covering all such shares. Parent shall be
obligated to effect only one Demand Registration for all Founding Stockholders
and will keep such Demand Registration current and effective for not less than
90 days (or such shorter period as is required to complete the distribution and
sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 15.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 15.1.
15.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 15 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 15.1 and 15.2 Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Parent may discontinue any registration of its securities that is being
effected pursuant to Section 15.2 at any time prior to the effective date
of the registration statement relating thereto.
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(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the stockholders of Parent holding a majority of the Registrable Securities
covered thereby not exceeding 90 days and to comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a registration
statement or prospectus relating to the sale of Registrable Securities, or
any amendments or supplements thereto, Parent will furnish to counsel to
each holder of Registrable Securities covered by such registration
statement or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel, and Parent
will give reasonable consideration in good faith to any comments of such
counsel.
(iii) Furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, such number of copies of a preliminary prospectus and
prospectus for delivery in conformity with the requirements of the 1933
Act, and such other documents, as such Person may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities.
(iv) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registrable Securities owned by such seller, in such
jurisdictions, except that Parent shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 15.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 15.3(ii), if
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Parent becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and, at the request of any such seller,
deliver a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, each prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registrable
Securities covered by the Registration Statement may reasonably request in
order to effect an underwritten public offering of such Registrable
Securities.
(xi) Make available for inspection by the seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement.
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(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
15.4 Other Registration Matters.
(i) If Sellers have shares of Registrable Securities covered by a
Registration Statement referred to in this Section 15 will, upon receipt of
any notice from Parent of the happening of any event of the kind described
in Section 15.3(vi), forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until they receive the copies of the supplemented or amended
prospectus contemplated by Section 15.3(vi).
(ii) If a registration pursuant to Section 15.1 or 15.2 involves an
underwritten offering, Sellers (including their permitted assigns) agree,
if their shares of Registrable Securities are included in such
registration, not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the 1933 Act, of any Registrable
Securities, or of any security convertible into or exchangeable or
exercisable for any Registrable Securities (other than as part of such
underwritten offering), without the consent of the managing underwriter,
during a period commencing seven calendar days before and ending 180
calendar days (or such lesser number as the managing underwriter shall
designate) after the effective date of such registration. Similarly, the
Sellers agree not to effect any sale or distribution, including any sale
pursuant to the registration rights provided in Section 15.1, of any
Registrable Securities, or of any security convertible into or exchangeable
or exercisable for any Registrable Securities, without the consent of the
managing underwriter of the IPO during a period commencing on the effective
date of the Draft Registration Statement and ending 365 calendar days (or
such lesser number as such managing underwriter shall designate) after such
effective date.
15.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 15.1 or 15.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
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(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Parent may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section
15.1 or 15.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 15.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any
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amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to Parent by or on behalf of such seller
or underwriter specifically stating that it is for use in the preparation
of such registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of Parent or
any such director, officer or controlling person and shall survive the
transfer of such securities by such seller. In that event, the obligations
of the Parent and such sellers pursuant to this Section 15.5 are to be
several and not joint; provided, however, that, with respect to each claim
pursuant to this Section 15.5, Parent shall be liable for the full amount
of such claim, and each such seller's liability under this Section 15.5
shall be limited to an amount equal to the net proceeds (after deducting
the underwriting discount and expenses) received by such seller from the
sale of Registrable Securities held by such seller pursuant to this
Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 15.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 15.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registrable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
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indemnified party shall be entitled to take control of the defense of
any claim as to which, in the reasonable judgment of the indemnifying
party's counsel, representation of both the indemnifying party and the
indemnified party would be inappropriate under the applicable standards of
professional conduct due to actual or potential differing interests between
them. In the event that the indemnifying party does not assume the defense
of a claim pursuant to this Section 15.5(iii), the indemnified party will
have the right to defend such claim by all appropriate proceedings, and
will have control of such defense and proceedings, and the indemnified
party shall have the right to agree to any settlement without the prior
consent of the indemnifying party. Each indemnified party shall, and shall
cause its legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with its assuming
the defense of any claim, including the furnishing of the indemnifying
party with all papers served in such proceeding. In the event that an
indemnifying party assumes the defense of an action under this Section
15.5(iii), then such indemnifying party shall, subject to the provisions of
this Section 15.5, indemnify and hold harmless the indemnified party from
any and all losses, claims, damages or liabilities by reason of such
settlement or judgment.
(iv) Parent and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
15.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 15.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each person selling securities agree with each
other that no seller of Registrable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 15.5(ii) were available.
Parent and each such seller agree with each other
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and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion
of such contribution to exceed the percentage that the underwriting discount
bears to the initial public offering price of the Registrable Securities. For
purposes of this Section 15.6, each person, if any, who controls an underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such underwriter, and each director and each officer of Parent
who signed the registration statement, and each person, if any, who controls
Parent or a seller of Registrable Securities within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as Parent or a
seller of Registrable Securities, as the case may be.
15.7 Availability of Rule 144. Parent shall not be obligated to register
shares of Registrable Securities held by Sellers at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to Sellers.
16. GENERAL
16.1 Cooperation. The Sellers, the Purchaser, Parent and Old ACG shall
deliver or cause to be delivered to the other on the Closing Date and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the any of the others may reasonably request for the purpose of
carrying out this Agreement. The Sellers will cooperate and use its reasonable
efforts to have the present employees of the Sellers cooperate with the
Purchaser, Parent or Old ACG on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
16.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of the Purchaser, Parent, Old ACG
or the Sellers and their heirs and legal representatives. Notwithstanding the
foregoing, the Purchaser or Parent may assign, convey, transfer or otherwise
dispose of all or any portion of its interest in, or its rights and obligations
under, this Agreement and such other documents and instruments to any Affiliate
of the Purchaser or Parent.
16.3 Entire Agreement. This Agreement (including the Schedules) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Sellers, the Purchaser, Parent and Old ACG and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance
with its terms and may
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be modified or amended only by a written instrument executed by the Sellers,
Purchaser, Parent and Old ACG, acting through their duly authorized officers or
representatives. Any disclosure made on any Schedule delivered pursuant hereto
shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that the Sellers shall make a good faith effort to
cross reference disclosures, as necessary or advisable, between related
Schedules.
16.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
16.5 Brokers and Agents. Except as disclosed on Schedule 16.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
16.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, the Purchaser, Parent or ACG will pay the fees, expenses and
disbursements of the Purchaser, Parent, Old ACG, the Sellers and their
respective agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the Purchaser, Parent or Old
ACG. The Sellers shall pay the fees and expenses of its legal counsel, and all
other costs and expenses incurred by it in its performance and compliance with
all conditions to be performed by it under this Agreement. In addition, the
Sellers will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2, and will assume all Tax risks and liabilities of the
Sellers in connection with the transactions contemplated hereby.
16.7 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
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(x) If to the Parent, Purchaser or Old ACG, addressed to Parent at:
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to the Sellers, addressed to them at:
Daniel and Cheryl Peters
734 James
Maize, Kansas 67101
with a copy to:
Jim Roth
833 North Waco
Wichita, Kansas 67203
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 16.7 from time to time.
16.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
16.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or
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<PAGE>
remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default occurring before or after that waiver.
16.10 Time. Time is of the essence with respect to this Agreement.
16.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
16.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
16.13 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
16.14 Public Statement. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
16.15 Form of Payment. All payments hereunder shall be made in United
States dollars and, unless the parties making and receiving such payments shall
agree otherwise or the provisions hereof provide otherwise, shall be made by
wire or interbank transfer of immediately available funds by 12:00 Noon,
Eastern Standard Time, on the date such payment is due to such account as the
party receiving payment may designate at least three business days prior to the
proposed date of payment.
16.16 Receivables. If any monies or other assets are received by the
Purchaser to which the Sellers are entitled and that are not included in the
Purchased Assets, the Purchaser shall hold such monies and assets in trust for
the Sellers and shall account for and pay the same to the Sellers within 15
days after receipt. If any monies or other assets are received by the Sellers
to which the Purchaser is entitled and that are included in the Purchased
Assets, the Sellers shall hold such monies and assets received by the Sellers
in trust for the Purchaser and shall account for and pay the same to the
Purchaser within 15 days after receipt.
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<PAGE>
16.17 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of the Purchaser, Parent, Old ACG and the Sellers.
16.18 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PURCHASER:
ACG ACQUISITION II CORP.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: President
PARENT:
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
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<PAGE>
OLD ACG:
ADVANCED ACQUISITION CORP.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
SELLERS:
----------------------------------------
Daniel W. Peters
----------------------------------------
Cheryl A. Peters
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least 80% of the total combined
voting power of all classes of capital stock of the Company entitled to
<PAGE>
vote and at least 80% of the total number of shares of all other classes of
capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
ANNEX III
Advanced Communications Group, Inc.
$___________________
7% INSTALLMENT NOTE DUE [ANNIVERSARY DATE OF CLOSING], 2000
DATED: ___________, 1997
------------------
THE SECURITIES REPRESENTED HEREBY WERE NOT ISSUED IN A TRANSACTION
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS.
--------------------
Advanced Communications Group, Inc., a Delaware corporation organized
in September 1997 (the "Company"), for value received, hereby promises to pay
to Daniel and Cheryl Peters, or their registered assigns, the principal sum of
Three Hundred Fifty Thousand Dollars ($350,000) in installments of $116,666.66,
$116,666.67, and $116,666.67, payable respectively on the first, second and
third anniversaries of the original date of issue of this Note, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay to the
registered holder hereof interest from the date hereof on the then-outstanding
principal balance, annually on the first, second and third anniversaries of the
original date of issue of this Note, on said principal sum, in like coin and
currency, at a rate per annum of seven percent (7%), to Noteholder until
payment of said principal sum and accrued interest has been made or duly
provided for; provided, however, that payment of principal and accrued interest
may
<PAGE>
be made at the option of the Company by wire transfer of funds to such bank
account in the United States as shall be designated in writing to the Company
by the registered holder hereof or by check mailed to the address of the
registered holder hereof as such address shall appear in the Note Register
maintained by the Company. Interest shall be calculated on the basis of a
360-day year of twelve 30-day months.
ARTICLE I.
Defined Terms
SECTION 1.01 Defined Terms. Unless the context otherwise requires,
capitalized terms used herein shall have the meanings ascribed to them in
Article VIII.
ARTICLE II.
General Provisions
SECTION 2.01 Mutilated Destroyed, Lost or Stolen Note. In case this
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute and deliver a new Note, in exchange and substitution for
the mutilated Note or in lieu of and in substitution for the Note destroyed,
lost or stolen. In every case the Noteholder shall furnish to the Company such
security or indemnity as may be required by it to save the Company harmless,
and, in every case of destruction, loss or theft the Noteholder shall also
furnish to the Company evidence to its satisfaction of the destruction, loss or
theft of this Note and of the ownership thereof. Upon issuance of any
substituted Note, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses connected therewith.
SECTION 2.02 Transfer and Registration of Notes. This Note may be
presented for transfer by surrender hereof at the office of the Company
maintained for that purpose in accordance with the provisions of Section 4.02,
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Company, duly executed by the holder hereof or his attorney
duly authorized in writing. This Note may be transferred in whole, but not in
part. The Company will have no obligation to transfer this Note unless its
requirements are met and such transfer complies with the legend on the first
page of this Note. By its acceptance of this Note, the holder hereof
acknowledges the restrictions on transfer of this Note set forth herein, and
agrees that it will transfer this Note only as provided herein.
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<PAGE>
The Company shall not be required to register the transfer of this
Note (i) during a period beginning at the opening of business on a day which is
15 days before the mailing of a notice of redemption of this Note and ending on
the close of business on the day of such mailing, or (ii) if this Note has been
selected for redemption in whole or in part pursuant to Article III, except the
unredeemed portion of this Note if being redeemed in part.
The Company shall keep or cause to be maintained at the office of the
Company maintained in accordance with the provisions of Section 4.02 a register
(herein sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall register the
Notes (as defined below).
ARTICLE III.
Redemption of Note
SECTION 3.01 Redemption Price. The Company may, at its option, redeem
all or from time to time any part of this Note, upon notice as set forth in
Section 3.02 at a redemption price equal to the principal amount to be
redeemed, together with accrued and unpaid interest on the principal amount to
be redeemed to the date fixed for redemption.
SECTION 3.02 Notice of Redemption. If the Company shall desire to
exercise the right to redeem all or any part of this Note pursuant to Section
3.01, it shall fix a date for redemption and shall mail a notice of such
redemption at least 10 days prior to the date fixed for redemption to the
holder of this Note at the last address of such holder as the same appears on
the Note Register. Such mailing shall be by first class mail. The notice if
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice. In any case,
failure to give such notice by mail or any defect in the notice to the holder
of this Note shall not affect the validity of the proceedings for the
redemption of this Note.
Each such notice of redemption shall be given in the name of the
Company and shall specify the date fixed for redemption, the principal amount
to be redeemed, the redemption price at which this Note or portion hereof is to
be redeemed, the place of payment, that payment will be made upon presentation
and surrender of this Note and that interest accrued to the date fixed for
redemption will be paid as specified in such notice, and that on and after said
date fixed for redemption interest hereon or on the portions hereof to be
redeemed will cease to accrue. If this Note is to be redeemed in part only, the
notice of redemption shall also state that on and after the date fixed for
redemption, upon surrender of this Note, a new Note in aggregate principal
amount equal to the unredeemed portion hereof will be issued without charge to
the holder.
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<PAGE>
SECTION 3.03 Payment of Note Called for Redemption. If notice of
redemption has been given as above provided, this Note or the portion of this
Note with respect to which such notice has been given shall become due and
payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued and unpaid to the date fixed
for redemption, and on and after such date (unless the Company shall default in
the payment of this Note or portion hereof to be redeemed at such redemption
price, together with interest accrued to such date) interest on this Note or
portion hereof so called for redemption shall cease to accrue, and this Note or
portion hereof so called for redemption shall be deemed not to be outstanding
and shall not be entitled to any benefit under this Note except to receive
payment of such redemption price, together with accrued interest to the date
fixed for redemption. On presentation and surrender of this Note on or after
the date fixed for redemption at the place of payment in such notice specified,
this Note or the specified portion hereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
ARTICLE IV.
Particular Covenants of the Company
SECTION 4.01 Payment of Principal and Interest on Note. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and the interest on this Note at the place, at the respective
times and in the manner provided herein.
SECTION 4.02 Office for Notices and Payments etc. So long as this Note
remains outstanding, the Company will maintain in the City of Houston, Texas,
an office or agency where this Note may be presented for payment, an office or
agency where this Note may be presented for registration of transfer or
exchange as herein provided, and an office or agency where notices and demands
to or upon the Company in respect of this Note may be served. Until otherwise
designated by the Company in a written notice such offices or agencies shall be
the executive offices of the Company.
ARTICLE V.
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 5.01 Note Solely Corporate Obligations. No recourse for the
payment of the principal of or interest on this Note, or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Note, or because of
the creation of any indebtedness represented hereby, shall be had against any
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<PAGE>
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute, or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Note.
ARTICLE VI.
Remedies in Event of Default
SECTION 6.01 Event of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
(a) default in the payment of any installment of interest
upon this Note as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of this Note as
and when the same shall become due and payable either at maturity,
upon redemption, by declaration or otherwise; or
(c) failure on the part of the Company duly to observe or
perform any covenants or agreements (other than a covenant or
agreement the breach or a default in the performance of which is
elsewhere in this Section 6.01 specifically dealt with) on the part of
the Company that continues for a period of 30 days after the date on
which written notice (such written notice to state it is a "Notice of
Default" hereunder) of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the holder hereof;
or
(d) without the consent of the Company, a court having
jurisdiction shall enter an order for relief with respect to the
Company under the Bankruptcy Code or without the consent of the
Company a court having jurisdiction shall enter a judgment, order or
decree adjudging the Company a bankrupt or insolvent, or enter an
order for relief for reorganiza tion, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code
or applicable state insolvency law and the continuance of any such
judgment, order or decree unstayed and in effect for a period of 90
consecutive days; or
(e) the Company shall institute proceedings for entry of an
order for relief with respect to the Company under the Bankruptcy Code
or for an adjudication of insolvency, or shall consent to the
institution of bankruptcy or insolvency proceedings against it, or
shall
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<PAGE>
file a petition seeking, or seek or consent to reorganization,
arrangement, composition or relief under the Bankruptcy Code or any
applicable state law, or shall consent to the filing of such petition
or to the appointment of a receiver, custodian, liquidator, assignee,
trustee, sequestrator or similar official (other than a custodian
pursuant to 8 Delaware Code ss.226 or any similar statute under other
state laws) of the Company or of substantially all of its property, or
the Company shall make a general assignment for the benefit of
creditors as recognized under the Bankruptcy Code; or
(f) default in the payment of any principal of or interest
on any Pari Passu Debt as and when the same shall become due and
payable and such failure is not cured within the applicable grace
period, if any, or any Pari Passu Debt having an outstanding principal
balance of at least $500,000 shall be declared to be due and payable
prior to the stated maturity thereof;
then and in each and every such case, unless the principal of this Note shall
have already become due and payable, the holder of this Note by notice in
writing to the Company, may declare the principal of this Note and any accrued
interest to the date of declaration to be due and payable immediately, and upon
any such declaration the same shall become and shall be immediately due and
payable.
SECTION 6.02 Remedies Cumulative and Continuing. All powers and
remedies given by this Article VI to the holder of this Note shall, to the
extent permitted by law, be deemed cumulative and not exclusive of any other
thereof or of any other powers and remedies available to such holders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in this Note and no delay or omission of
any holder to exercise any right or power accruing upon any default occurring
and continuing as aforesaid, shall impair any such right or power, or shall be
construed to be a waiver of any such default or an acquiescence therein; and
every power and remedy given by this Article VI or by law to the holder of the
Note may be exercised from time to time, and as often as shall be deemed
expedient, by such holder.
SECTION 6.03 Waiver of Presentment, Demand, Etc. Except as provided
herein, the Company hereby waives presentment and demand for payment, protest,
notice of protest and nonpayment, notice of the intention to accelerate, notice
of acceleration, and agrees that its liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, and hereby consents to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.
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<PAGE>
ARTICLE VII.
Miscellaneous Provisions
SECTION 7.01 Successors and Assigns of Company Bound. All the
covenants, stipulations, promises and agreements in this Note contained by or
in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 7.02 Notice to Noteholder. When this Note provides for notice
to the holder of any event, such notice shall be sufficiently given (unless
otherwise expressly herein provided) if in writing and mailed, first class,
postage prepaid, to the holder at his address as it appears on the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any notice which is mailed to
the holder in the manner herein provided shall be conclusively presumed to have
been duly given. Where this Note provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 7.03 TEXAS CONTRACT. THIS NOTE SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF TEXAS, AND FOR ALL PURPOSES SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 7.04 Legal Holidays. In any case where the date of maturity of
interest on or principal of this Note or the date fixed for redemption of this
Note shall not be a Business Day, then payment of interest on or principal of
this Note need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such prior date.
SECTION 7.05 Severability. In case any provision of this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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<PAGE>
ARTICLE VIII.
Definitions
SECTION 8.01 Definitions. The terms defined in this Section 8.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Note shall have the respective meanings
specified in this Section 8.01.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
United States Code ss. 101 et seq. or any successor statute thereto.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in the City of Houston, Texas are authorized or
required by law to close.
"Indebtedness" shall mean the following, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed, (a) the
principal of, premium if any, and interest on (i) indebtedness of the Company
for money borrowed, (ii) indebtedness of the Company evidenced by bonds, notes,
debentures or similar obligations, (iii) capitalized lease obligations, (iv)
indebtedness or obligations incurred, assumed or guaranteed by the Company in
connection with the acquisition or improvement of any property or asset or the
acquisition by it or by a Subsidiary of any business, (v) indebtedness of
others of the kinds described in the preceding clauses (i), (ii), (iii), and
(iv), assumed or guaranteed by the Company or in effect guaranteed by the
Company through an agreement to purchase or otherwise, (vi) obligations which
would be classified as liabilities on the balance sheet of the Company in
accordance with generally accepted accounting principles, evidencing the
purchase price for the acquisition of assets of any kind, tangible or
intangible, by the Company or a Subsidiary, except in the ordinary course of
business, and (b) any increases, refundings, renewals, rearrangements or
extensions of and amendments, modifications and supplements to any
indebtedness, liability or obligation described in clause (a) above.
"Junior Indebtedness" shall mean Indebtedness which, by the terms of
the instrument by which such Indebtedness is created or evidenced, ranks junior
and subordinate in right of payment to this Note.
"Note" shall mean this Note and any Note issued on exchange or
transfer hereof.
"Noteholder," "holder of this Note" or other similar terms mean any
person in whose name at the time this Note shall be registered in the Note
Register kept for that purpose in accordance with the terms hereof.
"Pari Passu Debt" shall mean any Indebtedness other than Junior
Indebtedness.
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<PAGE>
"Subsidiary" shall mean any corporation of which the Company, or the
Company and one or more Subsidiaries, or any one or more Subsidiaries, directly
or indirectly own voting securities entitling the holders thereof to elect a
majority of the directors, either at all times or so long as there is no
default or contingency which permits the holders of any other class or classes
of securities to vote for the election of one or more directors.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by a duly authorized officer and has caused a facsimile or its
corporate seal to be imprinted hereon.
ADVANCED COMMUNICATIONS GROUP, INC.
[SEAL]
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE>
ANNEX IV
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES H WARRANT
Total Number of Series H Warrants: 6,250 Warrant No. H-
Number of Series H Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
Daniel and Cheryl Peters
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time after the
closing and (b) on or before the Expiration Date, to purchase from the Company
one fully paid and nonassessable share of Common Stock at the Exercise Price,
subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Restated Asset Purchase Agreement dated as of
October 6, 1997 by and among Company, ACG Acquisition II Corp., Advanced
Communications Corp. and the initial registered holders of this Warrant
Certificate.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
business contemplated by the Agreement.
"Closing Date" means the date upon which the Closing occurs.
"Common Stock" means the Common Stock, $.0001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
<PAGE>
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September 1997.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $_____ [IPO Price].
"Expiration Date" means 5:00 p.m., Houston Time on the tenth
anniversary of the Closing Date.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other cases, the value established by the Board of
Directors in good faith; and the "average" Price per share
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for any period shall be determined by dividing the sum of the Prices determined
for each Trading Day in such period by the number of Trading Days in such
period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series H Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part, after the first anniversary
of the Closing Date, by presentation and surrender at the office of the Company
specified herein of (i) this Warrant Certificate with the Election To Exercise
duly completed and executed, and (ii) payment of the Exercise Price as then in
effect, by bank draft or cashier's check, for the number of Warrants being
exercised. If the holder of this Warrant Certificate at any time exercises less
than all the Warrants evidenced by this Warrant Certificate, the Company shall
issue to such holder a Warrant Certificate identical in form to this Warrant
Certificate, but evidencing a number of Warrants equal to the number of
Warrants originally represented by this Warrant Certificate less the number of
Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 12 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of this Warrant Certificate, the Warrants
evidenced hereby or the Conversion Securities in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. Each
certificate representing Conversion Securities shall bear a legend
substantially similar to the bold-faced legend appearing in Section 14 of the
Agreement. Reference is made to Sections 12, 13, 14, and 15 of the Agreement
that relate to the non-transferability of the Warrants, the type of legend that
shall be imprinted on Conversion Securities and the rights of the
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holders of Conversion Securities to secure registration of their securities
under the Acts under certain circumstances. Such sections are incorporated by
reference herein. The Company shall deem and treat the registered holder of
this Warrant Certificate as the true and lawful owner of the Warrants evidenced
hereby for all purposes, any claims of another person to the contrary
notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Closing Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of
any reclassification or change of outstanding securities issuable upon exercise
of the Warrants evidenced by this Warrant Certificate at any time after the
Closing Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided in paragraph (a)
of this Section 3. The provisions of paragraph (a) of this Section 3 shall
similarly apply to successive reclassifications, changes, consolidations or
mergers.
(b) Subdivisions and Combinations. If the Company, at any
time after the Closing Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of the Warrants evidenced by this Warrant Certificate shall be
proportionately increased, as at the
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effective date of such subdivision, dividend or distribution or if the Company
shall take a record of holders of its Common Stock for such purpose, as at such
record date, whichever is earlier. If the Company, at any time after the
Closing Date, shall combine its shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased, and the number of shares of Common Stock
purchasable upon exercise of the Warrants evidenced by this Warrant Certificate
shall be proportionately reduced, as at the effective date of such combination,
or if the Company shall take a record of holders of its Common Stock for
purposes of such combination, as at such record date, whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any
time after the Closing Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock multiplied by the
Market Price, and (2) the consideration, if any, received and deemed
received by the Company upon the issuance of such additional shares of
Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common
Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common Stock) pursuant to Employee Benefit Plans
shall not exceed 10% of the Company's outstanding Common Stock (on a fully
diluted basis using the treasury stock method) at the time of such issuance;
(w) are issued pursuant to any Other Warrant or Common Stock Equivalent (i)
which was outstanding on the Closing Date or (ii) if upon the issuance of any
such Common Stock Equivalent, any such adjustments shall previously have been
made pursuant to paragraph (d) of this Section 3 or (iii) if no adjustment was
required pursuant to paragraph (d) of this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Closing Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price
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upon each such issuance or amendment shall be adjusted as provided in paragraph
(c) of this Section 3 on the basis that (i) the maximum number of additional
shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued as of the earlier of (a) the date on which
the Company shall enter into a firm contract for the issuance of such Common
Stock Equivalent, or (b) the date of actual issuance of such Common Stock
Equivalent; and (ii) the aggregate consideration for such maximum number of
additional shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent;
provided, however, that no adjustment shall be made pursuant to paragraph (d)
of this Section 3 unless the consideration received and receivable by the
Company per share of Common Stock for the issuance of such additional shares of
Common Stock pursuant to such Common Stock Equivalent is less than the Market
Price. No adjustment of the Exercise Price shall be made under paragraph (d) of
this Section 3 upon the issuance of any Convertible Security which is issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any adjustment shall previously have been made in the
Exercise Price then in effect upon the issuance of such warrants or other
rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be
applicable to the making of adjustments in the Exercise Price hereinbefore
provided in this Section 3:
i. The consideration received by the Company shall
be deemed to be the following: (I) to the extent that any additional
shares of Common Stock or any Common Stock Equivalent shall be issued
for cash consideration, the consideration received by the Company
therefor, or, if such additional shares of Common Stock or Common
Stock Equivalent are offered by the Company for subscription, the
subscription price, or, if such additional shares of Common Stock or
Common Stock Equivalent are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment or
satisfaction of any dividend upon any class of stock other than Common
Stock, the
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<PAGE>
Company shall be deemed to have received for such additional shares of
Common Stock or Common Stock Equivalent (which shall not be deemed to
be a dividend payable in, or other distribution of, Common Stock under
paragraph (b) of this Section 3) consideration equal to the amount of
such dividend so paid or satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of which
effected an adjustment in the Exercise Price, if any such Common Stock
Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding
because they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Closing Date or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in
effect from time to time shall be calculated to four decimal places
and rounded to the nearest thousandth.
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<PAGE>
4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer,
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<PAGE>
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, issuance, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Common Stock (and other securities), for the
purpose of enabling it to satisfy any obligation to issue shares of Common
Stock (and other securities) upon the exercise of the Warrants evidenced by
this Warrant Certificate, the number of shares of Common Stock (and other
securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued
upon exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Daniel and Cheryl Peters
734 James
Maize, Kansas 67101
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and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this _____ day of __________, 1997 by its Chairman and Chief
Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced
by this Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate Exercise Price
thereof, and requests that the certificate representing the securities issuable
hereunder be issued in the name of _____________________ and delivered to ,
whose address is____________________________. _________________________.
Dated:__________________ ____________________________________
_____________________________________
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written
on the face of this Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatsoever.
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<PAGE>
ANNEX V
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES I WARRANT
Total Number of Series I Warrants: 6,250 Warrant No. I
Number of Series I Warrants represented by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
Daniel and Cheryl Peters
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time after the
closing and (b) on or before the Expiration Date, to purchase from the Company
one fully paid and nonassessable share of Common Stock at the Exercise Price,
subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Restated Asset Purchase Agreement dated as of
October 6, 1997 by and among Company, ACG Acquisition II Corp., Advanced
Communications Corp. and the initial registered holders of this Warrant
Certificate.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
business contemplated by the Agreement.
"Closing Date" means the date upon which the Closing occurs.
"Common Stock" means the Common Stock, $.0001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
<PAGE>
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September 1997.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $_____ [IPO Price].
"Expiration Date" means 5:00 p.m., Houston Time on the tenth
anniversary of the Closing Date.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other cases, the value established by the Board of
Directors in good faith; and the "average" Price per share
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<PAGE>
for any period shall be determined by dividing the sum of the Prices determined
for each Trading Day in such period by the number of Trading Days in such
period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series I Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part, after the second anniversary
of the Closing Date, by presentation and surrender at the office of the Company
specified herein of (i) this Warrant Certificate with the Election To Exercise
duly completed and executed, and (ii) payment of the Exercise Price as then in
effect, by bank draft or cashier's check, for the number of Warrants being
exercised. If the holder of this Warrant Certificate at any time exercises less
than all the Warrants evidenced by this Warrant Certificate, the Company shall
issue to such holder a Warrant Certificate identical in form to this Warrant
Certificate, but evidencing a number of Warrants equal to the number of
Warrants originally represented by this Warrant Certificate less the number of
Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 12 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of this Warrant Certificate, the Warrants
evidenced hereby or the Conversion Securities in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. Each
certificate representing Conversion Securities shall bear a legend
substantially similar to the bold-faced legend appearing in Section 14 of the
Agreement. Reference is made to Sections 12, 13, 14, and 15 of the Agreement
that relate to the non-transferability of the Warrants, the type of legend that
shall be imprinted on Conversion Securities and the rights of the
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holders of Conversion Securities to secure registration of their securities
under the Acts under certain circumstances. Such sections are incorporated by
reference herein. The Company shall deem and treat the registered holder of
this Warrant Certificate as the true and lawful owner of the Warrants evidenced
hereby for all purposes, any claims of another person to the contrary
notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Closing Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants evidenced by this Warrant Certificate at any time after the
Closing Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided in paragraph (a)
of this Section 3. The provisions of paragraph (a) of this Section 3 shall
similarly apply to successive reclassifications, changes, consolidations or
mergers.
(b) Subdivisions and Combinations. If the Company, at any time
after the Closing Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of the Warrants evidenced by this Warrant Certificate shall be
proportionately increased, as at the
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effective date of such subdivision, dividend or distribution or if the Company
shall take a record of holders of its Common Stock for such purpose, as at such
record date, whichever is earlier. If the Company, at any time after the
Closing Date, shall combine its shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased, and the number of shares of Common Stock
purchasable upon exercise of the Warrants evidenced by this Warrant Certificate
shall be proportionately reduced, as at the effective date of such combination,
or if the Company shall take a record of holders of its Common Stock for
purposes of such combination, as at such record date, whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any time
after the Closing Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock multiplied by the Market Price, and (2) the
consideration, if any, received and deemed received by the Company upon the
issuance of such additional shares of Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common Stock) pursuant to Employee Benefit Plans
shall not exceed 10% of the Company's outstanding Common Stock (on a fully
diluted basis using the treasury stock method) at the time of such issuance;
(w) are issued pursuant to any Other Warrant or Common Stock Equivalent (i)
which was outstanding on the Closing Date or (ii) if upon the issuance of any
such Common Stock Equivalent, any such adjustments shall previously have been
made pursuant to paragraph (d) of this Section 3 or (iii) if no adjustment was
required pursuant to paragraph (d) of this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Closing Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price
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upon each such issuance or amendment shall be adjusted as provided in paragraph
(c) of this Section 3 on the basis that (i) the maximum number of additional
shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued as of the earlier of (a) the date on which
the Company shall enter into a firm contract for the issuance of such Common
Stock Equivalent, or (b) the date of actual issuance of such Common Stock
Equivalent; and (ii) the aggregate consideration for such maximum number of
additional shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent;
provided, however, that no adjustment shall be made pursuant to paragraph (d)
of this Section 3 unless the consideration received and receivable by the
Company per share of Common Stock for the issuance of such additional shares of
Common Stock pursuant to such Common Stock Equivalent is less than the Market
Price. No adjustment of the Exercise Price shall be made under paragraph (d) of
this Section 3 upon the issuance of any Convertible Security which is issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any adjustment shall previously have been made in the
Exercise Price then in effect upon the issuance of such warrants or other
rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be applicable to
the making of adjustments in the Exercise Price hereinbefore provided in this
Section 3:
i. The consideration received by the Company shall
be deemed to be the following: (I) to the extent that any additional
shares of Common Stock or any Common Stock Equivalent shall be issued
for cash consideration, the consideration received by the Company
therefor, or, if such additional shares of Common Stock or Common
Stock Equivalent are offered by the Company for subscription, the
subscription price, or, if such additional shares of Common Stock or
Common Stock Equivalent are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment or
satisfaction of any dividend upon any class of stock other than Common
Stock, the
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<PAGE>
Company shall be deemed to have received for such additional shares of
Common Stock or Common Stock Equivalent (which shall not be deemed to
be a dividend payable in, or other distribution of, Common Stock under
paragraph (b) of this Section 3) consideration equal to the amount of
such dividend so paid or satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of which
effected an adjustment in the Exercise Price, if any such Common Stock
Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding
because they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Closing Date or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in effect
from time to time shall be calculated to four decimal places and
rounded to the nearest thousandth.
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4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer,
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dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, issuance, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Common Stock (and other securities), for the
purpose of enabling it to satisfy any obligation to issue shares of Common
Stock (and other securities) upon the exercise of the Warrants evidenced by
this Warrant Certificate, the number of shares of Common Stock (and other
securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued
upon exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Daniel and Cheryl Peters
734 James
Maize, Kansas 67101
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and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this _____ day of __________, 1997 by its Chairman and Chief
Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced
by this Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate Exercise Price
thereof, and requests that the certificate representing the securities issuable
hereunder be issued in the name of _____________________ and delivered to ,
whose address is__________________________________. __________________________.
Dated:_______________________ _______________________________________
____________________________________
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written
on the face of this Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatsoever.
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ANNEX VI
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on ________ __,
1997, by Daniel W. Peters ("Employee") and TELE-SYSTEMS, Inc., a Kansas
corporation ("Company") (collectively referred to as the "Parties"). Company
and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and Company, Company employs
Employee, and Employee accepts employment subject to the terms and conditions
of this Agreement. The Company is a wholly-owned subsidiary of Advanced
Communications Group, Inc., a Delaware corporation ("ACG"). Unless the context
otherwise clearly requires, all references to ACG in this Agreement shall
include ACG, Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the second anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and Other Benefits.
3.1 As compensation for his services to Company under this Agreement,
Company shall pay to Employee a commission ("Base Commission") equal
to 7% of "interconnect sales" not related to the Company's customer
base as determined by the Compensation Committee of ACG, subject only
to such payroll and withholding deductions as may be required by law
and other deductions applied generally to other employees of Company
for any employee benefit plans.
3.2 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.3 Employee shall receive benefits commensurate with his level of
employment under any health plan of ACG.
3.4 In addition to his Base Commission, Employee shall receive $10.00 per
line commission (together with the Base Commission, the "Total
Commission") for
<PAGE>
conversion of dial tone service for the original customer base of that
proprietorship formerly doing business as "National Telecom," as
determined by the Compensation Committee of ACG.
3.5 The Compensation Committee of ACG shall meet annually to grant to
Employee within 10 days of each of the first and second anniversaries
of the date first above written, 10-year options to purchase 1,042
shares of the common stock of ACG for each additional $100,000 of
sales of interconnect products and services for the Company generated
by Employee within the last year; provided however, that Employee may
not receive more than 12,500 shares pursuant to such options within
the term of this Agreement and no fractional shares will be issued.
The exercise price of the options shall be the price to the public
reflected in the prospectus of ACG relating to the initial public
offering of the common stock of ACG. In the event Employee is
terminated for any reason other than with cause, such options shall be
granted pro rata, based upon sales by Employee to date.
4. Duties and Extent of Service.
Employee shall hold the position of ____________ with the Company. Employee
agrees to perform the duties incidental to his position, as determined from
time to time by the Chief Executive Officer of ACG. Employee shall devote such
time, attention, and energy to the business of Company as are required to
perform his duties and responsibilities hereunder and shall not during the term
of this Agreement be engaged, directly or indirectly, in any other business
activity if pursued for gain, profit, or other pecuniary advantage without the
prior written consent of the Chief Executive Officer of ACG. In any event,
however, Employee shall not take any action inconsistent with Employee's
relationship and responsibilities as a Company Employee, or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
information relating to confidential or secret designs, processes,
formulae, plans, devices, or materials of ACG; business and marketing
plans, confidential information and trade secrets relating to the
distribution and marketing of ACG's products and services; patents
pending; confidential characteristics of ACG's products and
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services; customer comments; troubleshooting requirements; product and
service development; market development; manuals written by ACG;
management, accounting, and reporting systems, procedures, and
programs; contracts, leases, marketing agreements, sales Employee
compensation information, plans, and programs; marketing and financial
analysis, plans, research, programs, and related information and data;
forms, agreements, and legal documents; regulatory and supervisory
reports; correspondence; statements; corporate books and records; and
other similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
5.3 Employee will not, at any time during or after the term of this
Agreement or his employment with Company, disclose any Confidential
Information to any person, firm, partnership, association, company,
corporation or other entity (each, a "Person") for any reason or
purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG; or (b)
information that is or shall lawfully be published or become part of
the general knowledge through no act or omission of Employee. The
Confidential Information disclosed to Employee under this Agreement is
not within the foregoing exceptions merely because such information is
embraced by more general information in the public domain or in
Employee's possession; or merely because portions thereof are in the
public domain or in Employee's possession.
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by Company and for a
period of 36 calendar months immediately after the termination of this
Agreement or his employment with Company, regardless of whether such
termination of employment is voluntary or involuntary, he will not,
for himself, or on behalf of any other Person (i) generally compete in
any manner whatsoever with ACG or solicit, accept, divert, or take
away from ACG the business of any Person; (ii) directly or indirectly
induce or attempt to influence any Employee, officer, director,
consultant, agent, vendor or other entity related to ACG to terminate
his or her employment or association in any manner whatsoever with
ACG; or (iii) engage in the sale or marketing of yellow page
publishing services, telecommunication services, interconnect services
and natural gas or electrical goods and services in the State of
Kansas ("Proscribed Territory") during the term of this Agreement or
Employee's employment with Company. The
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<PAGE>
territory in which Employee shall not compete with ACG as outlined in
this Paragraph 5.5 shall consist of the Proscribed Territory.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by Company for
sales and management, including the special training, knowledge, and
confidential information that has been or will be acquired in the
course of such employment, will give Employee distinct and substantial
advantages for potential sales and management activities concerning
such products and services. Employee further understands and
acknowledges that: because of the definition of products and services
covered by this Agreement, the highly specialized nature of those
products and services, the limited size and number of business
entities in the business of developing and/or selling those products
and services, and the much more numerous opportunities for Employee to
work in his trade with respect to products and services not covered by
this Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly onerous
on Employee. Employee therefore agrees that the limitations as to
time, geographic area, and scope of activity contained in Paragraph
5.5 do not impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business interests of
ACG. Employee also agrees that in light of the facts acknowledged
above, the substantial investment of ACG in acquiring and developing
its business and providing special training to Employee, and the
certain and substantial harm that ACG would suffer if Employee were to
engage in any of the activities described in Paragraph 5.5, ACG's need
for the protection afforded by Paragraph 5.5 is greater than any
hardship Employee might experience by complying with its terms.
Employee also agrees that, if any provision of the covenant set forth
in Paragraph 5.5 is found to be invalid in part or whole, ACG may
elect, but shall not be required, to have such provision reformed,
whether as to time, geographic area, scope of activity, or otherwise,
as and to the extent required for its validity under applicable law,
and, as so reformed, such provisions shall be enforceable.
5.7 Employee acknowledges that a violation or attempted violation on his
part of any provision in this Paragraph 5 will cause irreparable
damage to ACG. Accordingly, in the event of a breach or threatened
breach by Employee of the provisions of this Paragraph 5, Employee
agrees that ACG shall be entitled as a matter of right to an
injunction, out of any court of competent jurisdiction, restraining
any violation or further violation of such agreements by Employee or
his agents, without showing any evidence of actual monetary loss
resulting from such breach, including, but not
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<PAGE>
limited to, restraining Employee from using or disclosing, in whole or
in part, such Confidential Information or trade secrets; rendering any
services to any Person to whom any of such information may have been
disclosed or is threatened to be disclosed; and/or violating the
non-competition provision. Nothing herein shall be construed as
prohibiting ACG from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages
and attorneys' fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled (i.e., such that he no longer is reasonably able to
perform his duties as contemplated by this Agreement), Company
shall pay to Employee, or to the estate of Employee if he dies,
that part of his Total Commission which would be payable to
Employee, as a result of prior sales by Employee, and grant to
Employee the options described in Section 3.5 on a pro rata
basis, based upon sales by Employee to date. Upon such payment,
as well as applicable insurance benefits, if any, all obligations
of Company to Employee or his estate shall be fully satisfied,
and this Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and Company shall pay to Employee that part of his
Total Commission which would otherwise be payable to Employee
through the effective date of his resignation. Upon such payment,
all obligations in any manner whatsoever of Company to Employee
shall be fully satisfied.
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of Company,
and either of these changes significantly alters Employee's job
responsibilities or compensation, Employee may resign from his
position within 60 days of such a change. If Employee resigns
pursuant to this paragraph, Company will continue to provide
Employee with his monthly compensation equal to the average
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monthly Total Commission paid to Employee prior to such change in
management or ownership of the Company plus benefits for a period
of one year after the initial date of any such change. Upon
completion of such payments, all obligations in any manner
whatsoever of Company to Employee shall be fully satisfied.
(e) Termination by the Company "With Cause." If Employee (i) violates
any provision of this Agreement; (ii) fails to perform the
services required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; (iv) is
convicted of a crime other than a routine traffic violation;
and/or (v) violates any policies of ACG as outlined in any ACG
policy handbook, Company may terminate the employment of Employee
with cause. If Employee is terminated "with cause," Employee
shall not be entitled to receive any further salary or benefits
under this Agreement other than payment for that part of
Employee's compensation that would otherwise be payable to
Employee through the last date of his employment with Company.
Upon such payment, all obligations of Company to Employee shall
be fully satisfied, and this Agreement will terminate.
(f) Termination by the Company Without Cause. In the event Company
terminates Employee's employment for any reason other than
described in (e) above, Employee shall be entitled to that part
of the Total Commission and benefits payable to Employee through
the last date of his employment and Employee shall be paid the
average monthly Total Commission paid to Employee prior to his
termination plus benefits for a period of six months from
termination. Upon completion of such payments, all obligations in
any manner whatsoever of Company to Employee shall be fully
satisfied.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraphs 5.1
through 5.6.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of Company shall
be the sole and exclusive property of ACG, and none of such data,
drawings or
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other records and written material, or copies thereof, shall be
retained by Employee upon termination of his employment. This ACG
property shall not be removed from Company premises without the
Company's prior written consent.
7.2 Upon termination of this Agreement or whenever requested by Company,
Employee immediately shall deliver to Company all of the ACG property
or any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes and accounting machines provided by
Company. No copies of any such data shall be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at 734 James, Maize, Kansas 67101 and to
Company, c/o Rod K. Cutsinger, 3355 West Alabama, Suite 580, Houston, Texas
77098, or to such other address as either party shall designate by written
notice to the other. Notices may be sent by messenger or by registered or
certified mail, postage prepaid, addressed to the party or parties to be
notified, with return receipt requested. Notices sent by messenger shall be
deemed received upon their actual receipt of the party to whom they are
directed. Notices sent by registered or certified mail shall be deemed received
on the third day following their deposit with the United States Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by Employee or Company concerning the subject matter contained in this
Agreement (other than action by Company seeking an injunction pursuant to
Paragraph 5.7), including, but not limited to, Employee's employment,
termination from, and/or affiliation with Company, shall be settled by
arbitration in Denver, Colorado in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns
of Company. This
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<PAGE>
Agreement shall be binding upon the Employee and his agents, heirs,
executors, administrators and legal representatives. The rights and
obligations of Employee hereunder shall not be assignable by Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among Company, Employee and Rod K. Cutsinger in connection
with the subject matter hereof.
10.5 The waiver by Company of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver by Company
of any subsequent breach by Employee.
10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the remainder of this Agreement, but the effect
thereof shall be confined to the clause, sentence, subparagraph,
paragraph, or section so adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day and
year first above written.
TELE-SYSTEMS, Inc.
By
--------------------------------- ---------------------------------
Rod K. Cutsinger Daniel W. Peters
Its: Chairman and Chief Executive
Officer
"COMPANY" "EMPLOYEE"
-8-
<PAGE>
ANNEX VII
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on ________ __,
1997, by Cheryl A. Peters ("Employee") and TELE-SYSTEMS, Inc., a Kansas
corporation ("Company") (collectively referred to as the "Parties"). Company
and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and Company, Company employs
Employee, and Employee accepts employment subject to the terms and conditions
of this Agreement. The Company is a wholly-owned subsidiary of Advanced
Communications Group, Inc., a Delaware corporation ("ACG"). Unless the context
otherwise clearly requires, all references to ACG in this Agreement shall
include ACG, Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the second anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for her services to Company under this Agreement,
Company shall pay to Employee during the term of this Agreement a base
salary ("Base Salary") of $25,000 per annum, payable in equal
semi-monthly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions
applied generally to other employees of Company for any employee
benefit plans.
3.2 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.3 Employee shall receive benefits commensurate with her level of
employment under any health plan of ACG.
3.4 In addition to her Base Salary, Employee shall receive $10.00 per line
commission ("Commission") for conversion of dial tone service for the
original customer base of
<PAGE>
that proprietorship formerly doing business as "National Telecom," as
determined by the Compensation Committee of ACG.
4. Duties and Extent of Service.
Employee shall hold the position of ____________ with the Company. Employee
agrees to perform the duties incidental to her position, as determined from
time to time by the Chief Executive Officer of ACG. Employee shall devote such
time, attention, and energy to the business of Company as are required to
perform her duties and responsibilities hereunder and shall not during the term
of this Agreement be engaged, directly or indirectly, in any other business
activity if pursued for gain, profit, or other pecuniary advantage without the
prior written consent of the Chief Executive Officer of ACG. In any event,
however, Employee shall not take any action inconsistent with Employee's
relationship and responsibilities as a Company Employee, or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that she will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
information relating to confidential or secret designs, processes,
formulae, plans, devices, or materials of ACG; business and marketing
plans, confidential information and trade secrets relating to the
distribution and marketing of ACG's products and services; patents
pending; confidential characteristics of ACG's products and services;
customer comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG; management,
accounting, and reporting systems, procedures, and programs;
contracts, leases, marketing agreements, sales Employee compensation
information, plans, and programs; marketing and financial analysis,
plans, research, programs, and related information and data; forms,
agreements, and legal documents; regulatory and super visory reports;
correspondence; statements; corporate books and records; and other
similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
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<PAGE>
5.3 Employee will not, at any time during or after the term of this
Agreement or her employment with Company, disclose any Confidential
Information to any person, firm, partnership, association, company,
corporation or other entity (each, a "Person") for any reason or
purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG; or (b)
information that is or shall lawfully be published or become part of
the general knowledge through no act or omission of Employee. The
Confidential Information disclosed to Employee under this Agreement is
not within the foregoing exceptions merely because such information is
embraced by more general information in the public domain or in
Employee's possession; or merely because portions thereof are in the
public domain or in Employee's possession.
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by Company and for a
period of 36 calendar months immediately after the termination of this
Agreement or her employment with Company, regardless of whether such
termination of employment is voluntary or involuntary, she will not,
for herself, or on behalf of any other Person (i) generally compete in
any manner whatsoever with ACG or solicit, accept, divert, or take
away from ACG the business of any Person; (ii) directly or indirectly
induce or attempt to influence any Employee, officer, director,
consultant, agent, vendor or other entity related to ACG to terminate
his or her employment or association in any manner whatsoever with
ACG; or (iii) engage in the sale or marketing of yellow page
publishing services, telecommunication services, interconnect services
and natural gas or electrical goods and services in the State of
Kansas ("Proscribed Territory") during the term of this Agreement or
Employee's employment with Company. The territory in which Employee
shall not compete with ACG as outlined in this Paragraph 5.5 shall
consist of the Proscribed Territory.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by Company for
sales and management, including the special training, knowledge, and
confidential information that has been or will be acquired in the
course of such employment, will give Employee distinct and substantial
advantages for potential sales and management activities concerning
such products and services. Employee further understands and
acknowledges that: because of the definition of products and services
covered by this Agreement, the highly specialized
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<PAGE>
nature of those products and services, the limited size and number of
business entities in the business of developing and/or selling those
products and services, and the much more numerous opportunities for
Employee to work in her trade with respect to products and services
not covered by this Agreement, the limitations as to time and
geographic area contained in Paragraph 5.5 are reasonable and are not
unduly onerous on Employee. Employee therefore agrees that the
limitations as to time, geographic area, and scope of activity
contained in Paragraph 5.5 do not impose a greater restraint than is
necessary to protect the Confidential Information, goodwill, and other
business interests of ACG. Employee also agrees that in light of the
facts acknowledged above, the substantial investment of ACG in
acquiring and developing its business and providing special training
to Employee, and the certain and substantial harm that ACG would
suffer if Employee were to engage in any of the activities described
in Paragraph 5.5, ACG's need for the protection afforded by Paragraph
5.5 is greater than any hardship Employee might experience by
complying with its terms. Employee also agrees that, if any provision
of the covenant set forth in Paragraph 5.5 is found to be invalid in
part or whole, ACG may elect, but shall not be required, to have such
provision reformed, whether as to time, geographic area, scope of
activity, or otherwise, as and to the extent required for its validity
under applicable law, and, as so reformed, such provisions shall be
enforceable.
5.7 Employee acknowledges that a violation or attempted violation on her
part of any provision in this Paragraph 5 will cause irreparable
damage to ACG. Accordingly, in the event of a breach or threatened
breach by Employee of the provisions of this Paragraph 5, Employee
agrees that ACG shall be entitled as a matter of right to an
injunction, out of any court of competent jurisdiction, restraining
any violation or further violation of such agreements by Employee or
her agents, without showing any evidence of actual monetary loss
resulting from such breach, including, but not limited to, restraining
Employee from using or disclosing, in whole or in part, such
Confidential Information or trade secrets; rendering any services to
any Person to whom any of such information may have been disclosed or
is threatened to be disclosed; and/or violating the non-competition
provision. Nothing herein shall be construed as prohibiting ACG from
pursuing any other remedies available to it for such breach or
threatened breach, including the recovery of damages and attorneys'
fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
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<PAGE>
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled (i.e., such that she no longer is reasonably able to
perform her duties as contemplated by this Agreement), Company
shall pay to Employee, or to the estate of Employee if she dies,
that part of her Base Salary in addition to her Commission which
would otherwise be payable to Employee through the end of the
month in which her death or disability occurs, after giving
effect to accrued sick leave benefits and accrued vacation time,
if any. Upon such payment, as well as applicable insurance
benefits, if any, all obligations of Company to Employee or her
estate shall be fully satisfied, and this Agreement shall
terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and Company shall pay to Employee that part of her
Base Salary in addition to her Commission which would otherwise
be payable to Employee through the effective date of her
resignation. Upon such payment, all obligations in any manner
whatsoever of Company to Employee shall be fully satisfied.
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of Company,
and either of these changes significantly alters Employee's job
responsibilities or compensation, Employee may resign from her
position within 60 days of such a change. If Employee resigns
pursuant to this paragraph, Company will continue to provide
Employee with her monthly compensation equal to (i) her Base
Salary plus (ii) the average monthly Commission paid to Employee
prior to such change in management or ownership of the Company
plus (iii) benefits for a period of one year after the initial
date of any such change. Upon completion of such payments, all
obligations in any manner whatsoever of Company to Employee shall
be fully satisfied.
(e) Termination by the Company "With Cause." If Employee (i) violates
any provision of this Agreement; (ii) fails to perform the
services required of her pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; (iv) is
convicted of a crime other than a routine traffic violation;
and/or (v) violates any policies of ACG as outlined in any ACG
policy handbook, Company may terminate the employment of Employee
with cause. If
-5-
<PAGE>
Employee is terminated "with cause," Employee shall not be
entitled to receive any further salary or benefits under this
Agreement other than payment for that part of Employee's
compensation that would otherwise be payable to Employee through
the last date of her employment with Company. Upon such payment,
all obligations of Company to Employee shall be fully satisfied,
and this Agreement will terminate. Employee shall not be entitled
to receive any accrued vacation pay if her termination is "with
cause."
(f) Termination by the Company Without Cause. In the event Company
terminates Employee's employment for any reason other than
described in (e) above, Employee shall be entitled to that part
of the Base Salary, Commission and benefits payable to Employee
through the last date of her employment and Employee shall be
paid (i) Employee's Base salary plus (ii) Employee's average
monthly Commission paid to Employee prior to termination plus
(iii) benefits for a period of six months from termination. Upon
completion of such payments, all obligations in any manner
whatsoever of Company to Employee shall be fully satisfied.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraphs 5.1
through 5.6.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of Company shall
be the sole and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies thereof,
shall be retained by Employee upon termination of her employment. This
ACG property shall not be removed from Company premises without the
Company's prior written consent.
7.2 Upon termination of this Agreement or whenever requested by Company,
Employee immediately shall deliver to Company all of the ACG property
or any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes and accounting machines provided by
Company. No copies of any such data shall be retained by Employee.
-6-
<PAGE>
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at 734 James, Maize, Kansas 67101 and to
Company, c/o Rod K. Cutsinger, 3355 West Alabama, Suite 580, Houston, Texas
77098, or to such other address as either party shall designate by written
notice to the other. Notices may be sent by messenger or by registered or
certified mail, postage prepaid, addressed to the party or parties to be
notified, with return receipt requested. Notices sent by messenger shall be
deemed received upon their actual receipt of the party to whom they are
directed. Notices sent by registered or certified mail shall be deemed received
on the third day following their deposit with the United States Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by Employee or Company concerning the subject matter contained in this
Agreement (other than action by Company seeking an injunction pursuant to
Paragraph 5.7), including, but not limited to, Employee's employment,
termination from, and/or affiliation with Company, shall be settled by
arbitration in Denver, Colorado in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to change or modify any provision of this Agreement. Any and all
charges that may be made for the cost of the arbitration and the fees and
expenses of the arbitrator shall be borne equally by the parties; attorneys'
fees and witness expenses shall be borne by the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns
of Company. This Agreement shall be binding upon the Employee and her
agents, heirs, executors, administrators and legal representatives.
The rights and obligations of Employee hereunder shall not be
assignable by Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
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<PAGE>
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among Company, Employee and Rod K. Cutsinger in connection
with the subject matter hereof.
10.5 The waiver by Company of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver by Company
of any subsequent breach by Employee.
10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the remainder of this Agreement, but the effect
thereof shall be confined to the clause, sentence, subparagraph,
paragraph, or section so adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day and
year first above written.
TELE-SYSTEMS, Inc.
By
--------------------------------- ----------------------------------
Rod K. Cutsinger Cheryl A. Peters
Its: Chairman and Chief Executive
Officer
"COMPANY" "EMPLOYEE"
-8-
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
RESTATED STOCK PURCHASE AND EXCHANGE AGREEMENT
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(PURCHASER)
and
ADVANCED COMMUNICATIONS CORP.
(OLD ACG)
and
KIN NETWORK, INC.
(SELLER)
and
LIBERTY CELLULAR, INC.
(STOCKHOLDER)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................3
2. PURCHASE, SALE AND EXCHANGE...............................................7
2.1 Issuance of Seller Stock............................................7
2.2 Exchange of Common Stock............................................7
2.3 Section 351 Exchange Plan...........................................7
3. CLOSING...................................................................7
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
SELLER AND STOCKHOLDER....................................................8
4.1 Due Organization....................................................8
4.2 Authorization.......................................................8
4.3 Capital Stock of Seller.............................................9
4.4 Transactions in Capital Stock.......................................9
4.5 No Bonus Shares.....................................................9
4.6 Subsidiaries........................................................9
4.7 Predecessor Status; etc.............................................9
4.8 Spinoff by the Seller...............................................9
4.9 Financial Statements...............................................10
4.10 Liabilities and Obligations........................................10
4.11 Permits and Intangibles............................................11
4.12 Environmental Matters..............................................11
4.13 Material Contracts and Commitments.................................12
4.14 Real Property......................................................12
4.15 Employee Plans.....................................................13
4.16 Employee Plans and Compliance with ERISA...........................14
4.17 Conformity with Law; Litigation....................................15
4.18 Tax Matters........................................................15
4.19 No Violations......................................................16
4.20 Absence of Changes................................................17
4.21 Disclosure.........................................................18
4.22 Prohibited Activities..............................................18
4.23 Insurance..........................................................18
4.24 Draft Registration Statement.......................................19
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<PAGE>
5. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF STOCKHOLDER................................................19
5.1 Due Organization...................................................19
5.2 Authorization......................................................19
5.3 No Violations......................................................19
5.4 No Plan of Distribution............................................20
5.5 No Retained Rights.................................................20
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PURCHASER................................................................20
6.1 Due Organization...................................................20
6.2 Authorization......................................................20
6.3 Capital Stock......................................................21
6.4 Transactions in Capital Stock, Organization Accounting.............21
6.5 Subsidiaries.......................................................21
6.6 Financial Statements...............................................21
6.7 Liabilities and Obligations........................................22
6.8 Conformity with Law; Litigation....................................22
6.9 No Violations......................................................22
6.10 Purchaser Securities...............................................23
6.11 Business; Real Property; Material Agreement........................23
6.12 Taxes..............................................................23
6.13 Draft Registration Statement.......................................23
7. OTHER COVENANTS PRIOR TO CLOSING.........................................23
7.1 Access and Cooperation; Due Diligence; Audits......................23
7.2 Conduct of Business Pending Closing................................24
7.3 Prohibited Activities..............................................25
7.4 Exclusivity........................................................25
7.5 Notification of Certain Matters....................................25
7.6 Amendment of Schedules.............................................26
7.7 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................26
7.8 Further Assurance..................................................27
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND SELLER ...........27
8.1 Representations and Warranties; Performance of Obligations.........27
8.2 Satisfaction.......................................................27
8.3 No Litigation......................................................27
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<PAGE>
8.4 Opinion of Counsel.................................................27
8.5 Consents and Approvals.............................................28
8.6 Good Standing Certificates.........................................28
8.7 No Material Adverse Change.........................................28
8.8 Secretary's Certificates...........................................28
8.9 Closing of IPO.....................................................28
8.10 Stockholders' Agreement............................................28
8.11 FIRPTA Certificate.................................................28
8.12 Election of Director...............................................28
8.13 Network Service Agreement..........................................29
8.14 Switch Usage Agreement.............................................29
8.15 Consulting, Servicing and Equipment Purchasing Agreement...........29
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.........................29
9.1 Representations and Warranties; Performance of Obligations.........30
9.2 No Litigation......................................................30
9.3 Seller's Secretary's Certificate...................................30
9.4 Stockholder's Secretary's Certificate..............................30
9.5 No Material Adverse Effect.........................................30
9.6 Satisfaction.......................................................30
9.7 Opinion of Counsel.................................................31
9.8 Consents and Approvals.............................................31
9.9 Good Standing Certificates.........................................31
9.10 FIRPTA Certificate.................................................31
9.11 Closing of IPO.....................................................31
9.12 Stockholders' Agreement............................................31
9.13 Network Service Agreement..........................................31
9.14 Switch Usage Agreement.............................................32
9.15 Consulting, Servicing and Equipment Purchasing Agreement...........32
10. TAX MATTERS..............................................................32
10.1 Liability for Taxes................................................32
10.2 Returns............................................................34
10.3 Tax Proceedings....................................................35
10.4 Payment of Taxes...................................................35
10.5 Cooperation and Exchange of Information............................35
10.6 Survival of Obligations............................................36
10.7 Conflict...........................................................36
10.8 Tax Allocation Arrangements........................................36
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<PAGE>
11. TERMINATION OF AGREEMENT.................................................37
11.1 Termination........................................................37
11.2 Liabilities in Event of Termination................................37
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................38
12.1 Seller and Stockholder.............................................38
12.2 Purchaser..........................................................38
12.3 Damages............................................................39
12.4 Survival...........................................................39
13. TRANSFER RESTRICTIONS....................................................39
13.1 Stockholder........................................................39
13.2 Purchaser..........................................................40
14. INVESTMENT REPRESENTATIONS AND VOTING RESTRICTIONS.......................40
14.1 General............................................................40
14.2 Compliance With Law................................................41
14.3 Economic Risk, Sophistication......................................41
14.4 Application to Purchaser...........................................42
14.5 Voting, Ownership and Other Restrictions...........................42
15. REGISTRATION RIGHTS......................................................43
15.1 PiggyBack Registration Rights......................................43
15.2 Demand Registration Rights.........................................43
15.3 Registration Procedures............................................44
15.4 Other Registration Matters.........................................47
15.5 Indemnification....................................................47
15.6 Contribution.......................................................50
15.7 Availability of Rule 144...........................................51
16. GENERAL..................................................................51
16.1 Cooperation........................................................51
16.2 Successors and Assigns.............................................51
16.3 Entire Agreement...................................................51
16.4 Counterparts.......................................................52
16.5 Brokers and Agents.................................................52
16.6 Expenses...........................................................52
16.7 Notices............................................................52
16.8 Governing Law......................................................54
16.9 Survival of Representations and Warranties.........................54
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<PAGE>
16.10 Exercise of Rights and Remedies....................................54
16.11 Time...............................................................54
16.12 Reformation and Severability.......................................54
16.13 Commitment to Nominate a Director..................................54
16.14 Remedies Cumulative................................................55
16.15 Captions...........................................................55
16.16 Public Statements..................................................55
16.17 Expansion of Fiber Network.........................................55
16.18 Amendments and Waivers.............................................55
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<PAGE>
STOCK PURCHASE AND EXCHANGE AGREEMENT
THIS RESTATED STOCK PURCHASE AND EXCHANGE AGREEMENT (the "Agreement") is
made as of the 6th day of October, 1997, by and among ADVANCED COMMUNICATIONS
GROUP, INC., a Delaware corporation organized in September 1997 ("Purchaser"),
ADVANCED COMMUNICATIONS CORP. (formerly named Advanced Communications Group,
Inc.), a Delaware corporation organized in June 1996 ("Old ACG"), KIN NETWORK,
INC., a Kansas corporation ("Seller"), and LIBERTY CELLULAR, INC., a Kansas
corporation ("Stockholder"), the owner of 300,000 shares of Common Stock, no
par value, of Seller ("Seller Stock"), representing all the issued and
outstanding capital stock of Seller outstanding on the date of this Agreement.
RECITALS
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration, including cash, one of such agreements being the
Stock Purchase and Exchange Agreement dated as of June 30, 1997 among Old
ACG, Seller and Stockholder ("Original Agreement"); and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Purchaser as a new Delaware corporation in
September 1997 to serve as the vehicle for the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering ("IPO") of Common Stock, $.0001 par
value, of Purchaser ("Purchaser Stock") at the price to the public
reflected in the final prospectus of Purchaser relating to the IPO ("IPO
Price"); and
<PAGE>
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Stockholder and ACG, will
transfer, by stock or asset purchase or reverse triangular merger, the
stock or substantially all the assets of certain companies and other assets
in which they own an interest to Purchaser in exchange for voting capital
stock of Purchaser and other consideration, including cash, voting stock,
options, warrants, notes, convertible notes and other property of
Purchaser, under circumstances that will constitute a tax-free transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder ("Code"), to the extent
of their receipt of voting capital stock of Purchaser; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Purchaser and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Purchaser substantially contemporaneously with the
consummation of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Purchaser by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Purchaser
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Purchaser, Old ACG, Seller and Stockholder desire to amend
and restate the Original Agreement in its entirety and transform it into
this Agreement; and
WHEREAS, Purchaser desires to acquire 112,221 authorized but unissued
shares of Seller Stock directly from Seller for $10,000,000 as contemplated
herein, and Seller has agreed to sell such stock to Purchaser on the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, Stockholder desires to exchange 89,767 issued and outstanding
shares of Seller Stock for the consideration set forth in Section 2.2 of
this Agreement, and
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Stockholder has agreed to sell such shares to Purchaser on the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, following consummation of the transactions contemplated in
this Agreement, Purchaser and Stockholder will own 49% and 51%,
respectively, of the outstanding shares of Seller Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement:
"Affiliates" has the meaning set forth in Section 4.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" has the meaning set forth in the fifth recital of this Agreement.
Controlled Group" has the meaning set forth in Section 4.16.
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"Demand Registration" has the meaning set forth in Section 15.2.
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this Agreement.
"Environmental Laws" has the meaning set forth in Section 4.12.
"ERISA" has the meaning set forth in Section 4.15.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 15.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 4.12.
"Hart-Scott Act" has the meaning set forth in Section 7.7.
"Initial Disclosure Date" means April 30, 1997.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"June Balance Sheet" has the meaning set forth in Section 4.9.
"KINI" has the meaning set forth in Section 4.20(xvi).
"Liens" has the meaning set forth in Section 4.3.
"Management Agreement" has the meaning set forth in Section 4.20(xvi).
"Material Adverse Effect" has the meaning set forth in Section 4.1.
"Material Documents" has the meaning set forth in Section 4.19.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
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"Other Stockholders" means the Persons that receive shares of Purchaser
Stock, securities convertible into shares of Purchaser Stock and/or cash
upon the acquisition by Purchaser of assets or businesses in which such
Persons owned an interest on or prior to the closing date of the IPO.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Pre-Closing Date Period" has the meaning set forth in Section 10.1(ii)
"Proceeding Notice" has the meaning set forth in Section 10.3.
"Prohibited Activities" has the meaning set forth in Paragraph 4.22.
"Prospectus" means the prospectus included in a Registration Statement,
including any preliminary prospectus, as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any
portion of the Registerable Securities covered by such Registration
Statement, and by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Purchaser Charter Documents" has the meaning set forth in Section 6.1.
"Purchaser Documents" has the meaning set forth in Section 6.9.
"Purchaser Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Qualified Plans" has the meaning set forth in Section 4.16.
"Registerable Securities" means the shares of Purchaser Stock acquired by
Stockholder pursuant to Section 2.2.
"Registration Statement" means any registration statement of Purchaser and
any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act
which covers any of the Registerable Securities, and all
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amendments and supplements to such registration statement, including
post-effective amendments in each case including the Prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
"Restricted Securities" has the meaning set forth in Section 15.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Seller Financial Statements" has the meaning set forth in Section 4.9.
"Seller Notice" has the meaning set forth in Section 10.3.
"Seller Stock" has the meaning set forth in the first paragraph of this
Agreement.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Stockholder Charter Documents" has the meaning set forth in Section 5.1.
"Stockholder Documents" has the meaning set forth in Section 5.3.
"Stockholder Group" has the meaning set forth in Section 4.18.
"Stockholders' Agreement" means the Stockholders' Agreement to be dated as
of the Closing Date and in substantially the form of Annex III.
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"Switch" means Seller's DMS 100/200/500 Nortel Digital Switch located in
Moundridge, Kansas, together with all associated peripheral equipment,
software, spare parts and supplies.
"Tax" or "Taxes" has the meaning set forth in Section 10.1.
"Transfer Taxes" has the meaning set forth in Section 16.6.
"Unitary Return" has the meaning set forth in Section 10.1(i).
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. PURCHASE, SALE AND EXCHANGE
2.1 Issuance of Seller Stock. Pursuant to the terms of this Agreement, at
the Closing, Seller will sell, issue and deliver to Purchaser certificates
representing 112,221 shares of Seller Stock. On the terms and subject to the
conditions of this Agreement, at the Closing, Purchaser will purchase 112,221
newly issued shares of Seller Stock from Seller for Ten Million Dollars
($10,000,000) in immediately available funds.
2.2 Exchange of Common Stock. Pursuant to the terms of this Agreement, at
the Closing, Stockholder will transfer, convey and assign to Purchaser
certificates representing 89,767 shares of Seller Stock issued and outstanding
on the date of this Agreement, together with stock powers duly endorsed by
Stockholder so that the foregoing shares of Seller Stock may be duly registered
in Purchaser's name. On the terms and subject to the conditions of this
Agreement, at the Closing, Purchaser will acquire from Stockholder 89,767
shares of Seller Stock in exchange for such number of shares of Purchaser Stock
(rounded to the nearest whole share) as shall be determined by dividing
$10,000,000 by the IPO Price.
2.3 Section 351 Exchange Plan By executing this Agreement, Stockholder
approves and adopts the Section 351 Exchange Plan to the same extent as if a
duly authorized officer of Stockholder had executed the Section 351 Exchange
Plan for and in the name of and on behalf of Stockholder.
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3. CLOSING
The closing of the transactions contemplated by this Agreement ("Closing")
shall take place on the date of the closing of the sale of shares of the
Purchaser Stock in the IPO, or such other date as the parties hereto may
designate (the "Closing Date"), at such place in New York City as the parties
may mutually agree.
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF SELLER AND
STOCKHOLDER
Seller and Stockholder, jointly and severally, represent, warrant, covenant
and agree (i) that all of the following representations and warranties in this
Section 4 are true at the date of this Agreement and, subject to Section 7.6,
shall be true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 4 shall be materially complied with or performed at
and as of the Closing Date . None of the representations, warranties, covenants
and agreements set forth in this Section 4 shall survive the Closing Date.
4.1 Due Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Kansas, and is
duly authorized and qualified to do business and is in good standing under the
laws of each jurisdiction where such qualification is required except (i) as
set forth on Schedule 4.1 or (ii) where the failure to be so authorized or
qualified would not have a material adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise),
of Seller (as used herein with respect to Seller or with respect to any other
Person, a "Material Adverse Effect"). Schedule 4.1 contains a list of all such
jurisdictions in which Seller is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Seller are attached hereto as Schedule 4.1. The stock records of
Seller as heretofore made available to Purchaser, are correct and complete in
all material respects. There are no minutes in the possession of Seller or
Stockholder which have not been made available to Purchaser, and all of such
minutes are correct and complete in all material respects.
4.2 Authorization. Seller has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by Seller of this Agreement and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Seller. This Agreement has been duly executed and delivered
by Seller and is a valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms.
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4.3 Capital Stock of Seller. The authorized capital stock of Seller
consists of 10,000,000 shares of Seller Stock, of which 300,000 shares are
issued and outstanding and owned of record and beneficially by Stockholder,
free and clear of all mortgages, liens, security interests, pledges, voting
trusts, restrictions, encumbrances and claims of every kind (collectively, the
"Liens") except as otherwise set forth on Schedule 4.3. All of the issued and
outstanding shares of the capital stock of Seller (i) have been duly authorized
and validly issued and (ii) are fully paid and nonassessable. Further, none of
such shares was issued in violation of the preemptive rights of any past or
present stockholder.
4.4 Transactions in Capital Stock. Except as set forth on Schedule 4.4,
Seller has not acquired any Seller Stock since January 1, 1993. No option,
warrant, call, conversion right or commitment of any kind exists which
obligates Seller to issue any of its authorized but unissued capital stock.
Seller has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. Neither the
voting stock structure of Seller nor the relative ownership of shares among any
of its stockholder group has been altered or changed in contemplation of the
transactions contemplated by this Agreement.
4.5 No Bonus Shares. None of the outstanding shares of Seller Stock was
issued pursuant to awards, grants or bonuses.
4.6 Subsidiaries. Seller has no subsidiaries; Seller does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any Person; and Seller is not directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
4.7 Predecessor Status; etc. Set forth in Schedule 4.7 is a listing of all
names of all predecessor companies of Seller, including the names of any
entities acquired by Seller (by stock purchase, merger or otherwise) or owned
by Seller or from whom Seller previously acquired material assets in excess of
$250,000, in any case, since January 1, 1991. Except as disclosed on Schedule
4.7, Seller has not been, within such period of time, a subsidiary or division
of another corporation or a part of an acquisition which was later rescinded.
4.8 Spinoff by the Seller. Except as set forth on Schedule 4.8, there has
not been any sale, spin-off or split-up of material assets in excess of
$250,000 of either Seller or any other Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, Seller ("Affiliates") since January 1, 1991.
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4.9 Financial Statements. Attached hereto as Schedule 4.9 are copies of the
following financial statements of Seller (the "Seller Financial Statements"):
Seller's audited Balance Sheets as of December 31, 1996, 1995 and 1994 and its
unaudited Balance Sheet as of June 30, 1997 ("June Balance Sheet"), and audited
Statements of Operations, Stockholder's Equity and Cash Flows and related notes
thereto for each of the years in the three-year period ended December 31, 1996
and unaudited Statements of Operations, Stockholder's Equity and Cash Flows for
the six months ended June 30, 1997 and 1996 (June 30, 1997 being hereinafter
referred to as the "Balance Sheet Date"). The audited Seller Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 4.9). The unaudited Seller Financial
Statements were prepared in accordance with the books and records of Seller in
accordance with accounting principles consistently applied. Seller's Balance
Sheets as of December 31, 1996, 1995 and 1994 present fairly the financial
position of Seller as of the dates indicated thereon, and Seller's Statements
of Operations, Stockholder's Equity and Cash Flows for each of the three years
in the period ended December 31, 1996 present fairly the results of operations
for the periods indicated thereon in accordance with generally accepted
accounting principles. Seller's financial statements at and for the two years
in the period ended December 31, 1995 have been examined by Kennedy and Coe,
LLP, independent public accountants. Seller's financial statements for the year
ended December 31, 1996 have been examined by Sartain Fischbein & Co.,
independent public accountants.
4.10 Liabilities and Obligations. Seller has no material liabilities of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, that are not reflected on the June Balance
Sheet or otherwise reflected in the Seller Financial Statements at the Balance
Sheet Date, including loan agreements, indemnity or guaranty agreements, bonds,
mortgages, Liens, pledges or other security agreements. Except as set forth on
Schedule 4.10, since the Initial Disclosure Date Seller has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. Seller has also disclosed to
Purchaser on Schedule 4.10, in the case of those contingent liabilities related
to pending or threatened litigation or other liabilities which are not fixed or
otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
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(ii) the name of each court or agency before which such claim, suit or
proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
4.11 Permits and Intangibles. Seller holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and Seller has delivered to
Purchaser an accurate list and summary description (which is set forth on
Schedule 4.11) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Seller (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 4.12). To
the knowledge of Seller, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 4.11 and 4.12 are valid in all
material respects, and Seller has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such license,
franchise, permit or other governmental authorization. Seller has conducted and
is conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 4.11 and 4.12
and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on Seller.
Except as specifically provided in Schedule 4.11, the transactions contemplated
by this Agreement will not result in a material default under or a material
breach or violation of, or materially adversely affect the rights and benefits
afforded to Seller by, any such license, franchise, permit or government
authorization.
4.12 Environmental Matters. Except as set forth on Schedule 4.12, (i)
Seller has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances including petroleum and petroleum products (as
such terms are defined in any applicable Environmental Law); (ii) Seller has
obtained and substantially adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Wastes and
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Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 4.12 and reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by Seller where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by Seller except as permitted by
Environmental Laws; (iv) no on-site or off-site location to which Seller has
transported or disposed of Hazardous Wastes and Hazardous Substances or
arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any Federal, state, local or foreign enforcement
action or any other investigation, could lead to any material claim against
Seller for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) Seller has no contingent liability in connection
with any release of any Hazardous Waste or Hazardous Substance into the
environment.
4.13 Material Contracts and Commitments. Seller has listed on Schedule 4.13
all material contracts, commitments and similar agreements to which Seller is a
party or by which it or any of its properties are bound (including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on other Schedules to
this Agreement, (x) in existence as of the Initial Disclosure Date and (y)
entered into since the Initial Disclosure Date, and in each case has delivered
true, complete and correct copies of such agreements to Purchaser. Seller has
complied with all material commitments and obligations pertaining to it, and is
not in material default under any contract or agreement listed on Schedule 4.13
and no notice of default under any such contract or agreement has been
received. Seller has also indicated on Schedule 4.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
Seller.
4.14 Real Property. Seller has good and insurable title to the real
property owned or leased by it and used or held for use in its business,
subject to no Lien except for:
(w) Liens reflected on Schedules 4.10 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
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(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
All leases of new property by Seller are in full force and effect in all
material respects and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
4.15 Employee Plans. Schedule 4.15 represents an accurate list of all
employee benefit plans of Seller, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, and classifications of
employees covered thereby as of the Initial Disclosure Date. Except for the
employee benefit plans, if any, described on Schedule 4.15, Seller does not
sponsor, maintain or contribute to any plan program, fund or arrangement that
constitutes an "employee pension benefit plan," and Seller does not have any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended "ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. Seller
has not sponsored, maintained or contributed to any employee pension benefit
plan other than the plans set forth on Schedule 4.15, nor is Seller required to
contribute to any retirement plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions or employment of any
of Seller's employees.
Seller is not now, nor as a result of its past activities can it reasonably
be expected to become, liable to the Pension Benefit Guaranty Corporation
(other than for premium payments) or to any multi employer employee pension
benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 4.15 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
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All accrued contribution obligations of Seller with respect to any plan
listed on Schedule 4.15 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of Seller as of the Balance Sheet Date.
4.16 Employee Plans and Compliance with ERISA. All employee benefit plans
listed on Schedule 4.15 that are intended to qualify (the "Qualified Plans")
under Section 401(a) of the Code are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 4.15. Except as
disclosed on Schedule 4.15, all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 4.15. Neither Stockholder nor any such plan listed in
Schedule 4.15, nor Seller has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No employee
benefit plan listed on Schedule 4.15 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and Seller has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service or (ii) any liability to the Pension
Benefit Guaranty Corporation (other than for premium payments). Furthermore:
(v) there have been no terminations or discontinuance of contributions
to any Qualified Plan intended to qualify under Section 401(a) of the Code
without notice to and approval by the Internal Revenue Service;
(w) no plan listed on Schedule 4.15 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans listed in
Schedule 4.15;
(y) Seller has not incurred liability under Section 4062 of ERISA; and
(z) no circumstances exist pursuant to which Seller could reasonably
be expected to have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multi employer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being subject to any
statutory Lien to secure payment of any such liability) with respect to any
plan now or
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heretofore maintained or contributed to by any entity other than
Seller that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes Seller
("Controlled Group")
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group has not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
4.17 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 4.17, Seller is not in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
Seller which would have a Material Adverse Effect; and except to the extent set
forth on Schedule 4.17, there are no material claims, actions, suits or
proceedings, commenced or, to the knowledge of Seller, threatened, against or
affecting Seller, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction over Seller and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Seller or the Stockholder. Seller has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other
governmental approvals set forth on schedules to this Agreement, and is not in
violation of any of the foregoing which might have a Material Adverse Effect.
4.18 Tax Matters. Except as otherwise expressly noted in this Section 4.18
or set forth in Schedule 4.18, the operations of Seller have been reflected in
the consolidated Federal income tax returns of the affiliated group of
corporations having Stockholder as its common parent (the "Stockholder Group")
that have been filed or will be timely filed pursuant to the Code, for the
taxable years ended on or before December 31, 1996 during which Stockholder
owned, directly or indirectly, 100% of the capital stock of Seller. Seller and
Stockholder have (or will have by the Closing) caused to be duly filed in a
timely manner (taking into account all extensions of due dates) with the
appropriate Federal, state, local, and other governmental authorities all
material Returns which are required to be filed by or with respect to any
member of the Stockholder Group, to the extent Seller could be liable for such
Taxes, and have (or will have by the Closing) caused to be paid or deposited or
made adequate provision in accordance with generally accepted accounting
principles consistently applied for the payment of all Taxes (including
estimated Taxes) required with respect
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to the periods covered by such Returns or by any taxing authority. Adequate
provision has been made for all Taxes due with respect to Seller and with
respect to each member of the Stockholder Group, to the extent Seller could be
liable for such Taxes, for all periods through the Balance Sheet Date, and
adequate provision will be made for all such Taxes for the period between the
Balance Sheet Date and the Closing Date. Except as set forth in Schedule 4.18
and except for Liens securing the payment of Taxes not yet due and payable, (i)
there are no Liens upon any assets of Seller, (ii) there are no outstanding
agreements or waivers by or with respect to Seller or any member of the
Stockholder Group extending the period for assessment or collection of any
Taxes for which Seller could be liable, (iii) there is no pending action,
proceeding or investigation, and, to the best knowledge of the Seller and
Stockholder, no action, proceeding or investigation has been threatened by any
governmental authority, for assessment or collection of Taxes with respect to
Seller or Taxes of any member of the Stockholder Group for which Seller could
be held liable, and (iv) no claim for assessment or collection of Taxes has
been asserted and no actual or proposed assessment has been made against Seller
with respect to the Taxes of Seller or Taxes of any member of the Stockholder
Group for which Seller could be held liable. No consent or election under
Section 341(f) of the Code has been filed by or on behalf of Seller.
4.19 No Violations. Seller is not in violation of its Charter Documents.
Neither Seller nor, to the knowledge of Seller, any other party thereto, is in
material default under any lease, instrument, agreement, license, or permit set
forth on any schedule to this Agreement, or any other material agreement to
which it is a party or by which its properties are bound (the "Material
Documents"); and, except as set forth in Schedule 4.19, (i) the rights and
benefits of Seller under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (ii) the
execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach or constitute a material default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 4.19, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other
third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect in all material respect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material
right or benefit. Except as set forth on Schedule 4.19, to the knowledge of
Seller, none of the Material Documents prohibits the use or publication by
Seller or Purchaser of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts Seller from freely
providing services to any other customer or potential customer of Seller,
Purchaser or any of the Other Founding Companies.
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4.20 Absence of Changes. Since the Initial Disclosure Date, except as set
forth on Schedule 4.20, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Seller;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Seller;
(iii) any change in the authorized capital of Seller or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Seller;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Seller to any of its officers,
directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character, materially
adversely affecting the business of Seller;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Seller to any Person, including,
without limitation, Stockholder and its Affiliates outside the ordinary
course of business of Seller;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Seller, including without limitation any
indebtedness or obligation of Stockholder or any Affiliate thereof outside
the ordinary course of business of Seller;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of Seller or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
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(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of the Seller's business;
(xi) any waiver of any material rights or claims of Seller;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which Seller is a party:
(xiii) any transaction by Seller outside the ordinary course of its
respective businesses;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by Seller outside
the ordinary course of Seller's business; or
(xvi) any amendment of or modification to the Management Agreement
dated as of January 1, 1997 between KINI, L.C., a Kansas limited liability
company ("KINI"), and Seller ("Management Agreement").
4.21 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Purchaser and its representatives in writing pursuant hereto, present fairly
the business and operations of Seller for the time periods with respect to
which such information was requested. Seller's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which Seller is a party, or to which its properties are
subject, or by any other fact or circumstance regarding Seller (which fact or
circumstance was, or should reasonably, after due inquiry, have been known to
Seller) that is not disclosed pursuant hereto or thereto.
4.22 Prohibited Activities. Except as set forth on Schedule 4.22, Seller
has not, between the Initial Disclosure Date and the date of this Agreement,
taken any of the actions set forth in Section 7.3 ("Prohibited Activities").
4.23 Insurance. Seller maintains such policies of workmen's compensation,
casualty, liability and other insurance as it considers appropriate under the
circumstance. Schedule 4.23 accurately identifies the types and coverage
amounts of such insurance.
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4.24 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by Seller and Stockholder expressly
for inclusion therein, but not otherwise, are true, accurate and complete in
all material respects and do not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
5. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDER
Stockholder further represents warrants, covenants and agrees (i) that all
of the following representations and warranties in this Section 5 are true at
the date of this Agreement and, subject to Section 7.6, shall be true at the
Closing Date and (ii) that all of the covenants and agreements in this Section
5 shall be complied with or performed at and as of the Closing Date. The
representations and warranties set forth in this Section 5 shall survive until
the Expiration Date.
5.1 Due Organization. Stockholder is a corporation duly organized, validly
existing and in good standing under the laws of the state of Kansas, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Charter Documents and By-laws,
each as amended, of Stockholder (the "Stockholder Charter Documents") are
attached hereto as Schedule 5.1.
5.2 Authorization. Stockholder has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Stockholder of this Agreement and its
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Stockholder. This Agreement has been duly
executed and delivered by Stockholder and is a valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms.
5.3 No Violations. Stockholder is not in violation of any Stockholder
Charter Document. Neither the Stockholder nor, to the knowledge of Stockholder,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Stockholder is a party, or by which Stockholder, or
any of its respective properties, are bound (collectively, the "Stockholder
Documents"); and the execution of this Agreement and the performance of the
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material
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violation or breach or constitute a default under, any of the terms or
provisions of the Stockholder Documents or the Stockholder Charter Documents.
None of the Stockholder Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any
of the transactions contemplated hereby.
5.4 No Plan of Distribution. Stockholder has no intention or arrangement to
sell or otherwise dispose of any Purchaser Stock to be received pursuant to
this Agreement and the Section 351 Exchange Plan.
5.5 No Retained Rights. Stockholder will not retain any right after the
Closing in any Seller Stock to be transferred by him at the Closing but, to the
extent that such right may exist upon the consummation of the Closing, such
right shall be deemed to have been released and extinguished.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PURCHASER
Purchaser and Old ACG, jointly and severally, represent, warrant, covenant
and agree (i) that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.6,
shall be true at the Closing Date, (ii) that all of the covenants and
agreements in this Section 6 shall be complied with or performed at and as of
the Closing Date, and (iii) that none of the representations, warranties,
covenants or agreements set forth in this Section 6 shall survive the Closing
Date.
6.1 Due Organization. Purchaser and Old ACG each is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Charter Documents and
By-laws, each as amended, of Purchaser and Old ACG (collectively the "Purchaser
Charter Documents") are all attached hereto as Schedule 6.1.
6.2 Authorization. Each of Purchaser and Old ACG has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by each of Purchaser and Old
ACG of this Agreement and its consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Purchaser
and Old ACG. This Agreement has been duly executed and delivered by each of
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Purchaser and Old ACG and is a valid and binding obligation of each of
Purchaser and Old ACG, enforceable against each of them in accordance with its
terms.
6.3 Capital Stock. The authorized capital stock of Old ACG is as set forth
in Schedule 6.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, (iii) are owned of record and beneficially by the
Persons set forth on Schedule 6.3, and (iv) were offered, issued, sold and
delivered by Purchaser in compliance with all applicable state and Federal laws
concerning the offer, issuance, sale and delivery of securities. Further, none
of such shares was issued in violation of the preemptive rights of any past or
present stockholder of Purchaser. Subject to the consummation of the reverse
stock split referred to in the seventh recital of this Agreement and the
consummation of Purchaser's acquisition of Old ACG in the reverse triangular
merger, the capitalization of Purchaser will be identical to the capitalization
of Old ACG immediately prior to the consummation of the IPO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 or contemplated to be issued in connection with the
acquisition of the Founding Companies, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates Old ACG to issue any of
its authorized but unissued capital stock and (ii) Old ACG has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Old ACG.
6.5 Subsidiaries. Neither Purchaser nor Old ACG has any subsidiaries except
for each of the companies identified on Schedule 6.5. Except as set forth in
the preceding sentence, neither Purchaser nor Old ACG presently owns, of record
or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither Purchaser nor Old ACG,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporation entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies of the
following financial statements of Old ACG, which reflect the results of its
operations from inception in June 1996 (the "Old ACG Financial Statements"):
Old ACG's audited Balance Sheet as of December 31, 1996 and its unaudited
Balance Sheet as of June 30, 1997, and audited Statements of Operations,
Stockholder's Equity and Cash Flows and related notes thereto for the period
from June 10, 1996 through December 31, 1996 and unaudited Statements of
Operations, Stockholder's Equity and Cash Flows for the six months ended June
30, 1997. The audited Old ACG Financial Statements have
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been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the period indicated (except as noted
thereon or on Schedule 6.6). The unaudited Old ACG Financial Statements were
prepared in accordance with the books and records of Old ACG in accordance with
accounting principles consistently applied. Old ACG's Balance Sheets present
fairly the financial position of Old ACG as of the dates indicated thereon, and
Old ACG's Statements of Operations, Stockholder's Equity and Cash Flows
included in the Old ACG Financial Statements present fairly the results of
operations for the periods indicated thereon in accordance with generally
accepted accounting principles. Old ACG's Financial Statements at and for the
period ended December 31, 1996 have been examined by KPMG Peat Marwick LLP,
independent public accountants.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
neither Purchaser nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8 or in the Draft Registration Statement, neither Purchaser nor Old
ACG is in violation of any law or regulation or any order of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it which would have
a Material Adverse Effect; and except to the extent set forth in Schedule 6.8
or the Draft Registration Statement, there are no material claims, actions,
suits or proceedings, pending or, to the knowledge of either Purchaser or Old
ACG, threatened, against or affecting either Purchaser or Old ACG, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Each of Purchaser and Old ACG
has conducted and is conducting its businesses in substantial compliance with
the requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing which might have a Material Adverse Effect.
6.9 No Violations. Neither Purchaser nor Old ACG is in violation of any
Purchaser Charter Document. Neither Purchaser nor Old ACG, to the knowledge of
Purchaser or Old ACG, or any other party thereto, is in default under any
lease, instrument, agreement, license, or permit to which Purchaser or Old ACG
is a party, or by which Purchaser or Old ACG or any of its properties, are
bound (collectively, the "Purchaser Documents"); and (i) the rights and
benefits of Purchaser or Old ACG under the Purchaser Documents will not be
adversely affected by the transactions contemplated hereby and (ii) the
execution of this Agreement and the performance of the obligations
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hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach, or constitute a default under, any
of the terms or provisions of the Purchaser Documents or the Purchaser Charter
Documents. Except as set forth on Schedule 6.9, none of the Purchaser Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
6.10 Purchaser Securities. The shares of Purchaser Stock deliverable to
Stockholder pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of this Agreement in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.
6.11 Business; Real Property; Material Agreement. Old ACG was formed in
June 1996 and Purchaser was formed in September 1997. Neither Purchaser nor Old
ACG has conducted any material business since the date of its inception, except
raising capital and in connection with this Agreement and similar agreements
with other Founding Companies. Except as disclosed on Schedule 6.11, neither
Purchaser nor Old ACG owns, or has at any time owned, any real property or any
material personal property or is a party to any other material agreement.
6.12 Taxes. Old ACG has filed Federal, state and other Tax returns required
to be filed for any fiscal period ended on or before the Balance Sheet Date.
Any amount shown as an accrual for Taxes on Purchaser Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated.
6.13 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Purchaser or Old ACG but not otherwise,
are true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
7. OTHER COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, Seller
will afford to the officers and authorized representatives of Purchaser
access to all of Seller's sites, properties, books and records and will
furnish Purchaser with such additional financial and
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operating data and other information as to the business and properties
of Seller as Purchaser may from time to time reasonably request. Seller
will cooperate with Purchaser, its representatives, auditors and counsel in
the preparation of any documents or other material that may be required in
connection with any documents or materials required by this Agreement.
Purchaser will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 12.
(ii) Between the date of this Agreement and the Closing, Purchaser
will afford to the officers and authorized representatives of Seller and
Stockholder access to all sites, properties, books and records of
Purchaser, Old ACG and the other Founding Companies, and will furnish
Seller and Stockholder with such additional financial and operating data
and other information as to the business and properties of Purchaser, Old
ACG and the other Founding Companies as Seller and Stockholder may from
time to time reasonably request. Purchaser will cooperate with Seller and
Stockholder, their representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with
any documents or materials required by this Agreement. Seller and
Stockholder will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 12.
7.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Purchaser, between the date of this Agreement and the Closing Date,
Seller will:
(i) carry on business in substantially the same manner as it has
heretofore;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage; and
(v) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
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7.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Seller, will not, without prior written consent of Purchaser:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in respect
of Seller Stock, redeem or otherwise acquire or retire for value any shares
of Seller Stock;
(iv) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(v) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(vi) modify or amend the Management Agreement.
7.4 Exclusivity. Neither Stockholder, nor Seller, nor any agent, officer,
director, trustee or any representative of either of the foregoing will, during
the period commencing on the date of this Agreement and ending with, the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than Purchaser or
its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, Seller or merger, consolidation or business combination
of Seller.
7.5 Notification of Certain Matters. Stockholder and Seller shall give
prompt notice to Purchaser of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would likely cause any representation
or warranty of Seller or Stockholder contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing Date and (ii) any
material
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failure of Stockholder or Seller to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such Person
hereunder as of such date. Purchaser shall give prompt notice to Seller and
Stockholder of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would likely cause any representation or warranty of
Purchaser and Old ACG contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any material failure
of Purchaser or Old ACG to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder as of such date. The
delivery of any notice pursuant to this Section 7.5 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.6, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.6 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by Seller, Stockholder, Purchaser or Old ACG that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect
may be made unless Purchaser and Old ACG or Stockholder and Seller, as the case
may be, consents to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
shall be deemed to be the Schedules as amended or supplemented pursuant to this
Section 7.6. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of Section
11.1(v). Neither the entry by Purchaser into any other agreement after the date
hereof for the acquisition of one or more companies involved in or assets
associated with the telephone business and related activities nor the
performance by Purchaser of its obligations thereunder shall be deemed to
require the amendment to or a supplementation of any Schedule hereto.
7.7 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by Seller and Stockholder shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by Purchaser shall be
deemed a condition precedent in addition to the conditions
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precedent set forth in Section 8 of this Agreement, (iii) the parties agree to
cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made, and (iv) Purchaser shall be responsible for all
filing fees under the Hart-Scott Act.
7.8 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND SELLER
The obligations of Stockholder and Seller with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. Upon Closing, all
conditions not satisfied shall be deemed to have been waived:
8.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of Purchaser and Old ACG contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Purchaser and Old ACG on or
before the Closing Date shall have been duly complied with or performed in all
material respects; and a certificate to the foregoing effect dated the Closing
Date, and signed by the President or any Vice President of each of Purchaser
and Old ACG shall have been delivered to Seller and Stockholder.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Seller and Stockholder and
their counsel.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Seller
or Stockholder as a result of which the management of Seller or Stockholder
deems it inadvisable to proceed with the transactions hereunder.
8.4 Opinion of Counsel. Seller and Stockholder shall have received an
opinion from counsel for Purchaser and Old ACG, dated the Closing Date, in the
form and substance reasonably acceptable to Seller and Stockholder, relating
to, insofar as Purchaser and Old ACG concerned, as the case may be, (a) the
authorization, execution, delivery, performance and enforceability of the
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Agreement and the Stockholders' Agreement and (b) the validity and due issuance
of the Purchaser Stock.
8.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
8.6 Good Standing Certificates. Purchaser shall have delivered to Seller
and Stockholder a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the Delaware Secretary of State and, unless
waived by Seller and Stockholder, in each state in which Purchaser is
authorized to do business, showing that Purchaser is in good standing and
authorized to do business and that all state franchise and/or income tax
returns and taxes for Purchaser, for all periods prior to the Closing Date have
been filed and paid to the extent required.
8.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Purchaser that would constitute a Material Adverse
Effect.
8.8 Secretary's Certificates. Seller and Stockholder shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of each of Purchaser and Old ACG, certifying the completeness and accuracy of
the attached copies of Purchaser's Charter Documents (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the board
of directors approving Purchaser's and Old ACG's entering into this Agreement
and its consummation of the transactions contemplated hereby.
8.9 Closing of IPO. The sale by Purchaser of shares of Purchaser Stock in
the IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein, and Purchaser shall have
raised sufficient funds in the IPO to permit it to consummate, and Purchaser
shall have consummated, the acquisitions described on Schedule 8.9, unless
Seller and Stockholder shall otherwise agree.
8.10 Stockholders' Agreement. Purchaser shall have executed and delivered
the Stockholders' Agreement.
8.11 FIRPTA Certificate. Purchaser shall have delivered to Seller a
certificate to the effect that it is not a foreign Person under Section
1.1445-2(b) of the Treasury Regulations.
8.12 Election of Director. An individual designated by Stockholder and
reasonably qualified to serve on the board of directors of a publicly held
company shall have been elected a
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member of the Board of Directors of Purchaser; and Rod K. Cutsinger shall have
entered into an agreement with Stockholder pursuant to which Mr. Cutsinger will
agree to vote all shares of Purchaser Stock owned by him in support of each
candidate for director of Purchaser nominated pursuant to Section 16.13.
8.13 Network Service Agreement. Seller and Purchaser shall have executed
and delivered a mutually acceptable network usage agreement pursuant to which
Seller will (i) provide Purchaser with DS3 and T1 capacity on its fiber optic
network at stipulated prices per DSO mile and termination services at
stipulated prices for interstate and intrastate terminations, (ii) increase the
capacity of its fiber optic network when requested by Purchaser and (iii)
service and maintain its fiber optic network, in each case in a timely,
professional manner that comports with generally recognized industry standards
and practices.
8.14 Switch Usage Agreement. Seller and Purchaser shall have entered into a
mutually acceptable switch usage agreement pursuant to which Seller will (i)
lease to and maintain for Purchaser, at a stipulated monthly port fee per T1 of
usage, the Switch for the purpose of switching Purchaser's calls within a 500
mile radius of the Switch, (ii) increase, at its cost and expense, the port
capacity of the Switch to a stipulated level as promptly as practicable
following the Closing Date and (iii) provide, at its cost and expense,
additional port capacity to the extent such increased capacity is requested by
Purchaser on a quarterly basis, in each case in a timely, professional manner
that comports with generally recognized industry standards and practices and
the guidelines of any equipment supplier to the extent relevant.
8.15 Consulting, Servicing and Equipment Purchasing Agreement. KINI and
Purchaser shall have entered into a mutually acceptable consulting, servicing
and cooperative purchasing agreement pursuant to which KINI will (i) provide to
Purchaser consulting services relating to network formation and switch
installations and the expansion and maintenance thereof and (ii) pool the
purchases of switches, switch bays, off-net termination agreements and other
equipment and services on behalf of Purchaser with similar purchases by other
communications companies managed by KINI to the end that all participants in
such pooled purchases can maximize the discounts available to the Persons
participating in a cooperative buying program.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
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9.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Seller and Stockholder contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Seller and Stockholder on or
before the Closing Date shall have been duly performed or complied with in all
material respects; and Seller and Stockholder each shall have delivered to
Purchaser a certificate dated the Closing Date and signed by it to such effect.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of
Purchaser as a result of which the management of Purchaser deems it inadvisable
to proceed with the transactions hereunder.
9.3 Seller's Secretary's Certificate. Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary of Seller,
certifying the completeness and accuracy of the attached copies of Seller's
Charter Documents (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors approving the Seller's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 Stockholder's Secretary's Certificate. Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary of Stockholder,
certifying the completeness and accuracy of the attached copies of
Stockholder's Charter Documents (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the board of directors
approving the Stockholder entering into this Agreement and the consummation of
the transactions contemplated hereby.
9.5 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Seller which would constitute a Material Adverse
Effect, and Seller shall not have suffered any material loss or damages to any
of its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of Seller to conduct
its business.
9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Purchaser and its counsel.
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9.7 Opinion of Counsel. Purchaser shall have received an opinion from
counsel to Seller and Stockholder, dated the Closing Date, in the form and
substance reasonably acceptable to the Purchaser, relating to, insofar as
Seller and Stockholder are concerned, (a) the authorization, execution,
delivery, performance and enforceability of the Agreement and the Stockholders'
Agreement and (b) the validity and the issuance of the shares of Seller Stock
issued by Seller and exchanged by Stockholder pursuant to this Agreement.
9.8 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
required consents and approvals of third parties shall have been obtained.
9.9 Good Standing Certificates. Seller shall have delivered to Purchaser a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in Seller's state
of incorporation and, unless waived by Purchaser, in each state in which Seller
is authorized to do business, showing Seller is in good standing and authorized
to do business and that all state franchise and/or income Tax returns and Taxes
for Seller for all periods prior to the Closing have been filed and paid.
9.10 FIRPTA Certificate Stockholder shall have delivered to Purchaser a
certificate to the effect that it is not a foreign Person under Section
1.1445-2(b) of the Treasury Regulations.
9.11 Closing of IPO. The sale by Purchaser of shares of Purchaser Stock in
the IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated by this Agreement.
9.12 Stockholders' Agreement. Seller and Stockholder shall have executed
and delivered the Stockholders' Agreement.
9.13 Network Service Agreement. Seller and Purchaser shall have executed
and delivered a mutually acceptable network usage agreement pursuant to which
Seller will (i) provide Purchaser with DS3 and T1 capacity on its fiber optic
network at stipulated prices per DSO mile and termination services at
stipulated prices for interstate and intrastate terminations, (ii) increase the
capacity of its fiber optic network when requested by Purchaser and (iii)
service and maintain its fiber optic network, in each case in a timely,
professional manner that comports with generally recognized industry standards
and practices.
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9.14 Switch Usage Agreement. Seller and Purchaser shall have entered into a
mutually acceptable switch usage agreement pursuant to which Seller will (i)
lease to and maintain for Purchaser, at a stipulated monthly port fee per T1 of
usage, the Switch for the purpose of switching Purchaser's calls within a 500
mile radius of the Switch, (ii) increase, at its cost and expense, the port
capacity of the Switch to a stipulated level as promptly as practicable
following the Closing Date and (iii) provide, at its cost and expense,
additional port capacity to the extent such increased capacity is requested by
Purchaser on a quarterly basis, in each case in a timely, professional manner
that comports with generally recognized industry standards and practices and
the guidelines of any equipment supplier to the extent relevant.
9.15 Consulting, Servicing and Equipment Purchasing Agreement. KINI and
Purchaser shall have entered into a mutually acceptable consulting, servicing
and cooperative purchasing agreement pursuant to which KINI will (i) provide to
Purchaser consulting services relating to network formation and switch
installations and the expansion and maintenance thereof and (ii) pool the
purchases of switches, switch bays, off-net termination agreements and other
equipment and services on behalf of Purchaser with similar purchases by other
communications companies managed by KINI to the end that all participants in
such pooled purchases can maximize the discounts available to the Persons
participating in a cooperative buying program.
10. TAX MATTERS
10.1 Liability for Taxes.
(i) For purposes of this Agreement, "Taxes" means (x) all Federal,
foreign, state or local net or gross income, gross receipts, sales, use,
real property gains or transfer, ad valorem, property, value-added,
franchise, production, severance, windfall profit, withholding, payroll,
employment, excise or similar taxes, assessments, duties, fees, levies or
other governmental charges, together with any interest thereon, any
penalties, additions to tax or additional amounts with respect thereto and
any interest in respect of such penalties, additions or additional amounts,
and (y) liability for the payment of any consolidated or combined tax
(including, without limitation, any liability imposed pursuant to Treasury
Regulations Section 1.1502-6 as a result of being a member of the
Stockholder Group), together with any interest thereon, any penalties,
additions to Tax or additional amounts with respect thereto and any
interest in respect of such penalties, additions or additional amounts, of
the type described in clause (x) above. "Unitary Return" shall mean any
return with respect to any Taxes, other than Federal income Taxes, filed on
a consolidated, combined, or unitary basis by any group of corporations of
which Seller is a member.
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(ii) Stockholder shall be liable for, and shall indemnify and hold
Seller and its Affiliates harmless from, (x) any Taxes of Stockholder and
its Affiliates (other than Seller) imposed on Seller solely on the basis of
joint and several liability for such Taxes (including, without limitation,
any liability imposed pursuant to Treasury Regulations Section 1.1502-6 for
Federal income Taxes incurred by any member of the Stockholder Group), (y)
any Taxes (other than Taxes described in clause (x) above or Section 4.18)
imposed on or incurred by Seller for any taxable period ending on or before
the Closing Date (or the portion, determined as described in subsection
(iv) of this Section 10.1, of any such Taxes imposed on or incurred by
Seller for any taxable period beginning on or before and ending after the
Closing Date which is allocable to the portion of such period occurring on
or before the Closing Date (the "Pre-Closing Date Period")), excluding any
such Taxes arising from any event occurring on the Closing Date, but after
the Closing, which is outside the ordinary course of the business of Seller
and (z) any attorneys' fees or other litigation costs incurred by Seller in
connection with any payment from Stockholder under subsection (ii) of this
Section 10.1.
(iii) Seller shall be liable for, and shall indemnify and hold
Stockholder and its Affiliates (other than Seller) harmless from (x) any
Taxes imposed on or incurred by Seller for which Stockholder is not liable
under subsection (ii) of this Section 10.1, and (y) any attorneys' fees or
other litigation costs incurred by Stockholder in connection with any
payment from Seller under subsection (iii) of this Section 10.1.
(iv) Whenever it is necessary for purposes of subsection (ii) or (iii)
of this Section 10.1 to determine the portion of any Taxes imposed on or
incurred by Seller for a taxable period beginning on or before and ending
after the Closing Date which is allocable to the Pre-Closing Date Period,
the determination shall be made, in the case of property or ad valorem
Taxes or franchise Taxes (which are not measured by, or based upon, net
income), on a per diem basis and, in the case of other Taxes, by assuming
that the Pre-Closing Date Period constitutes a separate taxable period of
Seller (and any tax partnerships in which it has an interest) and by taking
into account the actual taxable events occurring during such period (except
that exemptions, allowances and deductions for a taxable period beginning
on or before and ending after the Closing Date that are calculated on an
annual or periodic basis, such as the deduction for depreciation, shall be
apportioned to the Pre-Closing Date Period ratably on a per diem basis).
(v) Seller agrees to pay to Stockholder any refund received (whether
by payment, credit, offset or otherwise) after the Closing Date by Seller,
in respect of any Taxes for which Stockholder is liable under subsection
(ii) of this Section 10.1, but only to the extent such
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refund has not been reflected as a receivable on the balance sheet of
Seller as of the Closing Date and does not result from the carryback of
losses or credits from a taxable period of Seller ending after the Closing
Date. Stockholder agrees to pay to Seller any refund received (whether by
payment, credit, offset or otherwise) by Stockholder or its Affiliates in
respect of any Taxes for which Seller is liable under subsection (iii) of
this Section 10.1. The parties shall cooperate in order to take all
necessary steps to claim any such refund. Any such refund received by a
party or its Affiliate for the account of the other party shall be paid to
such other party within 90 days after such refund is received.
(vi) Within 120 days after Closing, Stockholder will provide to Seller
a schedule which sets forth the following information: (w) a schedule of
the book/tax differences in the basis of assets and liabilities of Seller
for Tax purposes as of the Closing Date, (x) the changes in the earnings
and profits of Seller for the tax year ending December 31, 1997 through the
Closing Date, (y) all material consents and elections with respect to Taxes
of or with respect to Seller that have been filed with any taxing
authority, and (z) the amounts of any net operating loss, net capital loss,
foreign tax credit and tax credit carryforwards allocable to Seller as of
December 31, 1996. Stockholder shall provide and deliver to Seller a
schedule no later than 120 days after Closing showing for the short tax
year 1997 any and all adjustments for any net operating loss, capital
losses or alternative minimum tax credit allocable to Seller arising from
the short period for year 1997.
10.2 Returns.
(i) All Returns which relate to any Taxes of Seller (and any tax
partnerships in which (x) Seller owns an interest and (y) Stockholder has
responsibility for preparing and filing partnership returns or reports)
shall be prepared and filed by the party which is legally responsible
therefor. All income and deductions of Seller for the period beginning on
January 1, 1996 and extending through the Closing Date will be included in
the consolidated Federal income Tax return of the Stockholder Group for the
year ending December 31, 1997 and will be reported on a basis consistent
with previously filed returns. Seller shall cooperate with Stockholder and
shall make available all necessary records and timely take all action
necessary to allow Stockholder to prepare and file the Returns which it is
responsible for preparing and filing under subsection (i) of this Section
10.2.
(ii) Prior to the Closing, Stockholder will provide to Seller a
schedule setting forth the open tax years in each jurisdiction in which any
returns relating to income Taxes are filed by or with respect to Seller.
Tax information including copies of (x) pro forma separate Federal income
Tax returns for Seller as a member of the Stockholder Group and
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(y) state and local Tax returns of Seller or, with respect to Unitary
Returns and in lieu of providing copies thereof, a schedule showing the
modifications to compute Seller's state taxable income for each of the
taxable years ended December 31, 1993 through December 31, 1996, and the
short period for year 1997 shall be provided by Stockholder and delivered
to Seller as soon as practicable but no later than 120 days after the
Closing Date.
10.3 Tax Proceedings. In the event Seller receives notice (the "Proceeding
Notice") of any examination, claim, adjustment, or other proceeding with
respect to the liability of Seller for Taxes for any period for which
Stockholder is or may be liable under subsection (ii) of Section 10.1, Seller
shall notify Stockholder in writing thereof (the "Seller Notice") no later than
the earlier of (x) 30 days after the receipt by Seller of the Proceeding Notice
or (y) ten days prior to the deadline for responding to the Proceeding Notice.
As to any such Taxes for which Stockholder is solely liable under subsection
(ii) of Section 10.1, Stockholder shall be entitled at its expense to control
or settle the contest of such examination, claim, adjustment, or other
proceeding, provided (i) it notifies Seller in writing that it desires to do so
no later than the earlier of (x) 30 days after receipt of the Seller Notice or
(y) five days prior to the deadline for responding to the Proceeding Notice and
(ii) Stockholder may not, without the consent of Seller, agree to any
settlement which could result in an increase in the amount of Taxes for which
Seller is liable under subsection (iii) of Section 10.1. The parties shall
cooperate with each other and with their respective Affiliates, and will
consult with each other, in the negotiation and settlement of any proceeding
described in this Section 10.3. Seller will provide, or cause to be provided,
to Stockholder necessary authorizations, including powers of attorney, to
control any proceedings which Stockholder is entitled to control pursuant to
this Section 10.3.
10.4 Payment of Taxes. All Taxes with respect to Seller shall be paid by
the party that is legally responsible therefor. Except as otherwise provided in
this Section 10, any amount to which a party is entitled under this Section 10
shall be promptly paid to such party by the party obligated to make such
payment following written notice to the party so obligated stating that the
Taxes to which such amount relates have been paid or incurred and providing
details supporting the calculation of such amount.
10.5 Cooperation and Exchange of Information. Seller on the one hand, and
Stockholder on the other hand, will provide, or cause to be provided, to the
other party copies of all correspondence received from any taxing authority by
such party or any of its Affiliates in connection with the liability of any for
Taxes for any period for which such other party is or may be liable under
subsection (ii) or (iii) of Section 10.1. Stockholder shall assist Seller in
obtaining the consent of the partners in any tax partnership in which Seller
owns an interest to make (x) any elections in a return of the tax partnership
which Seller deems necessary and (y) an allocation of tax
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partnership items in the manner described in subsection (iv) of Section 10.1.
The parties will provide each other with such cooperation and information as
they may reasonably request of each other in preparing or filing any Return,
amended Return, or claim for refund, in determining a liability or a right of
refund, or in conducting any audit or other proceeding, in respect of Taxes
imposed on the parties or their respective Affiliates. Seller on the one hand,
and Stockholder on the other hand, and their Affiliates will preserve and
retain all Returns, schedules, work papers and all material records or other
documents relating to any such Returns, claims, audits, or other proceedings
until the expiration of the statutory period of limitations (including
extensions) of the taxable periods to which such documents relate and until the
final determination of any payments which may be required with respect to such
periods under this Agreement and shall make such documents available at the
then current administrative headquarters of such party to the other party or
any Affiliate thereof, and their respective officers, employees and agents,
upon reasonable notice and at reasonable times, it being understood that such
representatives shall be entitled to make copies of any such books and records
relating to Seller as they shall deem necessary. Seller on the one hand, and
Stockholder on the other hand, further agree to permit representatives of the
other party or any Affiliate thereof to meet with employees of such party on a
mutually convenient basis in order to enable such representatives to obtain
additional information and explanations of any documents provided pursuant to
this Section 10.5. Seller on the one hand, and Stockholder on the other hand,
shall make available to the representatives of the other party or any Affiliate
thereof sufficient work space and facilities to perform the activities
described in the two preceding sentences. Any information obtained pursuant to
this Section 10.5 shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each party shall provide the
cooperation and information required by this Section 10.5 at its own expense.
10.6 Survival of Obligations. The obligations of the parties set forth in
this Section 10 shall be unconditional and absolute and shall remain in effect
without limitation as to time.
10.7 Conflict. In the event of a conflict between the provisions of this
Section 10 and any other provisions of this Agreement, the provisions of this
Section 10 shall control.
10.8 Tax Allocation Arrangements. Effective as of the Closing Date, all
liabilities and obligations between Seller on one hand, and Stockholder or its
Affiliates on the other hand, under any tax allocation agreement or arrangement
in effect prior to the Closing Date shall be extinguished in full (without the
necessity of any payment with respect thereto) and any liabilities or rights
existing under any such agreement or arrangement shall terminate and shall no
longer be enforceable. Stockholder and its Affiliates shall execute any
documents necessary to effectuate the provisions of this Section 10.8.
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11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of Seller, Stockholder and
Purchaser;
(ii) by the Seller and Stockholder (acting through their boards of
directors), on the one hand, or by Purchaser (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
January 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to
be performed by it prior to or on the Closing Date;
(iii) by Stockholder and Seller, on the one hand, or by Purchaser on the
other hand, if, prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Purchaser with the SEC pursuant to
the 1933 Act;
(iv) by the Seller and Stockholder, on the one hand, or by Purchaser, on
the other hand, if a material breach or default shall be made by the other
party or parties in the observance or in the due and timely performance of any
of the material covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing Date;
or
(v) by Seller and Stockholder, on the one hand, or by Purchaser, on the
other hand, if either such party or parties declines to consent to an amendment
or supplement to a Schedule proposed by the other party or parties pursuant to
Section 7.6 because such proposed amendment constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the party or parties
proposing the same.
11.2 Liabilities in Event of Termination. Except as provided in Section
7.6, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
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12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Seller and Stockholder. Seller and Stockholder recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Purchaser and Old ACG, such
as operational policies, and pricing and cost policies that are valuable,
special and unique assets of Purchaser and Old ACG. Seller and Stockholder
agree that they will not disclose such confidential information to any Person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Purchaser and (ii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 12.1, unless (x) such information becomes known to the public generally
through no fault of Seller and Stockholder, (y) disclosure is required by law
or the order of any governmental authority under color of law; provided, that
prior to disclosing any information pursuant to this clause (y), Seller and
Stockholder, if possible, shall give immediate prior written notice thereof to
Purchaser and provide Purchaser with the opportunity to contest such
disclosure, or (z) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by either
Seller or Stockholder of the provisions of this Section 12.1, Purchaser and Old
ACG shall be entitled to an injunction (without the posting of bond or proof of
actual damages) restraining Seller or Stockholder, as the case may be, from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Purchaser or Old ACG from pursuing any other
available remedy for such breach or threatened breach, including the recovery
of damages. In the event the transactions contemplated by this Agreement are
not consummated, Seller and Stockholder (including their representatives,
advisors and legal counsel) shall, within ten business days after a request
from Purchaser, deliver all copies of the confidential information of Purchaser
and Old ACG in their possession in any form whatsoever (including, but not
limited to, reports, memoranda or other materials prepared by Seller and
Stockholder or their representatives, advisors or legal counsel at their
direction).
12.2 Purchaser. Each of Purchaser and Old ACG recognizes and acknowledges
that it has in the past, currently has and in the future may have, prior to the
Closing, access to certain confidential information of Seller, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Seller. Each of Purchaser and Old ACG agrees that, prior
to the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any Person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Seller, Stockholder or Other Founding Companies; and (ii) to counsel and
other advisers; provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 12.2, unless (x) such information
becomes known to the public generally through no fault of Purchaser and Old
ACG(y) disclosure is required by law or the
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order of any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), Purchaser shall, if
possible, give immediate prior written notice thereof to Seller and provide
Seller with the opportunity to contest such disclosure, or (z) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by Purchaser or Old ACG of the provisions of this Section
12.2, Seller shall be entitled to an injunction (without the posting of bond or
proof of actual damages) restraining Purchaser and Old ACG from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Seller from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Purchaser or Old ACG (including its representatives, advisors and legal
counsel) shall within ten business days after a request from Seller, deliver
all copies of the confidential information of Seller in their possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or
other materials prepared by either Purchaser or Old ACG or its representatives,
advisors or legal counsel at its direction).
12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 12.1 and 12.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against another party by injunction and restraining order.
12.4 Survival. The obligations of the parties under this Article 12 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 11.
13. TRANSFER RESTRICTIONS
13.1 Stockholder. For a period of one year from the Closing, except
pursuant to Section 16, Stockholder shall not sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any Purchaser
Stock received by Stockholder. The Purchaser Stock delivered to Stockholder
pursuant to Section 2 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as Purchaser may
deem necessary or appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
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ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF
CLOSING DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
13.2 Purchaser. Except to the extent noted in the legend set forth below,
Purchaser shall not sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any Seller Stock acquired pursuant
to this Agreement. The Seller Stock delivered to Purchaser pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth
below and containing such other information as Seller may deem necessary or
appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR (B) THE HOLDER OF THE SHARES
REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY
BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
14. INVESTMENT REPRESENTATIONS AND VOTING RESTRICTIONS
14.1 General. Stockholder acknowledges that the Purchaser Stock to be
delivered to Stockholder pursuant to this Agreement (the "Restricted
Securities") have not been and will not be registered under the 1933 Act and
therefore may not be resold without compliance with the requirements of the
1933 Act and applicable state securities laws. All of the Restricted Securities
are
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being acquired by Stockholder solely for its own account, for investment
purposes only, and not with a view to the distribution thereof.
14.2 Compliance With Law. Stockholder represents, warrants, covenants and
agrees that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 13 of this Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
"ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THESE
SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") OR (B)
THE HOLDER OF THESE SECURITIES PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THESE SECURITIES MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE ACTS.
THESE SECURITIES ARE ALSO SUBJECT TO THE VOTING RESTRICTIONS CONTAINED IN
SECTION 14.5 OF THE STOCK PURCHASE AND EXCHANGE AGREEMENT DATED AS OF JUNE 17,
1997 BY AND BETWEEN ADVANCED COMMUNICATIONS GROUP, INC., KIN NETWORK, INC. AND
LIBERTY CELLULAR, INC..
14.3 Economic Risk, Sophistication. Stockholder represents that it has
received, has read and understands the Draft Registration Statement, and in
particular the risk factors described therein. Stockholder further represents
that it is able to bear the economic risk of an investment in the Restricted
Securities and can afford to sustain a total loss of such investment and either
(i) has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the proposed investment in
Purchaser or (ii) together with the senior executives of Seller, with whom it
has consulted, has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the proposed
investment in Purchaser.
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Stockholder has had an adequate opportunity to ask questions and receive
answers from the officers of Purchaser and Seller concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Purchaser, the plans for the operations of the business of
Purchaser and any plans for additional acquisitions and the like. Stockholder
has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction.
14.4 Application to Purchaser. The provisions of Sections 14.1, 14.2 and
14.3 shall apply, mutatis mutandis, to Purchaser and the Seller Stock acquired
by it from Seller and Stockholder pursuant to the terms of this Agreement.
14.5 Voting, Ownership and Other Restrictions.
(i) Stockholder agrees, as a stockholder, to be present, in person or
to be represented by proxy, at all meetings of stockholders of Purchaser so
that all shares of voting securities of Purchaser beneficially owned by it
may be counted for the purpose of determining the presence of a quorum at
such meetings.
(ii) Stockholder shall not, unless the prior approval of the Board of
Directors of Purchaser has been obtained (and then only to the extent
express approval has been obtained):
(w) deposit any voting securities of Purchaser in a voting trust
or subject them to a voting agreement or other arrangement of similar
effect (other than this Agreement);
(x) join a partnership, limited partnership, syndicate, or other
group for the purpose of acquiring, holding or disposing of voting
securities of Purchaser within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended;
(y) initiate, propose or otherwise solicit stockholders or become
a "participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended),
or induce or attempt to induce any other person to initiate a tender
offer or an exchange offer for voting securities of Purchaser or any
change of control of Purchaser; or
(z) take any action by written consent in lieu of a meeting.
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(iii) Stockholder's obligations under this Section 14.5 shall remain
in full force and effect until the tenth anniversary of the Closing Date.
15. REGISTRATION RIGHTS
15.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Purchaser proposes to register any Purchaser Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Purchaser and (ii) registrations relating to employee
benefit plans, Purchaser shall give Stockholder prompt written notice of its
intent to do so. Upon the written request of Stockholder given within 15
business days after receipt of such notice, Purchaser shall cause to be
included in such registration all Registerable Securities (including any shares
of Purchaser Stock issued as a dividend or other distribution with respect to,
or in exchange for, or in replacement of such Registerable Securities) which
Stockholder requests; provided, however, if Purchaser is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than
Purchaser is greater than the number of such shares which can be offered
without adversely affecting the offering, Purchaser may reduce pro rata the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter.
15.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Purchaser Stock
(i) representing Registerable Securities owned by the Stockholder or its
permitted transferees or (ii) representing Registerable Securities (as defined
in the agreements similar to this Agreement mentioned below) acquired by other
stockholders of Purchaser on or prior to the closing of the IPO in connection
with the acquisition of their companies by Purchaser pursuant to an agreement
similar to this Agreement (or upon exercise or conversion of Securities of
Purchaser received pursuant to such an agreement) (the persons referred to in
clauses (i) and (ii) being collectively referred to as the "Founding
Stockholders"), which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing
that Purchaser file a registration statement under the 1933 Act covering the
registration of the shares of Purchaser Stock issued to and held by the
Founding Stockholders or their permitted transferees (including any stock
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of such Purchaser Stock) (a "Demand Registration"). Within
ten days of the receipt of such request, Purchaser shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from the Founding
Stockholders requesting such registration,
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file and use its best efforts to cause to become effective a registration
statement covering all such shares. Purchaser shall be obligated to effect only
one Demand Registration for all Founding Stockholders and will keep such Demand
Registration current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Purchaser (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Purchaser has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Purchaser Stock shall be initiated under
this Section 15.2 until 90 days after the effective date of such registration
statement unless Purchaser is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Purchaser shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 15.1.
15.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 15 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Purchaser. In connection with
registrations under Sections 15.1 and 15.2 Purchaser will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registerable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Purchaser may discontinue any registration of its securities that is being
effected pursuant to Section 15.2 at any time prior to the effective date
of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the stockholders of Purchaser holding a majority of the Registerable
Securities covered thereby not exceeding 90 days and to comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement; provided,
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that before filing a registration statement or prospectus relating to
the sale of Registerable Securities, or any amendments or supplements
thereto, Purchaser will furnish to counsel to each holder of Registerable
Securities covered by such registration statement or prospectus, copies of
all documents proposed to be filed, which documents will be subject to the
review of such counsel, and Purchaser will give reasonable consideration in
good faith to any comments of such counsel.
(iii) Furnish to each holder of Registerable Securities covered by the
registration statement and to each underwriter, if any, of such
Registerable Securities, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements of the 1933
Act, and such other documents, as such person may reasonably request, in
order to facilitate the public sale or other disposition of the
Registerable Securities.
(iv) Use its best efforts to register or qualify the Registerable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registerable Securities owned by such seller, in such
jurisdictions, except that Purchaser shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 15.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registerable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registerable Securities.
(vi) Immediately notify each seller of Registerable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 15.3(ii), if Purchaser becomes
aware that the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing, and, at the request of any such seller, deliver a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary
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so that, as thereafter delivered to the purchasers of such
Registerable Securities, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Purchaser), an earnings statement of Purchaser which will satisfy the
provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Registerable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Purchaser in customary form and covering such matters of
the type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registerable
Securities covered by the Registration Statement may reasonably request in
order to effect an underwritten public offering of such Registerable
Securities.
(xi) Make available for inspection by the seller of such Registerable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Purchaser, and cause all of Purchaser's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Purchaser in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
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15.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registerable Securities covered
by a Registration Statement referred to in this Section 15 will, upon
receipt of any notice from Purchaser of the happening of any event of the
kind described in Section 15.3(vi), forthwith discontinue disposition of
the Registerable Securities pursuant to the registration statement covering
such Registerable Securities until such holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 15.3(vi).
(ii) If a registration pursuant to Section 15.1 or 15.2 involves an
underwritten offering, Stockholder and its permitted assigns agrees,
whether or not its shares of Registerable Securities are included in such
registration, not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the 1933 Act, of any Registerable
Securities, or of any security convertible into or exchangeable or
exercisable for any Registerable Securities (other than as part of such
underwritten offering), without the consent of the managing underwriter,
during a period commencing seven calendar days before and ending 180
calendar days (or such lesser number as the managing underwriter shall
designate) after the effective date of such registration. Similarly,
Stockholder agrees not to effect any sale or distribution, including any
sale pursuant to the registration rights provided in Section 15.1, of any
Registerable Securities, or of any security convertible into or
exchangeable or exercisable for any Registerable Securities, without the
consent of the managing underwriter of the IPO during a period commencing
on the effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter shall
designate) after such effective date.
15.5 Indemnification.
(i) In the event of any registration of any securities of Purchaser
under the 1933 Act pursuant to Section 15.1 or 15.2, Purchaser will, and it
hereby agrees to, indemnify and hold harmless, to the extent permitted by
law, each seller of any Registerable Securities covered by such
registration statement, each Affiliate of such seller and their respective
directors, officers, employees and agents or general and limited partners
(and directors, officers, employees and agents thereof) and, if such seller
is a portfolio or investment fund, its investment advisors or agents, each
other person who participates as an underwriter in the offering or sale of
such securities and each other person, if any, who controls such seller or
any such underwriter within the meaning of the 1933 Act, as follows:
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(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of Purchaser; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Purchaser may require, as a condition to including any
Registerable Securities in any registration statement filed in accordance
with Section 15.1 or 15.2, that Purchaser shall have received an
undertaking reasonably satisfactory to it from the prospective seller of
such Registerable Securities or any underwriter, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
15.5(i)) Purchaser with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any
preliminary, final or summary prospectus contained therein, or
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any amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to Purchaser by or on behalf of such
seller or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
Purchaser or any such director, officer or controlling person and shall
survive the transfer of such securities by such seller. In that event, the
obligations of the Purchaser and such sellers pursuant to this Section 15.5
are to be several and not joint; provided, however, that, with respect to
each claim pursuant to this Section 15.5, Purchaser shall be liable for the
full amount of such claim, and each such seller's liability under this
Section 15.5 shall be limited to an amount equal to the net proceeds (after
deducting the underwriting discount and expenses) received by such seller
from the sale of Registerable Securities held by such seller pursuant to
this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 15.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 15.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registerable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the
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indemnifying party agrees to indemnify the indemnified party and
includes a full, unconditional and complete release of the indemnified
party; provided, however, that the indemnified party shall be entitled to
take control of the defense of any claim as to which, in the reasonable
judgment of the indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be inappropriate under
the applicable standards of professional conduct due to actual or potential
differing interests between them. In the event that the indemnifying party
does not assume the defense of a claim pursuant to this Section 15.5(iii),
the indemnified party will have the right to defend such claim by all
appropriate proceedings, and will have control of such defense and
proceedings, and the indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel to, provide
reasonable cooperation to the indemnifying party and its legal counsel in
connection with its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served in such
proceeding. In the event that an indemnifying party assumes the defense of
an action under this Section 15.5(iii), then such indemnifying party shall,
subject to the provisions of this Section 15.5, indemnify and hold harmless
the indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Purchaser and each seller of Registerable Securities shall
provide for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
15.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 15.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Purchaser, any seller of Registerable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registerable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable
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considerations appropriate under the circumstances. Purchaser and each person
selling securities agree with each other that no seller of Registerable
Securities shall be required to contribute any amount in excess of the amount
such seller would have been required to pay to an indemnified party if the
indemnity under Section 15.5(ii) were available. Purchaser and each such seller
agree with each other and the underwriters of the Registerable Securities, if
requested by such underwriters, that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Registerable Securities. For purposes of this Section 15.6, each person, if
any, who controls an underwriter within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as such underwriter, and each
director and each officer of Purchaser who signed the registration statement,
and each person, if any, who controls Purchaser or a seller of Registerable
Securities within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as Purchaser or a seller of Registerable Securities, as
the case may be.
15.7 Availability of Rule 144. Purchaser shall not be obligated to register
shares of Registerable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act are available to such Stockholder.
16. GENERAL
16.1 Cooperation. Seller, Stockholder and Purchaser shall deliver or cause
to be delivered to each other on the Closing Date and at such other times and
places as shall be reasonably agreed to, such additional instruments as the any
of the others may reasonably request for the purpose of carrying out this
Agreement.
16.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), and any such
purported assignment shall be void and of no legal force and effect.
16.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Seller, Stockholder, Purchaser and Old ACG and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance
with its terms and may be modified or amended only by a written instrument
executed by Seller,
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Stockholder, Purchaser and Old ACG, acting through their respective officers or
representatives, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby;
provided that each party to this Agreement shall make a good faith effort to
cross reference disclosures, as necessary or advisable, between related
Schedules.
16.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
16.5 Brokers and Agents. Except as disclosed on Schedule 16.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
16.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Purchaser will pay the fees, expenses and disbursements of
Purchaser, Old ACG and Seller and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by
Purchaser, Old ACG and Seller under this Agreement. Stockholder shall pay all
sales, use, transfer, real property transfer, gains, stock transfer and other
similar taxes ("Transfer Taxes") imposed in connection with the exchange of
shares of Seller Stock owned by it for shares of Purchaser Stock, the fees and
expenses of Stockholder's legal counsel and all other costs and expenses
incurred by the Stockholder in its performance and compliance with all
conditions to be performed by it under this Agreement.
16.7 Notices. All notices or communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
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(x) If to Purchaser or Old ACG, addressed to Purchaser at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
(y) If to Stockholder, addressed to it at:
Liberty Cellular, Inc.
621 Westport Boulevard
Salina, Kansas 67401
Attn: E. Clarke Garnett
Telecopy No.: 913-823-3856
(z) If to Seller, addressed to it at:
KIN Network, Inc.
621 Westport Boulevard
Salina, Kansas 67401
Attn: E. Clarke Garnett
Telecopy No.: 913-823-3856
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<PAGE>
with a copy to:
Jay Scott Emler, Esq.
621 Westport Boulevard
Salina, Kansas 67401
Telecopy No.: 913-823-3856
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 16.7 from time to time.
16.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Kansas.
16.9 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made herein and at the
Closing Date or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated
hereby and any examination on behalf of the parties until the Expiration Date.
16.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.11 Time. Time is of the essence with respect to this Agreement.
16.12 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
16.13 Commitment to Nominate a Director. Subject to its fiduciary
obligations, Purchaser's Board of Directors agrees to nominate as a director,
at the expiration of the initial term of the individual appointed to
Purchaser's Board of Directors pursuant to Section 8.12 and thereafter as
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<PAGE>
long as Stockholder beneficially owns at least 100,000 shares of Purchaser
Stock, an individual designated by Stockholder that is reasonably qualified to
serve on the board of directors of a publicly held company.
16.14 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
16.15 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
16.16 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
16.17 Expansion of Fiber Network. As promptly as practicable following the
Closing Date, Seller will extend its fiber optic network from Wichita, Kansas
to Tulsa, Oklahoma substantially along the route and in the manner set forth in
Schedule 16.17.
16.18 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Seller, Stockholder and Purchaser. Any amendment or waiver
effected in accordance with this Section 16.18 shall be binding upon each of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
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<PAGE>
ADVANCED COMMUNICATIONS CORP.
BY:
-------------------------------------
NAME: ROD K. CUTSINGER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
KIN NETWORK, INC.
BY:
-------------------------------------
NAME: E. CLARKE GARNETT
TITLE: PRESIDENT
LIBERTY CELLULAR, INC.
BY:
-------------------------------------
NAME: E. CLARKE GARNETT
TITLE: PRESIDENT
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<PAGE>
ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
<PAGE>
ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
<PAGE>
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least 80% of the total combined
voting power of all classes of capital stock of the Company entitled to vote
and at least 80% of the total number of shares of all other classes of capital
stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
EXECUTION COPY
- ------------------------------------------------------------------------------
AGREEMENT OF MERGER
dated as of the 9th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(Parent)
and
ADVANCED COMMUNICATIONS GROUP ACQUISITION, INC.
(Newco)
and
ADVANCED COMMUNICATIONS CORP.
(Old ACG)
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................3
2. THE MERGER................................................................5
2.1 Delivery and Filing of Articles of Merger...........................5
2.2 Effective Time of the Merger........................................6
2.3 Restated Certificate of Incorporation, By-laws and Board of
Directors of the Surviving Corporation..............................6
2.4 Certain Information With Respect to the Capital Stock of Old
ACG, Parent and Newco...............................................6
2.5 Effect of Merger....................................................7
3. CONVERSION OF STOCK.......................................................7
4. DELIVERY OF MERGER CONSIDERATION AND TREATMENT OF
OUTSTANDING OPTIONS, ETC.; REVERSE STOCK SPLIT AND SECTION 351
EXCHANGE PLAN.............................................................7
4.1 Effective Time......................................................7
4.2 Certificates........................................................8
4.3 Reverse Stock Split.................................................8
4.4 Section 351 Exchange Plan...........................................8
5. CLOSING...................................................................8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
OLD ACG...................................................................9
6.1 Due Organization....................................................9
6.2 Authorization.......................................................9
6.3 Capital Stock of Old ACG............................................9
6.4 Transactions in Capital Stock......................................10
6.5 Financial Statements...............................................10
6.6 Conformity with Law; Litigation....................................10
6.7 Tax Matters........................................................11
6.8 No Violations......................................................11
6.9 Absence of Changes................................................12
6.10 Disclosure.........................................................12
6.11 Draft Registration Statement.......................................12
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<PAGE>
7. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT AND NEWCO.........................................................12
7.1 Due Organization...................................................13
7.2 Authorization......................................................13
7.3 Capital stock......................................................13
7.4 Transactions in Capital Stock, Organization Accounting.............13
7.5 Subsidiaries.......................................................14
7.6 Financial Statements...............................................14
7.7 Liabilities and Obligations........................................14
7.8 Conformity with Law; Litigation....................................14
7.9 No Violations......................................................14
7.10 Parent Securities..................................................15
7.11 Business; Real Property; Material Agreement........................15
8. OTHER COVENANTS PRIOR TO CLOSING.........................................15
8.1 Access and Cooperation; Due Diligence..............................15
8.2 Conduct of Business Pending Closing................................16
8.3 Prohibited Activities..............................................17
8.4 Amendment of Schedules.............................................17
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").................................17
8.6 Further Assurance..................................................18
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF OLD ACG...........................18
9.1 Representations and Warranties Performance of Obligations..........18
9.2 Satisfaction.......................................................18
9.3 No Litigation......................................................18
9.4 Consents and Approvals.............................................19
9.5 No Material Adverse Change.........................................19
9.6 Closing of IPO.....................................................19
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO..................19
10.1 Representations and Warranties; Performance of Obligations.........19
10.2 No Litigation......................................................19
10.3 No Material Adverse Effect.........................................19
10.4 Satisfaction.......................................................19
10.5 Consents and Approvals.............................................20
10.6 FIRPTA Certificate.................................................20
10.7 Closing of IPO.....................................................20
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<PAGE>
11. ADDITIONAL COVENANTS OF PARENT AFTER CLOSING.............................20
11.1 Rule 144 Filing....................................................20
12. TERMINATION OF AGREEMENT.................................................20
12.1 Termination........................................................20
12.2 Liabilities in Event of Termination................................21
13. INVESTMENT REPRESENTATIONS...............................................21
13.1 Compliance With Law................................................21
14. REGISTRATION RIGHTS......................................................22
14.1 PiggyBack Registration Rights......................................22
14.2 Demand Registration Rights.........................................22
14.3 Registration Procedures............................................23
14.4 Other Registration Matters.........................................25
14.5 Indemnification....................................................26
14.6 Contribution.......................................................29
14.7 Availability of Rule 144...........................................30
15. GENERAL..................................................................30
15.1 Cooperation........................................................30
15.2 Successors and Assigns.............................................30
15.3 Entire Agreement...................................................30
15.4 Counterparts.......................................................31
15.5 Brokers and Agents.................................................31
15.6 Expenses...........................................................31
15.7 Notices............................................................31
15.8 Exercise of Rights and Remedies....................................32
15.9 Time...............................................................32
15.10 Reformation and Severability.......................................32
15.11 Remedies Cumulative................................................32
15.12 Captions...........................................................32
15.13 Public Statements..................................................32
15.14 Amendments and Waivers.............................................33
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<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement") is made as of the 9th day of
October, 1997, by and among ADVANCED COMMUNICATIONS GROUP, INC., a Delaware
corporation organized in September 1997 ("Parent"), ADVANCED COMMUNICATIONS
GROUP ACQUISITION, INC., a Delaware corporation ("Newco") and ADVANCED
COMMUNICATIONS CORP. (formerly named Advanced Communications Group, Inc.), a
Delaware corporation organized in June 1996 ("Old ACG").
RECITALS
WHEREAS, Old ACG has entered into agreements for, or negotiated the
terms of, the acquisition by merger, asset purchase or stock purchase of
ten companies (or interests therein) engaged in various aspects of the
telecommunications industry ("Founding Companies") for voting capital stock
and other consideration; and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September
1997 to serve as the vehicle for the acquisition of the Founding Companies
and Old ACG substantially contemporaneously with the consummation of an
initial underwritten public offering ("IPO") of Common Stock, $.0001 par
value, of Parent ("Parent Stock") at the price to the public reflected in
the final prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies and Old ACG, will transfer, by stock
or asset purchase or reverse triangular merger, the stock or substantially
all the assets of certain companies and other assets in which they own an
interest to Parent in exchange for voting capital stock of Parent and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Parent, under circumstances that
will constitute a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder ("Code"), to the extent of their receipt of voting capital stock
of Parent; and
<PAGE>
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Parent and Old ACG are entering into this
Agreement pursuant to which Old ACG will become a wholly-owned subsidiary
of Parent substantially contemporaneously with the consummation of the IPO;
and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one for two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Parent by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO and the acquisitions of the Founding Companies and
Old ACG are described in the Registration Statement on Form S-1 of Parent
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, Newco is a corporation recently organized under the laws of
the State of Delaware solely for the purpose of completing the transaction
set forth herein, and Newco is a wholly-owned subsidiary of Parent; and
WHEREAS, the respective Boards of Directors of Newco and of Old ACG
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco merge
with and into Old ACG ("Merger") pursuant to this Agreement and the
applicable provisions of the laws of the State of Delaware; and
WHEREAS, stockholders of Old ACG are the owners of 21,764,250 shares
of Common Stock, $.00001 par value, of Old ACG ("Old ACG Stock"); and
WHEREAS, in the Merger each issued and outstanding shares of Old ACG
Stock will be converted into one share of Parent Stock; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
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<PAGE>
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this
Agreement.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"Balance Sheet Date" has the meaning set forth in Section 6.5.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex III, with such changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Constituent Corporations" has the meaning set forth in the tenth recital
of this Agreement.
"Demand Registration" is defined in Section 14.2.
"DGCL" means the General Corporation Law of the State of Delaware.
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this Agreement.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
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<PAGE>
"Founding Stockholders" has the meaning set forth in Section 14.2.
"Hart-Scott Act" has the meaning set forth in Section 8.5.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"Material Adverse Effect" has the meaning set forth in Section 6.1.
"Material Documents" has the meaning set forth in Section 6.8.
"Merger" has the meaning set forth in the tenth recital of this Agreement.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Old ACG" has the meaning set forth in the first paragraph of this
Agreement.
"Old ACG Stock" has the meaning set forth in the eleventh recital of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Documents" has the meaning set forth in Section 7.9.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust or other
unincorporated organization.
"Registrable Securities" means the shares of Parent Stock issuable in the
Merger.
"Restricted Securities" has the meaning set forth in Section 13.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Reverse Stock Split" has the meaning set forth in Section 4.3.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
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<PAGE>
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Stockholders" means the holders of record of all the issued and
outstanding shares of Old ACG Stock.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Surviving Corporation" shall mean Old ACG as the surviving corporation in
the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER
2.1 Delivery and Filing of Articles of Merger. The Constituent Corporations
will cause (i) the Certificate of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and (ii) photocopies of a
stamped receipt copy of such filing to be delivered to Parent on the Closing
Date.
2.2 Effective Time of the Merger. At the Effective Time of the Merger,
Newco shall be merged with and into Old ACG, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Old ACG shall be
the surviving corporation in the Merger. Old ACG is sometimes hereinafter
referred to as the Surviving Corporation.
-5-
<PAGE>
2.3 Restated Certificate of Incorporation, By-laws and Board of Directors
of the Surviving Corporation. At the Effective Time:
(i) the Restated Certificate of Incorporation of Old ACG, as amended
as contemplated by the Certificate of Merger, shall be the Restated
Certificate of Incorporation of the Surviving Corporation until changed as
provided by law;
(ii) the By-laws of Old ACG then in effect shall become the By-laws of
the Surviving Corporation until they shall thereafter be further amended;
(iii) the members of the Board of Directors of Old ACG shall remain
the members of the Board of Directors of the Surviving Corporation after
the Effective Time until their successors shall have been elected and
qualified; and
(iv) the officers of Old ACG immediately prior to the Effective Time
shall continue as the officers of the Surviving Corporation in the same
capacity or capacities.
2.4 Certain Information With Respect to the Capital Stock of Old ACG,
Parent and Newco. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Old ACG, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of Old ACG
(including voting rights) is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent
(including voting rights) is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares
of common stock, par value $.01, of which 1,000 shares are issued and
outstanding and entitled to one vote per share on all matters submitted to
stockholders.
2.5 Effect of Merger. Old ACG shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Delaware.
The Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Old ACG and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Old ACG and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
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<PAGE>
3. CONVERSION OF STOCK
The manner of converting the shares of (i) Old ACG Stock and (ii) the Newco
Stock issued and outstanding immediately prior to the Effective Time into (x)
shares of Parent Stock and (y) shares of common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time:
(i) each share of Old ACG Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, automatically shall be deemed to
represent the right to receive one share of Parent Stock;
(ii) all shares of Parent Stock that are held by Surviving Corporation
after the Effective Time shall be transferred to Parent for cancellation;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, shall continue to be one fully paid and
non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time.
4. DELIVERY OF MERGER CONSIDERATION AND TREATMENT OF OUTSTANDING OPTIONS,
ETC.; REVERSE STOCK SPLIT AND SECTION 351 EXCHANGE PLAN
4.1 Effective Time. At the Effective Time, each Stockholder shall, upon
surrender of its certificate and the delivery of a certificate confirming the
investment representations and transfer restrictions set forth in Section 13
and its tax status as required by Section 10.6, receive one share of Parent
Stock for each share of Old ACG Stock owned of record immediately prior to the
Effective Time. All options and warrants relating to Old ACG Stock outstanding
immediately prior to the Effective Time shall, immediately after the Effective
Time in accordance with their terms, be assumed by Parent and become
exercisable for a like number of shares of Parent Stock.
4.2 Certificates. Stockholders shall present to Parent at the Closing all
certificates representing any and all shares of Old ACG Stock, duly endorsed in
blank by Stockholders, or accompanied by stock powers duly endorsed in blank,
and with all necessary transfer tax and other revenue stamps, acquired at
Stockholders' expense, affixed and canceled.
4.3 Reverse Stock Split. Prior to the consummation of the IPO and the
Merger, Old ACG will effect an approximately one-for-two reverse stock split
("Reverse Stock Split") the exact magnitude of which will be dependent upon the
ultimate post IPO valuation of Parent by the
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<PAGE>
managing underwriters in the IPO and the anticipated IPO Price. Nothing in this
Agreement shall prevent Old ACG from effecting such Reverse Stock Split as may
be approved by its board of directors and Stockholders holding not less than
80% of the Old ACG Stock then outstanding.
4.4 Section 351 Exchange Plan. Upon the approval of this Agreement by the
holders of not less than 80% of the shares of Old ACG Stock then issued and
outstanding, each Stockholder shall be deemed to have approved and adopted the
Section 351 Exchange Plan to the same extent as if such Stockholder has
subscribed its signature thereon.
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
the actions contemplated by clauses (i) and (ii) above shall not include the
actual completion of the Merger or the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4, each of which
actions shall only be taken upon the Closing Date as herein provided. The
Closing shall take place on the date the closing of, and substantially
contemporaneously with, the sale of shares of Parent Stock in the IPO, or such
other date as the parties hereto may designate (the "Closing Date"), at such
place in New York City as the parties may mutually agree. On the Closing Date
(x) the Certificate of Merger shall be or shall have been filed with the
appropriate state authorities so that it shall be or, as of 10:00 a.m. New York
City Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the
Stockholders shall be entitled to receive pursuant to the Merger shall occur
and be deemed to be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF OLD ACG
Old ACG represents, warrants, covenants and agrees (i) that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 8.4, shall be true at the Closing
Date, (ii) that all of the covenants and agreements in this Section 6 shall be
materially complied with or performed at and as of the Closing Date and (iii)
that none of the representations and warranties of Old ACG set forth in this
Agreement shall survive the Closing Date. For purposes of this Section 6, the
term "Old ACG" shall mean and refer to Old ACG and all of its Subsidiaries, if
any.
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6.1 Due Organization. Old ACG is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, prospects, properties,
assets or condition (financial or otherwise), of Old ACG taken as a whole (as
used herein with respect to Old ACG, or with respect to any other Person, a
"Material Adverse Effect"). Schedule 6.1 sets forth the jurisdiction in which
Old ACG is incorporated and contains a list of all such jurisdictions in which
Old ACG is authorized or qualified to do business. True, complete and correct
copies of the Charter Documents and Bylaws, each as amended, of Old ACG are all
attached hereto as Schedule 6.1. The stock records of Old ACG, as heretofore
made available to Parent, are correct and complete in all material respects. To
the knowledge of Old ACG, there are no minutes in the possession of Old ACG
which have not been made available to Parent, and all of such minutes are
correct and complete in all material respects.
6.2 Authorization. Old ACG has all requisite corporate power and authority
to conduct its business as presently conducted and to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery by Old ACG
of this Agreement and its consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of the board of
directors of Old ACG. This Agreement has been duly executed and delivered by
Old ACG, and when this Agreement and the Merger have been approved by
Stockholders in accordance with the DGCL and Old ACG's Charter Documents, will
be a valid and binding obligation of Old ACG, enforceable against Old ACG in
accordance with its terms.
6.3 Capital Stock of Old ACG. The authorized capital stock of Old ACG is as
set forth in Schedule 2.4(i). All of the issued and outstanding shares of the
capital stock of Old ACG (i) have been duly authorized and validly issued and
(ii) are fully paid and nonassessable. Further, none of such shares was issued
in violation of the preemptive rights of any past or present stockholder.
6.4 Transactions in Capital Stock. Except as set forth on Schedule 6.4, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates Old ACG to issue or sell any of its authorized but unissued
capital stock; (ii) Old ACG has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of Old ACG nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights to
acquire shares of Company Stock.
6.5 Financial Statements. Attached hereto as Schedule 6.5 are copies of the
following financial statements of Old ACG, which reflect the results of its
operations from inception in June
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1996 (the "Old ACG Financial Statements"): Old ACG's audited Balance Sheet as
of December 31, 1996 and its unaudited Balance Sheet as of June 30, 1997
("Balance Sheet Date"), and audited Statements of Operations, Stockholder's
Equity and Cash Flows and related notes thereto for the period from June 10,
1996 through December 31, 1996 and unaudited Statements of Operations,
Stockholder's Equity and Cash Flows for the six months ended June 30, 1997. The
audited Old ACG Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the period indicated (except as noted thereon or on Schedule 6.5).
The unaudited Old ACG Financial Statements were prepared in accordance with the
books and records of Old ACG in accordance with accounting principles
consistently applied. Old ACG's Balance Sheets present fairly the financial
position of Old ACG as of the dates indicated thereon, and Old ACG's Statements
of Operations, Stockholder's Equity and Cash Flows included in the Old ACG
Financial Statements present fairly the results of operations for the periods
indicated thereon in accordance with generally accepted accounting principles.
Old ACG's Financial Statements at and for the period ended December 31, 1996
have been examined by KPMG Peat Marwick LLP, independent public accountants.
6.6 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.6, Old ACG is not in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
Old ACG which would have a Material Adverse Effect; and except to the extent
set forth on Schedule 6.6, there are no material claims, actions, suits or
proceedings, commenced or, to the knowledge of Old ACG, threatened, against or
affecting Old ACG, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction over Old ACG and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Old ACG. Old ACG has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including all such
permits, licenses, orders and other governmental approvals set forth on
Schedules 6.6 and is not in violation of any of the foregoing which might have
a Material Adverse Effect.
6.7 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996 , no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may
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be subject to taxation by that jurisdiction. There is no lien
affecting any of Old ACG's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against it for any period for which Tax Returns
have been filed. There is no material dispute or claim concerning any Tax
liability of Old ACG either claimed or raised by any authority in writing
or as to which Old ACG has knowledge based upon direct inquiry by any agent
of such authority.
6.8 No Violations. Old ACG is not in violation of its Charter Documents.
Neither Old ACG nor, to the knowledge of Old ACG, any other party thereto, is
in material default under any lease, instrument, agreement, license, or permit
to which it is a party or by which its properties are bound (the "Material
Documents"); and, except as set forth in Schedule 6.8, (i) the rights and
benefits of Old ACG under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (ii) the
execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach or constitute a material default under, any of
the terms or provisions of the Material Documents or Old ACG's Charter
Documents. Except as set forth on Schedule 6.8 none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect in all material respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material
right or benefit.
6.9 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 6.9, or as otherwise contemplated by Section 4.3, there has not
been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Old ACG as a
whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Old
ACG;
(iii) any change in the authorized capital of Old ACG or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments; or
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(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Old ACG.
6.10 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Old ACG for the time periods with respect to which
such information was requested. Old ACG's rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which Old ACG is a party, or to which its properties are subject,
or by any other fact or circumstance regarding Old ACG (which fact or
circumstance was, or should reasonably, after due inquiry, have been known to
Old ACG) that is not disclosed pursuant hereto or thereto.
6.11 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Old ACG but not otherwise, are time,
accurate and complete in all material respects and do not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
7. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent warrant, covenant and
agree (i) that, except as disclosed in the Draft Registration Statement, all of
the following representations and warranties in this Section 7 are true at the
date of this Agreement and, subject to Section 8.4, shall be true at the
Closing Date, (ii) that all of the covenants and agreements in this Section 7
shall be complied with or performed at and as of the Closing Date, and (iii)
that none of the representations and warranties of Parent and Newco set forth
in this Agreement shall survive the Closing Date.
7.1 Due Organization. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the States
of Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Charter Documents and By-laws, each as amended, of Parent and Newco (the
"Parent Charter Documents") are all attached hereto as Schedule 7.1.
7.2 Authorization. Parent and Newco each has all requisite corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated
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hereby have been duly authorized by all necessary corporate action of Parent
and Newco. This Agreement has been duly executed and delivered by Parent and
Newco and is a valid and binding obligation of Parent and Newco, enforceable
against each of them in accordance with its terms. By execution of this
Agreement, Parent has approved this Agreement and the Merger in its capacity as
the sole stockholder of Newco.
7.3 Capital stock. The authorized capital stock of Parent and Newco is as
set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
and (iii) were offered, issued, sold and delivered by Parent and Newco in
compliance with all applicable state and Federal laws concerning the offer,
issuance, sale and delivery of securities. Further, none of such shares was
issued in violation of the preemptive rights of any past or present stockholder
of Parent or Newco.
7.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 2.4(ii), (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Parent or Newco to issue any of
its authorized but unissued capital stock and (ii) neither Parent nor Newco has
any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 2.4(ii) also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list, accurate as of the date hereof, of all outstanding
options, warrants or other rights to acquire shares of capital stock of Parent.
7.5 Subsidiaries. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 7.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
7.6 Liabilities and Obligations. Except as set forth on Schedule 7.6 or in
the Draft Registration Statement, Parent and Newco have no material
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
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7.7 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 7.7 or in the Draft Registration Statement, neither Parent nor Newco
is in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Material Adverse Effect; and except to the extent set forth in Schedule
7.8, there are no material claims, actions, suits or proceedings, pending or,
to the knowledge of Parent or Newco, threatened, against or affecting Parent or
Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
7.8 No Violations. Neither Parent nor Newco is in violation of any of
Parent's Charter Documents. None of Parent, Newco, or, to the knowledge of
Parent and Newco, any other party thereto, is in material default under any
lease, instrument, agreement, license, or permit to which Parent or Newco is a
party, or by which Parent or Newco, or any of their respective properties, are
bound (collectively, the "Parent Documents"); and (i) the rights and benefits
of Parent and Newco under the Parent Documents will not be materially adversely
affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a material default under, any of the terms or
provisions of the Parent Documents or the Parent's Charter Documents. Except as
set forth on Schedule 7.8, none of the Parent Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
7.9 Parent Securities. The shares of Parent Stock deliverable to the
Stockholders in the Merger pursuant to this Agreement or issuable upon the
exercise or conversion of the warrants and options referred to in the last
sentence of Section 4.1 will have been duly authorized prior to the Closing,
and upon consummation of the Merger in accordance with this Agreement or the
issuance of shares of Parent Stock upon the exercise of such warrants or
options in accordance with the terms thereof, will be validly issued, fully
paid and nonassessable.
7.10 Business; Real Property; Material Agreement Parent was formed in
September 1997. Neither Parent nor Newco has conducted any material business
since the date of its inception, except in connection with this Agreement and
similar agreements with other companies involved in the telephone business and
associated activities and consummating the transactions referred to in the
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Draft Registration Statement. Except as disclosed on Schedule 7.11, neither
Parent nor Newco owns or has at any time owned any real property or any
material personal property or is a party to any other material agreement.
8. OTHER COVENANTS PRIOR TO CLOSING
8.1 Access and Cooperation; Due Diligence.
(i) Between the date of this Agreement and the Closing Date, Old ACG
will afford to the officers and authorized representatives of Parent, the
Founding Companies, and Parent's prospective underwriters (collectively,
the "Parent Group") access to all of Old ACG's sites, properties, books and
records and will furnish Parent with such additional financial and
operating data and other information as to the business and properties of
Old ACG as Parent may from time to time reasonably request. Old ACG will
cooperate with Parent Group, its representatives, auditors and counsel in
the preparation of and any documents or other material that may be required
in connection with any documents or materials required by this Agreement.
Parent and Newco will, and will cause the other members of the Parent
Group, to treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential.
(ii) Between the date of this Agreement and the Closing, Parent will
afford, or will cause to be afforded, to the officers and authorized
representatives of Old ACG access to all of Parent Group's sites,
properties, books and records and will furnish Old ACG with such additional
financial and operating data and other information as to the business and
properties of Parent Group as Old ACG may from time to time reasonably
request. Parent and Newco will cooperate with Old ACG's representatives,
auditors and counsel in the preparation of any documents or other material
which may be required in connection with any documents or materials
required by this Agreement. Old ACG will cause all information obtained in
connection with the negotiation and performance of this Agreement to be
treated as confidential.
8.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date, Old
ACG will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at present, ordinary
wear and tear excepted;
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(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities; and
(vii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
8.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Old ACG will not, except or otherwise expressly contemplated by
Section 4.3, without prior written consent of Parent:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 6.4;
or
(iii) declare or pay any dividend, or make any distribution in respect
of Old ACG Stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of Old ACG Stock.
8.4 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by Old ACG or Parent that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Parent
or Old ACG, as the case may be, consents to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether
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the conditions set forth in Sections 9.1 and 10.1 have been fulfilled, the
Schedules shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 8.4. No party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 12.1(v). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies involved in or assets associated with the telephone business and
related activities nor the performance by Parent of its obligations thereunder
shall be deemed to require the amendment to or a supplementation of any
Schedule hereto.
8.5 Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize
that compliance with the Hart-Scott Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the Hart-Scott Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the Hart-Scott Act, (ii) such compliance by and Old ACG shall be deemed a
condition precedent in addition to the conditions precedent set forth in
Section 10 of this Agreement, and such compliance by Parent and Newco shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Section 9 of this Agreement, (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to be
made, and (iv) Parent shall be responsible for all filing fees under the
Hart-Scott Act.
8.6 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF OLD ACG
The obligations of Old ACG with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
9.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct in all material respects as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date; all of the terms, covenants and conditions of this
Agreement to be complied with or performed by Parent and Newco on or before the
Closing Date shall have been duly complied with or performed in all material
respects; and a certificate to the foregoing effect dated the Closing Date, and
signed by the President or any Vice President of Parent and of Newco shall have
been delivered to Old ACG.
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9.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Old ACG and its counsel.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Old ACG as a result of which the
management of Old ACG deems it inadvisable to proceed with the transactions
hereunder.
9.4 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
9.5 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a Material
Adverse Effect.
9.6 Closing of IPO. The sale by Parent of shares of Parent Stock in the IPO
shall have closed prior to or substantially contemporaneously with the
consummation of the Merger.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
10.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Old ACG contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Old ACG on or before the Closing Date shall have
been duly performed or complied with in all material respects; and Old ACG
shall have delivered to Parent a certificate dated the Closing Date and signed
by the President or any Vice President of Old ACG.
10.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
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10.3 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Old ACG which would constitute a Material Adverse
Effect, and Old ACG shall not have suffered any material loss or damages to any
of its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of Old ACG to conduct
its business.
10.4 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Parent and its counsel.
10.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
10.6 FIRPTA Certificate Each Stockholder shall have delivered to Parent a
certificate as to its status under Section 1.1445-2(b) of the Treasury
regulations.
10.7 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the Merger.
11. ADDITIONAL COVENANTS OF PARENT AFTER CLOSING
11.1 Rule 144 Filing. Parent, from and after the IPO, shall use
commercially reasonable efforts to assure that Rule 144 under the Securities
Act will be available for sales of shares by Stockholders at the earliest time
such sales are legally permissible.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and Old
ACG;
(ii) by Old ACG (acting through its board of directors), on the one
hand, or by Parent (acting through its board of directors), on the other
hand, if prior to October 16, 1997, a registration statement on Form S-1
relating to the IPO has not been filed by Parent with the SEC pursuant to
the 1933 Act;
(iii) by Company (acting through its board of directors), on the one
hand, or by Parent (acting through its board of directors), on the other
hand, if the transactions contemplated by this Agreement to take place at
the Closing shall not have been
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consummated by January 31, 1998 unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its obligations under
this Agreement to the extent required to be performed by it prior to or on
the Closing Date;
(iv) by Stockholders or Company, on the one hand, or by Parent, on the
other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
material covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(v) by Company and Stockholders, on the one hand, or by Parent, on the
other hand, if either such party or parties declines to consent to an
amendment or supplement to a Schedule proposed by the other party or
parties pursuant to Section 8.4 because such proposed amendment constitutes
or reflects an event or occurrence that would have a Material Adverse
Effect.
12.2 Liabilities in Event of Termination. Except as provided in Section
8.4, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
13. INVESTMENT REPRESENTATIONS
The Parent Stock to be delivered to Stockholders pursuant to this Agreement
(collectively, "Restricted Securities") not been and will not be registered
under the 1933 Act and therefore may not be resold without compliance with the
requirements of the 1933 Act and applicable state securities laws. All of the
Restricted Securities will be deemed to have been acquired by Stockholders
solely for their own respective accounts, for investment purposes only, and
with no present intention of distributing of such securities in connection
with a distribution.
13.1 Compliance With Law. By accepting certificates representing Parent
Stock after the Effective Time, Stockholders will be deemed to have covenanted
and agreed that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed or
otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC thereunder
and the provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend.
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS AND UNTIL (A) THE SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") OR (B) THE HOLDER OF THESE SECURITIES PROVIDES
THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH
COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF
THESE SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y)
SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE ISSUER THAT
THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
ACTS.
14. REGISTRATION RIGHTS
14.1 PiggyBack Registration Rights. Whenever Parent proposes to register
any Parent Stock for its own or the account of others under the 1933 Act for a
public offering other than (i) any registration of shares to be used as
consideration for acquisitions of additional businesses by Parent and (ii)
registrations relating to employee benefit plans, Parent shall give each
Stockholder then owning Registrable Securities that has not been registered
under the 1933 Act prompt written notice of its intent to do so. Upon the
written request of any such Stockholder given within 15 days after receipt of
such notice, Parent shall cause to be included in such registration all
Registrable Securities which any Stockholder requests; provided, however, if
Parent is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 14.1 that the number of shares to be
sold by Persons other than Parent is greater than the number of such shares
which can be offered without adversely affecting the offering, Parent may
reduce pro rata the number of shares offered for the accounts of such Persons
(based upon the number of shares held by such Person) to a number deemed
satisfactory by such managing underwriter.
14.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, Stockholders or their permitted transferees, including the
holders of Class A Interests and Class B Interests in Consolidation Partners
Founding Fund, L.L.C. that receive shares of Parent Stock upon the
distribution thereof following the consummation of the IPO,("Founding
Stockholders"), holding a majority of the Registrable Securities then
outstanding, which shares have not been previously registered or sold and which
shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing
that Parent file a registration statement under the 1933 Act covering the
registration of such shares of Registrable Securities issued to and held by the
Founding Stockholders or their permitted transferees (a "Demand Registration").
Within
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ten days of the receipt of such request, Parent shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from the Founding
Stockholders requesting such registration, file and use its best efforts to
cause to become effective a registration statement covering all such shares.
Parent shall be obligated to effect only one Demand Registration for all
Founding Stockholders; provided, however, that Parent shall not be deemed to
have satisfied its obligation under this Section 14.2 unless and until a Demand
Registration covering all shares of Registrable Securities requested to be
registered has been filed and become effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of Registrable Securities shall be initiated
under this Section 14.2 until 90 days after the effective date of such
registration statement unless Parent is no longer proceeding diligently to
secure the effectiveness of such registration statement; provided that Parent
shall provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 14.1.
14.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 14 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 14.1 and 14.2 Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Parent may discontinue any registration of its securities that is being
effected pursuant to Section 14.2 at any time prior to the effective date
of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the Stockholders holding a majority of the Registrable Securities covered
thereby not exceeding 90 days and to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration
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statement during such period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement; provided, that before filing a registration statement or
prospectus relating to the sale of Registrable Securities, or any
amendments or supplements thereto, Parent will furnish to counsel to each
holder of Registrable Securities covered by such registration statement or
prospectus, copies of all documents proposed to be filed, which documents
will be subject to the review of such counsel, and Parent will give
reasonable consideration in good faith to any comments of such counsel.
(iii) Furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, such number of copies of a preliminary prospectus and
prospectus for delivery in conformity with the requirements of the 1933
Act, and such other documents, as such Person may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities.
(iv) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registrable Securities owned by such seller, in such
jurisdictions, except that Parent shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 14.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 14.3(ii), if Parent becomes aware
that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, at the request of any such seller, deliver a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, each prospectus shall not include an untrue
statement of a material fact or omit to state a material
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fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
Stockholders holding a majority of the shares of Registrable Securities
covered by the Registration Statement may reasonably request in order to
effect an underwritten public offering of such Registrable Securities.
(xi) Make available for inspection by the seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
14.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registrable Securities covered
by a Registration Statement referred to in this Section 14 will, upon
receipt of any notice from Parent of the happening of any event of the kind
described in Section 14.3(vi), forthwith
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discontinue disposition of the Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 14.3(vi).
(ii) If a registration pursuant to Section 14.1 or 14.2 involves an
underwritten offering, each Stockholder (including his permitted assigns)
agrees, if his shares of Registrable Securities are included in such
registration, not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the 1933 Act, of any Registrable
Securities, or of any security convertible into or exchangeable or
exercisable for any Registrable Securities (other than as part of such
underwritten offering), without the consent of the managing underwriter,
during a period commencing seven calendar days before and ending 180
calendar days (or such lesser number as the managing underwriter shall
designate) after the effective date of such registration. Similarly, each
of the Stockholders agrees not to effect any sale or distribution,
including any sale pursuant to the registration rights provided in Section
14.1, of any Registrable Securities, or of any security convertible into or
exchangeable or exercisable for any Registrable Securities, without the
consent of the managing underwriter of the IPO during a period commencing
on the effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter shall
designate) after such effective date.
14.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 14.1 or 14.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact
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necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor
or agent, underwriter or controlling Person and shall survive the transfer
of such securities by such seller.
(ii) Parent may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section
14.1 or 14.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 14.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to Parent by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Parent or any such director,
officer or controlling Person and shall survive the transfer of such
securities by such seller. In that event, the obligations of the Parent and
such sellers pursuant to this Section 14.5 are to be several and not joint;
provided, however, that, with respect to each claim pursuant to this
Section 14.5, Parent shall be liable for the full amount of such claim, and
each such seller's liability under this Section 14.5 shall be limited to an
amount equal to the net proceeds (after
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deducting the underwriting discount and expenses) received by such
seller from the sale of Registrable Securities held by such seller pursuant
to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 14.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 14.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registrable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and the indemnified
party would be inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between them. In the
event that the indemnifying party does not assume the defense of a claim
pursuant to this Section 14.5(iii), the indemnified party will have the
right to defend such claim by all appropriate proceedings, and will have
control of such defense and proceedings, and the indemnified party shall
have the right to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause its legal
counsel to, provide reasonable cooperation to the indemnifying party and
its legal counsel in connection with its assuming the defense of any claim,
including the furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party assumes the
defense of an action under this Section 14.5(iii), then such indemnifying
party
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shall, subject to the provisions of this Section 14.5, indemnify and
hold harmless the indemnified party from any and all losses, claims,
damages or liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
14.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 14.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each Person selling securities agree with each
other that no seller of Registrable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 14.5(ii) were available.
Parent and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount bears to the initial public offering
price of the Registrable Securities. For purposes of this Section 14.6, each
Person, if any, who controls an underwriter within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as such underwriter,
and each director and each officer of Parent who signed the registration
statement, and each Person, if any, who controls Parent or a seller of
Registrable Securities within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as Parent or a seller of Registrable
Securities, as the case may be.
14.7 Availability of Rule 144. Parent shall not be obligated to register
shares of Registrable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act are available to such Stockholder.
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15. GENERAL
15.1 Cooperation. Old ACG, Parent and Newco shall deliver or cause to be
delivered to the other on the Closing Date and at such other times and places
as shall be reasonably agreed to, such additional instruments as any of the
others may reasonably request for the purpose of carrying out this Agreement.
Old ACG will cooperate and use its reasonable efforts to have the present
officers, directors and employees of Old ACG cooperate with Parent on and after
the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
15.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent, Newco and Old ACG.
15.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among Old ACG, Newco and Parent and supersede any prior agreement
and understanding relating to the subject matter of this Agreement. This
Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and
may be modified or amended only by a written instrument executed by Old ACG,
Newco and Parent, acting through their respective officers or representatives,
duly authorized by their respective Boards of Directors. Any disclosure made on
any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby; provided that Old ACG shall
make a good faith effort to cross reference disclosures, as necessary or
advisable, between related Schedules.
15.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.5 Brokers and Agents. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damage or expense
arising out of claims for fees or commission of brokers employed or alleged to
have been employed by such indemnifying party.
15.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Parent will pay the fees, expenses and disbursements of Parent,
Old ACG and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in
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the performance and compliance with all conditions to be performed by Parent
and Company under this Agreement. Each Stockholder will be required to pay all
sales, use, transfer, real property transfer, gains, stock transfer and other
similar taxes ("Transfer Taxes") imposed in connection with the Merger, any
fees and expenses of Stockholders' legal counsel and all other costs and
expenses incurred by Stockholders in their performance and compliance with all
conditions to be performed by them under this Agreement. Each Stockholder shall
file all necessary documentation and Returns with respect to such Transfer
Taxes. In addition, each Stockholder will be required to pay any Taxes due upon
receipt of the consideration payable pursuant to Section 3.
15.7 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party. If to Parent, Newco or Old ACG, addressed to
each of them at:
Advanced Communications Group, Inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
Attn: Rod K. Cutsinger
Telecopy No.: 713-599-0222
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attn: Edgar J. Marston III
Telecopy No.: 713-221-1212
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.7 from time to time.
15.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
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15.9 Time. Time is of the essence with respect to this Agreement.
15.10 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
15.11 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
15.12 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
15.13 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
15.14 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Parent, Newco and Old ACG. Any amendment or waiver effected
in accordance with this Section 14.14 be binding upon each of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
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ADVANCED COMMUNICATIONS GROUP
ACQUISITION, INC.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: President
ADVANCED COMMUNICATIONS CORP.
By:
-------------------------------------
Name: Rod K. Cutsinger
Title: Chairman and Chief Executive
Officer
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ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
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ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly
described in the Company's Registration Statement in Form S-1 (draft of
October 2, 1997) ("Draft Registration Statement") relating to its initial
underwritten public offering ("IPO"), the foregoing acquisitions being
hereinafter collectively referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect
to exchange, as a part of a single plan, shares of its voting capital stock
and other consideration, including cash, warrants, options and promissory
notes, for such Assets as shall be transferred to the Company by one or more
of the following individuals and entities: (i) the existing shareholders of
the predecessor to the Company in a reverse triangular merger; (ii) certain
holders of capital stock of other corporations or other assets that shall be
acquired by the Company pursuant to the Acquisitions; (iii) certain other
persons or entities who may assist the Company in the Acquisitions or in the
manufacture and or marketing of its products, (iv) purchasers of the Company's
capital stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess
immediately after the completion of the Acquisitions, at least 80% of the total
combined voting power of all classes of capital stock of the Company entitled
to
<PAGE>
vote and at least 80% of the total number of shares of all other classes of
capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of
Assets to the Company shall qualify as tax free within the provisions of
Section 351 of the Code; provided, however, that the Company does not assume
any liability or responsibility to any holder of capital stock of the Company
or any other person or entity in the event Section 351 of the Code does not
apply to such transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including
cash, options, warrants and promissory notes of the Company, in the
approximate amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in
the Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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<PAGE>
ANNEX III
CERTIFICATE OF MERGER
OF
ADVANCED COMMUNICATIONS GROUP ACQUISITION, INC.
(A DELAWARE CORPORATION)
INTO
ACG, INC.
(A DELAWARE CORPORATION)
------------------------------------
Pursuant to Sections 103 and 251(c) of the General
Corporation Law of the State of Delaware
------------------------------------
Advanced Communications Group Acquisition, Inc., a Delaware
corporation ("Acquisition Corp."), desires to merge with and into ACG, Inc., a
Delaware corporation ("Old ACG"), pursuant to the provisions of Section 251(c)
of the General Corporation Law of the State of Delaware (the "Merger"). Old
ACG hereby certifies as follows:
FIRST: The names and states of incorporation of the constituent
corporations which plan to merge hereby (the "Constituent Corporations") are as
follows:
Name State of Incorporation
---- ----------------------
Acquisition, Inc. Delaware
ACG, Inc. Delaware
SECOND: An Agreement of Merger, dated as of October 1, 1997, by and
among Advanced Communications Group, Inc., a Delaware corporation ("ACG"),
Advanced Communications Group Acquisition, Inc. and Old ACG (the "Merger
Agreement"), has been approved, adopted, certified, executed and acknowledged
by each of the Constituent Corporations in accordance with the requirements of
Subsection 251(c) of the General Corporation Law of the State of Delaware.
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<PAGE>
THIRD: It is intended that the Merger Agreement and the other
contemporaneous agreements relating to the acquisition of the Founding
Companies (as defined in the Merger Agreement) (collectively, the "Other
Agreements") by ACG operate as an integrated plan pursuant to which the
stockholders of Old ACG and the stockholders named in the Other Agreements
(collectively, the "Stockholders") will transfer the stock of Old ACG and the
Other Founding Companies (as defined in the Merger Agreement) to ACG, and the
Stockholders, and the public will acquire stock of ACG in a tax-free transfer
of property pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended.
FOURTH: The surviving corporation shall be Old ACG (the "Surviving
Corporation").
FIFTH: The Certificate of Incorporation of the Surviving Corporation
shall be substantively identical, mutatis mutandis, to the Certificate of
Incorporation of Acquisition Corp. that was in effect immediately prior to the
filing of this Certificate of Merger.
SIXTH: The executed Merger Agreement is on file at the principal place
of business of the Surviving Corporation. The address of the principal place of
business of the Surviving Corporation is 3355 West Alabama, Suite 580, Houston,
Texas 77098.
SEVENTH: A copy of the executed Merger Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
either of the Constituent Corporations.
EIGHT: This Certificate of Merger shall not become effective until ,
1997.
IN WITNESS WHEREOF, ACG, Inc. has caused this Certificate of Merger to
be signed by its ______________________ as of this ______ day of
_____________________, 1997.
ACG, Inc.
(a Delaware corporation)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The name of the corporation is Advanced Communications Group, Inc.
(the "Corporation"). The name of the Corporation as originally incorporated was
New ACG, Inc. The original certificate of incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") on September 29, 1997 and amended by an instrument filed with the
Secretary of State on October 9, 1997 to change the Corporation's name to
Advanced Communications Group, Inc. This Restated Certificate of Incorporation
amends and restates the Corporation's original certificate of incorporation,
and amended, and was duly adopted in accordance with ss. 241 and ss. 245 of the
General Corporation Law of the State of Delaware. The Corporation certifies
that it has not authorized the issuance of any of its stock or received any
payment therefor.
ARTICLE I
The name of the Corporation is Advanced Communications Group, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, County of New Castle,
Wilmington, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. Authorized Capital. The Corporation shall be authorized to
issue two hundred million (200,000,000) shares of capital stock, of which one
hundred eighty million (180,000,000) shares shall be shares of Common Stock,
$.0001 par value per share ("Common Stock"), and twenty million (20,000,000)
shares shall be shares of Preferred Stock, $.0001 par value per share
("Preferred Stock").
Section 2. Preferred Stock. The Board of Directors is hereby expressly
authorized, subject to any limitations prescribed by applicable law, to provide
from time to time for the issuance of shares of Preferred Stock in one or more
series, and to determine the number of shares of each series and to fix for
each series of Preferred Stock such voting powers, full or limited or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the
<PAGE>
resolution or resolutions adopted by the Board of Directors or a duly
authorized committee thereof providing for the issue of such series.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(a) the designated number of shares of such series, which
may subsequently be increased or decreased (but not below the number
of shares of that series then outstanding) by resolution of the Board
of Directors, without the consent of the holders of any outstanding
shares of Common Stock or Preferred Stock, and the distinctive
designation thereof;
(b) the voting powers, full or limited, if any, of the
shares of such series;
(c) the rights in respect of dividends on the shares of such
series, whether dividends shall be cumulative and, if so, from which
date or dates and the relative rights of priority, if any, of payment
of dividends on shares of such series and any limitations,
restrictions or conditions on the payment of dividends;
(d) the terms and conditions (including the price or prices
which may vary under different conditions and at different redemption
dates), if any, upon which all or any part of the shares of such
series may be redeemed, and any limitations, restrictions or
conditions on such redemption;
(e) the terms, if any, upon which the shares of such series
shall be convertible into or exchangeable for shares of any other
class, classes, or series, or other securities, whether or not issued
by the Corporation;
(f) the relative amounts, and the relative rights or
priority, if any, or payment in respect to shares of such series,
which the holders of the shares of such series shall be entitled to
receive upon liquidation, dissolution or winding up of the
Corporation;
(g) the terms, if any, of any purchase, retirement or
sinking fund to be provided for the shares of such series;
(h) the restrictions, limitations and conditions, if any,
upon issuance of indebtedness and shares of the same series or of any
other class or series of the Corporation during the period any shares
of such series are outstanding; and
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<PAGE>
(i) any other preferences and relative, participating,
optional or other rights or limitations not inconsistent with
applicable law, the provisions of this ARTICLE IV or any resolution of
the Board of Directors, or a duly authorized committee thereof,
pursuant thereto.
Section 3. Reacquired Stock. Subject to the requirements of applicable
law, shares of any series of Preferred Stock which have been redeemed or
converted, or which have been issued and reacquired in any manner, and retired
shall have the status of authorized and unissued shares of Preferred Stock and
may be reissued by the Board of Directors as shares of the same or any other
series of Preferred Stock.
Section 4. No Preemptive Rights. No holder of any shares of Common
Stock or series of Preferred Stock, or any other security, option, warrant or
right issued by the Corporation, shall have any preemptive rights to subscribe
to any additional shares of Common Stock or any series of Preferred Stock, or
any other security, option, warrant or right issued by the Corporation, or any
security convertible into any series of Common Stock or Preferred Stock, or any
other security, option, warrant or right when now or hereinafter authorized or
issued by the Corporation, provided, however, subject to the rights of any
holder of Common Stock or any series of Preferred Stock, that pursuant to a
resolution or resolutions adopted by the Board of Directors, or any duly
authorized committee thereof, the Corporation may issue and dispose of any
securities (including, without limitation, Common Stock and Preferred Stock)
convertible into or carrying options, warrants or other rights to purchase or
otherwise acquire any other security or securities of the Corporation to such
persons or other entities and upon such terms and for such consideration as the
Board of Directors may determine and as may be permitted by applicable law,
without offering any such securities, either in whole or in part, to the
existing holders of any security of the Corporation.
Section 5. Exclusive Rights of Common Stock. Subject to the rights of
the holders of any series of Preferred Stock, and except as otherwise provided
by law, the Common Stock shall have the exclusive right to vote for the
election of directors of the Corporation (each a "Director") and for all other
purposes. The number of authorized shares of Common Stock and Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority in voting
power of the stock of the Corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the State
of Delaware (or any successor provision thereto), and no vote of the holders of
either the Common Stock or the Preferred Stock voting separately as a class
shall be required therefor.
Section 6. Voting Rights of Common Stock. Each outstanding share of
Common Stock shall entitle the holder thereof to one vote on each matter
properly submitted to the stockholders of the Corporation for their vote,
consent, waiver, release or other action.
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<PAGE>
Section 7. Record Holders. The Corporation shall be entitled to treat
the person in whose name any share of its stock is registered in the records of
the Corporation, or with any agent of the Corporation employed as the stock
transfer agent of the Corporation, as the owner thereof for all purposes, and
the Corporation shall not be bound to recognize any equitable or other claim
to, or interest in, such share on the part of any other person or entity,
whether or not the Corporation shall have notice of such claim, except as
expressly provided by applicable law.
ARTICLE V
Section 1. Annual Meetings of Stockholders. The annual meetings of
stockholders of the Corporation (each a "Stockholder" and collectively,
"Stockholders") shall be held on such date and at such place and time as may be
fixed by resolution of the Board of Directors.
Section 2. Calling of Special Meetings of Stockholders. Subject to the
rights of the holders of any series of Preferred Stock, and to the requirements
of applicable law, special meetings of Stockholders may be called only by
either (a) the Chairman of the Board of Directors, or (b) by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
Directors which the Corporation would have if there were no vacancies or
unfilled newly-created directorships (the "Whole Board").
Notwithstanding any other provisions of this Restated Certificate of
Incorporation, and notwithstanding that a lesser percentage may be permitted
from time to time by applicable law, no provision of this Section 2 of ARTICLE
V may be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally in the election of Directors
("Voting Stock"), voting together as a single class.
Section 3. Chairman of Stockholder Meetings. Each annual and special
meeting of Stockholders shall be presided over by a Chairman, who shall have
the exclusive authority to, among other things, determine (a) whether business
and nominations have been properly brought before such meetings, and (b) the
order in which business and nominations properly brought before such meeting
shall be considered. The Chairman of each annual and special meeting shall be
the Chairman of the Board of Directors, or such person as shall be appointed by
the resolution approved by the majority of the Board of Directors.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation, and notwithstanding that a lesser percentage may be permitted
from time to time by applicable law, no provision of this Section 3 of ARTICLE
V may be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal
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<PAGE>
or adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the outstanding shares of Voting Stock,
voting together as a single class.
Section 4. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders (A)
pursuant to the Corporation's notice of meeting, (B) by or at the
direction of the Board of Directors or (C) by any Stockholder who was
a Stockholder of record at the time of giving of notice provided for
in this Section, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section .
(ii) For nominations or other business to be properly
brought before an annual meeting by a Stockholder pursuant to Section
4(a)(i)(C) of this ARTICLE V, the Stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for Stockholder
action. To be timely, a Stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the 60th day nor earlier than the
close of business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary date, notice by the
Stockholder to be timely must be so delivered not earlier than the
close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the
giving of a Stockholder's notice as described above. Such
Stockholder's notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors in an election
contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder
(including
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<PAGE>
such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected);
(B) as to any other business that the Stockholder proposes
to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest
in such business of such Stockholder and the beneficial owner, if
any, on whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (1) the name and address of such Stockholder, as
they appear on the Corporation's books, and of such beneficial
owner, (2) the class and number of shares of the Corporation
which are owned beneficially and of record by such Shareholder
and such beneficial owner, and (3) whether the proponent intends
(or is part of a group which intends) to solicit proxies from
other stockholders in support of such nomination or proposal.
(iii) Notwithstanding anything in the second sentence of
Section 4(a)(ii) of this ARTICLE V to the contrary, in the event that
the number of Directors to be elected to the Board of Directors is
increased and there is no public announcement by the Corporation
naming all of the nominees for Director or specifying the size of the
increased Board of Directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a Stockholder's
notice required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of Stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of Stockholders at which Directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
Directors shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for in this
Section 4, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 4. In the event the Corporation
calls a special meeting of Stockholders for the purpose of electing one or
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<PAGE>
more Directors to the Board of Directors, any such Stockholder may nominate a
person or persons (as the case may be), for election to such position(s) as
specified in the Corporation's notice of meeting, if the Stockholder's notice
required by Section 4(a)(ii) of this ARTICLE V shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier
than the close of business on the 90th day prior to such special meeting and
not later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a Stockholder's notice as described above.
(c) General.
(i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 4 shall be eligible to serve
as Directors and only such business shall be conducted at a meeting of
Stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 4. Except as
otherwise provided by applicable law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set
forth in this Section 4 and, if any proposed nomination or business is
not in compliance with this Section 4, to declare that such defective
proposal or nomination shall be disregarded.
(ii) For purposes of this Section 4, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 4, a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 4.
Nothing in this Section 4 shall be deemed to affect any rights
(A) of Stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act; or
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<PAGE>
(B) of the holders of any series of Preferred Stock to elect
Directors under specified circumstances.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation, and notwithstanding that a lesser percentage may be permitted
from time to time by applicable law, no provision of this Section 4 of ARTICLE
V may be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class.
Section 5. Election of Directors.
(a) Method of Election. Election of Directors at all meetings of
the Stockholders at which Directors are to be elected need not be by
written ballot and instead may be made by voice vote.
(b) Required Vote. At all meetings of Stockholders at which
Directors are to be elected, a plurality of the combined voting power of
the then outstanding shares of Voting Stock cast thereat shall elect
Directors. Each share of Common Stock shall be entitled to one vote, in
person or by proxy. Each share of any series of Preferred Stock shall be
entitled to that number of votes as designated by the Board of Directors in
the resolution establishing such issuance or series. Cumulative voting for
the election of Directors is expressly not permitted.
Section 6. Elections Other Than For Directors.
(a) Method of Voting. Unless and except to the extent that the
By-Laws of the Corporation shall so require, all voting by Stockholders,
except the election of Directors of the Corporation, need not be by written
ballot and instead may be made by voice vote.
(b) Required Vote. Subject to the rights of holders of any series
of Preferred Stock, and except as otherwise provided by law, applicable
stock exchange rules or this Restated Certificate of Incorporation, in all
matters other than the election of Directors, the affirmative vote of a
majority of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter shall be the act of the
Stockholders.
Section 7. Inspectors of Elections; Opening and Closing the Polls. To
the extent required by applicable law, the Board of Directors by resolution
shall appoint one or more inspectors, which inspector or inspectors may include
individuals who serve the Corporation in other capacities,
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<PAGE>
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of Stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of Stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the Stockholders will vote at a meeting.
Section 8. Stockholder Inspection of Corporate Records. Except as
otherwise provided by applicable law, the Board of Directors shall have the
power to determine from time to time whether and, if allowed, under what
conditions, circumstances and regulations the books and records of the
Corporation shall be open to inspection by the Stockholders, and the
Stockholders' ability to inspect any of the books and records or any other
document of the Corporation are and shall be restricted or limited according to
the determination of the Board of Directors.
Section 9. No Stockholder Action by Written Consent. Subject to the
rights of the holders of any series of Preferred Stock, any action required or
permitted to be taken by the Stockholders must be effected at a duly called
annual or special meeting of Stockholders and may not be effected without such
a meeting by any consent in writing by such holders.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation, and notwithstanding that a lesser percentage may be permitted
from time to time by applicable law, no provision of this Section 9 of ARTICLE
V may be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class.
Notwithstanding any other provision of this Restated Certificate of
Incorporation, Section 9 of ARTICLE V shall only become effective upon the
consummation of the Corporation's initial underwritten public offering of its
Voting Stock.
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<PAGE>
ARTICLE VI
Section 1. Corporate Governance. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors.
Section 2. Number. Subject to the rights of the holders of any series
of Preferred Stock, the number of Directors constituting the Whole Board of
Directors shall not be less than three nor more than twelve. Subject to the
rights of the holders of any series of Preferred Stock, the number of Directors
shall be fixed from time to time exclusively pursuant to a resolution adopted
by a majority of the Whole Board.
Section 3. Qualifications.
(a) No person shall be nominated for election, nor elected, as a
Director of the Corporation if such person (i) has attained the age of 80
as of such nomination or election, or (ii) will attain the age of 80 prior
to the expiration of the term of office he is being nominated or elected
for.
(b) No person may be a Director of the Corporation after
conviction of any offense under applicable law punishable by a term of
imprisonment exceeding one year or by death during the period after such
conviction that such person in connection with such conviction is
incarcerated, on parole, subject to court order or supervision, or subject
to supervision of any agency of a state or the federal government.
Section 4. Tenure. Commencing with the first annual meeting of
Stockholders, the Directors, other than those who may be elected by the holders
of any series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as is reasonably possible, with the term of office of the first class to
expire at the second annual meeting of Stockholders, the term of office of the
second class to expire at the third annual meeting of Stockholders and the term
of office of the third class to expire at the fourth annual meeting of
Stockholders, with each Director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
Stockholders, commencing with the second annual meeting, (i) Directors elected
to succeed those Directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of Stockholders
after their election, with each Director to hold office until his or her
successor shall have been duly elected and qualified, and (ii) if authorized by
a resolution of the Board of Directors, Directors may be elected to fill any
vacancy on the Board of Directors, regardless of how such vacancy shall have
been created.
Section 5. Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock, vacancies resulting from death,
resignation, retirement, disqualification,
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<PAGE>
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the remaining Directors, though less than a
quorum of the Board of Directors, and Directors so chosen shall hold office for
a term expiring at the annual meeting of Stockholders at which the term of
office of the class to which they have been elected expires and until such
Director's successor shall have been duly elected and qualified. No decrease in
the number of authorized Directors constituting the Whole Board shall shorten
the term of any incumbent Director.
Section 6. Removal. Subject to the rights of the holders of any series
of Preferred Stock, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80 percent of the combined voting power of the
then outstanding shares of Voting Stock, voting together as a single class.
Section 7. Rights of Classes Separately to Elect Directors.
Notwithstanding anything else contained in this Restated Certificate of
Incorporation, whenever holders of any one or more series of Preferred Stock
shall have the right, voting separately by class, classes or series, to elect
Directors at any annual or special meeting of Stockholders, the election, term
of office, filling of vacancies and other features of such directorships shall
be governed by the provisions of this Restated Certificate of Incorporation,
including any applicable resolutions of the Board of Directors adopted pursuant
to ARTICLE IV hereof. Directors so elected shall not be divided into classes
and shall be elected by such holders annually unless expressly provided
otherwise by those provisions or resolutions, and, during the prescribed terms
of office of those Directors, the Board of Directors shall consist of a number
of Directors equal to the number of those Directors plus the number of
Directors determined as provided in Section 2 of ARTICLE VI.
Section 8. Amendment. Notwithstanding any other provisions of this
Restated Certificate of Incorporation, and notwithstanding that a lesser
percentage may be permitted from time to time by applicable law, no provision
of this ARTICLE VI may be altered, amended or repealed in any respect, nor may
any provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the
holders of at least 80 percent of the combined voting power of the then
outstanding shares of Voting Stock, voting together as a single class.
ARTICLE VII
Section 1. Director Amendment of By-Laws. In furtherance and not in
limitation of the powers conferred by applicable law, the Board of Directors is
expressly authorized and empowered to make, alter, amend and repeal any or all
of the provisions of the By-Laws of the Corporation by a majority vote at any
regular or special meeting of the Board of Directors or by written consent.
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Section 2. Stockholder Amendment of By-Laws. Stockholders shall have
the power to make, alter, amend and repeal the By-Laws of the Corporation by
the affirmative vote of the holders of at least 80 percent of the combined
voting power of the then outstanding shares of Voting Stock, voting together as
a single class.
ARTICLE VIII
Section 1. Elimination of Certain Liability of Directors. A Director
of the Corporation shall not be personally liable to the Corporation or its
Stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to
the Corporation or its Stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the Director derived an
improper personal benefit. No amendment, alteration or repeal of, nor the
adoption of any provision inconsistent with, any provision of this Section 1 of
ARTICLE VIII, which shall in any manner increase the actual or potential
liability of any Director of the Corporation, shall apply to or have any effect
on the liability or alleged liability of any such Director for or with respect
to actions or omissions of such Director occurring prior to such amendment,
alteration, repeal or adoption.
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or
was a Director or officer of the Corporation or, while a Director or
officer of the Corporation, is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a Director,
officer, employee or agent or in any other capacity while serving as a
Director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee
Retirement Income Security Act of 1974) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a Director or officer and shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part
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thereof) initiated by such person only if such proceeding (or
part thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition;
provided, however, that, if the General Corporation Law of the State of
Delaware requires, the payment of such expenses incurred by a Director or
officer in his or her capacity as a Director or officer (and not in any
other capacity in which service was or is rendered by such person while a
Director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on
behalf of such Director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such Director or officer is not
entitled to be indemnified under this Section or otherwise. The Corporation
may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as
the foregoing indemnification of Directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph
(a) of this Section is not paid in full by the Corporation within 30 days
after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the General Corporation Law of the State of Delaware for the
Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its Stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the General Corporation Law of the State
of Delaware, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its Stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of this Restated Certificate of Incorporation,
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By-Laws, agreement, vote of Stockholders or disinterested
Directors of the Corporation or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the General Corporation Law of the
State of Delaware.
(e) Amendment. No amendment, alteration or repeal of, nor the
adoption of any provision inconsistent with, any provision of Section 2 of
ARTICLE VIII, which shall in any manner increase the actual or potential
liability of any Director of the Corporation shall apply to or have any
effect on the liability or alleged liability of any such Director for or
with respect to actions or omissions of such Director occurring prior to
such amendment, alteration, repeal or adoption.
Section 3. Amendment. Notwithstanding any other provisions of this
Restated Certificate of Incorporation, and notwithstanding that a lesser
percentage may be permitted from time to time by applicable law, no provision
of this ARTICLE VIII may be altered, amended or repealed in any respect, nor
may any provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the
holders of at least 80 percent of the combined voting power of the then
outstanding shares of Voting Stock, voting together as a single class.
ARTICLE IX
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, and any other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon Stockholders,
Directors or any other persons whomsoever by and pursuant to this Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this ARTICLE IX.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by Rod K. Cutsinger, its Chairman of
the Board, President and Chief Executive Officer, this 9th day of October,
1997.
By: /s/ Rod K. Cutsinger
------------------------------
Rod K. Cutsinger
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BYLAWS
OF
ADVANCED COMMUNICATIONS GROUP, INC.
OCTOBER 9, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1
Offices...........................................................................................................1
Section 1.1. Registered Office.............................................................1
Section 1.2. Other Offices.................................................................1
ARTICLE 2
Stockholders......................................................................................................1
Section 2.1. Reference to Charter Documents................................................1
Section 2.2. Record Date...................................................................1
Section 2.3. Stockholder List..............................................................2
Section 2.4. Proxies.......................................................................2
Section 2.5. Treasury Stock................................................................3
ARTICLE 3
Board of Directors................................................................................................3
Section 3.1. Reference to Charter Document.................................................3
Section 3.3. Place of Meetings; Order of Business..........................................3
Section 3.4. First Meeting.................................................................3
Section 3.5. Regular Meetings..............................................................3
Section 3.6. Special Meetings..............................................................4
Section 3.7. Compensation..................................................................4
Section 3.8. Action Without a Meeting; Telephone Conference Meeting........................4
ARTICLE 4
Committees........................................................................................................5
Section 4.2. Procedure; Meetings; Quorum...................................................5
Section 4.3. Removal of Members; Vacancies.................................................5
ARTICLE 5
Officers..........................................................................................................5
Section 5.1. Number, Titles and Term of Office.............................................5
Section 5.2. Powers and Duties of the Chairman of the Board................................6
Section 5.3. Powers and Duties of the President............................................6
Section 5.4. Vice Presidents...............................................................6
Section 5.5. Secretary.....................................................................6
Section 5.6. Assistant Secretaries.........................................................7
Section 5.7. Treasurer.....................................................................7
Section 5.8. Assistant Treasurers..........................................................7
Section 5.9. Action with Respect to Securities of Other Corporations.......................7
Section 5.10. Delegation....................................................................7
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ARTICLE 6
Capital Stock.....................................................................................................8
Section 6.1. Certificates of Stock.........................................................8
Section 6.2. Transfer of Shares............................................................8
Section 6.3. Ownership of Shares...........................................................8
Section 6.4. Regulations Regarding Certificates............................................8
Section 6.5. Lost or Destroyed Certificates................................................9
ARTICLE 7
Miscellaneous Provisions..........................................................................................9
Section 7.1. Fiscal Year...................................................................9
Section 7.2. Corporate Seal................................................................9
Section 7.3. Notice and Waiver of Notice...................................................9
Section 7.4. Facsimile Signatures.........................................................10
Section 7.5. Reliance upon Books, Reports and Records.....................................10
Section 7.6. Application of Bylaws........................................................10
ARTICLE 8
Indemnification of Officers and Directors........................................................................10
ARTICLE 9
Amendments.......................................................................................................10
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BYLAWS
OF
ADVANCED COMMUNICATIONS GROUP, INC.
ARTICLE 1
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation required by the State of Delaware to be maintained in the State of
Delaware shall be the registered office named in the Corporation's Restated
Certificate of Incorporation dated October 7, 1997, as amended if amended
("Charter Document"), or such other office as may be designated from time to
time by the Board of Directors in the manner provided by law.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1. REFERENCE TO CHARTER DOCUMENTS. Article V of the Charter
Document sets forth certain provisions relating to the calling and holding of
annual and special meetings of stockholders, the presiding officer at meetings
of stockholders, the votes required for the election of directors and the
taking of other action at meetings of stockholders, procedures for stockholder
initiatives, stockholder rights to inspect corporate records, the prohibition
on the use of stockholder consents following the consummation of the
Corporation's initial underwritten public offering and certain other matters,
which provisions are incorporated herein by reference.
SECTION 2.2. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors of the Corporation may fix a
date as the record date for any such determination of stockholders, which
record date shall not precede the date on which the resolutions fixing the
record date are adopted and which record date shall not be more than 60 days
nor less than ten days before the date of such meeting of stockholders, nor
more than 60 days prior to any other action to which such record date relates.
If the Board of Directors does not fix a record date for any meeting
of the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance
<PAGE>
with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 2.3. STOCKHOLDER LIST. A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
for each class of stock and showing the address of each such stockholder and
the number of shares registered in the name of such stockholder, shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 2.4. PROXIES. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him, her or
it by proxy. Proxies for use at any meeting of stockholders shall be filed with
the Secretary, or such other officer as the Board of Directors may from time to
time determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed, in which event such inspector or inspectors shall decide all
such questions.
No proxy shall be valid after three years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies,
unless such instrument shall provide the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting or giving consents
thereby conferred, or if only one be present, then such powers may be
exercised by that one; or, if an even number attend and a majority do not
agree on any particular issue, each proxy so attending shall be entitled to
exercise such powers in respect of such portion of the shares as is equal to
the reciprocal of the fraction equal to the number of proxies representing
such shares divided by the total number of shares represented by such proxies.
SECTION 2.5. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in
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this Section 2.5 shall be construed as limiting the right of the Corporation
to vote stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.1. REFERENCE TO CHARTER DOCUMENT. Article VI of the Charter
Document sets forth certain provisions relating to the Board of Directors of
the Corporation, including the power, number, qualifications, tenure and
removal of directors, the filling of vacancies on the Board of Directors, the
creation of committees of directors and certain other matters, which provisions
are incorporated herein by reference.
SECTION 3.2. QUORUM; VOTING; OTHER. A majority of the number of
directors fixed in accordance with the Charter Document shall constitute a
quorum for the transaction of business of the Board of Directors, and the vote
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. Directors need not be
stockholders nor residents of the State of Delaware.
SECTION 3.3. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from
time to time determine. At all meetings of the Board of Directors business
shall be transacted in such order as shall from time to time be determined by
the Chairman of the Board, or in the Chairman of the Board's absence by the
President or by the Board of Directors.
SECTION 3.4. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
a quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
SECTION 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board, or in the Chairman of the Board's
absence, by the President, or in the President's absence, by another officer
of the Corporation. Notice of such regular meetings shall not be required.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or in the Chairman of the
Board's absence by the President, or, on the written request of any director,
by the Secretary, in each case on at least twenty-four (24) hours' personal,
written, telegraphic, cable or wireless notice to each director. Such notice,
or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need not state
the purpose or purposes of such
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meeting, except as may otherwise be required by law or provided for in the
Charter Document or these Bylaws. Meetings may be held at any time without
notice if all the directors are present (except where a director is present
for the express purpose of objecting at the beginning of the meeting to the
transaction of any business because such meeting is not lawfully called or
convened) or if those not present waive notice of the meeting in writing.
SECTION 3.7. COMPENSATION. Directors and members of standing
committees may receive such compensation as the Board of Directors from time to
time shall determine to be appropriate, and shall be reimbursed for all
reasonable expenses incurred in attending and returning from meetings of the
Board of Directors.
SECTION 3.8. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous vote at a meeting,
and may be stated as such in any document or instrument filed with the
Secretary of State of the State of Delaware.
Subject to the requirement for notice of meetings, members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of such Board of Directors or
committee, as the case may be, by means of a conference telephone connection or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE 4
COMMITTEES
SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
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committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law of the State
of Delaware to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any provision of these Bylaws.
SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the
Board of Directors at its meeting next succeeding such action, shall fix its
own rules or procedures, and shall meet at such times and at such place or
places as may be provided by such rules, or by such committee or the Board of
Directors. Should a committee fail to fix its own rules, the provisions of
these Bylaws, pertaining to the calling of meetings and conduct of business by
the Board of Directors, shall apply as nearly as may be practicable. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum, and the affirmative vote of a majority of
the members present shall be necessary for the adoption by it of any
resolution.
SECTION 4.3. REMOVAL OF MEMBERS; VACANCIES. The Board of Directors
shall have the power at any time to remove any member(s) of a committee and to
appoint other directors in lieu of the person(s) so removed and shall also
have the power to fill vacancies in a committee
ARTICLE 5
OFFICERS
SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a Chairman of the Board, President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice President
or Senior Vice President), a Treasurer, a Secretary, and such other officers
as the Board of Directors may from time to time elect or appoint (including,
but not limited to, one or more Assistant Secretaries and one or more
Assistant Treasurers). Each officer shall hold office until such officer's
successor shall be duly elected and shall qualify or until such officer's
death or until such officer shall resign or shall have been removed. Any
number of offices may be held by the same person, unless the Charter Document
provides otherwise. Except for the Chairman of the Board, no officer need be a
director.
SECTION 5.2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board shall be the chief executive officer of the Corporation.
Subject to the control of the Board of Directors and the Executive Committee of
the Board of Directors (if any), the Chairman of the Board shall have general
executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities; may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation and may sign all certificates for shares of capital stock of the
Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
Chairman of the Board by the
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Board of Directors. The Chairman of the Board shall preside at all meetings of
the stockholders and of the Board of Directors.
SECTION 5.3. POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and the President shall have such
other powers and duties as designated in accordance with these Bylaws and as
from time to time may be assigned to the President by the Board of Directors or
the Chairman of the Board.
SECTION 5.4. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board or the President of the Corporation. Each Vice President shall have such
other powers and duties as from time to time may be assigned to such Vice
President by the Board of Directors, the Chairman of the Board or the
President.
SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and
the stockholders, in books provided for that purpose; shall attend to the
giving and serving of all notices; may in the name of the Corporation affix
the seal of the Corporation to all contracts and attest the affixation of the
seal of the Corporation thereto; may sign with the other appointed officers
all certificates for shares of capital stock of the Corporation; shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which
shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; shall have
such other powers and duties as designated in these Bylaws and as from time to
time may be assigned to the Secretary by the Board of Directors, the Chairman
of the Board or the President; and shall in general perform all acts incident
to the office of Secretary, subject to the control of the Board of Directors,
the Chairman of the Board or the President.
SECTION 5.6. ASSISTANT SECRETARIES. Each Assistant Secretary shall
have the usual powers and duties pertaining to such office, together with such
other powers and duties as designated in these Bylaws and as from time to time
may be assigned to an Assistant Secretary by the Board of Directors, the
Chairman of the Board, the President or the Secretary. The Assistant
Secretaries shall exercise the powers of the Secretary during that officer's
absence or inability or refusal to act.
SECTION 5.7. TREASURER. The Treasurer shall have responsibility for
the custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chairman of the Board or the President. The Treasurer shall perform all
acts incident to the position of Treasurer, subject to the control of the Board
of Directors, the Chairman of the Board or the President; and the Treasurer
shall, if required by the Board of Directors, give
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such bond for the faithful discharge of the Treasurer's duties in such form as
the Board of Directors may require.
SECTION 5.8. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chairman of
the Board, the President, or the Treasurer. The Assistant Treasurers shall
exercise the powers of the Treasurer during that officer's absence or inability
or refusal to act.
SECTION 5.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chairman of the Board
or the President, together with the Secretary or any Assistant Secretary shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of security holders of or with respect to any action
of security holders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
SECTION 5.10. DELEGATION. For any reason that the Board of Directors
may deem sufficient, the Board of Directors may, except where otherwise
provided by statute, delegate the powers or duties of any officer to any other
person, and may authorize any officer to delegate specified duties of such
office to any other person. Any such delegation or authorization by the Board
of Directors shall be effected from time to time by resolution of the Board of
Directors.
ARTICLE 6
CAPITAL STOCK
SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Charter Document, as shall be approved by the
Board of Directors. Every holder of stock represented by certificates shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, President or a Vice President and the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. The stock certificates shall be consecutively
numbered
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and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and number of shares.
SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors
may determine the conditions upon which the Corporation may issue a new
certificate of stock in place of a certificate theretofore issued by it which
is alleged to have been lost, stolen or destroyed and may require the owner of
such certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE 7
MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January of each year.
SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may,
if the Secretary deems it expedient,
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have a facsimile of the corporate seal inscribed on any such certificates of
stock, debentures, bonds, contract or other documents. Duplicates of the seal
may be kept for use by any Assistant Secretary.
SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the Charter Document or under the provisions of
these Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission (including by telecopy or facsimile
transmission) or (ii) by deposit of the same in a post office box or by
delivery to an overnight courier service company in a sealed prepaid wrapper
addressed to the person entitled thereto at such person's post office address,
as it appears on the records of the Corporation, and such notice shall be
deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
Whenever notice is required to be given by law, the Charter Document
or under any of the provisions of these Bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person,
including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice
unless so required by the Charter Document or these Bylaws.
SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions
of these Bylaws is or may be in conflict with any law of the United States, of
the State of Delaware or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law, and shall in all other respects be in full force and
effect.
ARTICLE 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS
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The Corporation shall provide indemnification and the advancement of
expenses to its officers and directors to the extent and upon the terms set
forth in Section 2 of Article VIII of the Charter Document.
ARTICLE 9
AMENDMENTS
The Board of Directors and the stockholders of the Corporation shall
have the power to make, alter, amend and repeal any or all of the provisions of
these Bylaws to the extent and upon the terms set forth in Article VII of the
Charter Document.
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ADVANCED COMMUNICATIONS GROUP, INC.
1997 STOCK AWARDS PLAN
I. PURPOSE
The purpose of the Advanced Communications Group, Inc. 1997 Stock
Awards Plan (the "Plan") is to provide a means through which Advanced
Communications Group, Inc., a Delaware corporation (the "Company"), and its
subsidiaries, may attract able persons to enter the employ of the Company and
to provide a means whereby those key employees upon whom the responsibilities
of the successful administration and management of the Company rest, and whose
present and potential contributions to the welfare of the Company are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and their desire to remain in its
employ. A further purpose of the Plan is to provide such key employees with
additional incentive and reward opportunities designed to enhance the
profitable growth of the Company. Accordingly, the Plan provides for granting
Incentive Stock Options, options which do not constitute Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock Awards, Performance
Awards, Phantom Stock Awards, or any combination of the foregoing, as is best
suited to the circumstances of the particular employee as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "Affiliates" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of sections 424(e) and (f),
respectively, of the Code.
(b) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Phantom Stock Award, Performance Award or Stock
Appreciation Right.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means with respect to the Company the
occurrence of any of the following events:
(i) a report on Schedule 13D is filed with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the 1934
Act, disclosing that any person, entity or group (within the meaning
of Section 13(d) or 14(d) of the 1934 Act), other than the Company
(or one of its subsidiaries) or any employee benefit plan sponsored by
the
<PAGE>
Company (or one of its subsidiaries), is the beneficial owner (as
such term is defined in Rule 13d-3 promulgated under the 1934 Act),
directly or indirectly, of 20 percent or more of the outstanding
shares of Common Stock or the combined voting power of the
then-outstanding securities of the Company;
(ii) a report is filed by the Company disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the 1934 Act, or to Item 1 of Form 8-K promulgated under the
1934 Act, or to any similar reporting requirement hereafter
promulgated by the SEC;
(iii) any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the 1934 Act), other than the Company
(or one of its subsidiaries) any employee benefit plan sponsored by
the Company (or one of its subsidiaries) shall purchase securities
pursuant to a tender offer or exchange offer to acquire any Common
Stock (or securities convertible into Common Stock) for cash,
securities or any other consideration, provided that after
consummation of the offer, the person, entity or group in question
is the beneficial owner (as such term is defined in Rule 13d-3
promulgated under the 1934 Act), directly or indirectly, of 20 percent
or more of the combined voting power of the then-outstanding
securities of the Company (as determined under paragraph (d) of
Rule 13d-3 promulgated under the 1934 Act, in the case of rights to
acquire Common Stock);
(iv) the stockholders of the Company shall approve:
(x) any merger, consolidation, or reorganization of
the Company:
(A) in which the Company is not the
continuing or surviving corporation,
(B) pursuant to which shares of Common
Stock would be converted into cash,
securities or other property,
(C) with a corporation which prior to
such merger, consolidation, or
reorganization owned 20 percent or
more of the combined voting power of
the then-outstanding securities of the
Company, or
(D) in which the Company will not survive
as an independent, publicly-owned
corporation;
(y) any sale, lease, exchange or other transfer
(in one transaction or a series of related
transactions) of all or substantially all the
assets of the Company, or
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(z) any liquidation or dissolution of the Company;
(v) the stockholders of the Company shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer,
purchase of assets or other transaction after the consummation of
which any person, entity or group (as defined in accordance with
Section 13(d) or 14(d) of the 1934 Act) would own beneficially in
excess of 50% of the outstanding shares of Common Stock or in excess
of 50% of the combined voting power of the then-outstanding securities
of the Company;
(vi) the Common Stock ceases to be listed on any national
securities exchange upon which it has previously been listed;
(vii) the occurrence of the distribution of any rights to the
stockholders of the Company pursuant to any stockholders' rights plan
that may be adopted by the Company in the future; or
(viii) during any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board
cease for any reason to constitute a majority of the Board, unless the
election or nomination for election by the Company's stockholders of
each new director during any such two-year period was approved by the
vote of two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
(e) "Change of Control Value" shall mean (i) the per share price
offered to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee shall determine the fair cash equivalent of the
portion of the consideration offered which is other than cash.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under
such section.
(g) "Committee" means either (A) the Compensation Committee of the
Board which shall be (i) constituted so as to permit transactions under the
Plan to comply with Rule 16b-3 and (ii) constituted solely of "outside
directors," within the meaning of section 162(m) of the Code and applicable
interpretive authority thereunder; or (B) the whole Board of Directors.
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(h) "Company" means Advanced Communications Group, Inc. and any of
its Affiliates.
(i) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) An "employee" means any person (including an officer or a
Director) in an employment relationship with the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code).
(k) "1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Securities and Exchange
Commission thereunder.
(l) "Fair Market Value" means, as of any specified date, the mean of
the high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the Stock
is listed on a national stock exchange, reported on the stock exchange
composite tape on that date; or, in either case, if no prices are reported on
that date, on the last preceding date on which such prices of the Stock are so
reported. If the Stock is traded over the counter at the time a determination
of its fair market value is required to be made hereunder, its fair market
value shall be deemed to be equal to the average between the reported high and
low or closing bid and asked prices of Stock on the most recent date on which
Stock was publicly traded. In the event Stock is not publicly traded at the
time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate.
(m) "Holder" means an employee who has been granted an Award.
(n) "Incentive Stock Option" means an incentive stock option within
the meaning of section 422(b) of the Code.
(o) "Nonqualified Stock Option" means an option granted under
Paragraph VII of the Plan to purchase Stock which does not constitute an
Incentive Stock Option.
(p) "Option" means an Award granted under Paragraph VII of the Plan
and includes both Incentive Stock Options to purchase Stock and Nonqualified
Stock Options to purchase Stock.
(q) "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
(r) "Performance Award" means an Award granted under Paragraph X of
the Plan.
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<PAGE>
(s) "Performance Award Agreement" means a written agreement between
the Company and a Holder with respect to a Performance Award.
(t) "Phantom Stock Award" means an Award granted under Paragraph XI
of the Plan.
(u) "Phantom Stock Award Agreement" means a written agreement between
the Company and a Holder with respect to a Phantom Stock Award.
(v) "Plan" means this Advanced Communications Group, Inc. 1997 Stock
Awards Plan, as amended from time to time.
(w) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(x) "Restricted Stock Award" means an Award granted under Paragraph
IX of the Plan.
(y) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the 1934 Act, as such may be amended from time to
time, and any successor rule, regulation or statute fulfilling the same or a
similar function.
(z) "Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of
Stock on the date such right is exercised over the exercise price of such Stock
Appreciation Right.
(aa) "Stock" means the common stock, $.0001 par value of the Company.
(bb) "Stock Appreciation Right" means an Award granted under
Paragraph VIII of the Plan.
(cc) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the
Board, provided that the Plan is approved by the stockholders of the Company
within twelve months thereafter. No further Awards may be granted under the
Plan after the expiration of ten years from the date of its adoption by the
Board. The Plan shall remain in effect until all Awards granted under the Plan
have been satisfied or expired.
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IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall
be granted, the number of shares of Stock which may be issued under each
Option, Stock Appreciation Right or Restricted Stock Award, and the value of
each Performance Award and Phantom Stock Award. In making such determinations
the Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the
Company's success and such other factors as the Committee in its discretion
shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out the
Plan, and to determine the terms, restrictions and provisions of each Award,
including such terms, restrictions and provisions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options, and to make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in any agreement relating to an Award
in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Article IV shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 3,500,000 shares. Shares of Stock shall
be deemed to have been issued under the Plan only to the extent actually
issued and delivered pursuant to an Award. To the extent that an Award lapses
or the rights of its Holder terminate or the Award is paid in cash, any shares
of Stock subject to such Award shall again be available for the grant of an
Award. To the extent that an Award lapses or the rights of its Holder
terminate, any shares of Stock subject to such Award shall again be available
for the grant of an Award. Separate stock certificates shall be issued by the
Company for those shares acquired pursuant the exercise of
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an Incentive Stock Option and for those shares acquired pursuant to the
exercise of a Nonqualified Stock Option.
(b) Stock Offered. The stock to be offered pursuant to the grant of
an Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
key employees. Awards may not be granted to any Director who is not an
employee. An Award may be granted on more than one occasion to the same person,
and, subject to the limitations set forth in the Plan, such Award may include
an Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation
Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or
any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by
the Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable
in whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Stock with respect to which Incentive
Stock Options are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as Nonqualified Stock Options as determined by the
Committee. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations promulgated by the Internal
Revenue Service of the Department of the Treasury and other administrative
pronouncements, which of an optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the optionee of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted
the option price is at least 110% of the Fair Market Value of the Stock
subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant.
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(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from the sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating to
(i) vesting of Options, subject to the provisions hereof accelerating such
vesting on a Change of Control, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may
be purchased upon exercise of an Option shall be determined by the Committee,
but (i) such purchase price shall not be less than the Fair Market Value of
Stock subject to an Incentive Stock Option on the date the Incentive Stock
Option is granted and (ii) such purchase price shall be subject to adjustment
as provided in Paragraph XII. The Option or portion thereof may be exercised by
delivery of an irrevocable notice of exercise to the Company. The purchase
price of the Option or portion thereof shall be paid in full in the manner
prescribed by the Committee.
(f) Stockholder Rights and Privileges. The Holder shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by
Other Corporations. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing
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corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes
a subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the right
to receive an amount equal to the Spread with respect to a share of Stock upon
the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result
in the surrender of the right to purchase the shares under the Option as to
which the Stock Appreciation Rights were exercised. Alternatively, Stock
Appreciation Rights may be granted independently of Options in which case each
Award of Stock Appreciation Rights shall be evidenced by a Stock Appreciation
Rights Agreement which shall contain such terms and conditions as may be
approved by the Committee. The Spread with respect to a Stock Appreciation
Right may be payable either in cash, shares of Stock with a Fair Market Value
equal to the Spread or in a combination of cash and shares of Stock. With
respect to Stock Appreciation Rights that are subject to Section 16 of the 1934
Act, however, the Committee shall, except as provided in Paragraph XII(c),
retain sole discretion (i) to determine the form in which payment of the Stock
Appreciation Right will be made (i.e., cash, securities or any combination
thereof) or (ii) to approve an election by a Holder to receive cash in full or
partial settlement of Stock Appreciation Rights. Each Stock Appreciation Rights
Agreement shall provide that the Stock Appreciation Rights may not be exercised
earlier than six months from the date of grant and shall specify the effect of
termination of employment on the exercisability of the Stock Appreciation
Rights.
(b) Other Terms and Conditions. At the time of such Award, the
Committee, may in its sole discretion, prescribe additional terms, conditions
or restrictions relating to Stock Appreciation Rights, including, but not
limited to rules pertaining to termination of employment (by retirement,
disability, death or otherwise) of a Holder prior to the expiration of such
Stock Appreciation Rights. Such additional terms, conditions or restrictions
shall be set forth in the Stock Appreciation Rights Agreement made in
conjunction with the Award. Such Stock Appreciation Rights Agreements may also
include, without limitation, provisions relating to (i) vesting of Awards,
subject to the provisions hereof accelerating vesting on a Change of
Control,(ii) tax matters (including provisions covering applicable wage
withholding requirements), and (iii) any other matters not inconsistent with
the terms and provisions of this Plan, that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Appreciation
Rights Agreements need not be identical.
(c) Exercise Price. The exercise price of each Stock Appreciation
Right shall be determined by the Committee, but such exercise price (i) shall
not be less than the Fair Market Value of a share of Stock on the date the
Stock Appreciation Right is granted (or such greater exercise price as may be
required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of the
Fair Market Value of the Stock on the
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date of grant pursuant to Paragraph VII(c)), and (ii) shall be subject to
adjustment as provided in Paragraph XII.
(d) Exercise Period. The term of each Stock Appreciation Right
shall be as specified by the Committee at the date of grant.
(e) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and
at such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions to be Established by the Committee. Shares
of Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances
(the "Forfeiture Restrictions"). The Forfeiture Restrictions shall be
determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of
targets established by the Committee that are based on (1) the price of a share
of Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4)
the revenue of a business unit of the Company designated by the Committee, (5)
the return on stockholders' equity achieved by the Company, or (6) the
Company's pre-tax cash flow from operations, (ii) the Holder's continued
employment with the Company for a specified period of time, or (iii) a
combination of any two or more of the factors listed in clauses (i) and (ii) of
this sentence. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture Restrictions
applicable to a particular Restricted Stock Award shall not be changed except
as permitted by Paragraph IX(b) or Paragraph XII.
(b) Other Terms and Conditions. Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall
have the right to receive dividends with respect to Stock subject to a
Restricted Stock Award, to vote Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to
delivery of the stock certificate until the Forfeiture Restrictions shall have
expired, (ii) the Company shall retain custody of the Stock until the
Forfeiture Restrictions shall have expired, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the Stock
until the Forfeiture Restrictions shall have expired, and (iv) a breach of the
terms and conditions established by the Committee pursuant to the Restricted
Stock Agreement, shall cause a forfeiture of the Restricted Stock Award. At
the time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the termination of
employment (by retirement, disability, death or otherwise) of a Holder prior
to expiration of the Forfeiture Restrictions. Such additional terms,
conditions or restrictions shall be set forth in a
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Restricted Stock Agreement made in conjunction with the Award. Such Restricted
Stock Agreement may also include, without limitation, provisions relating to
(i) subject to the provisions hereof accelerating vesting on a Change of
Control, vesting of Awards, (ii) tax matters (including provisions (y)
covering any applicable employee wage withholding requirements and (z)
prohibiting an election by the Holder under section 83(b) of the Code), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Restricted Stock Agreements need not be
identical.
(c) Payment for Restricted Stock. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this Paragraph IX,
the Company and the Holder shall enter into a Restricted Stock Agreement
setting forth each of the matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Restricted Stock
Agreements need not be identical.
X. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect
to and at the time of each Performance Award, a performance period over which
the performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to an
employee contingent upon future performance of the employee, the Company or any
subsidiary, division or department thereof by or in which is he employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Performance Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) Payment. Following the end of the performance period, the Holder
of a Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the
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Performance Award, based on the achievement of the performance measures for
such performance period, as determined by the Committee. Payment of a
Performance Award may be made in cash, Stock or a combination thereof, as
determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. Any payment to be made in Stock
shall be based on the Fair Market Value of the Stock on the payment date. If a
payment of cash is to be made on a deferred basis, the Committee shall
establish whether interest shall be credited, the rate thereof and any other
terms and conditions applicable thereto.
(f) Termination of Employment. A Performance Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable performance period, except as may be determined by
the Committee or as may otherwise be provided in the Award at the time granted.
(g) Agreements. At the time any Award is made under this Paragraph X,
the Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matters contemplated hereby, and, in addition such
matters are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XI. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without
payment of any amounts by the Holder thereof (except to the extent otherwise
required by law) or satisfaction of any performance criteria or objectives.
Each Phantom Stock Award shall have a maximum value established by the
Committee at the time of such Award.
(b) Award Period. The Committee shall establish, with respect to and
at the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) Payment. Following the end of the vesting period for a Phantom
Stock Award, the Holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award.
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Payment of a Phantom Stock Award may be made in cash, Stock or a combination
thereof as determine by the Committee. Payment shall be made in a lump sum or
in installments as prescribed by the Committee in its sole discretion. Any
payment to be made in Stock shall be based on the Fair Market Value of the
Stock on the payment date. Cash dividend equivalents may be paid during or
after the vesting period with respect to a Phantom Stock Award, as determined
by the Committee. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(e) Termination of Employment. A Phantom Stock Award shall terminate
if the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant.
(f) Agreements. At the time any Award is made under this Paragraph XI,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to
be appropriate. The terms and provisions of the respective agreements need not
be identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Award theretofore granted, the Company shall effect a
subdivision or consolidation by the Company, the number of shares of Stock with
respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price
per share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms
of the recapitalization if, immediately prior to such recapitalization, the
Holder had been the holder of record of the number of shares of Stock then
covered by such Award.
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a
Change of Control, each Award other than an Option
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outstanding hereunder shall terminate within a specified number of days after
notice to the Holder, and such Holder shall receive, with respect to each
share of Stock subject to such Award, cash in an amount equal to the excess,
if any, of the Change of Control Value. Further, in the event of a Change of
Control, the Committee, in its discretion shall act to effect one or more of
the following alternatives with respect to outstanding Options, which may vary
among individual Holders and which may vary among Options held by any
individual Holder: (1) determine a limited period of time on or before a
specified date (before or after such Change of Control) after which specified
date all unexercised Options and all rights of Holders thereunder shall
terminate, (2) require the mandatory surrender to the Company by selected
Holders of some or all of the outstanding Options held by such Holders
(irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon
cancel such Options and the Company shall pay to each Holder an amount of cash
per share equal to the excess, if any, of the Change of Control Value of the
shares subject to such Option over the exercise price(s) under such Options
for such shares, (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Change of Control (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding) or (4) provide that
thereafter upon any exercise of an Option theretofore granted the Holder shall
be entitled to purchase under such Option, in lieu of the number of shares of
Stock then covered by such Option the number and class of shares of stock or
other securities or property (including, without limitation, cash) to which
the Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior
to such merger, consolidation or sale of assets and dissolution the Holder has
been the holder of record of the number of shares of Stock then covered by
such Option. The provisions contained in this paragraph shall be inapplicable
to an Award granted within six (6) months before the occurrence of a Change of
Control if the Holder of such Award is subject to the reporting requirements
of Section 16(a) of the 1934 Act. The provisions contained in this paragraph
shall not terminate any rights of the Holder to further payments pursuant to
any other agreement with the Company following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the stockholders of
the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or
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its business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the
stockholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted
under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
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(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) No Right to An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement,
Restricted Stock Agreement, Performance Award Agreement or Phantom Stock Award
Agreement on behalf of the Company, and then only to the extent and on the
terms and conditions expressly set forth therein. The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of funds or assets to assure the payment of any
Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment
at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash
in lieu of fractional shares be paid. The Company shall have the right to
deduct in connection with all Awards any taxes required by law to be withheld
and to require any payments required to enable it to satisfy its withholding
obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as
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amended, or the rules thereunder, and shall be exercisable during the Holder's
lifetime only by such Holder or the Holder's guardian or legal representative.
(f) Rule 16b-3. It is intended that the transactions, by and between
the Company and a person subject to Section 16 of the 1934 Act, contemplated by
the Plan, meet all of the requirements of Rule 16b-3. If any provision of the
Plan, any transaction contemplated thereby or any action of the Committee fails
to qualify such a transaction under Rule 16b-3, such provision, transaction or
action shall be construed or deemed amended to conform to Rule 16b-3.
(g) Section 162(m). If the plan is subject to 162(m) of the Code, it
is intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights
granted hereunder and, if determined by the Committee, Restricted Stock Awards,
shall constitute "performance-based" compensation within the meaning of such
section. If any provision of the Plan would disqualify the Plan or would not
otherwise permit the Plan to comply with Section 162(m) as so intended, such
provision shall be construed or deemed amended to conform to the requirements
or provisions of Section 162(m); provided that no such construction or
amendment shall have an adverse effect on the economic value to a Holder of any
Award previously granted hereunder.
(h) Governing Law. This Plan shall be construed in accordance with
the laws of the State of Delaware.
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ADVANCED COMMUNICATIONS GROUP, INC.
1997 NONQUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. Purpose. The purpose of this Advanced Communications Group,
Inc. 1997 Nonqualified Stock Option Plan ("Plan") is to attract and retain the
services of experienced and knowledgeable non-employee directors for Advanced
Communications Group, Inc., a Delaware corporation (the "Company") and provide
such non-employee directors an opportunity for ownership of common stock,
$.0001 par value ("Common Stock"), of the Company. Options to be granted under
this Plan will be nonqualified options which are not intended to qualify as
Incentive Stock Options pursuant to Section 422 of the Internal Revenue Code of
1986, as amended ("Code").
SECTION 2. Administration of the Plan. The Plan shall be administered
by the Board of Directors of the Company ("Board"). Subject to the terms of the
Plan, the Board shall have the power to interpret the provisions and supervise
the administration of the Plan. All decisions made by the Board pursuant to the
provisions of the Plan shall be made by a majority of its members at a duly
held regular or special meeting or by written consent in lieu of any such
meeting. A majority of the directors in office shall constitute a quorum and
all decisions made by the Board pursuant to the provisions of the Plan shall be
made by a majority of the directors present at any duly held regular or special
meeting at which a quorum is present (unless the concurrence of a greater
proportion is required by law or by the articles or bylaws of the Company) or
by the written consent of a majority of the directors in lieu of any such
meeting. All expenses and liabilities incurred by the Board in the
administration of this Plan shall be borne by the Company. The Board may employ
attorneys, consultants, accountants or other persons to assist the Board in the
carrying out of its duties hereunder.
SECTION 3. Stock Reserved. Subject to adjustment as provided in
Section 6(g) hereof, the aggregate number of shares of Common Stock that may be
optioned under this Plan is 300,000. The shares subject to this Plan shall
consist of authorized but unissued shares of Common Stock or previously issued
shares of Common Stock reacquired and held by the Company, and such number of
shares shall be and is hereby reserved for sale for such purpose. Any of such
shares which may remain unsold and which are not subject to outstanding options
at the termination of this Plan shall cease to be reserved for the purpose of
this Plan, but until termination of this Plan or the termination of the last of
the options granted under this Plan, whichever last occurs, the Company shall
at all times reserve a sufficient number of shares to meet the requirements of
this Plan. Should any option expire or be canceled prior to its exercise in
full, the shares theretofore subject to such option may again be made subject
to an option under this Plan.
SECTION 4. Grant of Options. Each director of the Company who is not
otherwise an employee of the Company or any of the Company's subsidiaries (as
defined in Section 424(f) of the Internal Revenue Code of 1986) (hereinafter
referred to as an "Eligible Director", which term shall include any transferee
permitted pursuant to paragraph 5(d) below) shall be granted one option to
<PAGE>
acquire 15,000 shares of Common Stock ("Initial Option"), in the case of an
Eligible Director serving on the Board on the date of adoption of the Plan by
the Board, on such date of adoption and in all other cases on the date of such
director's first election to the Board. An additional option to acquire 5,000
shares of Common Stock ("Subsequent Option") shall thereafter automatically be
granted to each Eligible Director on the date of each Annual Meeting of
Shareholders at which he or she is reelected to serve an additional three-year
term as a Director of the Company after such meeting. The term "Date of Grant"
means (i) in the case of an Initial Option granted to an Eligible Director
serving on the Board on the date of the adoption of the Plan by the Board, on
such date of adoption and in all other cases on the date on which the Eligible
Director is first elected to the Board; and (ii) in the case of a Subsequent
Option, the date of each Annual Meeting at which an Eligible Director who has
theretofore received an Initial Option is reelected to serve an additional
term as a Director of the Company provided that no Eligible Director shall
receive a Subsequent Option within three months of receiving an Initial
Option.
SECTION 5. Terms and Conditions. Each option granted under this Plan
shall be evidenced by an agreement, in a form approved by the Board, which
shall be subject to the following express terms and conditions and to such
other terms and conditions as the Board may deem appropriate.
(a) Option Period. Each option granted under this Plan shall provide
that it shall terminate and be of no force or effect with respect to any shares
not previously purchased under such option by an Eligible Director upon the
first to occur of (i) the expiration of ten years from the Date of Grant of the
option or (ii) the expiration of ninety days after the termination of the
Eligible Director's service as a Director of the Company for any reason.
(b) Exercise Price. The exercise price of each share of Common Stock
subject to an Initial Option or Subsequent Option shall be the fair market
value of a share of Common Stock on the Date of Grant of the Initial Option or
Subsequent Option. For all purposes under this Plan, the fair market value of a
share of Common Stock means, as of any specified date, (i) if the Common Stock
is listed on a national stock exchange, the mean of the high and low sales
prices of the Common Stock, reported on the stock exchange composite tape on
that date, or if no prices are reported on that date, on the last preceding
date on which such prices of Common Stock are so reported; or, (ii) in the
event the Common Stock is not traded on a national stock exchange, the fair
market value of a share of Common Stock determined by the Board in such
reasonable manner as it deems appropriate.
(c) Procedure for Exercise. Options shall be exercised by the delivery
by the Eligible Director of written notice to the Secretary of the Company
setting forth the number of shares of Common Stock with respect to which the
option is being exercised. The notice shall be accom panied by, at the election
of the Eligible Director, (i) cash, cashier's check, bank draft, or postal or
express money order payable to the order of the Company, (ii) certificates
representing shares of
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Common Stock theretofore owned by the Eligible Director duly endorsed for
transfer to the Company, (iii) an election by the Eligible Director to have
the Company withhold the number of shares of Common Stock the fair market
value of which is equal to the aggregate exercise price of the shares of
Common Stock issuable upon exercise of the option, or (iv) any combination of
the preceding, equal in value to the full amount of the exercise price. Notice
may also be delivered by telecopy provided that the exercise price of such
shares is received by the Company via wire transfer on the same day the
telecopy transmission is received by the Company. The notice shall specify the
address to which the certificates for such shares are to be mailed. An option
to purchase shares of Common Stock in accordance with this Plan shall be
deemed to have been exercised immediately prior to the close of business on
the date (i) written notice of such exercise and (ii) payment in full of the
exercise price for the number of share for which options are being exercised,
are both received by the Company and the Eligible Director shall be treated
for all purposes as the record holder of such shares of Common Stock as of
such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to the Eligible Director certificates for
the number of shares with respect to which such option has been so exercised,
issued in the Eligible Director's name or such other name as Eligible Director
directs; provided, however, that such delivery shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Eligible Director at
the address specified pursuant to this paragraph 5(c).
(d) Transferability. An option granted pursuant to this Plan shall not
be assignable or otherwise transferable by an Eligible Director otherwise than
by an Eligible Director's will or by the laws of descent and distribution.
During the lifetime of an Eligible Director, an option shall be exercisable
only by such Eligible Director or the Eligible Director's legal representative.
Any heir or legatee of the Eligible Director shall take rights granted herein
and in the option agreement subject to the terms and conditions hereof and
thereof. No such transfer of any option to heirs or legatees of the Eligible
Director shall be effective to bind the Company unless the Company shall have
been furnished with written notice thereof and a copy of such evidence as the
Board may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
(e) No Rights as Shareholder. No Eligible Director shall have any
rights as a shareholder with respect to shares covered by an option until the
option is exercised by written notice and accompanied by payment as provided in
paragraph 5(c) above.
(f) Extraordinary Corporate Transactions. The existence of outstanding
options shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, exchanges, or other changes in the Company's
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capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Common Stock or other securities or subscription
rights thereto, or any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise. If the Company
recapitalizes or otherwise changes its capital structure, or merges,
consolidates, sells all of its assets or dissolves (each of the foregoing a
"Fundamental Change"), then thereafter upon any exercise of an option
theretofore granted the Eligible Director, the Eligible Director shall be
entitled to purchase under such option, in lieu of the number of shares of
Common Stock as to which option shall then be exercisable, the number and
class of shares of stock and securities to which the Eligible Director would
have been entitled pursuant to the terms of the Fundamental Change if,
immediately prior to such Fundamental Change, the Eligible Director had been
the holder of record of the number of shares of Common Stock as to which such
option is then exercisable.
(g) Changes in Capital Structure. If the outstanding shares of Common
Stock or other securities of the Company, or both, for which the option is then
exercisable shall at any time be changed or exchanged by declaration of a stock
dividend, stock split, combination of shares or recapitalization, the number
and kind of shares of Common Stock or other securities which are subject to
this Plan or subject to any options theretofore granted, and the exercise
prices, shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without changing the
aggregate exercise price.
SECTION 6. Amendments or Termination. The Board may amend, alter or
discontinue this Plan; provided, however, no amendment, alteration or
termination shall be made which would impair the rights of any Eligible
Director, without the Eligible Director's consent, under any option theretofore
granted.
SECTION 7. Compliance With Other Laws and Regulations. This Plan, the
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to the com pletion of any registration or qualification of such shares under
any federal or state law or issuance of any ruling or regulation of any
government body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
SECTION 8. Purchase for Investment. Unless the options and shares of
Common Stock covered by this Plan have been registered under the Securities Act
of 1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option
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under this Plan may be required by the Company to give a representation in
writing that such person is acquiring such shares for his or her own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
SECTION 9. Taxes.
(a) The Company may make such provisions as it may deem appropriate
for the withholding of any taxes which it determines is required in connection
with any options granted under this Plan.
(b) Any Eligible Director may pay all or any portion of the taxes
required to be withheld by the Company or paid by the Eligible Director in
connection with the exercise of an option by electing to have the Company
withhold shares of Common Stock, or by delivering previously owned shares of
Common Stock, having a fair market value, determined in accordance with
paragraph 5(b), equal to the amount required to be withheld or paid. An
Eligible Director must make the foregoing election on or before the date that
the amount of tax to be withheld is determined. All such elections are
irrevocable and subject to disapproval by the Board.
SECTION 10. Liability of Company for Non-Issuance of Shares and Tax
Consequences. The Company shall not be liable to an Eligible Director or other
persons as to:
(a) The non-issuance or sale of shares as to which the Company has
been unable to obtain from any regulatory body having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder; and
(b) Any tax consequence expected, but not realized, by any Eligible
Director or other person due to the exercise of any option granted hereunder.
SECTION 11. Effectiveness and Expiration of Plan. This Plan shall be
effective on the date of adoption by the Board. This Plan shall expire ten
years after the date the Board adopts this Plan and thereafter no option shall
be granted pursuant to this Plan.
SECTION 12. Non-Exclusivity of this Plan. The adoption by the Board
shall not be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under this Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
SECTION 13. Governing Law. This Plan and any agreements hereunder
shall be interpreted and construed in accordance with the laws of the State of
Delaware and applicable federal law.
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IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board, Advanced Communications Group, Inc. has caused this
document to be duly executed in its name and behalf by its proper officer
thereunto duly authorized as of the date of the adoption of the Plan by the
Board, being October 9, 1997.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
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EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is executed and effective as of July
15, 1996 (the "Effective Date"), by and between 1+ USA, INC., a Delaware
corporation (the "Company"), and ROD K. CUTSINGER ("Executive").
R E C I T A L S:
A. The Company has been organized to consolidate two or more companies
engaged in the telecommunications business ("Consolidating Transaction") with a
view to effecting an underwritten public offering ("IPO") of the resultant
corporation's equity securities in 1997.
B. Executive is recognized as having experience in the management,
consolidation and operation of companies that are engaged in the
telecommunications business.
C. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to cause
the Company to enter into this Agreement.
D. Executive desires to enter into this Agreement.
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT, REPORTING, TERM AND DUTIES
1.1 Employment. On the terms and subject to the conditions of this
Agreement, the Company hereby employs and engages the services of Executive to
serve as, and Executive agrees to diligently and competently serve as and
perform the functions of, Chairman, President and Chief Executive Officer (the
"Office") of the Company for the term and for the compensation and benefits
stated herein.
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1.2 Term. The term of employment under this Agreement shall commence
on the Effective Date and shall end on the first to occur of the events set
forth in Section 4.1(a), (b), and (c) (the "Term").
1.3 Major Responsibilities; Authority. Executive shall have the
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities usually associated with the Office of
corporations having assets similar in nature and value to the assets of the
Company and business similar to the business of the Company.
1.4 Extent of Service. During the Term, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote reasonable time and energies to the business of the Company and shall
not, during the Term, be engaged in any business activity which would interfere
or prevent Executive from carrying out his duties under this Agreement;
provided, however, that this Section 1.4 shall not be construed as preventing
Executive from (a) continuing to pursue consolidating transactions through
Consolidation Partners Founding Fund, L.L.C. as contemplated by that entity's
Confidential Offering Memorandum dated June 20, 1996, as amended, (b) managing
the business affairs of Consolidation Partners, L.L.C., or (c) otherwise
investing and managing his personal assets.
1.5 Location. Executive shall not be required to move from
Executive's home in Houston, Harris County, Texas.
ARTICLE II
COMPENSATION AND RELATED ITEMS
2.1 Compensation. As compensation and consideration for the services
to be rendered by Executive under this Agreement and for the performance by
Executive of the usual obligations of such employment, the Company agrees to
pay Executive, and Executive agrees to accept, the following compensation and
benefits during the Term:
(a) Salary. Executive shall be paid a minimum annual salary
of $300,000. Except as otherwise provided herein, the minimum salary
in effect for any period shall be payable in twice monthly payments.
Any earnings over the minimum salary in effect during any period shall
not be applied to the minimum salary for any subsequent period. If
this Agreement terminates on a date other than the last day of any
week, Executive shall be paid for the week that includes the date of
such termination a pro rata portion of the minimum salary then in
effect for such week in the ratio that the number of days of
employment during such week bears to the total number of business days
in such week.
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(b) Recurring Bonus Potential. In addition to the minimum
salary provided for in Section 2.1(a) hereof, Executive shall be
entitled to receive in respect of each year during the Term a bonus in
an amount not to exceed 100% of the annual salary actually paid or
accrued to the account of Executive in respect of the year to which
such bonus relates all as may be determined by the Board (or the
appropriate committee thereof) ("Bonus").
(c) Special IPO Bonus: In the event the Company completes the
IPO prior to October 31, 1997, the Company shall pay Executive a
special one time bonus of $300,000 within two weeks after the closing
of the IPO.
(d) Additional Compensation. In addition to the minimum
salary and Bonus provided for in Section 2.1(a) and (b),
respectively, Executive and/or Executive's family, as the case may
be, shall be entitled to:
(i) participate in, and shall receive all benefits
under:
(A) any and all welfare benefit and similar
employee benefit plans, programs, arrangements, or
policies that are generally made available by the
Company and its affiliates (as defined in Section
4.10(l)) now or at any time in the future to other
key executive officers or retired key executive
officers, including, but not limited to, any
hospitalization, medical, prescription, dental,
disability, salary continuance, individual life
insurance, executive life insurance, group life
insurance, accidental death insurance, and travel
accident insurance plans, programs, arrangements,
and policies; and
(B) any and all bonus, incentive, savings,
retirement, profit sharing, pension, and stock
option plans, programs, arrangements, and policies
that are generally made available by the Company and
its affiliates now or at any time in the future to
other key executive officers; and
(ii) annual vacations and sick leave in accordance
with the vacation and sick leave policies of the Company and
its affiliates as are now or at any time in the future in
effect with respect to other key executive officers, during
which time of such vacations and sick leave Executive's
compensation shall be paid in full; and
(iii) fringe benefits in accordance with the fringe
benefit policies of the Company and its affiliates as are now
or at any time in the future in effect with respect to other
key executive officers.
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2.2 Expenses. The Company agrees that, during the Term, Executive
shall be allowed reasonable and necessary business expenses in connection with
the performance of his duties hereunder within guidelines established by the
Board in effect at any time with respect to key executives ("Business
Expenses"), including, but not limited to, reasonable and necessary expenses
for food, travel, lodging, entertainment and other items in the promotion of
Company's business within such guidelines. Company will promptly reimburse
Executive for all Business Expenses incurred by Executive upon Executive's
presentation to the Company of an itemized account thereof, together with
receipts, vouchers, or other supporting documentation. After termination or
expiration of this Agreement, however such termination or expiration may come
about, Executive shall have ninety (90) days after the date of such termination
or expiration to submit Business Expenses incurred during the Term hereof to
the Company for reimbursement. During the Term, the Company agrees to provide
Executive with (a) a $500 per month automobile allowance and (b) financial
planning and income tax preparation services provided by the Company's auditors
having an aggregate fair market value of not more than $5,000 per year. The
Company acknowledges that as part of Executive's community involvement,
Executive's secretary may devote up to 25% of her time during normal business
hours to the performance of work for non-profit organizations designated by
Executive.
2.3 Working Facilities. Executive shall be furnished with an office of
a size and with such furnishings and appointments, administrative staff,
secretarial and other assistants, stenographic help, and such other facilities
and services as are suitable to Executive's position and adequate for the
performance of Executive's duties.
2.4 Stock Options. Prior to the consummation of the IPO, the Board
shall grant to Executive options to purchase 1,000,000 shares of Common Stock,
no par value, of the Company ("Common Stock"). The exercise price of the shares
of Common Stock subject to the foregoing options ("Options") shall be equal to
$2.50 per share. The Options shall have a term of ten years and shall become
exercisable in annual increments equal to 331/3% of the total initial grant
upon each anniversary date of the grant. Accordingly, the Options shall become
fully vested on the third anniversary date of the grant. Notwithstanding the
foregoing, the Options shall become immediately and fully vested upon the
occurrence of a Change of Control of the Company.
2.5 Term Life Insurance. To the extent available on a commercially
reasonable basis, the Company shall secure, at its sole cost and expense, a
term life insurance policy on the life of Executive in the amount of
$1,000,000. During the term, the premiums on the foregoing policy shall be paid
by the Company and the beneficiary of such policy shall be Executive's spouse,
or such other person or persons as Executive shall designate in writing.
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ARTICLE III
EXCULPATION
The Company agrees that Executive will not be liable for any losses,
expenses, costs or damages caused by or resulting from the recommendations,
suggestions, actions, errors, omissions or mistakes of Executive undertaken or
proposed by Executive if Executive acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company. Executive's rights under this Article III shall not be deemed
exclusive of, but shall be cumulative with, any and all other rights
(including, but not limited to, rights of indemnification and advancement of
expenses) to which Executive may now or at any time in the future be entitled
under applicable law, the Company's Certificate of Incorporation, the Company's
bylaws, any agreement (including, but not limited to, this Agreement), any vote
of stockholders, any resolution of directors, or otherwise.
ARTICLE IV
TERMINATION
4.1 Termination of Agreement. Except as may otherwise be provided
herein, this Agreement shall terminate upon the first to occur of:
(a) Thirty (30) days after written notice of termination is
given by either party to the other; or
(b) Executive's death or, at the Company's option, upon
Executive's becoming Disabled (as defined in Section 4.8 hereof); or
(c) July 15, 2001; provided, however, that such date shall be
automatically extended on a year to year basis, unless on or before
June 30, 2001, or June 30 of any subsequent year, either Executive or
the Company gives the other party notice that the expiration date
therein effect will not be extended, in which event the expiration
date will be the next July 15.
Any notice of termination given by Executive to the Company under Section
4.1(a) above shall specify whether such termination is made with or without
Good Reason (as defined in Section 4.4 hereof) or Good Reason-Change in Control
(as defined in Section 4.5 hereof). Any notice of termination given by the
Company to Executive under Section 4.1(a) above shall specify whether such
termination is with or without Cause (as defined in Section 4.3 hereof).
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4.2 Obligations of the Company Upon Termination.
(a) Cause; Other than for Good Reason and Other than for Good
Reason-Change in Control. If the Company terminates this Agreement
with Cause pursuant to Section 4.1(a) hereof, or if Executive
terminates this Agreement without Good Reason or without Good
Reason-Change in Control pursuant to Section 4.1(a) hereof, or if this
Agreement terminates pursuant to Section 4.1(c) hereof, this Agreement
shall terminte without further obligations to Executive, other than
those obligations owing or accrued to, vested in, or earned by
Executive through the date of termination, including, but not limited
to:
(i) to the extent not theretofore paid, Executive's
minimum salary at the annual rate in effect at the time of
such termination through the date of termination; and
(ii) in the case of compensation previously deferred
by Executive, all amounts previously deferred (together with
any accrued interest thereon) and not yet paid by the Company
and any accrued vacation pay not yet paid by the Company; and
(iii) all other amounts or benefits owing or accrued
to, vested in, or earned by Executive through the date of
termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements or policies described in Section
2.1(d) hereof;
such obligations owing or accrued to, vested in, or earned by
Executive through the date of termintion, including, but not limited
to, such amounts and benefits specified in clauses (i), (ii), and
(iii) of this sentence, being hereinafter collectively referred to as
the "Accrued Obligations." The aggregate amount of such obligations
owing or accrued to, vested in, or earned by Executive through the
date of termination, including, but not limited to, the Accrued
Obligations, shall be paid by the Company to Executive in cash in one
lump sum within thirty (30) days after the date of termination.
(b) Good Reason; Other than for Cause Before a Change in
Control. If Executive terminates this Agreement with Good Reason
pursuant to Section 4.1(a) hereof, or if the Company terminates this
Agreement without Cause before the occurrence of a Change in Control
pursuant to Section 4.1(a) hereof:
(i) the Company shall pay to Executive cash in one
lump sum within thirty (30) days after the date of termintion
the aggregate of the following amounts:
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(A) to the extent not theretofore paid,
Executive's minimum salary at the annual rate in
effect at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination) through the date of
termination; and
(B) in the case of compensation previously
deferred by Executive, all amounts previously
deferred (together with any accrued interest
thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company;
and
(C) all other amounts or benefits owing or
accrued to, vested in, or earned by Executive
through the date of termination under the then
existing or applicable plans, programs,
arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such
plans, programs, arrangements or policies described
in Section 2.1(d) hereof; and
(D) any and all other Accrued Obligations
not otherwise described in Clause (A), (B) or (C)
of this Section 4.2(b)(i); and
(ii) the Company shall pay to Executive his minimum
salary at the annual rate in effect at the time of such
termination (but prior to giving effect to any reduction
therein which precipitated such termination) for the period
commencing on the date after the date of termination and
ending 24 months thereafter (such minimum salary to be paid
in accordance with the second sentence of Section 2.1(a)).
(c) Good Reason-Change in Control; Other than for Cause On or
After a Change in Control. If Executive terminates this Agreement with
Good Reason-Change in Control pursuant to Section 4.1(a) hereof, or if
the Company terminates this Agreement without Cause on or after the
occurrence of a Change in Control pursuant to Section 4.1(a) hereof:
(i) the Company shall pay to Executive cash in one
lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts:
(A) to the extent not theretofore paid,
Executive's minimum salary at the annual rate in
effect at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination) through the date of
termination; and
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(B) in the case of compensation previously
deferred by Executive, all amounts previously
deferred (together with any accrued interest
thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company;
and
(C) all other amounts or benefits owing or
accrued to, vested in, or earned by Executive
through the date of termintion under the then
existing or applicable plans, programs,
arrangements, and policies of the Company and its
affiliates including, but not limited to, any such
plans, programs, arrangements, or policies described
in Section 2.1(d) hereof; and
(D) any and all other Accrued Obligations
not otherwise described in clause (A), (B), or (C)
of this Section 4.2(c)(i); and
(ii) the Company shall pay to Executive his minimum
salary at the annual rate in effect at the time of such
termination (but prior to giving effect to any reduction
therein which precipitated such termination) for the period
commencing on the date after the date of termination and
ending 36 months thereafter (such minimum salary to be paid
in accordance with the second sentence of Section 2.1(a)).
(d) Death. If Executive's employment is terminated under
Section 4.1(b) hereof by reason of Executive's death, the Company
shall pay to Executive's legal representatives cash in one lump sum
within thirty (30) days after the date of Executive's death the full
amount of the obligations owing or accrued to, vested in, or earned by
Executive through the date of Executive's death, including, but not
limited to, the Accrued Obligations. Anything in this Agreement to the
contrary notwithstanding, Executive's family shall be entitled to
receive benefits provided by the Company and any of its affiliates to
surviving families under the then existing or applicable plans,
programs, or arrangements and policies of the Company and its
affiliates.
(e) Disability. If Executive's employment is terminated
under Section 4.1(b) hereof by reason of Executive becoming Disabled:
(i) the Company shall pay to Executive cash in one
lump sum within thirty (30) days after the date of
termination the full amount of the obligations owing or
accrued to, vested in, or earned by Executive through the
date of termination, including, but not limited to, the
Accrued Obligations; and
(ii) the Company shall pay to Executive
seventy-five percent (75%) of Executive's minimum salary at
the annual rate in effect at the time of such
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termination for the period commencing on the date after the
date of termination and ending on the first to occur of (A)
July 15, 2001 or (B) the July 15 next occurring after July
15, 2001 (such minimum salary to be paid in accordance with
the second sentence of Section 2.1(a)), reduced by the actual
amount of benefits paid to Executive during such period under
any disability insurance policy maintained by the Company for
Executive.
4.3 Cause. As used in this Agreement, the term "Cause" means the gross
or willful neglect by Executive of his duties as an employee, officer or
director of the Company which continues for more than thirty (30) days after
written notice from the Board of Directors of the Company, acting pursuant to a
resolution adopted by at least 60% of its members, to Executive specifically
identifying the gross or willful negligence of Executive and directing
Executive to discontinue same.
4.4 Good Reason. As used in this Agreement, the term "Good Reason"
means the occurrence of any of the following:
(a) a breach of any material provision of this Agreement by
the Company (other than any breach described in clause (b) or (c) of
this sentence), which is not cured within thirty (30) days after
written notice from Executive to the Company specifically identifying
such breach; or
(b) any removal of Executive, without Cause, from the
position of the Office during the Term; or
(c) Executive is in any manner (other than the manner
described in clause (b) of this sentence) relieved of his
responsibilities under this Agreement, without Cause, during the Term.
Notwithstanding anything contained in the immediately preceding sentence to the
contrary, the term "Good Reason" shall not include any breach of any provision
of this Agreement (including, but not limited to, any breach described in
clause (b) or (c) of the immediately preceding sentence) that occurs after the
occurrence of a Change in Control.
4.5 Good Reason-Change in Control. As used in this Agreement, the term
"Good Reason-Change in Control" means after the occurrence of a Change in
Control, a determination by Executive that any one or more of the following
events has occurred:
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(a) the assignment by the Company to Executive of duties that
are inconsistent with the Office at the time of such assignment, or
the removal by the Company from Executive of those duties usually
appertaining to the Office at the time of such removal; or
(b) a change by the Company, without Executive's prior
written consent, in Executive's responsibilities to the Company as
such responsibilities existed at the time of the occurrence of such
Change in Control (or as such responsibilities may thereafter exist
from time to time as a result of changes in such responsibilities made
with Executive's prior written consent); or
(c) any removal of Executive from, or any failure to elect or
reelect Executive to, the Office, except in connection with
Executive's promotion, with his prior written consent, to a higher
office (if any) with the Company; or
(d) the Company's direction that Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or other entity of which
Executive is a director, officer or member at the time of the
occurrence of such Change in Control; or
(e) the failure of the Company to continue to provide
Executive with office space, related facilities and support personnel
(including but not limited to, administrative and secretarial
assistance) that are consistent with the terms of this Agreement and
that are both commensurate with the Office and Executive's
responsibilities to and position with the Company at the time of the
occurrence of such Change in Control and are not materially dissimilar
to the office space, related facilities and support personnel provided
to other key executive officers of the Company; or
(f) a reduction by the Company in the amount of Executive's
minimum salary specified in Section 2.1(a) (or as subsequently
increased) and as in effect at the time of the occurrence of such
Change in Control, or a failure of the Company to pay such minimum
annual salary to the Employee at the time and in the manner specified
in Section 2.1(a) of this Employment Agreement; or
(g) in the event of any increase, at any time after the
occurrence of such Change in Control, in the minimum annual salary or
salaries of one or more members of the Executive Group (as defined in
Section 4.7 hereof) (the members or members of the Executive Group
whose minimum annual salary or salaries are increased at such time
being hereinafter called the "Increased Executives"), the failure of
the Company simultaneously to increase Executive's minimum annual
salary, as Executive's minimum annual salary is in effect immediately
prior to giving effect to such first-mentioned increase (the "Prior
Base
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Salary"), by an amount which equals or exceeds the product obtained by
multiplying the Prior Base Salary by a fraction, the numerator of
which is the sum of the amounts by which the respective minimum annual
salaries of the Increased Executives (other than Executive) were
increased at such time and the denominator of which is the sum of the
respective minimum annual salaries of the Increased Executives (other
than Executive) immediately prior to giving effect to such
first-mentioned increase; or
(h) the discontinuation or reduction by the Company of
Executive's participation in any bonus or other employee benefit plan,
program, arrangement, or policy (including, but not limited to, any
such plan, program, arrangement, or policy described in Section 2.1(d)
hereof) in which Executive is a participant at the time of the
occurrence of such Change in Control; or
(i) Executive's principal office space or the related
facilities or support space or the related facilities or support
personnel referred to in paragraph (e) of this Section 4.5 cease to be
located within the Company's principal executive offices, or for a
period of more than 45 consecutive days Executive is required by the
Company to perform a majority of his duties outside the Company's
principal executive offices; or
(j) the relocation, without Executive's prior written
consent, of the Company's principal executive offices to a location
outside the county in which such offices are located at the time of
the occurrence of such Change in Control; or
(k) the failure of the Company to provide Executive annually
with a number of paid vacation days and sick leave days at lease equal
to the number of paid vacation days to which Executive is entitled
annually at the time of the occurrence of such Change in Control; or
(l) the failure of the Company to obtain the assumption by
any successor to the Company of the obligations imposed upon the
Company under this Agreement, as required by Section 5.2 of this
Agreement; or
(m) the failure by the Company to promptly reimburse
Executive for any Business Expenses; or
(n) that because of the policies, decisions or actions of the
Board or the stockholders of the Company, Executive can no longer
perform his duties to the Company in a manner which is consistent with
the manner in which such duties were performed by Executive prior to
the occurrence of such Change in Control; or
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(o) the employment of Executive under this Agreement is
terminated by the Company without Cause; or
(p) the Company notifies Executive of the Company's
intention not to observe or perform one or more of the obligations of
the Company under this Agreement; or
(q) the Company breaches any provision of this Agreement.
4.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Company of any of the following
events;
(a) a report on Schedule 13D is filed with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act'),
disclosing that any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries), any employee benefit plan sponsored by
the Company (or one of its subsidiaries) or Executive, is the
beneficial owner (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of 20 percent or more
of the outstanding shares of Common Stock or the combined voting power
of the then-outstanding securities of the Company;
(b) a report is filed by the Company disclosing a response to
either Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Exchange Act, or to Item 1 of Form 8-K promulgated under the
Exchange Act, or to any similar reporting requirement hereafter
promulgated by the SEC;
(c) any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries), any employee benefit plan sponsored by
the Company (or one of its subsidiaries) or Executive, shall purchase
securities pursuant to a tender offer or exchange offer to acquire any
Common Stock (or securities convertible into Common Stock) for cash,
securities or any other consideration, provided that after
consummation of the offer, the person, entity or group in question is
the beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of 20
percent or more of the combined voting power of the then-outstanding
securities of the Company (as determined under paragraph (d) of Rule
13d-3 promulgated under the Exchange Act, in the case of rights to
acquire Common Stock);
(d) the stockholders of the Company shall approve:
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(i) any merger, consolidation, or reorganization of
the Company:
(A) in which the Company is not the
continuing or surviving corporation,
(B) pursuant to which shares of Common
Stock would be converted into cash, securities or
other property,
(C) with a corporation which prior to such
merger, consolidation, or reorganization owned 20
percent or more of the combined voting power of the
then-outstanding securities of the Company, or
(D) in which the Company will not survive
as an independent, publicly-owned corporation;
(ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or
(iii) any liquidation or dissolution of the Company;
(e) the stockholders of the Company shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer,
purchase of assets or other transaction after the consummation of
which any person, entity or group (as defined in accordance with
Section 13(d) or 14(d) of the Exchange Act) would own beneficially in
excess of 50% of the outstanding shares of Common Stock or in excess
of 50% of the combined voting power of the then-outstanding securities
of the Company;
(f) the Common Stock ceases to be listed on any national
securities exchange upon which it has previously been listed;
(g) the occurrence of the distribution of any rights to the
stockholders of the Company pursuant to any stockholders' rights plan
that may be adopted by the Company in the future; or
(h) during any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board
cease for any reason to constitute a majority of the Board, unless the
election or nomination for election by the Company's stockholders of
each new director during any such two-year period was approved by the
vote of two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
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4.7 Executive Group. As used herein, "Executive Group" shall mean the
officers of the Company; and each of such officers shall be deemed members of
the Executive Group.
4.8 Disabled. As used herein, "Disabled" shall mean a mental or
physical impairment which in the reasonable opinion of a qualified doctor
selected by the Company renders Executive unable to perform with reasonable
diligence the ordinary functions and duties of Executive on a full-time basis
in accordance with the terms of this Agreement, which inability will continue
in the reasonable opinion of such doctor for a period of not less than 180
days.
4.9 Return of Materials; Confidential Information. In the event of any
termintion of this Agreement, Executive shall promptly deliver to the Company
all lists, books, records, literature, products and any other materials owned
or provided by the Company in connection with Executive's employment hereunder.
Executive shall not at any time during or after the Term hereof use for himself
or others, or divulge to others, any secret or confidential information,
knowledge or data of the Company obtained by Executive as a result of his
employment unless authorized by a majority of the Board.
4.10 Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or any of its affiliates to or for the
benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise
(any such payments or distributions being individually referred to
herein as a "Payment," and any two or more of such payments or
distributions being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (such excise tax,
together with any interest thereon, any penalties, additions to tax,
or additional amounts with respect to such excise tax, and any
interest in respect of such penalties, additions to tax or additional
amounts, being collectively referred herein to as the "Excise Tax"),
then Executive shall be entitled to receive an additional payment or
payments (individually referred to herein as a "Gross-Up Payment" and
any two or more of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after payment by
Executive of all taxes (as defined in Section 4.10(k) imposed upon the
Gross-Up Payment, Executive retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.10(c) through (i),
any determination (individually, a "Determination") required to be
made under this Section 4.10(b), including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall initially
be made, at the Company's expense, by nationally recognized tax
counsel mutually
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acceptable to the Company and Executive ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities, calculations, and
documentation both to the Company and Executive within 15 business
days of the termination of Executive's employment, if applicable, or
such other time or times as is reasonably requested by the Company or
Executive. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Executive with respect to a Payment or
Payments, it shall furnish Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Executive shall have the
right to dispute any Determination (a "Dispute") within 15 business
days after delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payments, if any, as determined pursuant
to such Determination shall, at the Company's expense, be paid by the
Company to Executive within five business days of Executive's receipt
of such Determination. The existence of a Dispute shall not in any way
affect Executive's right to receive the Gross-Up Payment in accordance
with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon the Company and Executive,
subject in all respects, however, to the provisions of Section 4.10(c)
through (i) below. As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the
Company should have been made ("Underpayment"), and if upon any
reasonable written request from Executive or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the
Company's expense, thereafter determines that Executive is required to
make a payment of any Excise Tax or any additional Excise Tax, as the
case may be, Tax Counsel shall, at the Company's expense, determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Executive.
(c) The Company shall defend, hold harmless, and indemnify
Executive on a fully grossed-up after tax basis from and against any
and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgements, settlements, costs and
expenses (including reasonable attorneys', accountants', and experts'
fees and expenses) with respect to any tax liability of Executive
resulting from any Final Determination (as defined in Section 4.10(j))
that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or
pending or threatened audit, examination, investigation or
administrative, court or other proceeding which, if pursued
successfully, could result in or give rise to a claim by Executive
against the Company under this Section 4.10(d) ("Claim"), including,
but not limited to, a claim for indemnification of Executive by the
Company under Section 4.10(c), then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax Claim Notice").
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(e) If a Claim is asserted against Executive ("Executive
Claim"), Executive shall take or cause to be taken such action in
connection with contesting such Executive Claim as the Company shall
reasonably request in writing from time to time, including the
retention of counsel and experts as are reasonably designated by the
Company (it being understood and agreed by the parties hereto that the
terms of any such retention shall expressly provide that the Company
shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim
Notice relating to such Executive Claim (or such earlier date
that any payment of the taxes claimed is due from Executive,
but in no event sooner than five calendar days after the
Company receives or delivers such Tax Claim Notice), the
Company shall have notified Executive in writing ("Election
Notice") that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations)
under this Agreement and that the Company elects to contest,
and to control the defense or prosecution of, such Executive
Claim at the Company's sole risk and sole cost and expense;
and
(ii) the Company shall have advanced to Executive on
an interest-free basis, the total amount of the tax claimed
in order for Executive, at the Company's request, to pay or
cause to be paid the tax claimed, file a claim for refund of
such tax and, subject to the provisions of the last sentence
of Section 4.10(g), sue for a refund of such tax if such
claim for refund is disallowed by the appropriate taxing
authority (it being understood and agreed by the parties
hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any
proceeding in, for example, United States Tax Court) and
shall indemnify and hold Executive harmless, on a fully
grossed-up after tax basis, from any tax imposed with respect
to such advance or with respect to any imputed income with
respect to such advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by
the Company and shall indemnify and hold Executive harmless,
on fully grossed-up after-tax basis, from any tax imposed as
a result of such reimbursement.
(f) Subject to the provisions of Section 4.10(e) hereof, the
Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all
appropriate proceedings, which proceedings shall be defended or
prosecuted diligently by the Company to a Final Determination;
provided, however, that
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<PAGE>
(i) the Company shall not, without Executive's prior written consent,
enter into any compromise or settlement of such Executive Claim that
would adversely affect Executive, (ii) any request from the Company to
Executive regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the
taxable year of Executive with respect to which the contested issues
involved in, and amount of, the Executive Claim relate is limited
solely to such contested issues and amount, and (iii) the Company's
control of any contest or proceeding shall be limited to issues with
respect to the Executive Claim and Executive shall be entitled to
settle or contest, in his sole and absolute discretion, any other
issue raised by the Internal Revenue Service or any other taxing
authority. So long as the Company is diligently defending or
prosecuting such Executive Claim, Executive shall provide or cause to
be provided to the Company any information reasonably requested by the
Company that relates to such Executive Claim, and shall otherwise
cooperate with the Company and its representatives in good faith in
order to contest effectively such Executive Claim. The Company shall
keep Executive informed of all developments and events relating to any
such Executive Claim (including, without limitation, providing to
Executive copies of all written materials pertaining to any such
Executive Claim), and Executive or his authorized representatives
shall be entitled, at Executive's expense, to participate in all
conferences, meetings and proceedings relating to any such Executive
Claim.
(g) If, after actual receipt by Executive of an amount of a
tax claimed (pursuant to an Executive Claim) that has been advanced by
the Company pursuant to Section 4.10(e)(ii) hereof, the extent of the
liability of the Company hereunder with respect to such tax claimed
has been established by a Final Determination, Executive shall
promptly pay or cause to be paid to the Company any refund actually
received by, or actually credited to, Executive with respect to such
tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions
of this Agreement or otherwise. If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 4.10(e)(ii), a
determination is made by the Internal Revenue Service or other
appropriate taxing authority that Executive shall not be entitled to
any refund with respect to such tax claimed and the Company does not
notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of any Gross-Up Payments and other
payments required to be paid hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period
provided in Section 4.10(e)(i) hereof or, after
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delivery of such Election Notice, the Company fails to comply with the
provisions of Sections 4.10(e)(ii) and (iii) and 4.10 (f) hereof, then
Executive shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion,
to defend or prosecute, at the sole cost, expense and risk of the
Company, such Executive Claim. Executive shall have full control of
such defense or prosecution and such proceedings, including any
settlement or compromise thereof. If requested by Executive, the
Company shall cooperate, and shall cause its affiliates to cooperate,
in good faith with Executive and his authorized representatives in
order to contest effectively such Executive Claim. The Company may
attend, but not participate in or control, any defense, prosecution,
settlement or compromise of any Executive Claim controlled by
Executive pursuant to this Section 4.10(h) and shall bear its own
costs and expenses with respect thereto. In the case of any Executive
Claim that is defended or prosecuted by Executive, Executive shall,
from time to time, be entitled to current payment, on a fully
grossed-up after tax basis, from the Company with respect to costs and
expenses incurred by Executive in connection with such defense or
prosecution.
(i) In the case of any Executive Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this
Section 4.10(i), the Company shall pay, on a fully grossed-up after
tax basis, to Executive in immediately available funds the full amount
of any taxes arising or resulting from or incurred in connection with
such Executive Claim that have not theretofore been paid by the
Company to Executive, together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection therewith that have
not theretofore been paid by the Company to Executive, within ten
calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company
shall pay, on a fully grossed-up after tax basis, to Executive in
immediately available funds the full amount of any taxes arising or
resulting from or incurred in connection with such Executive Claim at
least ten calendar days before the date payment of such taxes is due
from Executive, except where payment of such taxes is sooner required
under the provisions of this Section 4.10(i), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any
costs and expenses required to be paid under this Section 4.10(i)
shall be made within the time and in the manner otherwise provided in
this Section 4.10(i).
(j) For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment, decree or other
order by a court or other tribunal with appropriate jurisdiction,
which has become final and non-appealable; (B) a final and binding
settlement or compromise with an administrative agency with
appropriate jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (C) any disallowance of a
claim for refund or credit in respect to an overpayment of tax unless
a suit is filed on a
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timely basis; or (D) any final disposition by reason of the expiration
of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but
not limited to, any and all Excise Taxes, income taxes, and employment
taxes), together with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or additional
amounts.
(l) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual,
or other person, any other entity, individual, or other person which,
directly or indirectly, through one or more intermediaries controls,
or is controlled by, or is under common control with such entity,
individual or person. The term "control" and derivations thereof when
used in the immediately preceding sentence means the ownership,
directly or indirectly, of 50% or more of the voting securities of an
entity or other person or possessing the power to direct or cause the
direction of the management and policies of such entity or other
person, whether through the ownership of voting securities, by
contract or otherwise.
4.11 Legal Fees and Expenses. The Company shall defend, hold harmless,
and indemnify Executive on a fully grossed-up after tax basis from and against
any and all costs and expenses (including reasonable attorneys', accountants'
and experts' fees and expenses) incurred by Executive from time to time as a
result of any contest (regardless of the outcome) by the Company or others
contesting the validity or enforcement of, or liability under, any term or
provision of this Agreement, plus in each case interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
4.12 Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any benefit,
bonus, incentive or other plan, program, arrangement or policy provided by the
Company or any of its affiliates (including, but not limited to, any plan,
program, arrangement or policy described in Section 2.1(d) hereof) and for
which Executive and/or Executive's family may qualify, nor shall anything
herein limit or otherwise affect such rights as Executive and/or Executive's
family may have under any other agreements with the Company or any of its
affiliates. Amounts which are vested benefits or which Executive and/or
Executive's family is otherwise entitled to receive under any plan, program,
arrangement, or policy of the Company or any of its affiliates (including, but
not limited to, any plan, program, arrangement or policy described in Section
2.1(d) hereof) and for which Executive and/or Executive's family may qualify,
nor shall anything herein limit or otherwise affect such rights as Executive
and/or Executive's family may have under any other agreements with the Company
or any of its affiliates. Amounts which are vested benefits or which Executive
and/or Executive's family is otherwise
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entitled to receive under any plan, program, arrangement, or policy of the
Company or any of its affiliates (including, but not limited to, any plan,
program, arrangement or policy described in Section 2.1(d) hereof) at or
subsequent to the date of termination of this Agreement shall be payable in
accordance with such plan, program, arrangement or policy.
4.13 Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Executive or others. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
5.2 Assignability. This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable by Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives and heirs. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company shall
require any corporation, entity, individual or other person who is the
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform, by a written
agreement in form and substance satisfactory to Executive, all of the
obligations of the Company under this Agreement. As used in this Agreement, the
term "Company" shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, written agreement, or otherwise.
5.3 Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
5.4 Entire Agreement. This Agreement constitutes the entire agreement
and understanding between Executive and the Company and supersedes any prior
agreements or understandings, whether written or oral, with respect to the
subject matter hereof. Except as may be otherwise provided herein, this
Agreement may not be amended or modified except by subsequent written agreement
executed by both parties hereto.
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5.5 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which
together shall constitute one Agreement.
5.6 Notices. Any notice provided for in this Agreement shall be deemed
delivered upon deposit in the United States mails, registered or certified
mail, addressed to the party to whom directed at the addresses set forth below
or at such other addresses as may be substituted therefor by notice given
hereunder. Notice given by any other means must be in writing and shall be
deemed delivered only upon actual receipt.
If to the Company:
1 + USA, inc.
3355 West Alabama
Suite 580
Houston, Texas 77098
If to Executive:
Rod K. Cutsinger
4 Briarwood Court
Houston, Texas 77019
5.7 Waiver. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any breach of the
same or any other term or condition of this Agreement.
5.8 Severability. In the event any provision of this Agreement is
found to be unenforceable or invalid, such provision shall be severable from
this Agreement and shall not effect the enforceability or validity of any other
provision of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
1 + USA, INC.
BY:
------------------------------------
DONALD L. CHESHER
SENIOR VICE PRESIDENT AND CHIEF
OPERATING OFFICER
"COMPANY"
---------------------------------------
ROD K. CUTSINGER
"EXECUTIVE"
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ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES A WARRANT
Total Number of Series A Warrants: 666,666 Warrant No. A
Number of Series A Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time (a) after
the Anniversary Date and (b) on or before the Expiration Date, to purchase from
the Company one fully paid and nonassessable share of Common Stock at the
Exercise Price, subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Stock Purchase Agreement dated as of June 16,
1997 by and among Company, Great Western and certain individuals, including the
initial registered holder of this Warrant Certificate.
"Anniversary Date" means either (i) the first anniversary of the
Effective Date if the Closing occurs or (ii) the first anniversary of the
Issuance Date if the Closing does not occur.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of Great Western as contemplated by the Agreement.
"Common Stock" means the Common Stock, $.00001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
<PAGE>
"Company" means Advanced Communications Group, Inc., a Delaware
corporation.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Effective Date" means the date upon which the Closing occurs.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $2.50.
"Expiration Date" means 5:00 p.m., Houston Time on either (i) the
tenth anniversary of the Effective Date if the Closing occurs or (ii) the
thirteenth monthly anniversary of the Issuance Date if the Closing does not
occur.
"Great Western" means Great Western Directories, Inc., a Texas
corporation.
"Issuance Date" means June 16, 1997.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Other Warrants" means the Company's Series B Warrants and Series C
Warrants to purchase initially an aggregate of 1,333,334 shares of Common Stock
in substantially the same form as the warrants.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
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closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other cases, the value established by the Board of
Directors in good faith; and the "average" Price per share for any period shall
be determined by dividing the sum of the Prices determined for each Trading Day
in such period by the number of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series A Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for the
number of Warrants being exercised. If the holder of this Warrant Certificate
at any time exercises less than all the Warrants evidenced by this Warrant
Certificate, the Company shall issue to such holder a Warrant Certificate
identical in form to this Warrant Certificate, but evidencing a number of
Warrants equal to the number of Warrants originally represented by this Warrant
Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 14 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions
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<PAGE>
of the Acts. Any purported sale, transfer or other disposition of this Warrant
Certificate, the Warrants evidenced hereby or the Conversion Securities in
violation of this provision shall be void and the Company shall not be required
to recognize the same. Compliance with this provision is the responsibility of
the holder. Each certificate representing Conversion Securities shall bear a
legend substantially similar to the bold-faced legend appearing in Section 15
of the Agreement. Reference is made to Sections 14, 15 and 16 of the Agreement
that relate to the non-transferability of the Warrants, the type of legend that
shall be imprinted on Conversion Securities and the rights of the holders of
Conversion Securities to secure registration of their securities under the Acts
under certain circumstances. Such sections are incorporated by reference
herein. The Company shall deem and treat the registered holder of this Warrant
Certificate as the true and lawful owner of the Warrants evidenced hereby for
all purposes, any claims of another person to the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Issuance Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of
any reclassification or change of outstanding securities issuable upon exercise
of the Warrants evidenced by this Warrant Certificate at any time after the
Issuance Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments
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provided in paragraph (a) of this Section 3. The provisions of paragraph (a) of
this Section 3 shall similarly apply to successive reclassifications, changes,
consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any
time after the Issuance Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of the Warrants evidenced by this Warrant Certificate shall be
proportionately increased, as at the effective date of such subdivision,
dividend or distribution or if the Company shall take a record of holders of
its Common Stock for such purpose, as at such record date, whichever is
earlier. If the Company, at any time after the Issuance Date, shall combine its
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately
increased, and the number of shares of Common Stock purchasable upon exercise
of the Warrants evidenced by this Warrant Certificate shall be proportionately
reduced, as at the effective date of such combination, or if the Company shall
take a record of holders of its Common Stock for purposes of such combination,
as at such record date, whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any
time after the Effective Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock multiplied by the
Market Price, and (2) the consideration, if any, received and deemed
received by the Company upon the issuance of such additional shares of
Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common
Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common
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<PAGE>
Stock) pursuant to Employee Benefit Plans shall not exceed 10% of the Company's
outstanding Common Stock (on a fully diluted basis using the treasury stock
method) at the time of such issuance; (w) are issued pursuant to any Other
Warrant or Common Stock Equivalent (i) which was outstanding on the Effective
Date or (ii) if upon the issuance of any such Common Stock Equivalent, any such
adjustments shall previously have been made pursuant to paragraph (d) of this
Section 3 or (iii) if no adjustment was required pursuant to paragraph (d) of
this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Effective Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price upon each such
issuance or amendment shall be adjusted as provided in paragraph (c) of this
Section 3 on the basis that (i) the maximum number of additional shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued as of the earlier of (a) the date on which the
Company shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock Equivalent;
and (ii) the aggregate consideration for such maximum number of additional
shares of Common Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such additional shares of
Common Stock pursuant to such Common Stock Equivalent; provided, however, that
no adjustment shall be made pursuant to paragraph (d) of this Section 3 unless
the consideration received and receivable by the Company per share of Common
Stock for the issuance of such additional shares of Common Stock pursuant to
such Common Stock Equivalent is less than the Market Price. No adjustment of
the Exercise Price shall be made under paragraph (d) of this Section 3 upon the
issuance of any Convertible Security which is issued pursuant to the exercise
of any warrants or other subscription or purchase rights therefor, if any
adjustment shall previously have been made in the Exercise Price then in effect
upon the issuance of such warrants or other rights pursuant to paragraph (d) of
this Section 3.
(e) Miscellaneous. The following provisions shall be applicable to the
making of adjustments in the Exercise Price hereinbefore provided in this
Section 3:
i. The consideration received by the Company shall be deemed
to be the following: (I) to the extent that any additional shares of
Common Stock or any Common Stock Equivalent shall be issued for cash
consideration, the consideration received by the Company therefor, or,
if such additional shares of Common Stock or Common Stock Equivalent
are offered by the Company for subscription, the subscription price,
or, if such additional shares of Common Stock or Common Stock
Equivalent are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
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with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment or
satisfaction of any dividend upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such
additional shares of Common Stock or Common Stock Equivalent (which
shall not be deemed to be a dividend payable in, or other distribution
of, Common Stock under paragraph (b) of this Section 3) consideration
equal to the amount of such dividend so paid or satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of which
effected an adjustment in the Exercise Price, if any such Common Stock
Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding
because they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Issuance Date or
(ii) any other class of stock resulting from successive changes or
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reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in effect from
time to time shall be calculated to four decimal places and rounded to
the nearest thousandth.
4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other distribution)
on the Common Stock, other than regular cash dividends; or
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<PAGE>
(c) the Company shall authorize the granting to the holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of any
class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that holders
of record of shares of Common Stock (or other securities issuable upon the
exercise of the Warrants) shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant, issuance,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock (and other securities), for the purpose of
enabling it to satisfy any obligation to issue shares of Common Stock (and
other securities) upon the exercise of the Warrants evidenced by this Warrant
Certificate, the number of shares of Common Stock (and other securities)
issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued upon
exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
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<PAGE>
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this 16th day of June, 1997 by its Chairman and Chief Executive
Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-----------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced by this
Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of
($ ) representing the aggregate Exercise Price thereof, and requests
that the certificate representing the securities issuable hereunder be issued
in the name of and delivered to ,
whose address is .
Dated:
-----------------------------------------
-----------------------------------------
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written
on the face of this Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatsoever.
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<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES B WARRANT
Total Number of Series B Warrants: 666,667 Warrant No. B
Number of Series B Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time (a) after
the Anniversary Date and (b) on or before the Expiration Date, to purchase from
the Company one fully paid and nonassessable share of Common Stock at the
Exercise Price, subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Stock Purchase Agreement dated as of June 16,
1997 by and among Company, Great Western and certain individuals, including the
initial registered holder of this Warrant Certificate.
"Anniversary Date" means either (i) the second anniversary of the
Effective Date if the Closing occurs or (ii) the first anniversary of the
Issuance Date if the Closing does not occur.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of Great Western as contemplated by the Agreement.
"Common Stock" means the Common Stock, $.00001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
<PAGE>
"Company" means Advanced Communications Group, Inc., a Delaware
corporation.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Effective Date" means the date upon which the Closing occurs.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $2.50.
"Expiration Date" means 5:00 p.m., Houston Time on either (i) the
tenth anniversary of the Effective Date if the Closing occurs or (ii) the
thirteenth monthly anniversary of the Issuance Date if the Closing does not
occur.
"Great Western" means Great Western Directories, Inc., a Texas
corporation.
"Issuance Date" means June 16, 1997.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Other Warrants" means the Company's Series A Warrants and Series C
Warrants to purchase initially an aggregate of 1,333,333 shares of Common Stock
in substantially the same form as the warrants.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
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closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other cases, the value established by the Board of
Directors in good faith; and the "average" Price per share for any period shall
be determined by dividing the sum of the Prices determined for each Trading Day
in such period by the number of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series B Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for the
number of Warrants being exercised. If the holder of this Warrant Certificate
at any time exercises less than all the Warrants evidenced by this Warrant
Certificate, the Company shall issue to such holder a Warrant Certificate
identical in form to this Warrant Certificate, but evidencing a number of
Warrants equal to the number of Warrants originally represented by this
Warrant Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 14 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions
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<PAGE>
of the Acts. Any purported sale, transfer or other disposition of this Warrant
Certificate, the Warrants evidenced hereby or the Conversion Securities in
violation of this provision shall be void and the Company shall not be required
to recognize the same. Compliance with this provision is the responsibility of
the holder. Each certificate representing Conversion Securities shall bear a
legend substantially similar to the bold-faced legend appearing in Section 15
of the Agreement. Reference is made to Sections 14, 15 and 16 of the Agreement
that relate to the non-transferability of the Warrants, the type of legend that
shall be imprinted on Conversion Securities and the rights of the holders of
Conversion Securities to secure registration of their securities under the Acts
under certain circumstances. Such sections are incorporated by reference
herein. The Company shall deem and treat the registered holder of this Warrant
Certificate as the true and lawful owner of the Warrants evidenced hereby for
all purposes, any claims of another person to the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Issuance Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of
any reclassification or change of outstanding securities issuable upon exercise
of the Warrants evidenced by this Warrant Certificate at any time after the
Issuance Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments
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<PAGE>
provided in paragraph (a) of this Section 3. The provisions of paragraph (a) of
this Section 3 shall similarly apply to successive reclassifications, changes,
consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any
time after the Issuance Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of the Warrants evidenced by this Warrant Certificate shall be
proportionately increased, as at the effective date of such subdivision,
dividend or distribution or if the Company shall take a record of holders of
its Common Stock for such purpose, as at such record date, whichever is
earlier. If the Company, at any time after the Issuance Date, shall combine its
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately
increased, and the number of shares of Common Stock purchasable upon exercise
of the Warrants evidenced by this Warrant Certificate shall be proportionately
reduced, as at the effective date of such combination, or if the Company shall
take a record of holders of its Common Stock for purposes of such combination,
as at such record date, whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any
time after the Effective Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock multiplied by the
Market Price, and (2) the consideration, if any, received and deemed
received by the Company upon the issuance of such additional shares of
Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common
Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common
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<PAGE>
Stock) pursuant to Employee Benefit Plans shall not exceed 10% of the Company's
outstanding Common Stock (on a fully diluted basis using the treasury stock
method) at the time of such issuance; (w) are issued pursuant to any Other
Warrant or Common Stock Equivalent (i) which was outstanding on the Effective
Date or (ii) if upon the issuance of any such Common Stock Equivalent, any such
adjustments shall previously have been made pursuant to paragraph (d) of this
Section 3 or (iii) if no adjustment was required pursuant to paragraph (d) of
this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Effective Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price upon each such
issuance or amendment shall be adjusted as provided in paragraph (c) of this
Section 3 on the basis that (i) the maximum number of additional shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued as of the earlier of (a) the date on which the
Company shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock Equivalent;
and (ii) the aggregate consideration for such maximum number of additional
shares of Common Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such additional shares of
Common Stock pursuant to such Common Stock Equivalent; provided, however, that
no adjustment shall be made pursuant to paragraph (d) of this Section 3 unless
the consideration received and receivable by the Company per share of Common
Stock for the issuance of such additional shares of Common Stock pursuant to
such Common Stock Equivalent is less than the Market Price. No adjustment of
the Exercise Price shall be made under paragraph (d) of this Section 3 upon the
issuance of any Convertible Security which is issued pursuant to the exercise
of any warrants or other subscription or purchase rights therefor, if any
adjustment shall previously have been made in the Exercise Price then in effect
upon the issuance of such warrants or other rights pursuant to paragraph (d) of
this Section 3.
(e) Miscellaneous. The following provisions shall be
applicable to the making of adjustments in the Exercise Price hereinbefore
provided in this Section 3:
i. The consideration received by the Company shall
be deemed to be the following: (I) to the extent that any additional
shares of Common Stock or any Common Stock Equivalent shall be issued
for cash consideration, the consideration received by the Company
therefor, or, if such additional shares of Common Stock or Common
Stock Equivalent are offered by the Company for subscription, the
subscription price, or, if such additional shares of Common Stock or
Common Stock Equivalent are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
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<PAGE>
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment or
satisfaction of any dividend upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such
additional shares of Common Stock or Common Stock Equivalent (which
shall not be deemed to be a dividend payable in, or other distribution
of, Common Stock under paragraph (b) of this Section 3) consideration
equal to the amount of such dividend so paid or satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of which
effected an adjustment in the Exercise Price, if any such Common Stock
Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding
because they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set
forth above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Issuance Date or
(ii) any other class of stock resulting from successive changes or
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reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in
effect from time to time shall be calculated to four decimal places
and rounded to the nearest thousandth.
4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
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<PAGE>
(c) the Company shall authorize the granting to the holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of any
class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that holders
of record of shares of Common Stock (or other securities issuable upon the
exercise of the Warrants) shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant, issuance,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock (and other securities), for the purpose of
enabling it to satisfy any obligation to issue shares of Common Stock (and
other securities) upon the exercise of the Warrants evidenced by this Warrant
Certificate, the number of shares of Common Stock (and other securities)
issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued upon
exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
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<PAGE>
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this 16th day of June, 1997 by its Chairman and Chief Executive
Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
--------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
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<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants
evidenced by this Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of
($ ) representing the aggregate Exercise Price thereof, and requests that
the certificate representing the securities issuable hereunder be issued in the
name of and delivered to , whose address
is .
Dated:
-----------------------------------
-----------------------------------
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written
on the face of this Warrant
Certificate in every particular,
without alteration or enlargement
or any change whatsoever.
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<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES C WARRANT
Total Number of Series C Warrants: 666,667 Warrant No. C
Number of Series C Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time (a)
after the Anniversary Date and (b) on or before the Expiration Date, to
purchase from the Company one fully paid and nonassessable share of Common
Stock at the Exercise Price, subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Stock Purchase Agreement dated as of June 16,
1997 by and among Company, Great Western and certain individuals, including
the initial registered holder of this Warrant Certificate.
"Anniversary Date" means either (i) the third anniversary of the
Effective Date if the Closing occurs or (ii) the first anniversary of the
Issuance Date if the Closing does not occur.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of Great Western as contemplated by the Agreement.
"Common Stock" means the Common Stock, $.00001 par value per share,
of the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or
any Convertible Security, other than pursuant to Employee Benefit Plans.
<PAGE>
"Company" means Advanced Communications Group, Inc., a Delaware
corporation.
"Conversion Securities" means the Common Stock or other securities or
property purchasable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Effective Date" means date upon which the Closing occurs.
"Employee Benefit Plans" means all thrift plans, stock purchase
plans, stock bonus plans, stock option plans, employee stock ownership plans
and other incentive or profit sharing arrangements for the benefit of
employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $2.50.
"Expiration Date" means 5:00 p.m., Houston Time on either (i) the
tenth anniversary of the Effective Date if the Closing occurs or (ii) the
thirteenth monthly anniversary of the Issuance Date if the Closing does not
occur.
"Great Western" means Great Western Directories, Inc., a Texas
corporation.
"Issuance Date" means June 16, 1997.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Other Warrants" means the Company's Series A Warrants and Series B
Warrants to purchase initially an aggregate of 1,333,333 shares of Common
Stock in substantially the same form as the warrants.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular
way, in each case on the New York Stock Exchange, or, if the Common Stock is
not listed or admitted to trading on such Exchange, on the American Stock
Exchange, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange, the average of the
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<PAGE>
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated,
or any successor thereof, or, if not so reported, the average of the closing
bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other cases, the value established by the Board of
Directors in good faith; and the "average" Price per share for any period
shall be determined by dividing the sum of the Prices determined for each
Trading Day in such period by the number of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open
for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in New York City
are not authorized or obligated by law or executive order to close.
"Warrants" means the Series C Warrants represented by this Warrant
Certificate.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for
the number of Warrants being exercised. If the holder of this Warrant
Certificate at any time exercises less than all the Warrants evidenced by this
Warrant Certificate, the Company shall issue to such holder a Warrant
Certificate identical in form to this Warrant Certificate, but evidencing a
number of Warrants equal to the number of Warrants originally represented by
this Warrant Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this
Warrant Certificate have not been exercised at or prior to the Expiration
Date, such Warrants shall expire and the rights of the holder shall become
void and of no effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 14 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions
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<PAGE>
of the Acts. Any purported sale, transfer or other disposition of this Warrant
Certificate, the Warrants evidenced hereby or the Conversion Securities in
violation of this provision shall be void and the Company shall not be
required to recognize the same. Compliance with this provision is the
responsibility of the holder. Each certificate representing Conversion
Securities shall bear a legend substantially similar to the bold-faced legend
appearing in Section 15 of the Agreement. Reference is made to Sections 14, 15
and 16 of the Agreement that relate to the non-transferability of the
Warrants, the type of legend that shall be imprinted on Conversion Securities
and the rights of the holders of Conversion Securities to secure registration
of their securities under the Acts under certain circumstances. Such sections
are incorporated by reference herein. The Company shall deem and treat the
registered holder of this Warrant Certificate as the true and lawful owner of
the Warrants evidenced hereby for all purposes, any claims of another person
to the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable
on exercise of the Warrants evidenced by this Warrant Certificate are shares
of Common Stock as constituted as of the Issuance Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case
of any reclassification or change of outstanding securities issuable upon
exercise of the Warrants evidenced by this Warrant Certificate at any time
after the Issuance Date (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of a
subdivision or combination to which paragraph (b) of this Section 3 applies),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the surviving corporation and which does not result in any reclassification
or change [other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies] in the
securities issuable upon exercise of this Warrant), the holder of the Warrants
evidenced by this Warrant Certificate shall have, and the Company, or such
successor corporation or other entity, shall covenant in the constituent
documents effecting any of the foregoing transactions that such holder does
have, the right to obtain upon the exercise of the Warrants evidenced by this
Warrant Certificate, in lieu of each share of Common Stock, other securities,
money or other property theretofore issuable upon exercise of a Warrant, the
kind and amount of shares of stock, other securities, money or other property
receivable upon such reclassification, change, consolidation or merger by a
holder of the shares of Common Stock, other securities, money or other
property issuable upon exercise of a Warrant if the Warrants evidenced by this
Warrant Certificate had been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments
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<PAGE>
provided in paragraph (a) of this Section 3. The provisions of paragraph (a)
of this Section 3 shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any
time after the Issuance Date, shall subdivide its shares of Common Stock into
a greater number of shares (or pay to any holders of securities of the Company
a dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of the Warrants evidenced by this Warrant Certificate shall be
proportionately increased, as at the effective date of such subdivision,
dividend or distribution or if the Company shall take a record of holders of
its Common Stock for such purpose, as at such record date, whichever is
earlier. If the Company, at any time after the Issuance Date, shall combine
its shares of Common Stock into a smaller number of shares, the Exercise Price
in effect immediately prior to such combination shall be proportionately
increased, and the number of shares of Common Stock purchasable upon exercise
of the Warrants evidenced by this Warrant Certificate shall be proportionately
reduced, as at the effective date of such combination, or if the Company shall
take a record of holders of its Common Stock for purposes of such combination,
as at such record date, whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any
time after the Effective Date shall issue any additional shares of Common
Stock (otherwise than as provided in paragraphs (a) through (b) of this
Section 3) at a price per share less than the Market Price, then the Exercise
Price upon each such issuance shall be adjusted to that price determined by
multiplying the Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock multiplied by
the Market Price, and (2) the consideration, if any, received and
deemed received by the Company upon the issuance of such additional
shares of Common Stock, and
ii. the denominator of which shall be the Market
Price multiplied by the total number of shares of Common Stock
outstanding immediately after the issuance of such additional shares
of Common Stock.
No adjustments of the Exercise Price shall be made under paragraph
(c) of this Section 3 upon the issuance of any additional shares of Common
Stock that (v) are issued pursuant to Employee Benefit Plans that otherwise
would cause an adjustment under paragraph (c) of this Section 3; provided that
the aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing
the right to purchase shares of Common
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<PAGE>
Stock) pursuant to Employee Benefit Plans shall not exceed 10% of the
Company's outstanding Common Stock (on a fully diluted basis using the
treasury stock method) at the time of such issuance; (w) are issued pursuant
to any Other Warrant or Common Stock Equivalent (i) which was outstanding on
the Effective Date or (ii) if upon the issuance of any such Common Stock
Equivalent, any such adjustments shall previously have been made pursuant to
paragraph (d) of this Section 3 or (iii) if no adjustment was required
pursuant to paragraph (d) of this Section 3.
(d) Common Stock Equivalents. If the Company shall, after
the Effective Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which additional shares of Common Stock may
be issuable thereunder is amended, then the Exercise Price upon each such
issuance or amendment shall be adjusted as provided in paragraph (c) of this
Section 3 on the basis that (i) the maximum number of additional shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued as of the earlier of (a) the date on which the
Company shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock
Equivalent; and (ii) the aggregate consideration for such maximum number of
additional shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent;
provided, however, that no adjustment shall be made pursuant to paragraph (d)
of this Section 3 unless the consideration received and receivable by the
Company per share of Common Stock for the issuance of such additional shares
of Common Stock pursuant to such Common Stock Equivalent is less than the
Market Price. No adjustment of the Exercise Price shall be made under
paragraph (d) of this Section 3 upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any adjustment shall previously have been made
in the Exercise Price then in effect upon the issuance of such warrants or
other rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be
applicable to the making of adjustments in the Exercise Price hereinbefore
provided in this Section 3:
i. The consideration received by the Company shall
be deemed to be the following: (I) to the extent that any additional
shares of Common Stock or any Common Stock Equivalent shall be issued
for cash consideration, the consideration received by the Company
therefor, or, if such additional shares of Common Stock or Common
Stock Equivalent are offered by the Company for subscription, the
subscription price, or, if such additional shares of Common Stock or
Common Stock Equivalent are sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions or expenses
paid or incurred by the Company for and in the underwriting of, or
otherwise in connection
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<PAGE>
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent
shall be the consideration received by the Company for issuing such
Common Stock Equivalent, plus the additional consideration payable to
the Company upon the exercise, conversion or exchange of such Common
Stock Equivalent. In case of the issuance at any time of any
additional shares of Common Stock or Common Stock Equivalent in
payment or satisfaction of any dividend upon any class of stock other
than Common Stock, the Company shall be deemed to have received for
such additional shares of Common Stock or Common Stock Equivalent
(which shall not be deemed to be a dividend payable in, or other
distribution of, Common Stock under paragraph (b) of this Section 3)
consideration equal to the amount of such dividend so paid or
satisfied.
ii. Upon the expiration of the right to convert,
exchange or exercise any Common Stock Equivalent the issuance of
which effected an adjustment in the Exercise Price, if any such
Common Stock Equivalent shall not have been converted, exercised or
exchanged, the number of shares of Common Stock deemed to be issued
and outstanding because they were issuable upon conversion, exchange
or exercise of any such Common Stock Equivalent shall no longer be
computed as set forth above, and the Exercise Price shall forthwith
be readjusted and thereafter be the price which it would have been
(but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of paragraph (c) of this Section 3 after
the issuance of such Common Stock Equivalent) had the adjustment of
the Exercise Price made upon the issuance or sale of such Common
Stock Equivalent been made on the basis of the issuance only of the
number of additional shares of Common Stock actually issued upon
exercise, conversion or exchange of such Common Stock Equivalent and
thereupon only the number of additional shares of Common Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in
subparagraph (i) of paragraph (e) of this Section 3) shall be deemed
to have been received by the Company.
iii. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly
or indirectly owned or held by or for the account of the Company or
its Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean shares of (i) the class of stock
designated as the Common Stock of the Company at the Issuance Date or
(ii) any other class of stock resulting from successive changes or
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reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in
effect from time to time shall be calculated to four decimal places
and rounded to the nearest thousandth.
4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise
Price is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to
the holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for
which such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required,
or of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
-8-
<PAGE>
(c) the Company shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any shares
of any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at
least 30 days prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, a written
notice stating (x) the date for the determination of the holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y)
the initial expiration date set forth in any tender offer or exchange offer
for shares of Common Stock (or other securities issuable upon the exercise of
the Warrants), or (z) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock (or other securities issuable upon
the exercise of the Warrants) shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant,
issuance, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock (and other securities),
for the purpose of enabling it to satisfy any obligation to issue shares of
Common Stock (and other securities) upon the exercise of the Warrants
evidenced by this Warrant Certificate, the number of shares of Common Stock
(and other securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which
may be issued upon exercise of the Warrants evidenced by this Warrant
Certificate shall upon issuance be validly issued, fully paid, non-assessable
and free from all taxes, liens and charges with respect to the issuance
thereof.
-9-
<PAGE>
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
Great Western Directories, Inc.
2400 Lakeview Drive, Suite 109
Amarillo, Texas 79109
and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Chairman and Chief Executive Officer
Telecopier: (713) 622-9600
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be executed this 16th day of June, 1997 by its Chairman and Chief Executive
Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
-10-
<PAGE>
ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced by this Warrant
Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate
Exercise Price thereof, and requests that the certificate representing the
securities issuable hereunder be issued in the name of and
delivered to , whose address is
.
Dated:
--------- -----------------------------------
-----------------------------------
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as
written on the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change
whatsoever.
-11-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
As of October 10, 1997:
None (1)
Pro forma, to give effect to the Acquisitions and the Offering:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY (1) STATE OF INCORPORATION
- -------------------------------------- --------------------------
<S> <C>
Great Western Directories, Inc. ...... Texas
Valu-Line of Longview, Inc. ........... Texas
Feist Long Distance Service, Inc. .... Kansas
FirsTel, Inc. ......................... South Dakota
</TABLE>
- ------------
(1) Does not include subsidiaries which, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the financial statements of
Advanced Communications Group, Inc. as of December 31, 1996, dated September
15, 1997, included herein, in this Registration Statement on Form S-1 and the
reference to our Firm under the heading "Experts".
KPMG PEAT MARWICK LLP
Houston, Texas
October 8, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the financial statements of Feist
Long Distance Service, Inc. as of December 31, 1996, dated August 5, 1997,
included herein, in this Registration Statement on Form S-1 and the reference
to our Firm under the heading "Experts".
KPMG PEAT MARWICK LLP
Houston, Texas
October 8, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Great Western Directories, Inc.
We consent to the use of our report dated August 22, 1997, with respect to
the balance sheets of Great Western Directories, Inc. as of January 31, 1996
and December 31, 1996, and the related statements of operations and cash
flows for the years ended January 31, 1995 and 1996 and December 31, 1996 and
the related statements of stockholders' equity for the years ended January
31, 1995 and 1996 and the eleven months ended December 31, 1996, included
herein, and to the reference to our firm in the heading "Experts" in the
Prospectus.
/s/ Clifton Gunderson P.L.L.C.
CLIFTON GUNDERSON P.L.L.C.
Amarillo, Texas
October 8, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
CHARLES BAILLY & COMPANY P.L.L.P.
Sioux Falls, South Dakota
October 8, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the combined financial statements
of Valu-Line of Longview, Inc. as of December 31, 1996, dated May 23, 1997,
included herein, in this Registration Statement on Form S-1 and the reference
to our Firm under the heading "Experts".
HEIN + ASSOCIATES LLP
Houston, Texas
October 8, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1) and the related Prospectus of Advanced
Communications Group, Inc. for the registration of $.00001 par value common
stock and to the use therein of our independent auditors' report dated
February 25, 1997, with respect to the financial statements of KIN Network,
Inc. for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
SARTAIN FISCHBEIN & CO.
October 8, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1) and the related Prospectus of Advanced
Communications Group, Inc. for the registration of $.00001 par value common
stock and to the use therein of our independent auditors' report dated
February 23, 1996, with respect to the financial statements of KIN Network,
Inc. for the years ended December 31, 1995 and 1994, filed with the
Securities and Exchange Commission.
KENNEDY AND COE, LLC
Salina, Kansas
October 8, 1997
<PAGE>
EXHIBIT 23.8
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, Richard O'Neal, hereby consents to be named as a director
of Advanced Communications Group, Inc. (the "Company") in the Registration
Statement on Form S-1 to be filed by the Company with the Securities and
Exchange Commission.
Dated: October 8, 1997
/s/ Richard O'Neal
-----------------------------------
RICHARD O'NEAL
<PAGE>
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, Todd J. Feist, hereby consents to be named as a director
of Advanced Communications Group, Inc. (the "Company") in the Registration
Statement on Form S-1 to be filed by the Company with the Securities and
Exchange Commission.
Dated: October 8, 1997
/s/ Todd J. Feist
-----------------------------------
TODD J. FEIST
<PAGE>
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, Fentress Bracewell, hereby consents to be named as a
director of Advanced Communications Group, Inc. (the "Company") in the
Registration Statement on Form S-1 to be filed by the Company with the
Securities and Exchange Commission.
Dated: October 8, 1997
/s/ Fentress Bracewell
-----------------------------------
FENTRESS BRACEWELL
<PAGE>
EXHIBIT 23.11
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, E. Clarke Garnett, hereby consents to be named as a
director of Advanced Communications Group, Inc. (the "Company") in the
Registration Statement on Form S-1 to be filed by the Company with the
Securities and Exchange Commission.
Dated: October 8, 1997
/s/ E. Clarke Garnett
-----------------------------------
E. CLARKE GARNETT
<PAGE>
EXHIBIT 23.12
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, David M. Mitchell, hereby consents to be named as a
director of Advanced Communications Group, Inc. (the "Company") in the
Registration Statement on Form S-1 to be filed by the Company with the
Securities and Exchange Commission.
Dated: October 8, 1997
/s/ David M. Mitchell
-----------------------------------
DAVID M. MITCHELL
<PAGE>
EXHIBIT 23.13
CONSENT TO BE NAMED AS A DIRECTOR
OF
ADVANCED COMMUNICATIONS GROUP, INC.
The undersigned, Fred L. Thurman hereby consents to be named as a director
of Advanced Communications Group, Inc. (the "Company") in the Registration
Statement on Form S-1 to be filed by the Company with the Securities and
Exchange Commission.
Dated: October 8, 1997
/s/ Fred L. Thurman
-----------------------------------
FRED L. THURMAN
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