<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1997
REGISTRATION NO. 333-37671
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANCED COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
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>
<TABLE>
<S> <C>
Richard P. Anthony
16535 Baxter Forest Ridge 16535 Baxter Forest Ridge
St. Louis, Missouri 63005 St. Louis, Missouri 63005
(314) 469-9488 (314) 469-9488
Facsimile: (314) 530-9432 Facsimile: (314) 530-9432
(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>
Copies to:
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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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 DECEMBER 29, 1997
SHARES
[LOGO] ACG Advanced
Communications
Group, Inc.
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 ADG.
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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
- -------------------------------------------------------------------------------------
Total.............................. $ $ $
- -------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3) ......... $ $ $
- -------------------------------------------------------------------------------------
<FN>
(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."
</TABLE>
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 , 1998.
PAINEWEBBER INCORPORATED CIBC OPPENHEIMER CORP.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
INSIDE COVER GATEFOLD GRAPHIC:
[Map of United States delineating ACG's current and planned service area
along with corporate headquarters, operating companies' headquarters, home
sales offices, telecom sales offices and switch locations. Further blowout of
map details KINNET's fiber optic network (existing and future fiber routes
owned and the location of Tandem switches).]
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 one-for-
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 U S WEST Communications, Inc. (the
"Region"). The Company offers long distance, local, Internet access and
cellular service primarily in Kansas, Minnesota, Nebraska, North Dakota,
Oklahoma, South Dakota and Texas and publishes yellow page directories
covering certain markets in Oklahoma and Texas. 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 November 30, 1997, the Company provided telecommunications services to
almost 35,000 business customers and over 10,000 residential customers in
small to mid-sized markets. The Company has recently experienced substantial
growth in its base of local customers. The Company's local customer access
lines in service grew from approximately 1,000 at June 30, 1997 to
approximately 11,000 at September 30, 1997 and approximately 17,500 at
November 30, 1997. In the fiscal year ended December 31, 1996, the Company
had pro forma combined revenues of $85.4 million and EBITDA of $11.5 million.
For the nine months ended September 30, 1997, the Company had pro forma
combined revenues of $69.1 million and EBITDA of $8.5 million.
The Company owns and operates six 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 880-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 transaction, 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.
The Company is also an independent publisher of yellow page directories,
and in the twelve months ended November 30, 1997 published approximately 3.1
million copies of its yellow page directories covering 20 markets in Oklahoma
and Texas. These directories contained advertisements for approximately
46,000 business customers. The Company anticipates expanding its yellow page
operations into
3
<PAGE>
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 255 persons, including approximately 40 telemarketers
as of November 30, 1997. Through a strategic relationship with Feist
Publications, Inc., an affiliate of one of the Acquired Companies, the
Company also has the opportunity to cross-sell its telecommunications
services to an additional 29,000 yellow page advertising customers.
ACG is pursuing a growth strategy that it believes will enable it to
minimize its initial capital expenditures relative to many other CLECs that
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 Telephone Company ("Southwestern Bell") and U S
WEST Communications, Inc. ("U S WEST"). By reselling the local service of
Southwestern Bell and U S 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, U S WEST and affiliates of Sprint Corporation
("Sprint") and GTE Corporation ("GTE") covering eight 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 Corp. ("AT&T"), MCI Communications Corporation ("MCI") (which
has entered into a merger agreement to be acquired by WorldCom, Inc.),
Sprint, WorldCom, Inc. ("WorldCom") and the Regional Bell Operating Companies
("RBOCs"), there are over 5,000 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, many of which the Company believes represent attractive
acquisition candidates.
The Company believes that 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. The
Company's new senior management team brings extensive prior CLEC, ILEC and
public company experience, and its members have held senior operational,
strategic planning, financial and sales positions. The Company intends to
leverage this extensive management experience in the centralizing of selected
areas of operations where it can benefit from its larger size such as the
purchasing of minutes over its leased network and consolidating its
management information, selling and other administrative functions. The
Company 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 provided 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.
4
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become a leading provider of integrated
telecommunications services primarily to businesses in Kansas, Minnesota,
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and a significant
provider of such services in Arkansas, Colorado and Montana. The Company
believes that it can achieve its goal of becoming a leading
telecommunications service provider in its target markets by adhering to the
following five-fold strategy:
o Plan Smart -- Focus on small and medium-sized businesses and residential
customers and select vertical market segments in small to mid-sized cities
in the Region. The Company believes that competition from other CLECs and
ILECs is less intense in these areas because, in many cases, the ILECs
have reduced their efforts to serve and defend these territories in
response to the competitive threat in their major market cities. In
addition, by focusing its sales efforts in territories served by ILEC
central offices where collocation is a viable economic alternative, the
Company can build a loyal customer base through the resale of local
services prior to committing to build the infrastructure necessary to
support facilities-based local service.
o Sell Smart --
- Sell into established customer relationships by marketing local
telephone services to the Company's existing yellow page and long
distance customers. Because the Company only recently began to offer
additional telecommunications services to its long distance customers,
only a small portion of these customers has been targeted to subscribe
to the Company's local, Internet access or cellular services. In
addition, the Company has not yet offered its bundle of
telecommunications services to the approximately 75,000 yellow page
customers to which it 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.
- Bundle services to bring value to the Company's customers, increase
total revenue per customer, reduce selling costs and minimize customer
churn. The Company currently bundles and bills local, long distance, and
cellular services and believes it can enhance its overall margins by
combining its yellow page and Internet services with these traditional
telecommunications services.
- Offer enhanced services that have less competition and higher margin
potential, such as high speed data transport, Internet access, Web Page
design and support, and integrated voice, data and video communications
services.
o Build Smart -- Predicate growth strategies on the recognition that network
capacity is increasingly becoming a commodity. By first focusing on
acquiring customers through resale of local, long distance, cellular and
Internet services, the Company believes that it can secure customer
relationships, produce a consistent revenue stream, and evolve an economic
strategy for serving customers. The Company's serving strategy includes
not only developing network facilities to directly serve customers, but
also enhancing its operational support system ("OSS") to provide network
monitoring and control, flow through provisioning, customer care, and
enhanced billing functionality. During 1998, the Company will resell the
network facilities of ILECs to provide local service to its customers.
During 1999 and thereafter, the Company will continue to focus on selling
local service, while at the same time implementing a substantial effort to
acquire unbundled loops and local fiber. By interconnecting with the ILEC
in the central office and acquiring unbundled loops, the Company should be
able to reduce its cost of providing service and capture the additional
revenue paid by interexchange carriers ("IXCs") for local access. The
Company should also be able to further reduce its local and long distance
costs by acquiring rights to local and intercity fiber and other high
bandwidth capacity within the Region. By adding its own circuit and packet
switches to this bandwidth, the Company can add value, offer new products,
and better control the quality of service. Finally, where economically
advantageous, the Company intends to construct fiber and other network
facilities.
o Grow Smart --
- Increase the Company's sales force to rapidly market the Company's
services in all targeted service areas and thereafter to expand into
other areas within the Region. The Company recognizes it has an
opportunity to expand its yellow page base into other serving areas as
well as to expand its service offering with World Pages, a specialized
Web site development and hosting service to which ACG has the exclusive
marketing rights in its service area.
5
<PAGE>
- Evaluate 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
increase the utilization of equipment, consolidate its buying power and
increase its ability to negotiate more attractive contracts with
third-party suppliers of network services.
- Pursue the formation of additional strategic alliances with other yellow
page publishers, utility companies, 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. The Company currently 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
29,000 yellow page advertisers in the Region. The Company has also
contracted to acquire PAM COMM, a division of PAM Oil, Inc., which will
enable the Company, through a strategic relationship, to solicit PAM
Oil, Inc.'s approximately 15,000 business customers primarily in Idaho,
Minnesota, Montana, North Dakota and South Dakota. See "The Company
--Strategic Relationships."
o Serve Smart -- Provide not only the highest quality customer service but
also become an industry leader in the deployment of innovative technology
and services. The Company believes that by prudently using new technology
and by offering new services, especially enhanced data applications, it
can become a low cost provider, maintain high value for its customers and
differentiate itself from other commodity providers. These services will
include data transport services such as frame relay, transparent LAN,
Internet content, and other packet-based integrated multimedia services.
Certain members of the Company's senior management team have considerable
experience in developing and deploying these 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
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 ($5.2
million), to make a one-time payment to the
founder of ACG for entering into a five-year
non-competition agreement ($1.75 million),
and for general corporate purposes,
including capital expenditures,
infrastructure buildout and acquisitions.
Shareholders of the Acquired Companies who
will become executive officers or directors
of the Company upon consummation of the
Acquisitions will receive approximately
$36.0 million of the cash purchase price
paid in the Acquisitions. See "Use of
Proceeds."
Proposed New York Stock
Exchange Symbol .............. ADG
- ------------
(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
("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; implications of the Telecommunications Act 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; terms of the Acquisitions;
certain interests of management in the Acquisitions and other transactions;
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
provisions, Delaware law and a standstill agreement; and no dividends.
7
<PAGE>
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 NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues
Telecommunications services...................... $ 41,090 $ 33,455
Yellow page publishing........................ 44,324 35,624
----------------- ------------------
Total revenues.............................. 85,414 69,079
Gross profit................................... 32,496 27,312
Operating income............................... 5,530 4,140
Other income and expense, net(2)............... 4,605 (985)
Net income(3).................................. 3,983 377
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 $ 5,893
Cash used in investing activities ............. (711) (579)
Cash used in financing activities ............. (7,482) (4,470)
EBITDA(5)...................................... $ 11,527 $ 8,523
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
PRO
FORMA
COMBINED(1) AS ADJUSTED(6)
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 554 $ 17,089
Working capital (deficit) ..................... (77,032) 30,502
Total assets................................... 156,346 174,012
Total debt, including current portion.......... 21,507 17,350
Stockholders' equity........................... $ 35,988 $145,969
<CAPTION>
AS OF
SEPTEMBER 30,
1997
------------------
<S> <C>
OPERATING DATA:
Telecommunications services
Number of customers ............................................... 40,749
Markets .......................................................... 54
Local access lines ................................................ 11,248
Route miles (of fiber) (7) ........................................ 880
Direct sales force, including 23 telemarketers .................... 76
Total employees .................................................. 250
Yellow page publishing
Number of advertising customers(8) ................................ 50,000
Markets(8) ........................................................ 23
Direct sales force, including 19 telemarketers .................... 169
Total employees .................................................. 311
</TABLE>
(Footnotes on following page)
8
<PAGE>
- ------------
(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 September 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 $4.2 million of indebtedness. The balance of the net
proceeds of the Offering have been recorded as cash.
(7) Owned or operated by KINNET, of which the Company owns 49%.
(8) For the 12 months ended September 30, 1997, including approximately
4,000 customers in three markets in California.
9
<PAGE>
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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Certain Acquired Companies."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED(1) SEPTEMBER 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 $33,463 $35,624
Gross profit................................. 11,402 16,673 22,707 18,181 18,766
EBITDA....................................... 969 4,308 8,037 6,814 6,345
Valu-Line of Longview, Inc. and Related
Companies
Revenues..................................... 13,417 13,330 11,181 8,623 9,058
Gross profit................................. 6,243 5,121 4,326 3,414 3,589
EBITDA....................................... 2,947 2,034 1,646 1,431 1,177
FirsTel, Inc.
Revenues..................................... 4,079 7,838 10,355 7,659 9,488
Gross profit................................. 914 2,298 3,041 2,308 2,422
EBITDA....................................... (81) 820 1,177 960 690
Feist Long Distance Service, Inc.
Revenues..................................... 5,712 7,923 10,028 7,416 8,965
Gross profit................................. 1,834 2,176 2,937 2,189 2,779
EBITDA....................................... 162 174 702 654 518
Other Acquired Companies(2)
Revenues..................................... 3,940 6,997 7,798 5,950 5,944
Gross profit................................. 1,395 2,798 3,021 2,548 2,891
EBITDA....................................... 350 648 591 733 1,255
KIN Network, Inc.(3)
Revenues..................................... 3,550 6,497 8,553 6,031 8,796
Gross profit(4).............................. (600) 1,578 3,783 2,655 4,203
EBITDA....................................... (1,407) 514 2,353 1,566 2,408
Net loss..................................... (2,883) (2,055) (792) (712) (297)
</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 nine 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 nine months ended September 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 nine
months ended September 30, 1996 and 1997 were $(388,000), $(349,000)
and $(146,000), 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 nine months ended September 30, 1996 and 1997, was
(in thousands) $1,100, $3,402, $5,689, $3,976, and $5,800,
respectively.
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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 had been 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, 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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CAPITAL REQUIREMENTS
The Company anticipates the expenditure of approximately $25.0 million
during calendar year 1998 for the acquisition of additional circuit and
packet switches, the leasing of bulk fiber optic capacity from others and the
purchase of other capital assets. In order to fund these expenditures, the
Company intends to utilize internally generated funds and borrowings under
the Company's proposed credit facility and may use a portion of the net
proceeds of the Offering allocated to general corporate purposes. With
respect to the Company's proposed credit facility, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Certain Acquired Companies -- Pro Forma Combined Results of Operations -- Pro
Forma Combined Liquidity and Capital Resources." If the Company is successful
in growing its local telecommunications services business or effecting
acquisitions, it will have materially increased capital requirements in
calendar year 1999 and beyond. In order to fund these capital requirements,
the Company will be required to raise substantial funds from external sources
through public or private debt and equity financings. 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 is available, that it will 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 75,000 advertisers in its yellow page directories and the
yellow page directories published by FPI and the approximately 15,000
business customers of PAM Oil, Inc. 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 needed to appropriately motivate its sales force, a failure to
develop and implement a sales program and organize a sales force to market
the Company's bundled telecommunications services to yellow page and other
customers who 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, through the resale of the ILEC's networks, 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 that phase of 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
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<PAGE>
are the dominant providers of local services in their markets, are expected
to mount a significant competitive response to new entrants such as the
Company in their markets. 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 effect on the Company's
business, financial condition, results of operations and cash flows and the
value of the Common Stock.
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 "Industry Background and Overview --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 resulting in
any loss of such services, 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 and the Company intends to expand its in-house technical
capabilities following the Offering, the Company also 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
13
<PAGE>
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 approximately 1,000
service providers, but is dominated by four major competitors: AT&T, MCI,
Sprint and WorldCom (the "Dominant Long Distance Carriers"). The Company also
faces intense competition from ILECs, including Southwestern Bell and U S
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 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 the 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
14
<PAGE>
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
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 very 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, U S 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 interstate 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
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<PAGE>
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 applied unsuccessfully 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" rule,
and some portions of the FCC unbundling rules, including the requirement that
ILECs recombine network elements that are purchased by CLECs on an unbundled
basis. The court upheld, however, the FCC's view of the network elements that
ILECs must unbundle, found that nothing in the Telecommunications Act
requires a CLEC to own or control a telecommunications network before being
able to purchase unbundled elements, and affirmed certain other aspects of
the Interconnection Decision. Several interexchange carriers (including AT&T,
MCI and Sprint) filed petitions for rehearing with the Eighth Circuit
requesting the court to reinstate certain of the FCC rules found unlawful,
while various ILECs filed petitions of their own regarding aspects of the
court's decision that they found objectionable. On October 14, 1997, the
court denied the petitions of the interexchange carriers, granted those of
the ILECs, and vacated an additional FCC rule established in the
Interconnection Decision that prohibited an ILEC from separating requested
network elements that it could otherwise combine. The effect of the court's
decision was to prevent CLECs from acquiring bundled network elements at
cost-based rates and to make only unbundled elements available at those
rates. In a separate decision on August 22, 1997, the Eighth Circuit held
that the FCC exceeded the scope of its jurisdiction by issuing rules
concerning dialing parity that affect essentially intrastate services and
local, interstate calls within a single local access and transport area
("LATA"). The FCC, AT&T, MCI, Sprint, WorldCom and a large number of CLECs
and others have filed petitions of certiorari requesting the United States
Supreme Court to overturn both of the Eighth Circuit's decisions. The
petitions assert, among other things, that the Eighth Circuit erred in
finding the FCC lacked jurisdiction to promulgate rules implementing the
local competition pricing provisions of the Telecommunications Act of 1996
and in rejecting the "pick and choose" provisions of the FCC's rules. There
can be no assurance that the Company will be able to obtain and maintain
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 Sections 271 through 275 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.
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<PAGE>
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
a blended rate of approximately $5.00 per business and residential customer
as a 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.
The Company believes that, with one exception in Arkansas, 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 and approvals necessary or appropriate to conduct its operations
following the Offering; however 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. See "Business -- Regulation -- State Regulation" for
information relating to one of the Acquired Companies conducting long
distance telephone operations in Arkansas without a permit for approximately
the last six years.
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 ILECs on a
wholesale basis and resell that service to end users, particularly in the
early stages of its local telephone service business. To the
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<PAGE>
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 ILEC's 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."
In addition, the Company's plans to provide local telephone service are
heavily dependent upon implementation of provisions of the Telecommunications
Act. The Telecommunications Act preempted state and local laws to the extent
that those laws prohibited local telephone competition, and imposed a variety
of new duties on ILECs intended to advance such competition, including the
duty to negotiate in good faith with competitors requesting interconnection
to an ILEC's network. However, negotiations with ILECs have sometimes
involved considerable delays and the resulting negotiated agreements may not
necessarily be obtained on terms and conditions that are acceptable to the
Company. In such instances, the Company may petition the proper state
regulatory agency to arbitrate disputed issues. There can be no assurance
that the Company will be able to negotiate acceptable new interconnection
agreements with ILECs or that if state regulatory authorities impose terms
and conditions on the parties in arbitration, such terms will be acceptable
to the Company.
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
interconnect agreements with Southwestern Bell, U S 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, U S 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
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<PAGE>
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 is
currently seeking 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. 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, a director of the Company, his wife and two children, will own
approximately % of the then outstanding shares of Common Stock.
TERMS OF THE ACQUISITIONS
For accounting purposes, the aggregate purchase price of the Acquisitions
is estimated to be $142.5 million, an excess of $125.8 million (including
$0.6 million of deferred acquisition costs incurred by ACG) over the book
value of the net assets acquired of $17.3 million. This excess purchase price
can be attributed to several factors, including the customer bases of the
Acquired Companies, the benefits to be gained from switching existing and
future traffic to KINNET, the ability to cross-sell telecommunications
services through established yellow page directories, and the future
operating synergies to be realized from consolidating nine profitable
entities into one. Of the excess, $108.8 million relates to the Acquired
Companies and $17.0 million relates to the assets of KINNET. The excess of
the respective purchase prices over the fair value of tangible net assets
acquired have been preliminarily classified as intangible assets. The final
allocation to identifiable tangible and intangible assets is currently
underway. The preliminary intangible assets not allocated to identifiable
tangible and intangible assets will be recorded as goodwill.
For purposes of the unaudited pro forma combined financial statements
contained herein, $125.8 million of intangible assets have been preliminarily
recorded. This balance is comprised of $35.1 million for acquired customer
bases and $90.7 million for goodwill. Preliminarily, the acquired customer
bases will be amortized over 12 to 25 years while goodwill will be amortized
over 25 to 40 years. See "The Company -- Summary of Terms of the
Acquisitions" and the Pro Forma Combined Financial Statements.
CERTAIN INTERESTS OF MANAGEMENT IN THE ACQUISITIONS AND OTHER TRANSACTIONS
Several shareholders of certain of the Acquired Companies will become
executive officers or directors of the Company upon the consummation of the
Acquisitions. These shareholders will receive a portion of the consideration
in the Acquisitions consisting of, in the aggregate, shares of Common
Stock, $36.0 million in cash, $11.7 million in subordinated promissory notes,
$0.6 million in convertible subordinated notes, and 293,513 five-year
non-transferrable warrants to purchase Common Stock at the initial public
offering price. Certain of these shareholders, in connection with the
execution of the agreements pursuant to which their Acquired Company will be
acquired, received an aggregate of 1.5 million ten-year non-transferrable
warrants to purchase Common Stock at $2.50 per share. Certain of these
shareholders will also have employment agreements with the Company. See "The
Company -- Summary of Terms of the Acquisitions" and "Certain Transactions --
The Acquisitions."
A corporation in which an executive officer and director of the Company is
an officer, director and 50% shareholder has provided high quality yellow
page colorizing services and licensed World Pages to
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<PAGE>
Great Western. In addition, KINI, L.C. (a majority of which is owned by the
shareholders of Liberty Cellular, Inc. ("Liberty"), which is the former sole
stockholder and current 51% stockholder of KINNET) has provided certain
management services to KINNET, and Feist Long Distance has transported
traffic on KINNET's network. These arrangements, which the Company considers
reasonable under the circumstances, are expected to continue after the
Acquisitions, under the terms described in "Certain Transactions -- Other
Transactions," and the Company intends, where practical and economic, to
transport additional long distance traffic over the KINNET network. Except as
noted herein, any future transactions with directors, officers, employees or
affiliates of the Company are expected 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.
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.
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
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<PAGE>
cash flows and the value of the Common Stock. See "Management's Discussion
and Analysis of Combined Financial Condition and Results of Operations of
Certain Acquired Companies --Pro Forma Combined Results of Operations -- Pro
Forma 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 of 1933, as
amended (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). 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 PaineWebber Incorporated. In
addition, Rod K. Cutsinger, a director and the largest stockholder of the
Company, has agreed not to offer or sell any of his shares during a period
ending 18 months after the closing of the Offering, 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.
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<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS, DELAWARE LAW AND A
STANDSTILL AGREEMENT
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."
In addition, Rod K. Cutsinger, a director and the Company's largest
stockholder, intends to enter into a three-year standstill agreement with the
Company pursuant to which he will agree not to acquire any additional shares
of Common Stock except from the Company pursuant to stock dividends or splits
or option or benefit plans, solicit proxies in opposition to nominees for
directors proposed by the board, vote any of his shares of Common Stock in
opposition to the recommendation of the disinterested members of ACG's board
of directors regarding the election or removal of directors and matters
relating to a possible change in control of the Company or take certain other
proscribed actions. See "Description of Capital Stock -- Standstill
Agreement."
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
Financial Condition and Results of Operations of Certain Acquired Companies
- --Pro Forma Combined Results of Operations -- Pro Forma Liquidity and Capital
Resources."
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<PAGE>
THE COMPANY
ACG: ACG was founded to create a regional CLEC that provides an integrated
portfolio of telecommunications services principally to business customers.
The Company offers long distance, local, Internet access and cellular
services, primarily in Kansas, Minnesota, Nebraska, North Dakota, Oklahoma,
South Dakota and Texas and to a lesser extent in Arkansas, Colorado and
Montana. As of November 30, 1997, the Company provided telecommunications
services to almost 35,000 business customers and over 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 November 30,
1997, the Company had approximately 255 direct sales personnel, including
approximately 40 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 EBITDA of $11.5 million in the
fiscal year ended December 31, 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 3.1 million yellow page directories annually covering 20
service areas in Oklahoma and Texas, and also publishes three yellow page
directories in California. During the twelve months ended November 30, 1997,
Great Western published 20 yellow page directories covering markets in the
Region that contained advertisements for approximately 46,000 primarily small
to mid-sized business customers. Great Western's revenues and EBITDA for the
fiscal year ended December 31, 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 owns and operates a Harris
2020 LX digital tandem and local switch located in Dallas, Texas, and as of
November 30, 1997, provided long distance services to approximately 9,200
customers in Arkansas, Louisiana, Oklahoma and Texas. Valu-Line has recently
received authorization to provide local telephone service in Texas, and as of
November 30, 1997, provided local service to approximately 2,250 access lines
on a resale basis through Southwestern Bell to customers in North and East
Texas. Valu-Line's revenues and EBITDA for the fiscal year ended December 31,
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 owns and operates a switch center in
Sioux Falls that includes three linked Harris 2020 digital tandem switches
and, as of November 30, 1997, provided bundled telecommunications service to
approximately 9,400 customers in Colorado, Idaho, Iowa, Minnesota, Montana,
Nebraska, North Dakota, South Dakota and Wyoming. As of November 30, 1997,
FirsTel provided local service to approximately 5,800 access lines on a
resale basis through U S WEST to customers in North Dakota and South Dakota.
FirsTel has recently secured authorization to provide local service in
Minnesota, Nebraska 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 2,200 cellular
subscribers as of November 30, 1997. FirsTel's revenues and EBITDA for the
fiscal year ended December 31, 1996 were $10.4 million and $1.2 million,
respectively. In early September 1997, FirsTel contracted to acquire two
small telecommunications companies in South Dakota whose combined revenues
for the fiscal year ended December 31, 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 Feist Publications, Inc., a yellow page publisher that has
been in business for 20 years. Feist Long Distance owns and operates a
Northern Telecom DMS 250 digital tandem switch located in Wichita, Kansas,
and as of November 30, 1997, provided primarily long distance services to
approximately 15,000 customers in Colorado, Kansas, Nebraska, Oklahoma and
Texas. Feist Long Distance received authorization in March 1997 to provide
local telephone service in Kansas. As of November 30, 1997, Feist Long
Distance provided local service to approximately 9,400 access lines on a
resale basis through Southwestern Bell to customers primarily in the Wichita,
Kansas metropolitan area. Feist Long Distance's revenues and EBITDA for the
fiscal year ended December 31, 1996 were $10.0 million and $0.7 million,
respectively.
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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
telephone equipment sales and service companies. One of the Other Acquired
Companies owns and operates a Stromberg Carlson digital tandem switch located
in Oklahoma City, Oklahoma. As of November 30, 1997, the Other Acquired
Companies provided long distance service to approximately 8,800 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 their most recent fiscal years were $7.8
million and $0.6 million, respectively.
KINNET: KINNET, headquartered in Salina, Kansas, owns or operates an
approximately 880-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 carriers, cellular carriers, independent local
telephone companies, business and governmental accounts and others, including
Feist Long Distance. KINNET currently has one of the largest fiber optic
networks in the state of Kansas. KINNET also operates a Northern Telecom DMS
500 digital tandem and local switch located near the center of its fiber
optic network in Moundridge, Kansas capable of handling both long distance
and local services. 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 the fiscal year ended December 31, 1996 were $8.6
million and $2.4 million, respectively.
As part of the consideration in the KINNET transaction, the Company issued
shares of Common Stock 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 RELATIONSHIPS: The Company has a strategic relationship with
Feist Publications, Inc. During the twelve months ended November 30, 1997,
FPI sold advertisements in its yellow page directories published during the
period to approximately 29,000 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. FPI has reserved
the right to terminate this agreement if the Company commences the
publication of a yellow page directory in any market served by FPI.
The Company has contracted to acquire PAM COMM, a division of PAM Oil,
Inc. ("PAM Oil"), a distributor of automobile parts, oil and lubricants
primarily in Idaho, Minnesota, Montana, North Dakota and South Dakota. Under
this strategic arrangement, the Company is authorized to solicit the
telecommunications business of PAM Oil's approximately 15,000 business
customers, comprised of automobile dealers, parts suppliers and others. PAM
Oil has agreed to use its telemarketing staff to solicit and refer
telecommunications leads to the Company and to permit the Company to include
telecommunications inserts in PAM Oil's monthly billing statements to its
customers. The Company has agreed to pay PAM Oil a commission of 1% per month
on most telecommunications revenues attributable to PAM Oil's customers.
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),
warrants 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
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initial public offering price and 38,635 shares of Common Stock exercisable
at one-third of the initial public offering price. Up to $50,000 in value of
additional shares of Common Stock (computed at the initial public offering
price) may be issued in connection with the acquisition of FirsTel if a
company recently acquired by FirsTel reaches certain customer targets by
August 31, 1998. 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 September 30, 1997, they would have been approximately $1.9
million, in addition to the approximately $3.1 million that had been
distributed prior to that date. To the extent these Acquired Companies have
additional earnings after September 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."
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) $ -- $1,318
Valu-Line...... 6,600 -- -- 1,506 195
FirsTel........ 5,000 2,000(7) (8) 147(9) 22
Feist Long
Distance...... 5,000 -- -- 17 343
Other Acquired
Companies..... 5,236 350(10) (11) 437 61
KINNET......... (12) 10,000(12) -- -- N/A N/A
------------ ---------- ---------- ------ ---------- -----------
Total........ $86,836 $17,350 $2,107 $1,939
============ ========== ========== ====== ========== ===========
</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 September 30, 1997 and a
payable with respect to S Corporation distributions, all of which are
anticipated to be paid out of the net proceeds of the Offering. 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 September 30,
1997, and are shown net of $3.1 million of distributions made by the
Acquired Companies during the first nine 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.
25
<PAGE>
(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.
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
by 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 $25.0 million
revolving credit facility to finance the Company's working capital
requirements, 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 Financial Condition and
Results of Operations of Certain Acquired Companies --Pro Forma Results of
Operations -- Pro Forma Liquidity and Capital Resources."
26
<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 repayment of outstanding indebtedness of
the Acquired Companies (approximately $2.3 million, as of the date of this
Prospectus), (ii) the repayment of outstanding indebtedness of ACG to CPFF
(approximately $2.9 million, as of the date of this Prospectus); (iii) a
one-time payment to Rod K. Cutsinger, the founder of ACG, as consideration
for a five-year non-competition agreement ($1.75 million); and (iv) general
corporate purposes, including capital expenditures, infrastructure buildout
and acquisitions. Shareholders of the Acquired Companies who will become
executive officers or directors of the Company upon the consummation of the
Acquisitions will receive approximately $36.0 million of the cash purchase
price paid in the Acquisitions. See "Certain Transactions -- The
Acquisitions" and "--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.
27
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 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>
SEPTEMBER 30, 1997
----------------------------------
COMPANY
COMPANY PRO FORMA
PRO AS
ACG FORMA ADJUSTED
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash............................................................ $ -- $ 554 $ 17,089
========= ========== ===========
Short-term debt and current maturities of long-term
obligations:
$
8% promissory note payable to CPFF (1)........................ $ 1,856 $ 1,856 --
Other(2)...................................................... -- 1,102 117
Obligation for cash portion of consideration for Acquisitions .. -- 86,836 --
Long-term debt:
Long-term debt of Acquired Companies, less current
maturities................................................... -- 1,316 --
5% Subordinated Promissory Notes(3)........................... -- 15,000 15,000
10% Convertible Subordinated Notes(4)......................... -- 2,000 2,000
7% Note, less current maturities(5)........................... -- 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(6).................................................. 1
Additional paid-in capital.................................... 47 38,251 148,231
Retained earnings............................................. (2,263) (2,263) (2,263)
--------- ---------- -----------
Total stockholders' equity (deficit) ........................ (2,216) 35,988 145,969
--------- ---------- -----------
Total debt and capitalization............................... $ (360) $144,331 $163,319
========= ========== ===========
</TABLE>
- ------------
(1) As of December 15, 1997, this amount has increased to $2.9 million.
(2) Includes $985,000 in current portion of long-term debt of the Acquired
Companies and $117,000 in current maturities of a 7% Note.
(3) 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.
(4) 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.
(5) Note is payable in three annual installments on the first, second and
third anniversary dates of the closing of the Acquisitions.
(6) Excludes an aggregate of shares of Common Stock issuable upon the
exercise of options granted pursuant to the Plan, the Directors' Plan
or otherwise issuable upon the exercise of options or 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."
28
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 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 September
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 September 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>
<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 September 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.
29
<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 nine months ended September 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 September 30, 1997, and for the
year ended December 31, 1996 and the nine months ended September 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 NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
ACG
Revenues................................................ $ -- $ --
Selling, general and administrative expenses ........... 649 1,462
Net loss................................................ (659) (1,604)
Net loss per share .....................................
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
THE COMPANY
PRO FORMA COMBINED(1)
Revenues
Telecommunications services........................... $41,090 $33,455
Yellow page publishing................................ 44,324 35,624
------------------
Total revenues...................................... 85,414 69,079
Cost of services........................................ 47,087 37,637
Depreciation and amortization(2)........................ 5,831 4,130
------------------
Gross profit............................................ 32,496 27,312
Selling, general and administrative expenses ........... 26,966 23,172
------------------
Operating income........................................ 5,530 4,140
Other income and expense, net(3)........................ 6,448 253
Interest expense........................................ (774) (581)
Equity in earnings (loss) of KINNET..................... (1,069) (657)
----------------- ------------------
Income before tax....................................... 10,135 3,155
------------------
Net income(4)........................................... $ 3,983 377
================= ==================
Net income per share.................................... $ $
Shares used in computing pro forma net income per
share(5)...............................................
Cash provided by operating activities................... 9,037 5,893
Cash used in investing activities....................... (711) (579)
Cash used in financing activities....................... (7,482) (4,470)
EBITDA (6) ............................................. $11,527 $ 8,523
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
ACG SEPTEMBER 30, 1997
------------------------------ -----------------------
DECEMBER 31, SEPTEMBER 30, AS
1996 1997 PRO FORMA ADJUSTED
-------------- -------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 33 $ -- $ 554 $ 17,089
Working capital (deficit) .......... (689) (3,407) (77,032) 30,502
Total assets........................ 92 1,191 156,346 174,012
Total debt, including current
portion............................ 575 1,856 21,507 17,350
Stockholders' equity................ (632) (2,216) 35,988 145,969
</TABLE>
- ------------
(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 September 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.
(2) Includes $4.2 million and $3.1 million of amortization for the twelve
months ended December 31, 1996 and the nine months ended September 30,
1997, respectively, on the estimated $108.8 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.
(3) Other income for the year ended December 31, 1996 includes a $6.3
million litigation settlement received by Great Western.
(4) 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.
(5) 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.
(6) 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.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CERTAIN ACQUIRED COMPANIES
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."
OVERVIEW OF THE ACQUIRED COMPANIES' SOURCES OF REVENUES AND EXPENSES
The Acquired Companies derive their 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 two states in the
Region and California.
Telecommunications Services Revenues and Price Declines. The Acquired
Companies' telecommunications services principally include long distance and
local services, Internet access, cellular service and other enhanced
services. Their telecommunications revenues are derived principally from
minutes of long distance telecommunications traffic carried. As discussed
under " -- Pro Forma Combined Results of Operations," the domestic revenue
per minute and domestic cost per minute have declined steadily over the last
several years, while the domestic billable minutes of use attributable to the
Acquired Companies' combined long distance operations have increased
substantially over the same period.
The Acquired Companies generally price their long distance services at a
discount to the primary carrier or carriers in each of their markets. The
Acquired Companies have generally experienced and expect to continue to
experience declining revenue per minute in all of their markets as a result
of increased competition; nevertheless, 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 U S WEST. In most of the Acquired Companies' market areas, local
service is sold on a flat monthly fee basis. Certain of the Acquired
Companies have 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.
Yellow Page Publishing Revenues. 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. Great Western has decided to discontinue three of its 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 Great
Western'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. The gross margin on these
directories is generally significantly higher than that in several
directories published in the fourth quarter. Consequently, Great Western's
gross margin and gross profit in the first quarter are higher than that in
subsequent quarters. 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.
32
<PAGE>
When Great Western 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"), Great Western 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. Great Western 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 "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Certain Acquired
Companies -- Great Western Directories, Inc." Great Western 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, Great Western 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, versus its overall allowance of 10% for current
receivables. Once in a market, Great Western may seek to increase its
geographic coverage by expanding outward from its initial service area.
Cost of Services -- Telecommunications Services. The Acquired Companies
have an extensive network that connects a number of cities in the Region and
upon which they can transmit their customers' long distance calls. These
"on-net" facilities include the Acquired Companies' 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
Acquired Companies' switches and leased lines from other long-haul carriers.
Once a long distance call reaches one of the Acquired Comanies' switches, it
can be routed over that Acquired Companies' network or, if the Acquired
Company does not have an "on-net" connection, over the network of another
long-haul carrier from which the Acquired Company purchases access. The bulk
of the Acquired Companies' "off-net" termination services are provided by
large long distance companies with long haul transmission capabilities. See
"Business -- Network Facilities and Carrier Agreements."
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 Offering. Further, the Company expects that after the
Offering it will obtain pricing reductions from KINNET with respect to the
traffic that the Company consolidates on the KINNET network.
The Acquired Companies' 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 Acquired Companies 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 Acquired Companies to ILECs. 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 because of the substantial number of minutes of
traffic generated by the Acquired Companies on a combined basis. Although the
Acquired Companies have 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 Acquired
Companies have 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 Acquired Companies provide 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 Acquired Companies can negotiate from
those carriers.
33
<PAGE>
Cost of Services -- 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 aggregate yellow page cost of
services. Great Western has in the last year lowered its printing costs by
switching from a single printing supplier to a competitive bidding process
among several suppliers. Great Western 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 an executive
officer and director of the Company is an officer, director and significant
stockholder. See "Certain Transactions -- Other Matters."
Selling, General Administrative Expenses. The Acquired Companies have
historically sold their telecommunications 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 and commissions of employees,
expenses related to the provision of customer service and, to a lesser
extent, commissions paid to agents. Great Western has historically sold
advertising space in its yellow page directories through commissioned sales
personnel. Hence selling expenses for the Great Western'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, 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.
GREAT WESTERN DIRECTORIES, INC.
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 NINE MONTHS ENDED
YEAR ENDED JANUARY 31, DECEMBER 31, SEPTEMBER 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% $33,463 100.0% $35,624 100.0%
Cost of services .... 17,733 60.3% 19,568 53.7% 21,394 48.3% 15,111 45.2% 16,690 46.8%
Depreciation and
amortization........ 272 0.9% 228 0.6% 223 0.5% 171 0.5% 168 0.5%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Gross profit......... 11,402 38.8% 16,673 45.7% 22,707 51.2% 18,181 54.3% 18,766 52.7%
Selling, general and
administrative
expenses............ 10,785 36.7% 12,661 34.7% 14,987 33.8% 11,606 34.7% 12,647 35.5%
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Income from
operations.......... 617 2.1% 4,012 11.0% 7,720 17.4% 6,575 19.6% 6,119 17.2%
</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 nine months ended September 30, 1996 compared
to the nine months ended September 30, 1997.
Revenues. Revenues increased $2.1 million, or 6.5%, from $33.5 million for
the nine months ended September 30, 1996 to $35.6 million for the nine months
ended September 30, 1997. This improvement
34
<PAGE>
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 in
sales of advertising space in directories of $0.2 million in each of the
established Texas markets of Amarillo and Humble, $0.1 million in the
established markets of Lawton, Oklahoma and Temple, Arlington, Clear Lake and
Baytown, Texas, and $0.4 million in the established markets of Enid, Oklahoma
and Denton, Grand Prairie, Killeen, Northeast Tarrant County, Pasadena and
Pearland/Friendswood, Texas. These gains were partially offset by decreases
in sales of advertising space of $0.3 million in the established California
markets of Santa Cruz, Napa and Vallejo.
Gross profit. Gross profit increased $0.6 million, or 3.2%, from $18.2
million for the nine months ended September 30, 1996 to $18.8 million for the
nine months ended September 30, 1997. Gross margin decreased from 54.3% for
the nine months ended September 30, 1996 to 52.7% for the nine months ended
September 30, 1997. While 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 $1.0 million, or 9.0%, from $11.6 million
for the nine months ended September 30, 1996 to $12.6 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling,
general and administrative expenses increased from 34.7% for the nine months
ended September 30, 1996 to 35.5% for the nine months ended September 30,
1997 due to an increase in salaries and payroll taxes of $1.3 million, which
includes an increase in executive compensation in the amount of approximately
$500,000, a substantial portion of which will not recur after the
Acquisitions and the Offering. As a percentage of revenues, salaries and
payroll taxes increased from 12.7% for the nine months ended September 30,
1996 to 15.6% for the nine months ended September 30, 1997.
Great Western results for the fiscal year ended January 31, 1996 compared
to the fiscal year ended December 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 $6.0 million, or 36.2%, from $16.7
million for the fiscal year ended January 31, 1996 to $22.7 million for the
fiscal year ended December 31, 1996. Gross margin increased from 45.7% for
the fiscal year ended January 31, 1996 to 51.2% 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 $2.3 million, or 18.4%, from $12.7 million
for the fiscal year ended January 31, 1996 to $15.0 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 33.8% 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
35
<PAGE>
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, 1995 compared
to the fiscal year ended January 31, 1996.
Revenues. Revenues increased $7.1 million, or 24.0%, from $29.4 million
for fiscal year ended January 31, 1995 to $36.5 million for fiscal year ended
January 31, 1996 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 year ended January 31, 1996 includes $2.7 million revenue
for both directories, while fiscal year ended January 31, 1995 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 year ended January 31, 1995 to $16.7 million for fiscal
year ended January 31, 1996. Gross margin increased from 38.8% for fiscal
year ended January 31, 1995 to 45.7% for fiscal year ended January 31, 1996
as a result of three prototype directories published in fiscal year ended
January 31, 1995 that made significant contributions to gross profit in
fiscal year ended January 31, 1996 during their second year of publication
but resulted in only minimal revenues in their prototype year of fiscal year
ended January 31, 1995 to offset the related cost of services of $4.3
million.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.9 million, or 17.4%, from $10.8 million
for fiscal year ended January 31, 1995 to $12.7 million for fiscal year ended
January 31, 1996. As a percentage of revenues, selling, general and
administrative expenses decreased from 36.7% for fiscal year ended January
31, 1995 to 34.7% for fiscal year ended January 31, 1996 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 year ended
January 31, 1995, when the Irving and Fort Worth, Texas directories were
prototyped. As a percentage of revenues, bad debt expense decreased from 9.9%
for fiscal year ended January 31, 1995 to 8.9% fiscal year ended January 31,
1996 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 follows a policy of extending three to twelve month terms to
its customers. Accounts receivable consist of current balances that are less
than one year (approximately 70% of total receivables) and prior year
balances with aging of more than one year but less than two years. This aging
is consistent with Great Western's general customer profile which is
comprised of small businesses that tend to have a higher failure rate. Using
historical collection rates, Great Western records an allowance for doubtful
accounts based on 10% of sales for current receivables plus 92.5% of all
receivables that are older than one year. The allowance covering prior year
balances is adjusted quarterly to reflect write-offs of balances maturing
beyond two years, new provisions for balances maturing into the prior year
category, and for collections. Great Western believes this method of
providing an allowance which is substantially equivalent to the receivable
itself results in a reasonable estimate of future cash realization.
Great Western generated $5.1 million in net cash from operating activities
for the nine months ended September 30, 1997. Net cash used in investing
activities was approximately $0.3 million, principally for purchases of
property and equipment. Net cash used in financing activities was $4.2
million, representing repayments of long term debt, and cash dividends.
36
<PAGE>
At September 30, 1997, working capital was $13.0 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 $11.5 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 $7.1 million and total debt was
$5.6 million.
VALU-LINE OF LONGVIEW, INC.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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% $8,623 100.0% $9,058 100.0%
Cost of services .... 6,775 50.5% 7,491 56.2% 6,036 54.0% 4,593 53.3% 5,070 56.0%
Depreciation and
amortization........ 399 3.0% 718 5.4% 819 7.3% 616 7.1% 399 4.4%
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 6,243 46.5% 5,121 38.4% 4,326 38.7% 3,414 39.6% 3,589 39.6%
Selling, general and
administrative
expenses............ 3,725 27.7% 3,898 29.2% 3,571 32.0% 2,659 30.8% 2,875 31.7%
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Income from
operations.......... 2,518 18.8% 1,223 9.2% 755 6.7% 755 8.8% 714 7.9%
</TABLE>
Valu-Line results for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1997.
Revenues. Revenues increased $0.4 million, or 5.0%, from $8.6 million for
the nine months ended September 30, 1996 to $9.0 million for the nine months
ended September 30, 1997. A decrease in domestic long distance revenue was
more than offset by the effects of adding international long distance service
to the revenue base. Revenues for the first nine months of 1997 include sales
of local telephone service and non-contract international traffic, which were
not offered by Valu-Line in the first nine months of 1996. For domestic long
distance traffic, total billed minutes increased slightly from 59.6 million
for the nine months ended September 30, 1996 to 59.9 million for the nine
months ended September 30, 1997, while the average revenue per domestic
billable minute decreased by 9.8%. During the first nine months of 1997,
international long distance service included 3.8 million minutes at an
average price per minute of more than twice the domestic long distance rate.
Value-Line expects its sales of international long distance service to total
approximately 5 million minutes during fiscal 1997.
Gross profit. Gross profit increased $0.2 million, or 5.1%, from $3.4
million for the nine months ended September 30, 1996 to $3.6 million for the
nine months ended September 30, 1997. Gross margin remained at 39.6% for each
of the nine month periods ended September 30 due to scheduled decreases in
depreciation expense of equipment under accelerated depreciation methods,
offset by higher cost of service. For domestic long distance traffic, average
cost per billable minute decreased 18.1% between the periods. However, the
average cost per billable international minute was over four times the cost
per billable minute for domestic traffic.
37
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 8.1%, from $2.7 million
for the nine months ended September 30, 1996 to $2.9 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling,
general and administrative expenses increased from 30.8% for the nine months
ended September 30, 1996 to 31.7% for the nine months ended September 30,
1997 primarily because 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 nine months ended September 30, 1996. Replacements for the sales team
were hired during 1996 with the result of a higher level of salaries and
related expenses reflected in the nine months ended September 30, 1997.
Valu-Line results for the fiscal year ended December 31, 1995 compared
to the fiscal year ended December 31, 1996.
Revenues. Revenues declined $2.1 million, or 16.1%, 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 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, 1994 compared
to the fiscal year ended December 31, 1995.
Revenues. Revenues decreased $0.1 million, or 0.6%, 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.
38
<PAGE>
Valu-Line liquidity and capital resources
Valu-Line generated $0.7 million in net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in financing
activities was $0.7 million, representing $0.3 million in net repayments of
long term debt and $0.5 million in distributions to shareholders, net of $0.1
million provided by proceeds from long term debt.
At September 30, 1997, Valu-Line had working capital of $0.3 million and
total debt outstanding of $1.5 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.
See "Business-Regulation--State Regulation" for information regarding
Valu-Line's conducting intrastate long distance telephone operations in
Arkansas without a permit for approximately the last six years.
FIRSTEL, INC.
The following table sets forth for FirsTel selected operating data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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% $7,659 100.0% $9,488 100.0%
Cost of services .... 3,040 74.5% 5,334 68.1% 7,066 68.2% 5,168 67.5% 6,864 72.3%
Depreciation and
amortization........ 125 3.1% 206 2.6% 248 2.4% 183 2.4% 202 2.1%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 914 22.4% 2,298 29.3% 3,041 29.3% 2,308 30.1% 2,422 25.5%
Selling, general and
administrative
expenses............ 1,155 28.3% 1,726 22.0% 2,147 20.7% 1,558 20.3% 1,969 20.7%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... (241) (5.9)% 573 7.3% 894 8.6% 750 9.8% 453 4.8%
</TABLE>
FirsTel results for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1997.
Revenues. Revenues increased $1.8 million, or 23.9%, from $7.7 million for
the nine months ended September 30, 1996 to $9.5 million for the nine months
ended September 30, 1997 primarily due to increased sales of long distance
services, partially offset by competitive pricing. For long distance traffic,
total billed minutes increased from 49.3 million for the nine months ended
September 30, 1996 to 62.9 million for the nine months ended September 30,
1997, while average revenue per billable minute decreased 6.9%.
Gross profit. Gross profit increased $0.1 million, or 4.9%, from $2.3
million for the nine months ended September 30, 1996 to $2.4 million for the
nine months ended September 30, 1997. Gross margin
39
<PAGE>
decreased from 30.1% for the nine months ended September 30, 1996 to 25.5%
for the nine months ended September 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
14.5%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.4 million, or 26.4%, from $1.6 million
for the nine months ended September 30, 1996 to $2.0 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling,
general and administrative expenses increased slightly from 20.3% for the
nine months ended September 30, 1996 to 20.8% for the nine months ended
September 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, 1995 compared
to the fiscal year ended December 31, 1996.
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 a larger 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 8.1%.
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 29.4% for fiscal 1995 and fiscal 1996. For long distance
traffic, average cost per billable minute decreased 5.6%.
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.
FirsTel results for fiscal year ended December 31, 1994 compared
to fiscal year ended December 31, 1995.
Revenues. Revenues increased $3.7 million, or 92.2%, 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, or 151.4%, 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 $0.5 million, or 49.4%, from $1.2 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 nine months ended September 30, 1997. Net cash used in investing
activities was approximately $0.2 million, representing equipment purchases.
Net cash used in financing activities was $0.4 million, representing
reductions in capitalized leases and distributions to stockholders, offset by
the proceeds from a debt offering.
At September 30, 1997, FirsTel had a working capital deficit of $0.9
million and $1.2 million of total debt outstanding, including $1.0 million of
notes payable to stockholders which will be acquired by ACG.
40
<PAGE>
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 unbilled services. As of September 30, 1997 there was an
outstanding balance of $0.1 million 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.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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% $7,416 100.0% $8,965 100.0%
Cost of services .... 3,623 63.4% 5,469 69.0% 6,854 68.3% 5,057 68.2% 6,044 67.4%
Depreciation and
amortization........ 255 4.5% 278 3.5% 237 2.4% 170 2.3% 142 1.6%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Gross profit......... 1,834 32.1% 2,176 27.5% 2,937 29.3% 2,189 29.5% 2,779 31.0%
Selling, general and
administrative
expenses............ 1,553 27.2% 2,201 27.8% 2,469 24.6% 1,706 23.0% 2,404 26.8%
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... 281 4.9% (25) (0.3)% 467 4.7% 482 6.5% 375 4.2%
</TABLE>
Feist Long Distance results for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1997.
Revenues. Revenues increased $1.6 million, or 20.9%, from $7.4 million for
the nine months ended September 30, 1996 to $9.0 million for the nine months
ended September 30, 1997 primarily due to a larger customer base. However,
for the nine months ended September 30, 1997 Feist experienced a slower rate
of growth than experienced in prior periods due to a change in advertising
strategy. For long distance traffic, total billed minutes increased from 49.8
million for the nine months ended September 30, 1996 to 66.1 million for the
nine months ended September 30, 1997, while average revenue per billable
minute decreased 6.9%.
Gross profit. Gross profit increased $0.6 million, or 27.0%, from $2.2
million for the nine months ended September 30, 1996 to $2.8 million for the
nine months ended September 30, 1997. Gross margin increased from 29.5% for
the nine months ended September 30, 1996 to 31.0% for the nine months ended
September 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 15.3%.
41
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.7 million, or 40.9%, from $1.7 million
for the nine months ended September 30, 1996 to $2.4 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling,
general and administrative expenses increased from 23.0% for the nine months
ended September 30, 1996 to 26.8% for the nine months ended September 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, 1995
compared to the fiscal year ended December 31, 1996.
Revenues. Revenues increased $2.1 million, or 26.6%, from $7.9 million for
fiscal 1995 to $10.0 million for fiscal 1996, due to successful marketing
efforts to obtain new small business customers in the 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 7.1%.
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 9.4%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.3 million, or 12.2%, 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
administrative and clerical personnel through higher levels of automation.
Feist Long Distance results for the fiscal year ended December 31, 1994
compared to the fiscal year ended December 31, 1995.
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 4.8%.
Gross profit. Gross profit increased $0.4 million, or 18.6%, 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 3.7%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, or 41.7%, from $1.6 million
for fiscal 1994 to $2.2 million for fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses slightly increased 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 $0.4 million in net cash from operating
activities for the nine months ended September 30, 1997. Net cash used in
investing activities was approximately $0.1 million, principally for
equipment purchases. Net cash used in financing activities was $0.2 million,
representing repayment of long-term debt.
At September 30, 1997, Feist Long Distance had current assets
approximately equal to current liabilities and $0.7 million of total debt
outstanding which amount is due to shareholders.
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.
42
<PAGE>
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.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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% $6,031 100.0% $8,796 100.0%
Cost of services .... 2,450 69.0% 3,094 47.6% 2,864 33.5% 2,055 34.1% 2,996 34.1%
Depreciation and
amortization(1)..... 1,700 47.9% 1,825 28.1% 1,906 22.3% 1,321 21.9% 1,597 18.2%
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Gross profit(1)...... (600) (16.9)% 1,578 24.3% 3,783 44.2% 2,655 44.0% 4,203 47.7%
Selling, general and
administrative
expenses............ 2,533 71.4% 2,930 45.1% 3,417 40.0% 2,479 41.1% 3,466 39.4%
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations.......... (3,133) (88.3)% (1,352) (20.8)% 366 4.3% 176 2.9% 737 8.4%
</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 nine
months ended September 30, 1996 and 1997, was (in thousands) $1,100,
$3,402, $5,689, $3,976, and $5,800, 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 nine months ended September 30,
1996 and 1997 were $(388,000), $(349,000) and $(146,000), respectively.
KINNET results for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1997.
Revenues. Revenues increased $2.8 million, or 45.8%, from $6.0 million for
the nine months ended September 30, 1996 to $8.8 million for the nine months
ended September 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, two equal access subscribers and 79 new private line customers.
For long distance traffic, total billed minutes increased from 11.6 million
for the nine months ended September 30, 1996 to 16.9 million for the nine
months ended September 30, 1997, while average revenue per billable minute
decreased 19.3%.
Gross profit. Gross profit increased $1.5 million, or 58.3%, from $2.7
million for the nine months ended September 30, 1996 to $4.2 million for the
nine months ended September 30, 1997. Gross margin increased from 44.0% for
the nine months ended September 30, 1996 to 47.7% for the nine months ended
September 30, 1997 as a result of network efficiencies, volume discounts and
negotiated lower rates. For long distance traffic, average cost per billable
minute decreased 4.7%.
43
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.0 million, or 39.8%, from $2.5 million
for the nine months ended September 30, 1996 to $3.5 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling,
general and administrative expenses decreased from 41.1% for the nine months
ended September 30, 1996 to 39.4% for the nine months ended September 30,
1997 as KINNET was able to take advantage of economies of scale.
KINNET results for the fiscal year ended December 31, 1995 compared
to the fiscal year ended December 31, 1996.
Revenues. Revenues increased $2.1 million, or 31.6%, 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 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 45.1% 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, 1994 compared
to the fiscal year ended December 31, 1995.
Revenues. Revenues increased $2.9 million, or 83.0%, 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 45.1% for fiscal 1995 as KINNET achieved significant economies of
scale in customer support and administration.
KINNET liquidity and capital resources
KINNET generated $4.3 million in net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing
activities was approximately $5.8 million for additions to property, plant
and equipment. Net cash generated in financing activities was $2.0 million of
which $3.9 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 $2.0 million in principal payments on long-term debt.
44
<PAGE>
At September 30, 1997, KINNET had a working capital deficit of $2.2
million and $29.5 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.
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.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following discussion of the Company's pro forma combined results of
operations for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 should be read in conjunction with the pro
forma financial statements included elsewhere herein.
The following table sets forth certain pro forma combined results of
operations data of the Company and such results as a percentage of pro forma
combined revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1995(1) 1996(1) 1996 1997
------------------- ------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Telecommunications services . $37,772 50.9% $41,090 48.1% $29,648 47.0% $33,455 48.4%
Yellow page publishing....... 36,469 49.1% 44,324 51.9% 33,463 53.0% 35,624 51.6%
--------- -------- --------- -------- --------- -------- --------- --------
Total........................ 74,241 100.0% 85,414 100.0% 63,111 100.0% 69,079 100.0%
Cost of services.............. 43,005 57.9% 47,087 55.1% 33,322 52.8% 37,637 54.5%
Depreciation and
amortization................. 5,695 7.6% 5,831 6.8% 4,312 6.8% 4,130 6.0%
--------- -------- --------- -------- --------- -------- --------- --------
Gross profit.................. 25,541 34.4% 32,496 38.0% 25,477 40.4% 27,312 39.5%
Selling, general and
administrative expenses...... 23,243 31.3% 26,966 31.6% 19,323 30.6% 23,172 33.5%
--------- -------- --------- -------- --------- -------- --------- --------
Income from operations........ 2,298 3.1% 5,530 6.4% 6,154 9.8% 4,140 6.0%
</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.
Pro forma combined results for the nine months ended September 30, 1996
compared to the nine months
ended September 30, 1997.
Pro forma revenues. Revenues increased $6.0 million, or 9.5%, from $63.1
million for the nine months ended September 30, 1996 to $69.1 million for the
nine months ended September 30, 1997. Telecommunications services revenue
increased $3.9 million, or 12.8%, from $29.6 million for the nine months
ended September 30, 1996 to $33.5 million for the nine months ended September
30, 1997 as a
45
<PAGE>
result of an overall increase in traffic for all of the Acquired Companies
except Valu-Line, whose domestic long distance minutes were relatively flat.
For long distance traffic, total domestic billed minutes increased 13.7% from
192.2 million for the nine months ended September 30, 1996 to 222.6 million
for the nine months ended September 30, 1997, while average revenue per
domestic billable minutes decreased 7.4% from $0.1422 to $0.1317. Yellow page
publishing revenue increased $2.2 million, or 6.5%, from $33.5 million for
the nine months ended September 30, 1996 to $35.6 million for the nine months
ended September 30, 1997 primarily as a result of increased sales of
advertising space in the directory in Tulsa, Oklahoma and in other
established markets.
Pro forma gross profit. Gross profit increased $1.8 million, or 7.2%, from
$25.5 million for the nine months ended September 30, 1996 to $27.3 million
for the nine months ended September 30, 1997. As a percentage of revenue,
gross margin decreased from 40.4% to 39.5% for the nine months ended
September 30, 1996 and 1997. Telecommunications services gross profit
increased $1.2 million, or 17.1%, from $7.3 million for the nine months ended
September 30, 1996 to $8.5 million for the nine months ended September 30,
1997. Telecommunications services gross margin increased from 24.6% for the
nine months ended September 30, 1996 to 25.5% for the nine months ended
September 30, 1997 as a result of a scheduled decrease in depreciation
expense on equipment. For domestic long distance traffic, average cost per
billable minute decreased 10.7% from $0.0856 for the nine months ended
September 30, 1996 to $0.0786 for the nine months ended September 30, 1997.
Yellow page publishing gross profit increased $0.6 million, or 3.3%, from
$18.2 million for the nine months ended September 30, 1996 to $18.8 million
for the nine months ended September 30, 1997. Yellow page publishing gross
margin declined from 54.3% for the nine months ended September 30, 1996, to
52.7% for the nine months ended September 30, 1997, due to certain variable
costs of services, such as commissions, increasing at a more rapid rate than
revenues, resulting from temporary changes in commission payment methodology
and certain other costs of services, such as printing and distribution.
Pro forma combined results for fiscal 1995 compared to fiscal 1996.
Pro forma revenues. Revenues increased $11.2 million, or 15.0%, from $74.2
million for fiscal 1995 to $85.4 million for fiscal 1996. Telecommunications
services revenue increased $3.3 million, or 8.8%, from $37.8 million for
fiscal 1995 to $41.1 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
3.4% from $0.1458 to $0.1409. 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.
Pro forma gross profit. Gross profit increased $7.0 million, or 27.2%,
from $25.5 million for fiscal 1995 to $32.5 million for fiscal 1996. Gross
margin increased from 34.4% for fiscal 1995 to 38.0% for fiscal 1996.
Telecommunications services gross profit increased $0.9 million, or 10.1%,
from $8.9 million for fiscal 1995 to $9.8 million for fiscal 1996.
Telecommunications services gross margin decreased from 35.6% for fiscal 1995
to 35.0% for fiscal 1996 as a result of changes in product mix to lower
margin, higher cost services and implementation of a program to recycle
surplus equipment. For long distance traffic, average cost per domestic
billable minute decreased 1.7% from $0.0858 for fiscal 1995 to $0.0843 for
fiscal 1996. Yellow page publishing gross profit increased $6.0 million, or
36.2%, from $16.7 million for fiscal 1995 to $22.7 million for fiscal 1996.
Yellow page publishing gross margin increased from 45.7% for fiscal 1995 to
51.2% 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.
Pro forma combined liquidity and capital resources
CIBC Oppenheimer Corp. ("Lender"), one of the representatives of the
Underwriters in this Offering, has supplied the Company a summary of terms
and conditions relating to a proposed $25.0
46
<PAGE>
million Senior Secured Revolving Credit Facility ("Proposed Credit
Facility"), the finalization of which is conditioned upon the consummation of
the Offering and the negotiation of a definitive agreement. While the Lender
has not committed to make any loans to the Company, the Company believes
that, if any arrangement is ultimately negotiated with the Lender, it will
incorporate the following key features: (a) the facility will be secured by a
pledge of accounts receivable and the stock of the Company's subsidiaries, a
negative pledge of the Company's other assets and guaranties from the
Company's subsidiaries; (b) loans under the facility will mature within one
year; (c) the payment of interest on outstanding balances will be computed
based upon stated increments over LIBOR or a base rate; (d) the proposed
facility will require the payment of a 1% transaction fee and a 0.5%
commitment fee on the undrawn balance available under the Proposed Credit
Facility; and (e) the Proposed Credit Facility will include representations,
warranties, affirmative or negative covenants and conditions of the sort
generally found in credit facilities obtained by companies that have recently
completed an initial public offering.
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
$25.0 million to fund the acquisition of additional circuit and packet
switches, the leasing of bulk fiber optic capacity from others and the
purchase of other capital assets. See "Risk Factors -- Capital Requirements."
The Company generated $5.9 million in net cash from operating activities
for the nine months ended September 30, 1997. Net cash used in investing
activities was approximately $0.6 million, principally for property and
equipment purchases. Net cash used in financing activities was $4.5 million,
representing $3.8 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 September 30, 1997, the Company had working capital of $30.5 million
and total debt outstanding of $17.4 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 from 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.
47
<PAGE>
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, to provide long
distance services, and seven RBOCs, including Southwestern Bell and U S 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
48
<PAGE>
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 were approximately $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 U S WEST Communications, Inc. The Company offers long distance, local,
Internet access and cellular service primarily in Kansas, Minnesota,
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and publishes yellow
page directories covering certain markets in Oklahoma and Texas. 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 November 30, 1997, the Company provided
telecommunications services to almost 35,000 business customers and over
10,000 residential customers in small to mid-sized markets. The Company has
recently experienced substantial growth in its base of local customers. The
Company's local customer access lines in service grew from approximately
1,000 at June 30, 1997 to approximately 11,000 at September 30, 1997 and
approximately 17,500 at November 30, 1997. In the fiscal year ended December
31, 1996, the Company had pro forma combined revenues of $85.4 million and
EBITDA of $11.5 million. For the nine months ended September 30, 1997, the
Company had pro forma combined revenues of $69.1 million and EBITDA of $8.5
million.
The Company owns and operates six 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 880-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
transaction, 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.
The Company is also an independent publisher of yellow page directories,
and in the twelve months ended November 30, 1997 published approximately 3.1
million copies of its yellow page directories covering 20 markets in Oklahoma
and Texas. These directories contained advertisements for approximately
46,000 business customers. 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 255 persons, including approximately
40 telemarketers as of November 30, 1997. Through a strategic relationship
with Feist Publications, Inc., an affiliate of one of the Acquired Companies,
the Company also has the opportunity to cross-sell its telecommunications
services to an additional 29,000 yellow page advertising customers.
The Company is pursuing a growth strategy that it believes will enable it
to minimize its initial capital expenditures relative to many other CLECs
that 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 U S
WEST. By reselling the local service of Southwestern Bell and U S 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, U S WEST and affiliates of Sprint and GTE covering
eight 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 (which has entered into a merger agreement to be acquired
by WorldCom), Sprint, WorldCom and the RBOCs, there are over 5,000 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, many of which the Company believes
represent attractive acquisition candidates.
The Company believes that 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. The
Company's new senior management team brings extensive prior CLEC, ILEC and
public company experience, and its members have held senior operational,
strategic planning, financial and sales positions. The Company intends to
leverage this extensive management experience in the centralizing of selected
areas of operations where it can benefit from its larger size such as the
purchasing of minutes over its leased network and consolidating its
management information, selling and other administrative functions. The
Company 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 provided 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.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of integrated
telecommunications services primarily to businesses in Kansas, Minnesota,
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and a significant
provider of such services in Arkansas, Colorado and Montana. The Company
believes that it can achieve its goal of becoming a leading
telecommunications service provider in its target markets by adhering to the
following five-fold strategy:
o Plan Smart -- Focus on small and medium-sized businesses and residential
customers and select vertical market segments in small to mid-sized cities
in the Region. The Company believes that competition from other CLECs and
ILECs is less intense in these areas because, in many cases, the ILECs
have reduced their efforts to serve and defend these territories in
response to the competitive threat in their major market cities. In
addition, by focusing its sales efforts in territories served by ILEC
central offices where collocation is a viable economic alternative, the
Company can build a loyal customer base through the resale of local
services prior to committing to build the infrastructure necessary to
support facilities-based local service.
o Sell Smart --
- Sell into established customer relationships by marketing local
telephone services to the Company's existing yellow page and long
distance customers. Because the Company only recently began to offer
additional telecommunications services to its long distance customers,
only a small portion of these customers has been targeted to subscribe
to the Company's local, Internet access or cellular services. In
addition, the Company has not yet offered its bundle of
telecommunications services to the approximately 75,000 yellow page
customers to which it 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.
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- Bundle services to bring value to the Company's customers, increase
total revenue per customer, reduce selling costs and minimize customer
churn. The Company currently bundles and bills local, long distance, and
cellular services and believes it can enhance its overall margins by
combining its yellow page and Internet services with these traditional
telecommunications services.
- Offer enhanced services that have less competition and higher margin
potential, such as high speed data transport, Internet access, Web Page
design and support, and integrated voice, data and video communications
services.
o Build Smart -- Predicate growth strategies on the recognition that network
capacity is increasingly becoming a commodity. By first focusing on
acquiring customers through resale of local, long distance, cellular and
Internet services, the Company believes that it can secure customer
relationships, produce a consistent revenue stream, and evolve an economic
strategy for serving customers. The Company's serving strategy includes
not only developing network facilities to directly serve customers, but
also enhancing its OSS to provide network monitoring and control, flow
through provisioning, customer care, and enhanced billing functionality.
During 1998, the Company will resell the network facilities of ILECs to
provide local service to its customers. During 1999 and thereafter, the
Company will continue to focus on selling local service, while at the same
time implementing a substantial effort to acquire unbundled loops and
local fiber. By interconnecting with the ILEC in the central office and
acquiring unbundled loops, the Company should be able to reduce its cost
of providing service and capture the additional revenue paid by IXCs for
local access. The Company should also be able to further reduce its local
and long distance costs by acquiring rights to local and intercity fiber
and other high bandwidth capacity within the Region. By adding its own
circuit and packet switches to this bandwidth, the Company can add value,
offer new products, and better control the quality of service. Finally,
where economically advantageous, the Company intends to construct fiber
and other network facilities.
o Grow Smart --
- Increase the Company's sales force to rapidly market the Company's
services in all targeted service areas and thereafter to expand into other
areas within the Region. The Company recognizes it has an opportunity to
expand its yellow page base into other serving areas as well as to expand
its service offering with World Pages, a specialized Web site development
and hosting service to which ACG has the exclusive marketing rights in
its service area.
- Evaluate 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
increase the utilization of equipment, consolidate its buying power and
increase its ability to negotiate more attractive contracts with
third-party suppliers of network services.
- Pursue the formation of additional strategic alliances with other yellow
page publishers, utility companies, 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. The Company currently 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 29,000 yellow
page advertisers in the Region. The Company has also contracted to
acquire PAM COMM, a division of PAM Oil, Inc., which will enable the
Company, through a strategic relationship, to solicit PAM Oil, Inc.'s
approximately 15,000 business customers primarily in Idaho, Minnesota,
Montana, North Dakota and South Dakota. See "The Company -- Strategic
Relationships."
o Serve Smart -- Provide not only the highest quality customer service but
also become an industry leader in the deployment of innovative technology
and services. The Company believes that by prudently using new technology
and by offering new services, especially enhanced data applications, it
can become a low cost provider, maintain high value for its customers and
differentiate itself from other commodity providers. These services will
include data transport services such as frame relay, transparent LAN,
Internet content, and other packet-based integrated multimedia services.
Certain members of the Company's senior management team have considerable
experience in developing and deploying these 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 primarily in Kansas, Minnesota, Nebraska, North Dakota,
Oklahoma, South Dakota and Texas and to a lesser extent in Arkansas, Colorado
and Montana. The Company currently provides its local services on a resale
basis through Southwestern Bell and U S 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 offers a full range of retail long distance
services, including traditional switched and private line long distance, toll
free (800/888), and operator services, to almost 35,000 business and over
10,000 residential customers. 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 greater 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 U S WEST. At November
30, 1997, the Company was providing approximately 17,500 local access lines
to customers in Kansas, North Dakota, South Dakota and Texas and was
authorized to resell local service in four other states in the Region. The
Company plans to promptly seek 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.
Cellular Services. As of November 30, 1997 the Company provided cellular
service on a resale basis to more than 2,200 customers in Iowa, Nebraska,
North Dakota and South Dakota.
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
November 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 currently resells leased line capacity to
other carriers and owns a 49% interest in KINNET, the owner or operator of an
approximately 880-route mile fiber optic network in Kansas. The Company's
investment in KINNET is accounted for on the equity method of accounting. See
"--Network Facilities and Carrier Agreements -- KINNET."
Yellow Page Publishing. During the twelve months ended November 30, 1997,
the Company produced and distributed an aggregate of approximately 3.1
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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Certain Acquired Companies -- Great Western
Directories, Inc." Great Western derives
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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 approximately 170 direct
sales personnel to sell both advertising space in Great Western's telephone
directories and the Company's telecommunications services.
Enhanced Services. The Company believes that it can significantly increase
its revenues and margins and reduce customer churn by offering enhanced
telecommunications services to its customers. By buying bandwidth in bulk and
acquiring rights to fiber, the Company believes that it can use its own
switching resources to provide multiple services to each individual customer
while at the same time enabling many customers to use the same network
resources simultaneously. In addition, these network resources can be
monitored and controlled effectively from a central location. This efficiency
creates value for the customers and enhanced profitability potential for the
Company. The Company intends to further develop and offer the following
enhanced services:
o Transparent LAN Service -- using leased and acquired high bandwidth
networks the Company will provide business customers seamless native
speed point-to-point Ethernet, Token Ring, or other high speed transport
service.
o Fast Packet Service -- using its switches and unbundled local loops, tail
circuits, and its intercity capacity, the Company will offer customers
Frame Relay, ATM and other packet services for local point-to-point
connections, intercity connections, or access to national and
international packet switched networks.
o Internet Access -- in conjunction with one or more highly qualified
Internet service providers ("ISPs"), the Company will offer Internet
access as a bundled service to its business and residential customers.
The Company may seek to acquire an ISP and thereby provide Internet
content as well as access.
o Web Hosting and Enhanced Internet Business Services -- Great Western is
currently marketing World Pages, a specialized Web Page service, to its
yellow pages customers in its target markets. World Pages provides an
opportunity not only to provide customers with Web page design and
support, but also to expand into Web based advertising and electronic
commerce. The Company will aggressively enhance and market its Web based
product offerings with World Pages as a cornerstone of that service.
o Integrated Communications Services -- by early 1999, the Company intends
to market a new type of integrated telecommunications service to small
and medium-sized businesses in the Region. The Company intends to use
advanced packet switching technology to integrate voice, data, and
multimedia onto one network. This service will feature full LAN support
using virtual LAN technology, telephone and video over LAN, local
calling, long distance calling, Internet access, LAN to LAN access for
E-commerce as well as help desk and software upgrade service. Customer
assistance will be expedited with "reach through" technology for
downloading software and trouble resolution. Through central software
management, applications "metering" (paying only for the number of
applications in use) and similar arrangements with software vendors, the
Company expects to enhance the profitability of its integrated
communications services. Full help desk services will be available under
various billing plans as will off-line storage, data image retrieval and
similar services. The foregoing services may be offered in conjunction
with strategic partners.
o Specialize Vertical Market Applications -- because the Company's markets
include many smaller communities, the Company will use its intercity
capabilities to deliver integrated solutions to specially targeted
institutions and businesses. The Company will leverage its expertise in
telephony, data, and network management by partnering or acquiring
companies with specific solutions with high demand in a given market
segment. For example, the Company may seek to partner with a company
offering tele-medicine and records management software by jointly
marketing these services in its serving area. The Company will develop
and support these products through a centralized group.
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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 ILEC 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 and operates six 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 digital tandem switch located in Oklahoma City, Oklahoma.
Furthermore, KINNET owns a Northern Telecom DMS 500 with local and long
distance switching 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 and WorldCom provide the majority of the Company's long
distance "off-net" transmission services. 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 commitments
of $225,000 and $200,000, respectively. If the minimum usage level is not
met, an additional amount is due, although the aggregate will not exceed the
monthly minimum. 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. 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.
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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 owner or operator of an approximately 880-route mile fiber optic network
in Kansas. KINNET is a carriers' carrier and currently serves 26 counties,
105 communities and over 60,000 end users in Kansas. It also sells private
line services of DS-1 and DS-3 capacity to interexchange carriers, cellular
telephone carriers, 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, 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 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 were
conducted, as of November 30, 1997, by approximately 85 direct sales
personnel including approximately 20 telemarketers. As of the same date,
advertising space in the Company's yellow page directories was sold by Great
Western's direct sales force of approximately 170 persons, including
approximately 20 telemarketers, 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. Additional directory
sales personnel will be needed to expand into new markets and also to call on
existing
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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 integrated bundle of telecommunications services and emphasizing
the marketing of competitive 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.
In addition to the field marketing sales force in the Region, the Company
plans to develop a small group of highly experienced and technologically
proficient major accounts sales persons and sales engineers. This group will
market more complex solutions, including enhanced services, to targeted large
customers in the Region. The Company believes that in this way it can
continue the focus of its local sales forces on the primary target segment of
small and mid-sized businesses while at the same time availing itself of the
opportunity to serve specific large customers.
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 interLATA
basis and Southwestern Bell and U S 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 U S 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 RBOCs 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 each particular market, including either Southwestern Bell or U S
WEST in virtually all of the Company's initial market areas. 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
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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.
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 Financial Condition
and Results of Operations of Certain Acquired Companies -- Overview of the
Acquired Companies Sources of Revenues and Expenses."
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 current requirement for the filing of tariffs, which may be
eliminated for domestic interstate service), as well as certain reporting
requirements, but the Company's rates and practices are not routinely
reviewed. The Company is seeking all authority required by the FCC to conduct
its international 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.
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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 for
interexchange service to rural and high cost areas be no higher than those
charged to urban areas and that the same rates for the same interstate
interexchange services be applied in every state in which the Company offers
such 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 annual contributions to the TRS Fund (also based upon the
Company's share of gross interstate revenues) and, in the near future, the
Universal Service Fund.
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
established rules pursuant to which ILECs would interconnect their networks
with the networks of CLECs on the basis of reasonable and non-discriminatory
rates. The Interconnection Decision also established 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 CLECs would otherwise be required to install. In
addition, the Interconnection Decision sets rules governing a CLEC's access
to wholesale versions of the ILECs' retail local services for resale. The
ILECs were required to establish administrative support systems so that these
services and functionalities could 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 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.
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Some of these rules have yet to be implemented, while others have been
struck down on appeal. The Telecommunications Act provides that 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.
In addition, the U.S. Court of Appeals for the Eighth Circuit has
responded to appeals from the ILECs by vacating certain portions of the
Interconnection Decision, including rules governing the rates that ILECs may
charge for use of their network elements and services. The court had
initially granted a stay of certain provisions of the Interconnection
Decision, including the pricing rules and a rule 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 have made negotiating
such agreements more difficult and protracted. The FCC applied unsuccessfully
to the U.S. Supreme Court to vacate the judicial stay, on July 18, 1997, but
the Eighth Circuit 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" rule, and some portions of the FCC unbundling rules,
including the requirement that ILECs recombine network elements that are
purchased by CLECs on an unbundled basis. The court upheld, however, the
FCC's view of the network elements that ILECs must unbundle, found that
nothing in the Telecommunications Act requires a CLEC to own or control a
telecommunications network before being able to purchase unbundled elements,
and affirmed certain other aspects of the Interconnection Decision. Several
interexchange carriers (including AT&T, MCI and Sprint) filed petitions for
rehearing with the Eighth Circuit, requesting the court to reinstate certain
of the FCC rules that were found unlawful. Various ILECs filed petitions of
their own regarding aspects of the court's decision that they found
objectionable. On October 14, 1997, the court denied the petitions of the
interexchange carriers, granted those of the ILECs and struck down an
additional FCC rule established in the Interconnection Decision that
prohibited an ILEC from separating requested network elements that it could
otherwise combine. The effect of the court's decision was to prevent CLECs
from acquiring bundled network elements at cost-based rates, and to make only
unbundled elements available at those rates. In a separate decision on August
22, 1997, the Eighth Circuit held that the FCC exceeded the scope of its
jurisdiction by issuing rules concerning dialing parity that affect
essentially intrastate services and local, interstate calls within a single
LATA.
The FCC, AT&T, MCI, Sprint, WorldCom and a large number of CLECs and
others have filed petitions of certiorari requesting the United States
Supreme Court to overturn both of the Eight Circuit's decisions. The
petitions assert, among other things, that the Eight Circuit erred in finding
the FCC lacked jurisdiction to promulgate rules implementing the local
competition pricing provisions of the Telecommunications Act of 1996 and in
rejecting the "pick and choose" provisions of the FCC's Rules. There can be
no assurance that the stricken portions of the FCC's rules will be reinstated
on appeal or in further consideration by the FCC, or that the Company will be
able to obtain interconnection agreements on terms acceptable to the Company.
There can also be no assurance 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 latter regard,
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 through 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
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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 executed comprehensive local exchange resale agreements
with Southwestern Bell, U S West, Sprint and GTE covering eight states in the
Region. These agreements do not completely resolve all pricing and
operational issues for the resale of 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.
In addition, the Company's plans to provide local telephone service are
heavily dependent upon implementation of provisions of the Telecommunications
Act. The Telecommunications Act preempted state and local laws to the extent
that they prohibited local telephone competition, and imposed a variety of
new duties on ILECs intended to advance such competition, including the duty
to negotiate in good faith with competitors requesting interconnection to an
ILEC's network. However, negotiations with ILECs have sometimes involved
considerable delays and the resulting negotiated agreements may not
necessarily be obtained on terms and conditions that are acceptable to the
Company. In such instances, the Company may petition the proper state
regulatory agency to arbitrate disputed issues. There can be no assurance
that the Company will be able to negotiate acceptable new interconnection
agreements with ILECs or that if state regulatory authorities impose terms
and conditions on the parties in arbitration, such terms will be acceptable
to the Company.
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
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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 agreements 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 a blended rate of approximately $5.00 per
business and residential customer as a PICC charge. Unless all interexchange
carriers elect to pass these charges 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.
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 eight states and are
currently reselling local services in portions of Texas, Kansas, North Dakota
and South Dakota. 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.
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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.
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.
Valu-Line has been providing intrastate long distance services to
customers in Arkansas since 1992 without the requisite permit from the state
utility commission. Valu-Line has initiated steps to secure the requisite
permit for such activities and no penalties have been assessed to date. While
the Arkansas regulatory authorities have the power to require the forfeiture
of the revenues generated by Valu-Line's unlicensed intrastate activities in
Arkansas (approximately $300,000 through September 30, 1997), Valu-Line is
endeavoring to negotiate a reduced penalty. The Company is negotiating an
appropriate escrow arrangement with the stockholders of Valu-Line or a
reduction in the purchase price to cover such penalty.
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 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 or on the value of the Common Stock.
REAL PROPERTY AND LEASES
The Company leases its corporate headquarters space in St. Louis, Missouri
from an unaffiliated third party on a month-to-month basis.
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The Company owns office buildings in Amarillo and Longview, Texas and
leases office space and facilities in Dallas, Texas; Oklahoma City, Oklahoma;
Wichita, Kansas; Sioux Falls, South Dakota and several 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 November 30, 1997, the Company had over 580 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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of
ACG's directors and executive officers (ages as of November 30, 1997). The
Board of Directors (the "Board") will consist of twelve 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 annual meetings of
the stockholders. Executive 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>
Richard P. Anthony ........... 49 Chairman of the Board, President and Chief 2000
Executive Officer
James F. Cragg................ 46 Executive Vice President, Sales and Marketing and 1998
Director
William H. Zimmer III ........ 44 Executive Vice President, Chief Financial 1999
Officer, Treasurer, Secretary and Director
Richard O'Neal(2) ............ 57 President--Directory Services Group and Director 1999
Fred L. Thurman(2) ........... 47 President--Telecommunications Services Group and 2000
Director
Todd J. Feist(2) ............. 33 Vice President-- Kansas/Telecommunications 1999
Services Group and Director
Rod K. Cutsinger ............. 54 Director 2000
Fentress Bracewell(2)(3)(4)(5) 76 Director 1998
E. Clarke Garnett(2)(3)(6) .. 37 Director 1999
Reginald J. Hollinger(2)(3)(4). 34 Director 2000
David M. Mitchell(2)(4)(6) .. 49 Director 1998
G. Edward Powell(5) .......... 61 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."
Richard P. Anthony joined ACG in November 1997 and was elected Chairman of
the Board, President and Chief Executive Officer of ACG in December 1997.
Since 1993, Mr. Anthony had been employed by Brooks Fiber Properties, Inc.
("Brooks Fiber"), a CLEC and a competitive access provider which has recently
entered into a merger agreement to be acquired by WorldCom. Mr. Anthony
joined Brooks Fiber as its seventh employee, and most recently served as
Regional President of one of the two regions of Brooks Fiber. In that
capacity he had responsibility for directing sales, construction and
operations in 25 cities, including Oklahoma City, Tulsa, Houston, Austin,
Dallas, San Antonio, Kansas City and Minneapolis. Mr. Anthony also chaired
the Brooks Fiber Service Delivery Committee which was concerned with defining
the business practices and recommending changes to the operational support
systems supporting order processing, billing, provisioning, as well as
network monitoring and asset administration. Earlier, from March 1993 until
August 1996, Mr. Anthony was Brooks Fiber's Senior Vice
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President of Marketing and Strategy. From 1991 until 1993, Mr. Anthony was
Senior Vice President of Strategy, Marketing and Network of Intermedia
Communications of Florida, Inc. ("ICI"), a competitive access provider that
completed its initial public offering in 1992. From 1989 through 1990, Mr.
Anthony was Director, Data Communications, of Telcom USA, a large long
distance company. From 1987, when ICI began operation, to 1989, Mr. Anthony
was Vice President of Strategy, Marketing and Sales of ICI. Mr. Anthony had
spent a number of years in the telecommunications industry prior to that
time.
James F. Cragg was elected Executive Vice President, Sales and Marketing
in December 1997. Since January 1997 Mr. Cragg had been employed by Brooks
Fiber. Mr. Cragg most recently served as Acting Regional President, Eastern
Region, and also as General Manager and Regional Vice President, Mid-America
Region. In these capacities, he had responsibilities for directing sales,
construction and operations in Kansas, Minnesota, Missouri and Tennessee.
From 1995 to 1996, Mr. Cragg was Senior Vice President, Business Markets for
Snyder Communications Inc., an integrated marketing company. In this
capacity, Mr. Cragg was responsible for managing a large outsourced sales
channel (staffed by 650 sales representatives speaking 22 foreign languages)
representing MCI Business to Business Sales as an agent to MCI. From 1994 to
1995, Mr. Cragg was a Director of Sales and Marketing for Ernst & Young. From
1983 to 1994, Mr. Cragg held various responsibilities at MCI
Telecommunications Inc. His last position at MCI was Director of Sales and
Service, Mid-America Region.
William H. Zimmer III was elected Executive Vice President, Chief
Financial Officer, Treasurer Secretary and a director of ACG in December
1997. Since 1991 Mr. Zimmer had been employed as Treasurer and Secretary of
Cincinnati Bell Inc., ("CBI"), the holding company of an incumbent local
exchange carrier. For more than nine years prior to that time, he served in a
variety of finance positions with CBI. As Secretary and Treasurer of CBI, Mr.
Zimmer was primarily responsible for that company's corporate financings,
risk management, trust asset management, cash management, corporate
investments and rating agency and exchange relationships. Mr. Zimmer has
agreed to facilitate an orderly transition of his duties at CBI by consulting
at mutually convenient times with officials of CBI through the first quarter
of 1998.
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 -- Telecommunications 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 six months. Between 1984
and 1989, he provided accounting, tax and management advisory services as a
certified public accountant to Dial-Net, Inc., a long distance telephone
company, when it was acquired by LDDS, Inc. in 1993. Since 1979 Mr. Thurman
has also been a partner in Thurman, Comes, Foley & Co. LLC, a public
accounting firm in Sioux Falls, South Dakota, but in the last several years
has not been active in the practice.
Todd J. Feist is Vice President -- Kansas/Telecommunications 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 Feist Publications, Inc. in Lubbock, Texas since
1987.
Rod K. Cutsinger has been a director of ACG and its predecessor since the
organization of its predecessor in June 1996 and served as Chairman and Chief
Executive Officer from June 1996 until Mr. Anthony assumed those positions in
December 1997. Mr. Cutsinger, the founder of ACG, developed the Company's
initial acquisition strategy and successfully negotiated the definitive
acquisition agreements with the Acquired Companies. 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
company headquartered in Houston, Texas. In late 1992 AFS was acquired by
Service Corporation International. Thereafter, Mr. Cutsinger founded and
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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. See "Certain Transactions -- Additional Background
Information." Mr. Cutsinger is also an executive officer, director and equity
interest owner of CPFF and Consolidation Partners.
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.
Reginald J. Hollinger is a Managing Director and Group Head of the
Telecommunications Investment Banking Group at PaineWebber Incorporated, one
of the Representatives of the Underwriters. Mr. Hollinger serves as a member
of the Investment Banking Division's Management Committee. Prior to joining
PaineWebber in 1997, Mr. Hollinger worked at Morgan Stanley & Co.
Incorporated for eight years and was most recently a Principal focusing
exclusively on the telecommunications industry. Mr. Hollinger has a wide
range of corporate finance and mergers and acquisitions experience in the
telecommunications industry.
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.
G. Edward Powell served as Executive Vice President and Chief Financial
Officer of ACG and its predecessor between July and December 1997, after
having acted as a consultant to and a director of ACG's predecessor 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.
OTHER VICE PRESIDENTS
The following table sets forth certain information regarding other Vice
Presidents of Services Groups of ACG who are not considered executive
officers:
<TABLE>
<CAPTION>
NAME AGE VICE PRESIDENT OF (1)
- ----------------- ----- ---------------------------------------------
<S> <C> <C>
Brad Van Leur ... 41 Marketing/Telecommunications Services Group
Donald R. Sarchet 48 Networks/Telecommunications Services Group
Bill Rhodes ...... 49 Texas/Telecommunications Services Group
Earle Brown ...... 40 Interconnect/Telecommunications Services
Group
Larry Baldwin ... 52 Operations/Directory Services Group
Mark Fields ...... 33 Finance/Directory Services Group
Max Andrews ...... 39 Marketing/Directory Services Group
</TABLE>
- ------------
(1) Election will become effective upon the closing of the Offering, and
the biographical information set forth below assumes the consummation
of the Offering.
Brad Van Leur is Vice President -- Marketing/Telecommunications Services
Group of ACG. Mr. Van Leur has been Vice President Sales & Marketing for
FirsTel since 1995, and between 1993 and 1995 served
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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/Telecommunications
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.
Bill Rhodes is Vice President -- Texas/Telecommunications 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.
Earle Brown is Vice President -- Interconnect/Telecommunications 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.
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 October 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 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 first to occur of the date of consummation of the Offering or
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. Fentress Bracewell, Rod K. Cutsinger, E. Clarke Garnett, Reginald J.
Hollinger, G. Edward Powell 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.
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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 officer and his annualized
base salary will be: Mr. Rod K. Cutsinger (who served as Chairman and Chief
Executive Officer until Mr. Richard P. Anthony assumed those positions in
December 1997) -- $300,000. Mr. Rod K. Cutsinger is no longer an officer or
employee of the Company. In lieu of cash compensation from the Company, Mr.
G. Edward Powell (who served as Executive Vice President and Chief Financial
Officer of the Company until Mr. William H. Zimmer III assumed the position
of Senior Vice President, Chief Financial Officer, Treasurer and Secretary in
December 1997) 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. In addition
to Messrs. Anthony, Cragg and Zimmer, who served in their positions for a
brief period in 1997, the only other person to serve as an officer of the
Company during 1997 was Brad K. Cutsinger, the son of Rod K. Cutsinger, who
is no longer employed by the Company. 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>
Richard P. Anthony ... Chairman of the Board, President and $250,000
Chief Executive Officer
James F. Cragg ........ Executive Vice President, Sales and 175,000
Marketing
William H. Zimmer III Executive Vice President, Chief Financial 185,000
Officer, Secretary and Treasurer
Richard O'Neal ........ President--Directory Services Group 300,000
Fred L. Thurman ....... President--Telecommunications Services 175,000
Group
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Richard P. Anthony has entered into a six-year employment agreement
with the Company providing for his employment as Chairman of the Board,
President and Chief Executive Officer of the Company at an annual base salary
of $200,000, increasing to $250,000 after February 1, 1998, with a bonus
potential equal to 50% of base salary. The agreement provides for a one time
$50,000 cash bonus that was paid in December 1997, ten-year options to
purchase 150,000 shares of Common Stock at $2.50 per share which vest three
months after the date of grant, and ten-year options to purchase 350,000
shares of Common Stock at the initial public offering price which vest in
three equal increments on the first three anniversaries of the date of grant.
The agreement also provides for the grant of options to purchase up to 75,000
shares of Common Stock each year at the current market price on the date of
grant, if certain targets set by the Compensation Committee are met. Mr.
Anthony's options vest upon (i) his death or disability, (ii) his resignation
following a change of control, or (iii) the termination of his employment
other than "with cause," as defined in his employment agreement. In the event
Mr. Anthony resigns after a change in ownership or management of the Company
which significantly alters his job responsibilities or compensation, he will
be entitled to his base salary for a period of two years. Unless either Mr.
Anthony so resigns or the Company terminates his employment "with cause," as
defined in the employment agreement, Mr. Anthony will be entitled to his base
salary for a one year period upon his termination. The employment agreement
also provides for a one year post-termination noncompetition obligation that
is extended to three years upon his voluntary resignation under circumstances
that do not involve a change in control.
Mr. William H. Zimmer III has entered into a six-year employment agreement
with the Company providing for his employment as Executive Vice President,
Chief Financial Officer, Secretary and Treasurer at an annual base salary of
$185,000, with a bonus potential equal to 50% of base salary. The agreement
provides for a one time $50,000 cash bonus that was paid in December 1997,
ten-year options to purchase 350,000 shares of Common Stock at the initial
public offering price which vest in three equal
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increments on the first three anniversaries of the date of grant. The
agreement also provides for the grant of options to purchase up to 50,000
shares of Common Stock each year at the current market price on the date of
grant, if certain targets set by the Compensation Committee are met. Mr.
Zimmer's options vest upon (i) his death or disability, (ii) his resignation
following a change of control, or (iii) the termination of his employment
other than "with cause," as defined in his employment agreement. In the event
Mr. Zimmer resigns after a change in ownership or management of the Company
which significantly alters his job responsibilities or compensation, he will
be entitled to his base salary for a period of two years. Unless either Mr.
Zimmer so resigns or the Company terminates his employment "with cause," as
defined in the employment agreement, Mr. Zimmer will be entitled to his base
salary for a one year period upon his termination. The employment agreement
also provides for a one year post-termination noncompetition obligation that
is extended to three years upon his voluntary resignation under circumstances
that do not involve a change in control.
Mr. James F. Cragg has entered into a six-year employment agreement with
the Company providing for his employment as Executive Vice President,
Marketing and Sales at an annual base salary of $175,000 with a bonus
potential equal to 100% of base salary. The agreement provides for a one time
$100,000 cash bonus that was paid in December 1997, ten-year options to
purchase 150,000 shares of Common Stock at $2.50 per share which vest three
months after the date of grant, and 275,000 ten-year options to purchase
275,000 shares of Common Stock at the initial public offering price which
vest in three equal increments on the first three anniversaries of the date
of grant. The agreement also provides for the grant of options to purchase up
to 50,000 shares of Common Stock each year at the current market price on the
date of grant, if certain targets set by the Compensation Committee are met.
Mr. Cragg's options vest upon (i) his death or disability, (ii) his
resignation following a change of control, or (iii) the termination of his
employment other than "with cause," as defined in his employment agreement.
In the event Mr. Cragg resigns after a change in ownership or management of
the Company which significantly alters his job responsibilities or
compensation, he will be entitled to his base salary for a period of two
years. Unless either Mr. Cragg so resigns or the Company terminates his
employment "with cause," as defined in the employment agreement, Mr. Cragg
will be entitled to his base salary for a one year period upon his
termination. The employment agreement also provides for a one year
post-termination noncompetition obligation that is extended to three years
upon his voluntary resignation under circumstances that do not involve a
change in control.
In addition, Messrs. O'Neal, Feist and Thurman have entered into 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, $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 his 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. Mr. Feist is 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. Mr.
Feist is also entitled to receive a bonus of $50,000 upon consummation of the
Offering.
See "Option Grants" for information relating to stock options awarded to
Messrs. O'Neal, Feist and Thurman.
1997 STOCK AWARDS PLAN
In October 1997, the Board adopted and the stockholders subsequently
approved the Plan in substitution of a substantially identical plan which its
predecessor had adopted earlier in the year. 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
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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 ("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
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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.
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 vested in equal increments on the
first and second anniversaries of the date of grant and would have been
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.
In December 1997 Mr. Feist exchanged this option for a substantially
identical option to purchase 250,000 shares of Common Stock issued under the
Plan. In December 1997, Messrs. Powell and Brad Cutsinger also exchanged
their options for ten-year, fully vested warrants to purchase a like number
of shares of Common Stock at the same exercise price. In late 1997, the
Company granted options to purchase an aggregate of 1,275,000 shares of
Common Stock to Messrs. Richard P. Anthony, James F. Cragg and William H.
Zimmer III as described under "--Employment Agreements." Contemporaneously
with the closing of the Offering, the Board intends to grant (i) five year
options to purchase 150,000 shares, and 100,000 shares, respectively, to
Richard O'Neal and Fred L. Thurman, 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, $0.5
million, $3.3 million and $1.4 million in cash, will be paid to Messrs.
O'Neal, Feist, Mitchell and Thurman, respectively, , , and
shares of Common Stock will be issued to Messrs. O'Neal, Feist, Mitchell and
Thurman, respectively; $8.4 million in subordinated notes will be issued to
Mr. O'Neal; $552,983 in convertible subordinated notes will be issued to Mr.
Thurman; and 280,000 and 13,513 five-year non-transferable warrants to
purchase Common Stock at the initial public offering price will be issued to
Mr. O'Neal and Mr. Thurman, 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 received warrants to
purchase an aggregate of 1.5 million shares of Common Stock.
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. 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 November 30, 1997, the promissory note of Rod
Cutsinger had been paid in full and the balance of the promissory note of
Brad Cutsinger had declined to $22,500 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
owners to subscribe for $300,000, $126,100 and $100,000, respectively, of
these Class A Interests, Rod K. Cutsinger has agreed to transfer to such
persons for nominal consideration not more than 150,000
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47,250 and 37,500 shares of his Common Stock. 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. In November 1997, CPFF issued an additional $750,000 of Class A
Interests to certain existing Class A Interest holders. At the same time, the
holders of the Class B Interests contributed an additional $7,576 to the
capital of CPFF. CPFF used the proceeds of the issuance of these additional
Class A Interests to increase its loan to ACG to approximately $2.9 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 $11.4 million. 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 and G. Edward Powell) 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 "Shares Eligible for Future Sale" and "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 (a former director of ACG), 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 $2.9
million in November 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. During the
same period, ACG's predecessor agreed to issue to eight persons for services
rendered five year warrants to purchase an aggregate of 43,000 shares of
Common Stock at the initial public offering price per share, subject to
adjustments to protect against dilution. Additionally, on May 2, 1997 ACG's
predecessor issued 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, to a consultant in consideration for services
rendered to the Company. In July 1997, the Company agreed to issue a similar
warrant to purchase 20,000 shares of Common Stock at $2.50 to another
consultant. Pursuant to agreements entered into in May and July 1997, the
Company has agreed to issue an aggregate of 12,010 shares of Common Stock,
valued at $2.50 per share, to two consultants in lieu of compensation. With
respect to certain other option and warrant grants, see "Management -- 1997
Stock Awards Plan --Option Grants." In December 1997 Rod K. Cutsinger
privately placed an aggregate of 187,500 shares of his Common Stock with
Richard P. Anthony and another investor at a price of $2.00 per share and
agreed to privately place an additional 125,000 shares of Common Stock with
James F. Cragg at the same price.
VOTING ARRANGEMENTS
In the acquisition agreement relating to the investment in KINNET, Liberty
(the former owner of 100%, and the present owner of the remaining 51%, of the
stock of KINNET) agreed, until the tenth
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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.
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. BSI has also agreed to give
Great Western the exclusive right to market World Pages in its service areas.
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.
ADDITIONAL BACKGROUND INFORMATION
In mid-1992, Rod K. Cutsinger formed Vadacom, Inc. ("Vadacom") as a
switch-based long distance telephone company headquartered in Houston, Texas.
In early 1995 Vadacom transferred its switch, computer and related billing
software and customer base to Nationwide Long Distance, Inc. ("Nationwide"),
a switchless long distance reseller with a substantial customer base, in
exchange for cash, a subordinated promissory note and an opportunity to
convert the note into a substantial equity position in Nationwide, with the
expectation that an affiliate of Nationwide would promptly conclude an
initial public offering. Although Mr. Cutsinger served as an officer and
director of this affiliate for a brief period of time, he never served as an
officer or director of Nationwide. The affiliate's anticipated public
offering did not occur and the terms of the asset sale were restructured.
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In late 1995 Nationwide and its three stockholders (collectively the
"Plaintiffs") filed suit against Vadacom and Mr. Cutsinger (collectively, the
"Defendants"), alleging, that the Defendants committed fraud in connection
with the sale of Vadacom's assets to Nationwide and the anticipated initial
public offering and that Vadacom breached its representations and warranties
in its agreements with Nationwide (Nationwide Long Distance, Inc., Kim
Wilhelm, Ellen Wilhelm and Chester M. Ranger v. Vadacom, Inc. and Rod K.
Cutsinger, No. 95-051059, Dist. Ct. of Harris County, 215th Judicial District
of Texas). The Plaintiffs seek in excess of $10 million in actual damages,
punitive damages in an unspecified amount, and injunctive relief. The
Defendants believe that the claims against them are without merit. The
Defendants have filed counterclaims alleging that the Plaintiffs willfully
violated the rules and regulations of the FCC by illegally switching
customers' long distance service without their authorization, that the
Plaintiffs breached their fiduciary duties to Defendants, and that the
Plaintiffs defrauded Defendants in materially diminishing the value of the
assets sold to Nationwide by Vadacom and frustrating the consummation of a
public offering that potentially could have been substantially remunerative
to Vadacom's shareholders. The Defendants have asked the court to impose a
constructive trust over the shares of Nationwide stock owned by its three
shareholders. All activity in the case has now been stayed by reason of
Nationwide's Chapter 11 bankruptcy proceedings initiated in 1997. Efforts to
settle the case earlier this year were not successful.
In addition, as a result of Mr. Cutsinger's substantial ownership position
in Vadacom and Nationwide's operation of Vadacom's assets following the
acquisition, both Mr. Cutsinger and Vadacom have been sued or threatened with
suit for breach of contract claims by long distance carriers, customers and
others, for failure to pay outstanding commercial accounts and ad valorem
taxes and for other causes of action. Some of these claims relate directly to
the operation of Vadacom's assets following their acquisition by Nationwide.
Mr. Cutsinger believes that the claims against him personally are without
merit, and he intends to contest them vigorously. While in the past Mr.
Cutsinger has expended substantial sums of his own money financing Vadacom's
defense of these claims, he reserves the right to cease doing so. In such
event, Vadacom may seek protection from such litigants and its creditors
under applicable bankruptcy law.
SUBSEQUENT MANAGEMENT CHANGES
In September 1997, the Company initiated a search for a President and
Chief Executive Officer and a Chief Financial Officer, each with extensive
experience in the local and long distance telephone business, to succeed
Messrs. Rod K. Cutsinger, and G. Edward Powell. Accordingly, upon the
Company's hiring of Richard P. Anthony and William H. Zimmer III, Mr.
Cutsinger relinquished his position as Chairman and Chief Executive Officer
of ACG and G. Edward Powell resigned as Executive Vice President and Chief
Financial Officer of ACG. Messrs. Cutsinger and Powell are no longer officers
or employees of ACG.
At the request of the Representatives of the Underwriters and in
consideration of the Company's payment of $1.75 million from the proceeds of
the Offering, Mr. Cutsinger intends to enter into a five-year non-competition
agreement with the Company. Under this agreement, Mr. Cutsinger will agree
not to engage in any business activity conducted by the Company as of the
date of this Prospectus in those portions of the Region in which the Company
operates at that date. See "Description of Capital Stock -- Standstill
Agreement" for information regarding a three-year standstill agreement that
Mr. Cutsinger has also entered into with the Company.
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 December 28, 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,
PRIOR TO OFFERING AS ADJUSTED
----------------------------- -----------------------
NAME(1) NUMBER(2) PERCENT(2)(3) NUMBER(2) PERCENT(2)(3)
------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Richard P. Anthony ......................... 125,000 *%
James F. Cragg ............................. 125,000(4) *
William H. Zimmer III....................... -- --
Richard O'Neal ............................. -- -- (5)
Fred L. Thurman ............................ -- --
Todd J. Feist .............................. -- --
Rod K. Cutsinger ........................... 20,452,750(4)(6) 94.0 (7)
Fentress Bracewell ......................... 5,000 *
E. Clarke Garnett .......................... -- -- (8)
Reginald J. Hollinger ...................... -- --
David M. Mitchell .......................... -- --
G. Edward Powell ........................... 470,000(9) 2.2 (9)
CPFF ....................................... 20,000,000 91.9
Consolidation Partners ..................... 20,000,000(10) 91.9
Executive officers and directors as a group
(6 persons and 12 persons, respectively) .. 21,142,750(11) 97.1
</TABLE>
- ------------
* Percentage of shares beneficially owned is less than 1.0%.
(1) The address of all executive officers and directors (other than
Messrs. Cutsinger and Powell) is 16535 Baxter Forest Ridge, St.
Louis, Missouri 63005; the address of Messrs. Cutsinger and Powell,
CPFF and Consolidation Partners is 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 December 28, 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 125,000 shares of Common Stock that Mr. Cragg is entitled
to purchase from Mr. Cutsinger for $2.00 per share.
(5) 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.
(Footnotes continued on following page)
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(6) 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
he will receive by reason of his ownership of approximately 14.6% 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. Also gives effect to an agreement to transfer not
more than 150,000, 47,250 and 37,500 shares of Common Stock to three
unrelated owners of interests in CPFF.
(7) 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.
(8) 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.
(9) Includes 350,000 shares of Common Stock which Mr. Powell has the
right to acquire upon the exercise of warrants which are fully
exercisable.
(10) 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.
(11) Includes 350,000 shares of Common Stock which such persons will have
the right to acquire upon the exercise of warrants 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, 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. See
also "--Standstill Agreement."
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 12. 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.
80
<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.
STANDSTILL AGREEMENT
The Company and Rod K. Cutsinger intend to enter into an agreement
pursuant to which Mr. Cutsinger, among other things, will agree that, for
three years after the completion of the Offering, he will not (i) acquire any
voting securities of the Company other than the shares of Common Stock
issuable as stock dividends or splits or upon exercise of his options under
the Company's Directors' Plan, (ii) sponsor or participate in any proxy
solicitations, (iii) enter into or form voting trusts, pooling agreements or
"groups", (iv) vote any of his shares of Common Stock in opposition to the
recommendation of the disinterested members of ACG's board of directors
regarding the election or removal of directors and matters relating to a
possible change in control of the Company, or (v) directly or indirectly
assist, encourage or induce any person to bid or acquire any class of
securities that is entitled to vote for the election of directors.
TRANSFER AGENT
The Transfer Agent for the Common Stock is Continental Stock Transfer &
Trust Co.
81
<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 and the stockholder's of the Company's,
predecessor (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 18 months after the closing of the Offering, 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.
82
<PAGE>
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
CIBC Oppenheimer Corp. (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
UNDERWRITERS SHARES
------------ ---------
<S> <C>
PaineWebber Incorporated ..............................
CIBC Oppenheimer Corp. .................................
-------------
-------------
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 CIBC Oppenheimer Corp. 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 CIBC Oppenheimer Corp. acquired 5,000 shares of Common
Stock for $50.00 upon the capitalization of ACG. CIBC Oppenheimer Corp. is
one of the Representatives.
83
<PAGE>
CIBC Oppenheimer Corp. will be the lender under the Company's proposed
credit facility, and will receive certain fees with respect thereto. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Certain Acquired Companies -- Pro Forma Results of Operations
- -- Pro Forma Liquidity and Capital Resources." Reginald J. Hollinger, a
Managing Director and Group Head of the Telecommunications Investment Banking
Group at Paine Webber Incorporated, will become a director of the Company
upon the consummation of the Offering. See "Management."
The Company's executive officers and directors, all persons who are
acquiring Common Stock in the Acquisitions or pursuant to the merger of the
Company's predecessor, 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 18 months after the closing of the
Offering, 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.
84
<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. Bracewell &
Patterson, L.L.P. will receive a premium over their normal hourly billing
rates for the legal services performed by them in connection with the
Offering if the Offering is completed and will accept a substantially reduced
fee payment in the event that the Offering is not completed.
EXPERTS
The audited financial statements of Advanced Communications Group, Inc.,
Great Western Directories, Inc., Feist Long Distance Service, Inc. and
FirsTel, Inc. have been included herein and in the Registration Statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon authority of said
firm as experts in accounting and auditing.
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 reports 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.
Advanced Communications Group, Inc. is a Delaware corporation,
incorporated as a subsidiary of its predecessor in September 1997, with
principal executive offices temporarily located at 16535 Baxter Forest Ridge
St. Louis, Missouri 63005. Its telephone number at that address is (314)
469-9488. The Company intends to furnish its stockholders annual reports
containing consolidated financial statements examined by an independent
public accounting firm.
85
<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 September 30, 1997..................... F-4
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 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 September 30, 1997 (unaudited) . F-14
Consolidated Statements of Operations for the period from inception to December 31,
1996 and the nine months ended September 30, 1997 (unaudited).......................... F-15
Consolidated Statements of Stockholders' Deficit for the period from inception to
December 31, 1996 and the nine months ended September 30, 1997 (unaudited) ............ F-16
Consolidated Statements of Cash Flows for the period from inception to December 31,
1996 and the nine months ended September 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 September 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 nine months ended September 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 nine months ended
September 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 nine months ended September 30, 1996 and 1997
(unaudited)............................................................................ F-26
Notes to Financial Statements........................................................... F-27
VALU-LINE OF LONGVIEW, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-32
Combined Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)............................................................................ F-33
Combined Statements of Income for the three years ended December 31, 1994, 1995 and
1996, and the nine months ended September 30, 1996 and 1997 (unaudited) ............... F-34
Combined Statements of Stockholders' Equity for the three years ended December 31,
1994, 1995 and 1996, and the nine months ended September 30, 1997 (unaudited) ......... F-35
Combined Statements of Cash Flows for the three years ended December 31, 1994, 1995 and
1996, and the nine months ended September 30, 1996 and 1997 (unaudited) ............... F-36
Notes to Combined Financial Statements.................................................. F-37
F-1
<PAGE>
<CAPTION>
PAGE
--------
<S> <C>
FEIST LONG DISTANCE SERVICE, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.......................................................... F-42
Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited) .............. F-43
Statements of Operations for the year ended December 31, 1996, and the nine months
ended September 30, 1996 and 1997 (unaudited).......................................... F-44
Statements of Stockholders' Equity for the year ended December 31, 1996, and the nine
months ended September 30, 1997 (unaudited)............................................ F-45
Statements of Cash Flows for the year ended December 31, 1996, and the nine months
ended September 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 September 30, 1997
(unaudited)............................................................................ F-51
Statements of Operations for the two years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1996 and 1997 (unaudited).............................. F-52
Statements of Stockholders' Deficit for the two years ended December 31, 1995 and 1996,
and the nine months ended September 30, 1997........................................... F-53
Statements of Cash Flows for the two years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1996 and 1997 (unaudited).............................. F-54
Notes to Financial Statements........................................................... F-55
KIN NETWORK, INC. FINANCIAL STATEMENTS
Reports of Independent Auditors......................................................... F-59
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1996 and 1997
(unaudited)............................................................................ F-61
Statements of Operations for the three years ended December 31, 1994, 1995 and 1996,
and the nine months ended September 30, 1996 and 1997 (unaudited)...................... F-62
Statements of Stockholders' Equity for the three years ended December 31, 1994, 1995
and 1996, and the nine months ended September 30, 1997 (unaudited)..................... F-63
Statements of Cash Flows for the three years ended December 31, 1994, 1995 and 1996,
and the nine months ended September 30, 1996 and 1997 (unaudited)...................... F-64
Notes to Financial Statements........................................................... F-66
</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 September 30, 1997.
The unaudited pro forma combined statements of operations for the year ended
December 31, 1996, and for the nine months ended September 30, 1997, give
effect to these transactions as if they had occurred on January 1, 1996.
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 SHEET
SEPTEMBER 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............. $ 1,318 $ 313 $ 149 $ 62 $ 457
Accounts receivable................... 24,490 1,415 1,769 1,282 1,190
Less allowance...................... (9,628) (25) (143) (29) --
------- --------- ---------- ------- ---------
Accounts receivable, net ............. 14,862 1,390 1,626 1,253 1,190
Deferred costs........................ 2,461 -- -- -- --
Prepaid expenses and other............ 391 4 23 801 222
------- --------- ---------- ------- ---------
Total current assets................ 19,032 1,707 1,798 2,116 1,869
Property and equipment, net .......... 1,223 1,226 370 869 262
Intangible assets, net................ -- -- -- -- 65
Equity investment in KINNET........... -- -- -- -- --
Other noncurrent assets............... 19 7 -- 84 4
------- --------- ---------- ------- ---------
Total assets........................ $20,274 $2,940 $2,168 $3,069 $2,200
======= ========= ========== ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term
debt................................. $ -- $ 424 $ 17 $ 147 $ 203
Accounts payable and accrued
expenses............................. 3,568 963 1,108 1,863 391
Current portion of notes payable to
related parties...................... -- -- 659 1,040 --
Obligation for cash portion of
consideration for the Acquisitions .. -- -- -- -- --
Other................................. 2,453 10 -- 7 --
------- --------- ---------- ------- ---------
Total current liabilities........... 6,021 1,397 1,784 3,057 594
Notes payable to related parties, net
of current maturities................ -- -- -- -- --
Long-term debt, net of current
maturities........................... -- 1,082 -- -- 234
------- --------- ---------- ------- ---------
Total liabilities................... 6,021 2,479 1,784 3,057 828
------- --------- ---------- ------- ---------
Stockholders' equity:
Preferred stock...................... -- -- -- -- --
Common stock......................... 1 3 100 1 354
Additional paid-in capital........... -- -- 939 -- --
Retained earnings.................... 14,252 458 (655) 11 1,018
------- --------- ---------- ------- ---------
Total stockholders' equity
(deficit).......................... 14,253 461 384 12 1,372
------- --------- ---------- ------- ---------
Total liabilities and stockholders'
equity............................. $20,274 $2,940 $2,168 $3,069 $2,200
======= ========= ========== ======= =========
<CAPTION>
POST
PRO FORMA ACQUISITION
HISTORICAL ADJUSTMENTS PRO ADJUSTMENTS
BASIS (SEE NOTE FORMA (SEE NOTE AS
ACG COMBINED 3) COMBINED 3) ADJUSTED
------- ---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
$
Cash and cash equivalents............. -- $ 2,299 $ (1,745) $ 554 $ 16,535 $ 17,089
Accounts receivable................... -- 30,146 -- 30,146 -- 30,146
Less allowance...................... -- (9,825) -- (9,825) -- (9,825)
------- ---------- ----------- -------- ----------- --------
Accounts receivable, net ............. -- 20,321 -- 20,321 -- 20,321
Deferred costs........................ -- 2,461 -- 2,461 -- 2,461
Prepaid expenses and other............ -- 1,441 -- 1,441 -- 1,441
------- ---------- ----------- -------- ----------- --------
Total current assets................ -- 26,522 (1,745) 24,777 16,535 41,312
Property and equipment, net .......... 7 3,957 -- 3,957 -- 3,957
Intangible assets, net................ -- 65 108,769 108,834 -- 108,834
Equity investment in KINNET........... -- -- 18,041 18,041 -- 18,041
Other noncurrent assets............... 1,184 1,298 (561) 737 1,131 1,868
------- ---------- ----------- -------- ----------- --------
Total assets........................ $ 1,191 $31,842 $124,504 $156,346 $ 17,666 $174,012
======= ========== =========== ======== =========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term
debt................................. $ -- $ 791 $ 194 $ 985 $ (985) $ --
Accounts payable and accrued
expenses............................. 1,551 9,444 101 9,545 (1,322) 8,223
Current portion of notes payable to
related parties...................... 1,856 3,555 (1,582) 1,973 (1,856) 117
Obligation for cash portion of
consideration for the Acquisitions .. -- -- 86,836 86,836 (86,836) --
Other................................. -- 2,470 -- 2,470 -- 2,470
------- ---------- ----------- -------- ----------- --------
Total current liabilities........... 3,407 16,260 85,549 101,809 (90,999) 10,810
Notes payable to related parties, net
of current maturities................ -- -- 17,233 17,233 -- 17,233
Long-term debt, net of current
maturities........................... -- 1,316 -- 1,316 (1,316) --
------- ---------- ----------- -------- ----------- --------
Total liabilities................... 3,407 17,576 102,782 120,358 (92,315) 28,043
------- ---------- ----------- -------- ----------- --------
Stockholders' equity:
Preferred stock...................... -- -- -- -- -- --
Common stock......................... -- 459 (459) -- 1 1
Additional paid-in capital........... 47 986 37,265 38,251 109,980 148,231
Retained earnings.................... (2,263) 12,821 (15,084) (2,263) -- (2,263)
------- ---------- ----------- -------- ----------- --------
Total stockholders' equity
(deficit).......................... (2,216) 14,266 21,722 35,988 109,981 145,969
------- ---------- ----------- -------- ----------- --------
Total liabilities and stockholders'
equity............................. $ 1,191 $31,842 $124,504 $156,346 $ 17,666 $174,012
======= ========== =========== ======== =========== ========
</TABLE>
F-4
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT 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.................... 21,394 6,036 6,854 7,066
Depreciation and amortization ...... 223 819 237 248
--------- ----------- ------------ ---------
Gross profit...................... 22,707 4,326 2,937 3,041
Selling, general and administrative
expenses........................... 14,987 3,572 2,470 2,147
--------- ----------- ------------ ---------
Income (loss) from operations .... 7,720 754 467 894
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 .. 13,591 641 405 738
Provision for income taxes.......... 5,295 -- -- --
--------- ----------- ------------ ---------
Net income (loss)................... $ 8,296 $ 641 $ 405 $ 738
========= =========== ============ =========
Net income per share................
Shares used in computing pro forma
net income per share ..............
<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 -- 46,043 1,044 47,087
Depreciation and amortization ...... 84 -- 1,611 4,220 5,831
----------- -------- ------------ ------------- -----------
Gross profit...................... 3,021 -- 36,032 (3,536) 32,496
Selling, general and administrative
expenses........................... 2,484 649 26,309 657 26,966
----------- -------- ------------ ------------- -----------
Income (loss) from operations .... 537 (649) 9,723 (4,193) 5,530
Other income (expense):
Other income and expense, net .... (30) -- 6,451 (3) 6,448
Interest expense.................. (44) (10) (995) 221 (774)
Equity in earnings (loss) of
KINNET........................... -- -- -- (1,069) (1,069)
----------- -------- ------------ ------------- -----------
Income (loss) before income taxes .. 463 (659) 15,179 (5,044) 10,135
Provision for income taxes.......... 36 -- 5,331 821 6,152
----------- -------- ------------ ------------- -----------
Net income (loss)................... $ 427 $(659) $ 9,848 $(5,865) $ 3,983
=========== ======== ============ ============= ===========
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 STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 ...... -- $9,058 $8,965 $9,488
Yellow page publishing............ 35,624 -- -- --
--------- ----------- ------------ ---------
Total revenues.................. 35,624 9,058 8,965 9,488
Cost of services.................... 16,690 5,070 6,044 6,864
Depreciation and amortization ...... 168 399 142 202
--------- ----------- ------------ ---------
Gross profit...................... 18,766 3,589 2,779 2,422
Selling, general and administrative
expenses........................... 12,647 2,875 2,404 1,968
--------- ----------- ------------ ---------
Income (loss) from operations .... 6,119 714 375 454
Other income (expense):
Other income and expense, net .... 58 64 1 34
Interest expense.................. (50) (103) (33) (116)
Equity in earnings (loss) of
KINNET........................... -- -- -- --
--------- ----------- ------------ ---------
Income (loss) before income taxes .. 6,127 675 343 372
Provision for income taxes.......... 2,048 -- -- --
--------- ----------- ------------ ---------
Net income (loss)................... $ 4,079 $ 675 $ 343 $ 372
========= =========== ============ =========
Net income per share ...............
Shares used in computing pro forma
net income per share...............
<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 ...... $5,944 $ -- $33,455 $ -- $33,455
Yellow page publishing............ -- -- 35,624 -- 35,624
----------- ---------- ------------ ------------- -----------
Total revenues.................. 5,944 -- 69,079 -- 69,079
Cost of services.................... 2,969 -- 37,637 -- 37,637
Depreciation and amortization ...... 84 2 997 3,133 4,130
----------- ---------- ------------ ------------- -----------
Gross profit...................... 2,891 (2) 30,445 (3,133) 27,312
Selling, general and administrative
expenses........................... 1,816 1,462 23,172 -- 23,172
----------- ---------- ------------ ------------- -----------
Income (loss) from operations .... 1,075 (1,464) 7,273 (3,133) 4,140
Other income (expense):
Other income and expense, net .... 96 -- 253 -- 253
Interest expense.................. (13) (140) (455) (126) (581)
Equity in earnings (loss) of
KINNET........................... -- -- -- (657) (657)
----------- ---------- ------------ ------------- -----------
Income (loss) before income taxes .. 1,158 (1,604) 7,071 (3,916) 3,155
Provision for income taxes.......... -- -- 2,048 730 2,778
----------- ---------- ------------ ------------- -----------
Net income (loss)................... $1,158 $(1,604) $ 5,023 $(4,646) $ 377
=========== ========== ============ ============= ===========
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 a portfolio of telecommunications services primarily
to business customers in selected service areas of Southwestern Bell and U S
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 nine months ended
September 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 are accounted for using the purchase method of accounting with
ACG being 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 $37.9 million, which represents a discount of
twenty 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 issued at the time the acquisition agreement with Great
Western was executed or agreed to issue at the closing of the Acquisitions
options and warrants which are exercisable for a total of 2,637,135 shares of
Common Stock. As 2,598,500 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, preliminary no value has been attributed to them. Upon
completion of a Black-Scholes valuation, any additional value will be
recorded as goodwill. A value of $0.3 million (recorded in the table below
under "Other") has been attributed to the 38,635 other options, which are to
be issued in connection with the closing of the Acquisition of Switchboard,
that are exercisable at one-third of the initial public offering price, but
which vest as an entirety in the 37th month following the Acquisitions.
The following table sets forth the components for accounting purposes of
the consideration with respect to the Acquisitions. The total estimated
purchase price for the Acquisitions of $142.5 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 $1.9 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 September 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 $ 8,000 $15,000 $-- 2,500,000
Valu-Line..................... 6,600 4,160 -- -- --
FirsTel....................... 5,000 8,775 2,000 101 50,000
Feist Long Distance........... 5,000 8,000 -- -- --
Minority investment in
KINNET....................... 10,000 8,000 -- -- --
--------- ---------- ------------ ------- -------------
Subtotal...................... 81,600 36,935 17,000 101 2,550,000
--------- ---------- ------------ ------- -------------
OTHER ACQUIRED COMPANIES:
LDM........................... 3,475 -- -- -- --
Switchboard................... 1,631 -- -- 309 38,635
Telesystems................... -- 960 -- -- 36,000
National Telecom.............. 130 -- 350 -- 12,500
--------- ---------- ------------ ------- -------------
Subtotal.................... 5,236 960 350 -- 87,135
--------- ---------- ------------ ------- -------------
Total......................... $86,836 $37,895 $17,350 $410 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 $1.9 million
which are expected to be paid to the stockholders of certain of
the Acquired Companies using $1.7 million of cash on hand and a
$0.2 million payable which will be repaid out of proceeds of the
Offering.
(b) Records the related party debt of $659,000 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 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 (i) $86.8 million payable in cash,
(ii) shares of Common Stock valued for purposes of computing the
estimated purchase price for accounting purposes at $37.9 million,
(iii) promissory notes for $17.4 million, (iv) other payables for
reimbursement of cash paid to purchase two companies by FirsTel in
September 1997 amounting to $0.1 million, and (v) options or
warrants valued for purposes of computing the estimated purchase
price for accounting purposes at $0.3 million, for a total
estimated purchase price of $142.5 million. In preliminarily
determining the purchase price for accounting purposes, warrants
issued in June 1997 to shareholders of Great Western to purchase
2,000,000 shares of Common Stock at an exercise price of $2.50 per
share were not assigned any value because the exercise price was
greater than or equal to the fair value of the Common Stock, based
on an outside appraisal obtained in the month of issuance.
Similarly, no value was assigned to the options and warrants to be
issued upon the consummation of the Offering that are exercisable
at the initial public offering price (500,000 such warrants to be
issued to shareholders of Great Western, 50,000 such warrants to
be issued to shareholders of FirsTel, 36,000 such options to be
issued to shareholders of Telesystems, and 12,500 such options to
be issued to shareholders of National Telecom). Upon completion of
a Black-Scholes valuation, any additional value will be recorded
as goodwill. A value of $0.3 million was placed on the 38,635
options to be issued to shareholders of Switchboard upon
consummation of the Offering that are exercisable at one-third of
the initial public offering price, but which vest as an entirety
at the end of the 37th month following the Acquisitions. This
aggregate purchase price will result in an excess purchase price
of $125.8 million (including $0.6 million of deferred acquisition
costs incurred by ACG) over the fair value of the net assets
acquired of $17.3 million. Of this $125.8 million, $108.8 million
relates to the Acquired Companies and $17.0 million relates to
KINNET. The excess cost has been allocated to various classes of
intangible assets based on informed estimates. The Company intends
to obtain independent appraisals of the Acquired Companies and the
49% interest in KINNET. It is possible that there will be changes
to the allocations reflected in the pro forma combined financial
statements as a result of the independent appraisals.
(d) Records assumed cash proceeds of $120.0 million from the issuance
of shares of ACG Common Stock net of estimated offering costs of
$11.2 million including amounts deferred and payable by ACG at
September 30, 1997. Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal
fees and printing expenses.
(e) Records the payment of the cash portion of the total consideration
($86.8 million).
(f) Records the payment of debt of ACG and the Acquired Companies
which is expected to be paid from the proceeds of the Offering.
(g) Records the payment of $1.75 million with respect to a five-year
noncompetition agreement between Rod K. Cutsinger and the Company
which will be amortized over its term beginning in the period in
which it is paid.
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 September 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
---------- --------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $(1,745) $ -- $ --
Accounts receivable, net.............. -- -- --
Deferred costs........................ -- -- --
Prepaid expenses and other............ -- -- --
---------- --------- ----------
Total current assets................ (1,745) -- --
Property and equipment, net........... -- -- --
Intangible assets, net................ -- -- 108,769
Equity investment in KINNET .......... -- -- 18,041
Other noncurrent assets............... -- -- (561)
---------- --------- ----------
$
Total assets........................ $(1,745) -- $126,249
========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term debt . $ 194 $ -- $ --
Accounts payable and accrued
expenses............................. -- -- 101
Current portion of notes payable to
related parties...................... -- (1,699) 117
Obligation for cash portion of
consideration in the Acquisitions ... -- -- 86,836
---------- --------- ----------
Total current liabilities........... 194 (1,699) 87,054
Notes payable to related parties, net
of current maturities................ -- -- 17,233
Long-term debt, net of current
maturities........................... -- -- --
---------- --------- ----------
Total liabilities................... 194 (1,699) 104,287
---------- --------- ----------
Stockholders' equity
Common stock........................ -- -- (459)
Additional paid-in-capital.......... -- 1,699 35,566
Retained earnings................... (1,939) -- (13,145)
---------- --------- ----------
Total stockholders' equity (deficit) . (1,939) 1,699 21,962
---------- --------- ----------
Total liabilities and stockholders'
equity............................... $(1,745) $ -- $126,249
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TOTAL POST-
PRO FORMA ACQUISITION
ADJUSTMENTS (D) (E) (F) (G) ADJUSTMENTS
------------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ (1,745) $109,379 $(86,836) $(4,258) $(1,750) $ 16,535
Accounts receivable, net.............. -- -- -- -- -- --
Deferred costs........................ -- -- -- -- -- --
Prepaid expenses and other............ -- -- -- -- -- --
------------- ---------- ----------- ---------- ---------- -------------
Total current assets................ (1,745) 109,379 (86,836) (4,258) (1,750) 16,535
Property and equipment, net........... -- -- -- -- -- --
Intangible assets, net................ 108,769 -- -- -- -- --
Equity investment in KINNET .......... 18,041 -- -- -- -- --
Other noncurrent assets............... (561) (619) -- -- 1,750 1,131
------------- ---------- ----------- ---------- ---------- -------------
$
Total assets........................ $124,504 $108,760 $(86,836) $(4,258) -- $ 17,666
============= ========== =========== ========== ========== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current maturities of long-term debt . $ 194 $ -- $ -- $ (985) $-- $ (985)
Accounts payable and accrued
expenses............................. 101 (1,221) -- (101) -- (1,322)
Current portion of notes payable to
related parties...................... (1,582) -- -- (1,856) -- (1,856)
Obligation for cash portion of
consideration in the Acquisitions ... 86,836 -- (86,836) -- -- (86,836)
------------- ---------- ----------- ---------- ---------- -------------
Total current liabilities........... 85,549 (1,221) (86,836) (2,942) -- (90,999)
Notes payable to related parties, net
of current maturities................ 17,233 -- -- -- -- --
Long-term debt, net of current
maturities........................... -- -- -- (1,316) -- (1,316)
------------- ---------- ----------- ---------- ---------- -------------
Total liabilities................... 102,782 (1,221) (86,836) (4,258) -- (92,315)
------------- ---------- ----------- ---------- ---------- -------------
Stockholders' equity
Common stock........................ (459) 1 -- -- -- 1
Additional paid-in-capital.......... 37,265 109,980 -- -- -- 109,980
Retained earnings................... (15,084) -- -- -- -- --
------------- ---------- ----------- ---------- ---------- -------------
Total stockholders' equity (deficit) . 21,722 109,981 -- -- -- 109,981
------------- ---------- ----------- ---------- ---------- -------------
Total liabilities and stockholders'
equity............................... $124,504 $108,760 $(86,836) $(4,258) $-- $ 17,666
============= ========== =========== ========== ========== =============
</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 amortization of excess purchase price which has been
recorded as intangible assets comprised of customer base and
goodwill relating to the Acquired Companies. For purposes of these
pro forma combined financial statements, the Company has estimated
the useful life of amounts recorded as customer base to be 12 to
25 years and has recorded related annual amortization expense of
$1.8 million. Goodwill is estimated to have a useful life of 25 to
40 years and $2.4 million has been recorded as annual amortization
expense. The Company intends to obtain independent appraisals of
the Acquired Companies, and these appraisals may result in changes
to the estimated useful lives noted above.
(b) Reflects the equity in losses of KINNET of $388,000 and the
amortization of $681,000 of related excess purchase price which
has been recorded as intangible assets comprised of goodwill to be
amortized over 25 years.
(c) Reflects an increase of $774,000 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.
(d) Reflects the revenue and expenses of two companies acquired by
FirsTel in September 1997.
(e) 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>
TOTAL
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
-------- ---------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues--Telecommunications
services........................... $ -- $ -- $-- $1,728 $ -- $ 1,728
Cost of services.................... -- -- -- 1,044 -- 1,044
Depreciation and amortization ...... 4,177 -- -- 43 -- 4,220
-------- ---------- ------- -------- -------- -------------
Gross profit...................... (4,177) -- -- 641 -- (3,536)
Selling, general and administrative
expenses........................... -- -- -- 657 -- 657
-------- ---------- ------- -------- -------- -------------
Income (loss) from operations .... (4,177) -- -- (16) -- (4,193)
Other income (expense):
Other income and expense, net .... -- -- -- (3) -- (3)
Interest expense.................. -- -- 221 -- -- 221
Equity in earnings of KINNET ..... -- (1,069) -- -- -- (1,069)
-------- ---------- ------- -------- -------- -------------
Income (loss) before income taxes .. (4,177) (1,069) 221 (19) -- (5,044)
Provision for income taxes.......... -- -- -- -- 821 821
-------- ---------- ------- -------- -------- -------------
Net income (loss)................... $(4,177) $(1,069) $221 $ (19) $(821) $(5,865)
======== ========== ======= ======== ======== =============
</TABLE>
F-11
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Nine Months Ended September 30, 1997
(a) Reflects the amortization of customer base and goodwill to be
amortized over 12 to 25 years and 25 to 40 years, respectively,
relating to the Acquired Companies.
(b) Reflects the equity in losses of KINNET of $146,000 and the
amortization of $511,000 of related excess purchase price which
has been recorded as intangible assets comprised of goodwill to be
amortized over 25 years.
(c) Reflects an increase of $581,000 of interest expense attributable
to debt issued as consideration for the Acquisitions, net of a
reduction of $455,000 in interest expense on debt of the Acquired
Companies which is to be repaid from the proceeds of the Offering.
(d) 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 nine months ended September 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Revenues--
Telecommunications services ....... $ -- $ -- $ -- $ -- $ --
Cost of services.................... -- -- -- -- --
Depreciation and amortization ...... 3,133 -- -- -- 3,133
-------- -------- -------- -------- -------------
Gross profit...................... (3,133) -- -- -- (3,133)
Selling, general and administrative
expenses........................... -- -- -- -- --
-------- -------- -------- -------- -------------
Income (loss) from operations .... (3,133) -- -- -- (3,133)
Other income (expense):
Other income and expense, net .... -- -- -- -- --
Interest expense.................. -- -- (126) -- (126)
Equity in earnings of KINNET ..... -- (657) -- -- (657)
-------- -------- -------- -------- -------------
Income (loss) before income taxes .. (3,133) (657) (126) -- (3,916)
Provision for income taxes.......... -- -- -- 730 730
-------- -------- -------- -------- -------------
Net income (loss)................... $(3,133) $ (657) $(126) $(730) $(4,646)
======== ======== ======== ======== =============
</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 period from inception (June 6, 1996) through December 31, 1996. 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 period from inception (June 6, 1996)
through December 31, 1996, 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, SEPTEMBER 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 33,450 $ --
Employee advances........................................ 1,388 --
-------------- --------------
Total current assets................................... 34,838 --
Office furniture and equipment, net...................... 8,252 6,515
Other non-current assets................................. 48,480 1,184,230
-------------- --------------
Total assets........................................... $ 91,570 $ 1,190,745
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable to stockholder.............................. $ 565,047 $ 1,706,469
Accrued interest payable to stockholder.................. 9,890 149,412
Accounts payable and accrued expenses.................... 148,653 1,551,131
-------------- --------------
Total current liabilities.............................. 723,590 3,407,012
COMMITMENTS AND CONTINGENCIES
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 46,582
Accumulated deficit ..................................... (658,820) (2,263,067)
-------------- --------------
Total stockholders' deficit............................ (632,020) (2,216,267)
-------------- --------------
Total liabilities and stockholders' deficit................ $ 91,570 $ 1,190,745
============== ==============
</TABLE>
See accompanying notes to consolidated 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 NINE
THROUGH MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Revenues............................ $ -- $ --
General and administrative
expenses........................... 648,930 1,462,172
Depreciation and amortization ...... -- 2,481
Interest expense.................... 9,890 139,594
Other (income) loss................. -- --
----------------- ------------------
Loss before income tax benefit ... 658,820 1,604,247
Income tax benefit.................. -- --
----------------- ------------------
Net loss.......................... $658,820 $1,604,247
================= ==================
Net loss per share................ $ .03 $ .07
================= ==================
</TABLE>
See accompanying notes to consolidated 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 SEPTEMBER 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 warrants
(unaudited)................ -- -- 20,000 -- 20,000
Net loss (unaudited)........ -- -- -- (1,604,247) (1,604,247)
------------ -------- ------------ -------------- ---------------
BALANCES, September 30, 1997
(unaudited)................ 21,764,250 $218 $46,582 $ (2,263,067) $ (2,216,267)
============ ======== ============ ============== ===============
</TABLE>
See accompanying notes to consolidated 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 NINE
THROUGH MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $(658,820) $ (1,604,247)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization........................................... -- 2,481
Stock-based compensation expense........................................ -- 20,000
Changes in assets and liabilities:
(Increase) decrease in employee advances............................... (1,388) 1,388
Increase in property and equipment..................................... (8,252) --
Increase in other non-current assets................................... (48,480) (1,136,494)
Increase in accounts payable and accrued expenses...................... 148,653 1,402,478
----------------- ------------------
Net cash used by operating activities................................. (568,287) (1,314,394)
----------------- ------------------
Cash flows from financing activities:
Increase in note payable to stockholder................................. 565,047 1,141,422
Increase in accrued interest payable to stockholder..................... 9,890 139,522
Issuance of common stock................................................ 26,800 --
----------------- ------------------
Net cash provided by financing activities............................. 601,737 1,280,944
----------------- ------------------
Net increase (decrease) in cash and cash equivalents...................... 33,450 (33,450)
Cash and cash equivalents:
Beginning of period..................................................... -- 33,450
----------------- ------------------
End of period........................................................... $ 33,450 $ --
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 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 business customers in selected
service areas of Southwestern Bell and U S WEST. As of September 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., FirsTel, 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. 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 September 30, 1997, and for the nine 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
September 30, 1997, deferred acquisition costs amounted to approximately
$40,900 and $560,000, respectively, and deferred offering costs amounted to
$2,700 and $619,000, 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:
Furniture and fixtures.............. 7 years
Computer equipment and software .... 3 years
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. A 100% valuation allowance has been established for
the related deferred tax asset.
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 nine months ended September 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 September 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.
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
F-19
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
nine months ended September 30, 1997, the Company incurred interest expense
of $9,890 and $139,594, 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 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. In connection with the
issuance of this warrant, the Company recorded a non-recurring, non-cash
compensation expense of $20,000 reflecting the difference between the
exercise price for the shares and the estimated fair value of the shares at
the date of grant.
Subsequent to September 30, 1997, the Company agreed to make various
grants and awards under the Plan to employees and officers of the Acquired
Companies, to outside directors, and to certain individuals who became
officers of the Company after September 30, 1997. These options are
exercisable at the initial public offering price, and they have various
vesting and termination provisions. Also, the Company agreed to compensate
each of its outside directors with annual option awards for 15,000 shares of
common stock. Under this arrangement, options for 90,000 shares, exercisable
at the initial public offering price, will be issued annually to six outside
directors. In addition, three individuals who become officers of the Company
after September 30, 1997, have been awarded ten-year options for the purchase
of 1,275,000 shares of common stock, consisting of options for the purchase
of 300,000 shares at a price of $2.50 per share and options for the purchase
of 975,000 shares which are exercisable at the initial public offering price.
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 nine months ended September 30, 1997, the Company
recognized approximately $10,000 of rental expense related to this lease
agreement.
5. SUBSEQUENT EVENT
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 $37.9
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 a 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. 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.
KPMG PEAT MARWICK LLP
Houston, Texas
October 2, 1997
F-22
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1997
------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................... $ 31,693 $ 719,268 $ 1,317,877
Accounts receivable..................................... 17,678,787 21,607,728 24,489,630
Less: Allowance for doubtful accounts................... (6,590,847) (8,282,945) (9,628,295)
------------- -------------- ---------------
Net accounts receivable............................. 11,087,940 13,324,783 14,861,335
------------- -------------- ---------------
Income taxes receivable................................. 1,072,378 384,145 384,145
Deferred directory costs................................ 3,436,346 3,052,944 2,460,618
Deferred income taxes................................... 1,085,748 1,627,821 --
Other current assets.................................... 423,400 377,275 7,209
------------- -------------- ---------------
Total current assets................................ 17,137,505 19,486,236 19,031,184
------------- -------------- ---------------
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 2,253,623
------------- -------------- ---------------
2,442,459 2,715,176 2,987,835
Less: Accumulated depreciation.......................... (1,400,578) (1,597,008) (1,764,584)
------------- -------------- ---------------
Net property and equipment.......................... 1,041,881 1,118,168 1,223,251
------------- -------------- ---------------
OTHER ASSETS.............................................. 2,391 4,607 18,832
------------- -------------- ---------------
TOTAL ASSETS.............................................. $18,181,777 $20,609,011 $20,273,267
============= ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft.......................................... $ 33,114 $ -- $ --
Accounts payable........................................ 1,378,318 1,393,021 1,626,845
Payable to related parties.............................. 270,246 483,311 172,271
Accrued liabilities..................................... 467,530 1,138,730 1,768,319
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 2,452,723
------------- -------------- ---------------
Total current liabilities........................... 10,049,209 8,035,211 6,020,158
LONG-TERM DEBT, less current maturities................... 3,531,051 -- --
------------- -------------- ---------------
Total liabilities................................... 13,580,260 8,035,211 6,020,158
------------- -------------- ---------------
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....................................... 4,600,262 12,572,545 14,251,854
------------- -------------- ---------------
Total stockholders' equity.......................... 4,601,517 12,573,800 14,253,109
------------- -------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................................... $18,181,777 $20,609,011 $20,273,267
============= ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED YEAR ENDED NINE MONTHS ENDED
JANUARY 31, DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------- ----------------------------
1995 1996 1996 1996 1997
------------- ------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ADVERTISING REVENUES............... $29,406,843 $36,469,094 $44,324,097 $33,463,165 $35,623,889
COST OF REVENUES
Commissions and other sales
expenses........................ 7,443,762 8,784,336 9,543,696 6,747,684 8,542,611
Publishing, related party........ 94,448 578,223 1,077,795 635,557 843,021
Publishing, other................ 8,807,084 8,944,754 9,333,705 6,718,801 6,345,956
Distribution, related party ..... 558,885 697,250 815,566 332,585 180,907
Distribution, other.............. 828,892 563,362 622,820 676,106 777,332
Depreciation and amortization ... 272,296 228,324 223,434 171,243 167,576
------------- ------------- -------------- ------------- -------------
Total cost of revenues......... 18,005,367 19,796,249 21,617,016 15,281,976 16,857,403
------------- ------------- -------------- ------------- -------------
Gross margin................... 11,401,476 16,672,845 22,707,081 18,181,189 18,766,486
GENERAL AND ADMINISTRATIVE
EXPENSES
Salaries and payroll taxes ...... 4,672,222 5,953,869 6,320,326 4,656,001 5,565,196
Provision for bad debts.......... 2,907,720 3,249,165 4,650,918 3,764,746 3,590,097
Other............................ 3,204,938 3,457,492 4,015,824 3,185,682 3,491,993
------------- ------------- -------------- ------------- -------------
Total general and
administrative expenses....... 10,784,880 12,660,526 14,987,068 11,606,429 12,647,286
------------- ------------- -------------- ------------- -------------
Total operating income......... 616,596 4,012,319 7,720,013 6,574,760 6,119,200
------------- ------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense................. (216,228) (602,100) (503,768) (449,106) (49,751)
Settlement of litigation, net of
expenses of $318,496............ -- -- 6,281,504 6,281,504 --
Other, net....................... 80,520 66,857 93,587 68,089 57,977
------------- ------------- -------------- ------------- -------------
Total other income (expense) .. (135,708) (535,243) 5,871,323 5,900,487 8,226
------------- ------------- -------------- ------------- -------------
Income before income taxes .... 480,888 3,477,076 13,591,336 12,475,247 6,127,426
PROVISION FOR INCOME TAXES......... 245,497 1,307,290 5,294,596 4,828,254 2,048,117
------------- ------------- -------------- ------------- -------------
NET INCOME......................... $ 235,391 $ 2,169,786 $ 8,296,740 7,646,993 4,079,309
============= ============= ============== ============= =============
NET INCOME PER SHARE............... $ 188.31 $ 1,735.83 $ 6,637.39 $ 6,117.59 $ 3,263.45
============= ============= ============== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1994.......................... $1,250 $5 $ 2,287,585 $ -- $ 2,228,840
Cash dividends ($37 per share)...................... -- -- (46,250) -- (46,250)
Net income.......................................... -- -- 235,391 -- 235,391
-------- ------------ -------------- ----------- -------------
Balances, January 31, 1995.......................... 1,250 5 2,476,726 -- 2,477,981
Cash dividends ($37 per share)...................... -- -- (46,250) -- (46,250)
Net income.......................................... -- -- 2,169,786 -- 2,169,786
-------- ------------ -------------- ----------- -------------
Balances, January 31, 1996.......................... 1,250 5 4,600,262 -- 4,601,517
Cash dividends ($37 per share)...................... -- -- (46,250) -- (46,250)
Net income (eleven months).......................... -- -- 8,018,533 -- 8,018,533
-------- ------------ -------------- ----------- -------------
Balances, December 31, 1996......................... 1,250 5 12,572,545 12,573,800
Purchase of treasury stock (31.25 shares,
unaudited)......................................... -- -- -- (225,000) (225,000)
Issuance of treasury stock (31.25 shares,
unaudited)......................................... -- -- -- 225,000 225,000
Cash dividends ($480 per share, unaudited) ......... -- -- (600,000) -- (600,000)
Cash dividends ($1,440 per share, unaudited) ....... -- -- (1,800,0000) -- (1,800,000)
Net income (unaudited).............................. -- -- 4,079,309 -- 4,079,309
-------- ------------ -------------- ----------- -------------
Balances, September 30, 1997 (unaudited) .......... $1,250 $5 $ 14,251,854 -- $14,253,109
======== ============ ============== =========== =============
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED YEAR ENDED NINE MONTHS
JANUARY 31, DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------- -------------- ----------------------------
1995 1996 1996 1996 1997
------------- ------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 235,391 $ 2,169,786 $ 8,296,740 $ 7,646,993 $ 4,079,309
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization............ 272,296 228,324 223,434 171,243 167,576
Loss on disposal of assets............... -- 72,000 -- -- --
Provision for bad debts.................. 2,907,720 3,249,165 4,650,918 3,764,746 3,590,097
Deferred income taxes.................... (288,362) (68,045) (542,074) (605,855) 1,627,821
Changes in:
Accounts receivable..................... (5,630,561) (7,505,966) (6,707,225) (5,444,897) (5,126,649)
Deferred directory costs................ (402,971) (1,159,636) (696,008) (444,023) 592,326
Income taxes receivable................. 464,836 (755,005) 688,233 1,098,919 --
Accounts payable........................ (84,661) (708,179) (569,983) (1,389,581) (77,216)
Accrued liabilities..................... (471,403) 85,664 886,520 1,075,841 629,589
Prepayments on directory
advertising............................ (198,306) 825,617 (352,931) (668,431) (718,117)
Federal income taxes payable............ -- -- -- 3,177,789 --
Other, net............................... (622,044) 611,754 72,136 30,630 355,841
------------- ------------- -------------- ------------- -------------
Net cash provided (used) by
operating activities................. (3,818,065) (2,954,521) 5,949,760 8,413,374 5,120,577
------------- ------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ....... (279,140) (116,288) (300,125) (69,555) (272,659)
------------- ------------- -------------- ------------- -------------
Net cash used by investing
activities........................... (279,140) (116,288) (300,125) (69,555) (272,659)
------------- ------------- -------------- ------------- -------------
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 -- (750,000) --
Advances under long-term debt................ 4,500,000 3,000,000 -- 2,100,000 --
Principal payments under long-term debt ..... (33,275) (2,037,364) (4,708,019) (1,750,682) (1,849,309)
Purchase of treasury stock................... -- -- -- -- (225,000)
Issuance of treasury stock................... -- -- -- -- 225,000
Cash dividends paid.......................... (46,250) (46,250) (92,500) (46,250) (2,400,000)
------------- ------------- -------------- ------------- -------------
Net cash provided (used) by
financing activities................. 3,920,475 2,749,500 (4,969,530) (615,943) (4,249,309)
------------- ------------- -------------- ------------- -------------
Net increase (decrease) in
cash................................. (176,730) (321,309) 680,105 7,727,876 598,609
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 $ 7,767,039 $ 1,317,877
============= ============= ============== ============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest .... $ 216,228 $ 602,100 $ 503,768 $ 449,106 $ 49,751
============= ============= ============== ============= =============
Cash paid during the period for income taxes. $ -- $ 2,017,092 $ 4,350,000 $ 500,000 $ --
============= ============= ============== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995 AND 1996, DECEMBER 31, 1996
AND SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Interim Financial Information
The interim financial statements for the nine months ended September 30,
1996 and 1997, are unaudited. These interim 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 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.
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 due to changes in
economic conditions.
Property And Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on accelerated methods over the estimated useful
lives of the assets, which range from 3 to 31 years.
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 a Subchapter S Corporation
effective January 1, 1997. The income or loss of a Subchapter S Corporation
is includable in the federal income tax returns of the individual
shareholders.
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
deteremined with precision.
F-27
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 And Cost Recognition
Advertising revenues are derived from the sale of advertising space in
telephone directories and are recognized on the date that the directory is
published and delivered. 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 date that the directory is
published and delivered. 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 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,
$2,155,000, $1,531,000 (unaudited) and $1,555,000 (unaudited) and barter
expense aggregated approximately $1,042,000, $1,459,000, $1,547,000,
$1,902,000 (unaudited) and $1,224,000 (unaudited) for the years ended January
31, 1995 and 1996, December 31, 1996 and the nine months ended September 30,
1996 and 1997, respectively.
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 nine months ended September 30, 1996 and 1997
(unaudited).
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.
(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
F-28
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 and
other debt covenants. Further, the agreement imposes certain restrictions
with respect to new market expansion, dividend distributions and
contributions to the profit sharing plan. At December 31, 1996, the Company
was not in compliance with certain debt covenants requirements and obtained a
waiver of these covenants through July 31, 1997. The Company paid all debt
obligations on June 15, 1997.
(3) INCOME TAXES
The sources of deferred tax assets 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. $1,085,748 $1,627,821
--------------
Total deferred tax assets .... 1,085,748 1,627,821
============= ==============
</TABLE>
F-29
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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........................ $ 480,662 $1,262,087 $5,057,155
Deferred....................... (298,468) (68,045) (542,074)
State............................ 63,303 113,248 779,515
------------- ------------- --------------
Total provision for income taxes $ 245,497 $1,307,290 $5,294,596
============= ============= ==============
</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............. $168,311 $1,216,977 $4,756,968
Nondeductible expenses...................... 36,039 16,702 30,943
State income taxes, net of federal benefits. 41,147 73,611 506,685
------------- ------------- --------------
Total provision for income taxes............ $245,497 $1,307,290 $5,294,596
============= ============= ==============
</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 $1,600,000 was recognized in the
September 30, 1997 financial statements.
(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, $472,000,
$365,000 (unaudited) and $434,000 (unaudited) for the years ended January 31,
1995 and 1996, December 31, 1996 and the nine months ended September 31, 1997
and 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
(unaudited) and $61,000, (unaudited) respectively.
(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, December 31, 1996 and the nine months ended
September 30, 1996 and 1997 were approximately, $653,000, $1,275,000,
$1,893,000, $968,000 and $1,024,000, respectively. Amounts payable to related
parties at January 31, 1996, December 31, 1996 and September 30, 1997 were
approximately $270,000, $483,000 and $172,000, 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.
F-30
<PAGE>
GREAT WESTERN DIRECTORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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, December 31,
1996 and the nine months ended September 30, 1997 was approximately $40,000,
$53,000 and $103,000, respectively. No discretionary profit sharing
contributions were made to the Plan for the years ended January 31, 1996 or
December 31, 1996.
(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.
The Company has been involved in various other 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 financial condition, liquidity or results of operations.
(8) SUBSEQUENT EVENT
The Company's shareholders have 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 $55,000,000 in cash, a $15,000,000
promissory note, shares of common stock of the purchaser, and 2,500,000
nontransferable 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.
F-31
<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-32
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................... $ 281,703 $ 289,612 $ 312,890
Receivables, net........................................ 986,344 1,021,102 1,389,947
Prepaid expenses........................................ 4,508 8,624 4,113
------------ ------------ ---------------
Total current assets.................................. 1,272,555 1,319,338 1,706,950
PROPERTY AND EQUIPMENT, net............................... 2,341,596 1,650,497 1,226,289
OTHER NONCURRENT ASSETS................................... 7,561 6,615 6,552
------------ ------------ ---------------
Total assets.......................................... $3,621,712 $2,976,450 $2,939,791
============ ============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, including current portion of long-term
debt................................................... $ 413,741 $ 384,543 $ 423,910
Current portion of capital lease obligation............. 170,297 -- --
Accounts payable and accrued line costs................. 709,259 743,572 748,567
Accrued payroll and related taxes....................... 53,330 65,053 55,964
Sales, property excise and franchise taxes payable ..... 124,378 149,262 158,682
Customer deposits....................................... 12,312 11,162 9,562
------------ ------------ ---------------
Total current liabilities............................. 1,483,317 1,353,592 1,396,685
NOTES PAYABLE, net of current portion..................... 1,698,486 1,357,011 1,082,392
------------ ------------ ---------------
Total liabilities..................................... 3,181,803 2,710,603 2,479,077
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....................................... 436,909 262,847 457,714
------------ ------------ ---------------
Total stockholders' equity............................ 439,909 265,847 460,714
------------ ------------ ---------------
Total liabilities and stockholders' equity ........... $3,621,712 $2,976,450 $2,939,791
============ ============ ===============
</TABLE>
See accompanying notes to these combined financial statements.
F-33
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES....................... $13,416,673 $13,330,346 $11,181,125 $8,623,340 $9,058,467
OPERATING EXPENSES:
Line and other direct costs . 6,774,963 7,491,433 6,036,439 4,592,903 5,070,031
Selling, general and
administrative.............. 3,724,582 3,898,106 3,571,468 2,658,506 2,875,098
Depreciation and
amortization................ 399,050 717,631 819,315 615,519 398,548
------------- ------------- ------------- ------------ ------------
Total operating expenses .. 10,898,595 12,107,170 10,427,222 7,866,928 8,343,677
------------- ------------- ------------- ------------ ------------
Income from operations .... 2,518,078 1,223,176 753,903 756,412 714,790
OTHER INCOME (EXPENSE):
Interest expense............. (67,906) (81,579) (185,777) (148,001) (103,491)
Interest income and other,
net......................... 29,943 93,287 72,812 58,659 63,568
------------- ------------- ------------- ------------ ------------
Net income................. $ 2,480,115 $ 1,234,884 $ 640,938 $ 667,070 $ 674,867
============= ============= ============= ============ ============
</TABLE>
See accompanying notes to these combined financial statements.
F-34
<PAGE>
VALU-LINE OF LONGVIEW INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 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) .................. -- -- 674,867 674,867
Distributions to stockholders
(unaudited) ............................ -- -- (480,000) (480,000)
-------- -------- ------------- -------------
BALANCES, September 30, 1997 (unaudited) . 3,000 $3,000 $ 457,714 $ 460,714
======== ======== ============= =============
</TABLE>
See accompanying notes to these combined financial statements.
F-35
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $ 667,070 $ 674,867
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization................. 399,050 717,631 819,315 615,519 398,548
(Increase) decrease in:
Receivables.................. (139,187) 281,235 (34,758) (128,138) (368,845)
Prepaid expenses and other
assets...................... 8,569 19,806 (3,170) 5,408 4,574
Increase (decrease) in:
Accounts payable and accrued
line costs.................. 60,708 53,696 34,313 27,826 4,995
Other current liabilities ... 51,647 (71,602) 35,457 61,303 (1,269)
------------- ------------- ------------- ------------- -----------
Net cash provided by
operations.................. 2,860,902 2,235,650 1,492,095 1,248,988 712,870
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (95,124) (2,375,964) (134,651) (133,042) (55,913)
Other, net..................... 3,016 15,523 6,435 234 81,573
------------- ------------- ------------- ------------- -----------
Net cash provided by (used
in) investing activities ... (92,108) (2,360,441) (128,216) (132,808) 25,660
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on
long-term debt, capital
leases and other notes
payable....................... (494,734) (519,209) (581,123) (477,231) (354,231)
Proceeds from long-term debt
and other notes payable....... 124,890 2,112,950 40,153 40,154 118,979
Distributions to stockholders . (2,356,000) (1,325,000) (815,000) (700,000) (480,000)
------------- ------------- ------------- ------------- -----------
Net cash provided by (used
in) financing activities ... (2,725,844) 268,741 (1,355,970) (1,137,077) (715,252)
------------- ------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN
CASH........................... 42,950 143,950 7,909 (20,897) 23,278
CASH, beginning of period ...... 94,803 137,753 281,703 281,703 289,612
------------- ------------- ------------- ------------- -----------
CASH, end of period............. $ 137,753 $ 281,703 $ 289,612 $ 260,806 $ 312,890
============= ============= ============= ============= ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................. $ 67,906 $ 81,579 $ 185,777 $ 148,001 $ 103,491
Equipment acquired under
capital leases................ $ -- $ 238,683 $ -- $ -- $ --
============= ============= ============= ============= ===========
</TABLE>
See accompanying notes to these combined financial statements.
F-36
<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-37
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The FASB 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 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.
The FASB issued SFAS No. 130, Reporting Comprehensive Income and SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same prominence as
other financial statements. SFAS No. 131 supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes
standards on the way that public companies report financial information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures. Results
of operations and financial position, however, will be unaffected by
implementation of these standards.
Unaudited Interim Information -- The accompanying financial information as
of September 30, 1997 and for the nine-month periods ended September 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.
F-38
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECEIVABLES:
Receivables consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables:
Billed........................ $ 805,569 $ 785,457 $1,078,094
Unbilled...................... 205,775 260,645 336,853
----------- ------------ ---------------
1,011,344 1,046,102 1,414,947
Allowance for doubtful
accounts....................... (25,000) (25,000) (25,000)
----------- ------------ ---------------
$ 986,344 $1,021,102 $1,389,947
=========== ============ ===============
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1995 1996 1997
------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................. $ 50,622 $ 50,622 $ 38,422
Building.......................... 350,605 350,605 350,605
Switch and network equipment ..... 3,396,746 3,349,534 3,343,083
Vehicles.......................... 229,773 201,121 186,649
Computer equipment................ 208,694 229,759 174,660
Furniture and fixtures............ 45,603 46,365 46,365
Leasehold improvements............ 26,607 26,607 26,607
------------- ------------- ---------------
4,308,650 4,254,613 4,166,391
Less accumulated depreciation and
amortization..................... (1,967,054) (2,604,116) (2,940,102)
------------- ------------- ---------------
$ 2,341,596 $ 1,650,497 $ 1,226,289
============= ============= ===============
</TABLE>
F-39
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 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 $ 82,694
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 September 30, 1997) and
maturing August 2005 and October 1998,
respectively. The notes are collateralized by
land and buildings............................ 388,533 330,826 284,270
Note payable to a bank due in monthly
installments of $33,536, including interest
at prime, not to exceed 12% (8.5% at
September 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 1,139,338
------------ ------------ ---------------
2,112,227 1,741,554 1,506,302
Less current portion........................... (413,741) (384,543) (423,910)
------------ ------------ ---------------
$1,698,486 $1,357,011 $1,082,392
============ ============ ===============
</TABLE>
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>
F-40
<PAGE>
VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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,
---------------------------- SEPTEMBER 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) (1,170,213)
------------- ------------- ---------------
$ 214,820 $ 119,343 $ 74,590
============= ============= ===============
</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 $60,387 and $70,213
for the nine-month periods ended September 30, 1996 and 1997, respectively.
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.
The Company has been providing intrastate long distance services to
customers in Arkansas since 1992 without the requisite permit from the state
utility commission. The Company has initiated steps to secure the requisite
permit for such activities and no penalties have been assessed to date. While
the Arkansas regulatory authorities have the power to require the forfeiture
of the approximately $300,000 in revenues generated to September 30, 1997 by
the Company's unlicensed intrastate activities in Arkansas, the Company is
endeavoring to negotiate a reduced penalty.
6. STOCK PURCHASE AGREEMENT:
The Company entered into an agreement under which it will be sold to a
Delaware 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, SEPTEMBER 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 21,565 $ 149,151
Accounts receivable, net allowance for doubtful accounts of
$106,280 and $143,208, respectively.............................. 1,190,307 1,625,436
Other current assets.............................................. 7,545 22,903
-------------- --------------
Total current assets............................................ 1,219,417 1,797,490
PROPERTY AND EQUIPMENT, net......................................... 370,043 370,420
-------------- --------------
Total assets.................................................... $1,589,460 $2,167,910
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable..................................................... $ 20,323 $ 17,402
Accounts payable.................................................. 647,555 940,429
Accrued expenses.................................................. 72,045 167,035
Notes payable to shareholders..................................... 809,450 659,450
-------------- --------------
Total current liabilities....................................... 1,549,373 1,784,316
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares authorized, issued and
outstanding...................................................... 100,000 100,000
Additional paid-in capital........................................ 938,500 938,500
Accumulated deficit............................................... (998,413) (654,906)
-------------- --------------
Total stockholders' equity...................................... 40,087 383,594
-------------- --------------
Total liabilities and stockholders' equity...................... $1,589,460 $2,167,910
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1997
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES............................ $10,027,743 $7,415,712 $8,964,581
COST OF SERVICES.................... 6,854,333 5,057,038 6,043,871
DEPRECIATION........................ 237,240 170,392 141,745
-------------- ------------ ------------
Gross profit.................... 2,936,170 2,188,282 2,778,965
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,469,137 1,706,266 2,404,056
-------------- ------------ ------------
Income from operations.......... 467,033 482,016 374,909
OTHER INCOME (EXPENSE):
Interest expense.................. (60,211) (46,303) (32,873)
Other............................. (1,737) 1,251 1,471
-------------- ------------ ------------
NET INCOME.......................... $ 405,085 $ 436,964 $ 343,507
============== ============ ============
NET INCOME PER SHARE................ $ 40.51 $ 43.70 $ 34.35
============== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED 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) ... -- -- -- 343,507 343,507
-------- ---------- ------------ -------------- ---------------
BALANCES, September 30, 1997
(unaudited)................ 10,000 $100,000 $938,500 $ (654,906) $ 383,594
======== ========== ============ ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1997
-------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 405,085 $ 436,964 $ 343,507
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 237,240 170,392 141,745
Changes in assets and liabilities:
Accounts receivable, net.................. (169,468) (273,745) (435,129)
Other current assets...................... 11,916 8,516 (15,358)
Accounts payable.......................... (199,626) (222,788) 292,874
Accrued expenses.......................... (9,695) 63,175 94,990
-------------- ----------- -----------
Net cash provided by operating
activities................................. 275,452 182,514 422,629
-------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (114,576) (66,729) (142,122)
-------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................... (180,906) (123,299) (152,921)
Proceeds from notes payable................... -- -- --
-------------- ----------- -----------
Net cash used in financing activities ... (180,906) (123,299) (152,921)
-------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (20,030) (7,514) 127,586
CASH AND CASH EQUIVALENTS, beginning of period . 41,595 41,595 21,565
-------------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period ....... $ 21,565 $ 34,081 $ 149,151
============== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ..... $ 60,313 $ -- $--
============== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
FEIST LONG DISTANCE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 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 nine months ended September 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 nine months ended September 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, SEPTEMBER 30, ESTIMATED
1996 1997 USEFUL LIFE
-------------- --------------- --------------
<S> <C> <C> <C>
Machinery and equipment....... $1,394,466 $1,510,818 3 to 5 years
Office equipment.............. 55,368 62,446 7 years
Vehicles...................... 31,900 50,592 5 years
-------------- ---------------
1,481,734 1,623,856
Less accumulated
depreciation................. 1,111,691 1,253,436
-------------- ---------------
$ 370,043 $ 370,420
============== ===============
</TABLE>
(3) NOTES PAYABLE
At December 31, 1996 and September 30, 1997, the Company had notes payable
totaling $809,450 and $659,450, respectively, 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.
At December 31, 1996, the Company also had a $16,996 note payable to an
affiliate, Feist Publications, Inc. The note was payable on demand and
accrued 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 nine months ended September 30, 1997 amounted to
approximately $45,000 and $62,000, 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 nine months ended September 30, 1997 was $73,733 and
$72,524, respectively.
(7) SUBSEQUENT EVENT (UNAUDITED)
The Company's shareholders have 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 $5,000,000 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. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' 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.
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 financial statements referred to above 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.
KPMG PEAT MARWICK LLP
Houston, Texas
September 26, 1997
F-50
<PAGE>
FIRSTEL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash..................................................... $ 43,761 $ 54,128 $ 61,616
Collateral account ...................................... 74,515 -- --
Receivables
Trade, net of allowance of $0, $0, and $29,053,
respectively.......................................... 569,122 640,259 1,056,109
Due from independent contractors....................... 13,420 2,207 --
Other.................................................. 10,361 3,047 196,857
Unbilled services........................................ 399,610 499,679 601,406
Inventory................................................ -- 2,187 96,323
Prepaid expenses......................................... 19,759 23,413 103,714
------------ ------------ --------------
Total current assets................................... 1,130,548 1,224,920 2,116,025
------------ ------------ --------------
OTHER ASSETS
Deposit.................................................. 1,150 38,951 80,775
Intangible assets, net of accumulated
amortization............................................ 6,723 5,482 2,780
------------ ------------ --------------
7,873 44,433 83,555
------------ ------------ --------------
PROPERTY AND EQUIPMENT
Leasehold improvements................................... 30,632 34,182 34,182
Office furniture and equipment........................... 186,421 263,611 326,892
Network equipment........................................ 576,518 656,069 707,942
Dialers.................................................. 493,288 535,113 585,258
------------ ------------ --------------
1,286,859 1,488,975 1,654,274
Less accumulated depreciation and amortization .......... (341,629) (585,373) (785,082)
------------ ------------ --------------
945,230 903,602 869,192
------------ ------------ --------------
$2,083,651 $2,172,955 $3,068,772
============ ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Checks issued but not presented for payment.............. $ 36,466 $ -- $ 332,588
Current maturities of long-term debt..................... 452,110 1,397,834 1,187,068
Accounts payable......................................... 722,090 895,186 1,358,137
Accrued expenses
Taxes, other than income taxes......................... 69,283 58,617 94,713
Interest............................................... 8,769 -- --
Wages.................................................. -- -- 73,848
Other.................................................. 12,104 9,611 3,671
------------ ------------ --------------
Total current liabilities................................ 1,300,822 2,361,248 3,050,025
------------ ------------ --------------
OTHER LIABILITIES
Deferred compensation payable ........................... 36,845 26,686 7,177
LONG-TERM DEBT, less current maturities ................... 1,395,821 18,073 --
------------ ------------ --------------
Total liabilities...................................... 2,733,488 2,406,007 3,057,202
COMMITMENTS AND CONTINGENCIES .............................
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $1 per share; Authorized,
1,000,000 shares; Issued, 1,000 shares.................. 1,000 1,000 1,000
Retained earnings (accumulated deficit).................. (650,837) (234,052) 10,570
------------ ------------ --------------
(649,837) (233,052) 11,570
------------ ------------ --------------
$2,083,651 $2,172,955 $3,068,772
============ ============ ==============
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
FIRSTEL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- --------------------------
1995 1996 1996 1997
------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES..................... $7,838,345 $10,355,229 $7,658,888 $9,487,892
------------ ------------- ------------ ------------
COST OF REVENUES:
Line costs................. 5,001,807 6,620,483 4,834,738 6,083,178
Direct labor............... 288,459 393,983 288,204 283,148
Cellular costs............. -- -- -- 336,122
Dialer costs............... 161,807 191,854 156,053 161,408
Switch costs............... 81,663 101,673 66,926 82,025
Local costs................ -- -- -- 72,049
Other...................... 6,108 5,943 5,513 47,863
------------ ------------- ------------ ------------
5,539,844 7,313,936 5,351,434 7,065,793
------------ ------------- ------------ ------------
GROSS PROFIT................. 2,298,501 3,041,293 2,307,454 2,422,099
------------ ------------- ------------ ------------
OPERATING EXPENSES:
Selling.................... 926,115 1,107,800 814,192 881,002
General and
administrative............ 615,923 810,637 583,461 671,484
Sales support.............. 183,649 218,525 160,201 326,055
Cellular................... -- 10,049 -- 90,430
------------ ------------- ------------ ------------
1,725,687 2,147,011 1,557,854 1,968,971
------------ ------------- ------------ ------------
INCOME FROM OPERATIONS....... 572,814 894,282 749,600 453,128
OTHER INCOME (EXPENSE):
Finance charges and
penalties................. 36,792 34,718 27,001 32,437
Other income............... 5,561 300 300 1,680
Interest expense........... (220,932) (191,076) (145,445) (116,121)
Loss on sale of equipment . (1,139) (158) -- --
------------ ------------- ------------ ------------
NET INCOME .................. $ 393,096 $ 738,066 $ 631,456 $ 371,124
============ ============= ============ ============
INCOME PER SHARE............. $ 393.10 $ 738.07 $ 631.46 $ 371.12
============ ============= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
FIRSTEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
------------------ EARNINGS STOCKHOLDERS'
(ACCUMULATED TREASURY EQUITY
SHARES AMOUNT DEFICIT) STOCK (DEFICIT)
-------- -------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 ................. 1,000 1,000 $(878,933) $ -- $(877,933)
Distributions ($165.00 per share).......... -- -- (165,000) -- (165,000)
Net income................................. -- -- 393,096 -- 393,096
-------- -------- ------------- ----------- ---------------
BALANCES, 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
-------- -------- ------------- ----------- ---------------
BALANCES, DECEMBER 31, 1996.................. 1,000 1,000 (234,052) -- (233,052)
Distributions ($126.50 per share, unaudited) -- -- (126,502) -- (126,502)
Net income (unaudited)..................... -- -- 371,124 -- 371,124
-------- -------- ------------- ----------- ---------------
BALANCES, September 30, 1997 (unaudited) .... 1,000 $1,000 $ 10,570 $ -- $ 11,570
======== ======== ============= =========== ===============
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
FIRSTEL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------------
1995 1996 1996 1997
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 393,096 $ 738,066 $ 631,456 $ 371,124
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 205,890 247,618 182,866 202,412
Provision for bad debts..................... -- -- 27,000 32,000
Write-off of shareholder's receivable ...... -- -- -- --
Loss on sale of equipment................... 1,139 158 -- --
Changes in assets and liabilities:
Receivables................................. (221,079) (52,610) (82,816) (636,506)
Unbilled services........................... (109,796) (100,069) (106,820) (101,727)
Inventory................................... -- (2,187) -- (94,136)
Prepaid expenses............................ (1,638) (3,654) (37,600) (80,301)
Deposits.................................... (150) (37,801) (25,425) (19,200)
Checks issued but not presented for
payment.................................... (139,268) (36,466) (36,466) 332,588
Accounts payable............................ 213,134 173,096 196,521 462,951
Accrued expenses............................ 19,989 (21,928) 77,906 78,432
Deferred compensation payable............... 36,845 (10,159) (5,179) (19,509)
------------ ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..... 398,162 894,064 821,443 528,128
------------ ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment............... 923 255 -- --
Property and equipment purchases.............. (379,424) (203,162) (166,272) (165,299)
Payments to/from collateral account........... (74,515) 74,515 -- --
Payments for loan origination fees............ (1,443) (2,000) -- --
------------ ----------- ----------- -----------
NET CASH USED BY INVESTING
ACTIVITIES..................................... (454,459) (130,392) (166,272) (165,299)
------------ ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable................. (99,300) -- -- --
Principal payments on long-term debt,
including capitalized leases................. (134,643) (459,407) (365,547) (333,839)
Proceeds from debt borrowings................. 494,964 27,383 -- 105,000
Distribution payments......................... (165,000) (221,281) (218,121) (126,502)
Purchase of treasury stock.................... -- (700,000) (700,000) --
Sale of treasury stock........................ -- 600,000 600,000 --
------------ ----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES .................................... 96,021 (753,305) (683,668) (355,341)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH................. 39,724 10,367 (28,497) 7,488
CASH AT BEGINNING OF PERIOD..................... 4,037 43,761 43,761 54,128
------------ ----------- ----------- -----------
CASH AT END OF PERIOD........................... $ 43,761 $ 54,128 $ 15,264 $ 61,616
============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period--Interest ........ $ 212,936 $ 199,845 $ 145,445 $ 116,122
============ =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES
Short-term debt refinanced.................... $1,400,000 $ -- $ -- $ --
============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1996 AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
FirsTel, Inc. (the Company), located in Sioux Falls, South Dakota, is a
carrier of long distance, local and cellular telecommunications services. The
Company's service area includes South Dakota, North Dakota, Minnesota, Iowa,
Nebraska, Wyoming, Colorado, and Montana.
Interim Financial Information
The interim financial statements for the nine months ended September 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.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method)
or market, and consist primarily of cellular phone and other telephone system
equipment.
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.
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 5 to 7 years.
Intangible Assets
Organizational costs, stated at cost less accumulated amortization, are
amortized straight-line over 5 years. Loan origination fees, stated at cost
less accumulated amortization, are amortized straight-line over the term of
the loan.
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, local and cellular services are
provided.
F-55
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1,000 for the years ended December 31, 1996 and 1995
and the nine months ended September 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.
(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) ACQUISITIONS
In September 1997, the Company purchased two telecommunications companies
located in Sioux Falls, South Dakota. The combined purchase price of the two
companies was approximately $1,083,000 payable with notes from the Company
maturing 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.
(4) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 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) (16,869)
---------- ---------- --------------
$ 6,723 $ 5,482 $ 2,780
========== ========== ==============
</TABLE>
Amortization expense charged to operations was $8,885 and $3,241,
respectively for the years ended December 31, 1995 and 1996 and $2,702 and
$2,281 for the nine months ended September 30, 1996 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, the Company purchased 100
treasury shares for $700,000 and subsequently reissued those shares to a new
shareholder for $600,000. As described in Note 13, 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.
F-56
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(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, 1995
and 1996, and for the nine month periods ended September 30, 1996 and 1997
(unaudited) was $5,051,893, $6,797,857, $4,982,568 and $6,143,566,
respectively.
Capitalized leased assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment . $ 38,791 $ 85,693 $ 46,902
Harris switches................. 296,536 296,536 296,536
---------- ----------- --------------
335,327 382,229 343,438
Less accumulated
amortization................... (74,857) (129,796) (139,668)
---------- ----------- --------------
$260,470 $ 252,433 $ 203,770
========== =========== ==============
</TABLE>
Minimum lease payments for capital and operating leases in future years
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
Year ending December 31, 1997............................ $121,447 $450,063
Year ending December 31, 1998............................ 15,666 433,235
Remaining years.......................................... -- --
---------- -----------
Total minimum lease payments............................. 137,113 $883,298
===========
Less interest............................................ (11,206)
----------
Present value of minimum lease payments as of
December 31, 1996....................................... $125,907
==========
</TABLE>
<PAGE>
(7) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 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 $ 42,068
$800,000 revolving line of credit payable to bank, due
July 1, 1998, variable rate, 9.5% at 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 .... 370,789 -- 105,000
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 1,187,068
Less current maturities................................ (81,321) (1,397,834) (1,187,068)
------------ ------------- --------------
$1,766,610 $ 18,073 $ --
============ ============= ==============
</TABLE>
F-57
<PAGE>
FIRSTEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The terms of the revolving line of credit include various debt covenants.
At December 31, 1996, the Company was not in compliance with one of these
covenants. As a result, the Company was charged an additional 2% interest
until such time as compliance with all debt covenants was achieved. At
September 30, 1997, the Company is in compliance with all applicable debt
covenants.
Long-term debt maturities are as follows at December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Year ending December 31, 1997......................... $1,397,834
Year ending December 31, 1998......................... 18,073
Thereafter............................................ --
------------
$1,415,907
============
</TABLE>
(8) RELATED PARTY TRANSACTIONS
One of the Company's major shareholders, Fred L. Thurman, is also a
partner in an accounting firm. For the years ending December 31, 1995 and
1996 and for nine months ending September 30, 1996 and 1997, accounting fees
paid to the related company were $27,579, $41,774, $29,676 and $32,727,
respectively.
(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
nine months ended September 30, 1996 and 1997 (unaudited), for such future
obligation were $36,845, $125,541, $86,087 and $49,522, respectively.
(10) 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 nine
months ended September 30, 1997 (unaudited) were $7,157 and $8,378,
respectively.
(11) 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.
(12) 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.
(13) SUBSEQUENT EVENTS
The Company's stockholders have entered into a stock purchase agreement to
sell all of the issued and outstanding capital stock of the Company for
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 notes payable to stockholders
will be acquired by the purchaser in the acquisition. The transaction is
generally contingent upon the successful completion of an initial public
offering of the purchaser.
F-58
<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 nine month
periods ended September 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-59
<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
September 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-60
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------- ---------------
1995 1996 1997
------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................ $ 2,286,360 $ 2,688,775 $ 3,134,624
Receivables:
Trade accounts......................................... 432,780 324,771 661,597
Accrued revenue........................................ 283,648 533,145 394,863
Patronage credits...................................... 351,138 227,259 190,326
Affiliated company..................................... -- -- --
Liberty Cellular, Inc.................................. -- 1,185,538 562,469
Prepaid expenses......................................... 47,914 144,874 169,643
RTFC capital certificates................................ 452,373 251,609 202,498
------------- -------------- ---------------
Total Current Assets....................................... 3,854,213 5,355,971 5,316,020
------------- -------------- ---------------
Property, Plant and Equipment, net......................... 21,408,898 21,821,077 26,063,471
------------- -------------- ---------------
Other Assets
RTFC capital certificates................................ 3,265,963 3,014,351 2,811,853
Deferred income taxes.................................... 6,206,648 3,108,267 25,530
Debt issue costs, net.................................... 68,790 62,290 57,415
Patronage credits receivable............................. 398,266 604,921 607,654
Prepayments on fiber leases.............................. 227,445 197,778 175,528
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 2,751
Other assets............................................. 1,300 1,300 --
------------- -------------- ---------------
Total Other Assets......................................... 10,190,677 6,999,351 3,680,731
------------- -------------- ---------------
Totals..................................................... $35,453,788 $ 34,176,399 $ 35,060,222
============= ============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt..................... $ 2,518,559 $ 2,892,009 $ 2,892,341
Accounts payable:
Trade.................................................. 198,246 632,519 3,763,209
Liberty Cellular, Inc.................................. 2,649 -- 4,062
Affiliate.............................................. 15,184 66,408 45,009
Accrued expenses......................................... 536,553 515,932 773,003
------------- -------------- ---------------
Total Current Liabilities.................................. 3,271,191 4,106,868 7,477,624
Long-Term Debt, less current maturities.................... 31,655,696 28,763,687 26,574,085
-------------- ---------------
Total Liabilities.......................................... 34,926,887 32,870,555 34,051,709
------------- -------------- ---------------
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
Additional paid in capital............................... 7,500,000 9,071,316 9,071,316
Retained earnings........................................ (9,973,099) (10,765,472) (11,062,803)
------------- -------------- ---------------
Total Stockholder's Equity................................. 526,901 1,305,844 1,008,513
------------- -------------- ---------------
Totals..................................................... $35,453,788 $ 34,176,399 $ 35,060,222
============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------------- -------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 3,550,242 $ 6,496,741 $ 8,552,564 $ 6,030,536 $ 8,796,000
Cost of Services................... 2,450,281 3,094,454 2,863,857 2,054,764 2,995,543
-------------- -------------- ------------- ------------- -------------
Gross Profit....................... 1,099,961 3,402,287 5,688,707 3,975,772 5,800,457
-------------- -------------- ------------- ------------- -------------
Expenses
Operating and administrative .... 2,533,095 2,929,555 3,416,589 2,478,742 3,465,761
Depreciation and amortization ... 1,700,096 1,825,297 1,906,094 1,320,656 1,596,567
-------------- -------------- ------------- ------------- -------------
Total Expenses..................... 4,233,191 4,754,852 5,322,683 3,799,398 5,062,328
-------------- -------------- ------------- ------------- -------------
Income (Loss) from Operations ..... (3,133,230) (1,352,565) 366,024 176,374 738,129
Other Income (Expense)
Interest and other income........ 26,532 41,683 80,678 68,933 73,705
Interest, net of patronage
credits......................... (1,616,071) (2,047,215) (1,826,148) (1,383,517) (1,296,265)
-------------- -------------- ------------- ------------- -------------
Net Loss Before Income Taxes ...... (4,722,769) (3,358,097) (1,379,446) (1,138,210) (484,431)
Deferred Income Tax Benefit........ 1,839,803 1,303,549 587,073 426,225 187,100
-------------- -------------- ------------- ------------- -------------
Net Loss........................... $(2,882,966) $(2,054,548) $ (792,373) $ (711,985) $ (297,331)
============== ============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<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
Net Income--September 30,
1997 (Unaudited)............. -- -- (297,331) (297,331)
------------ ------------ --------------- ---------------
Balance, September 30, 1997
(Unaudited).................... $3,000,000 $9,071,316 $(11,062,803) $ 1,008,513
============ ============ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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) $ (711,985) $ (297,331)
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) (426,225) (187,100)
Depreciation and amortization.......... 1,700,096 1,825,297 1,906,094 1,320,656 1,596,567
Gain on sale of assets................. -- (2,984) (13,883) (14,604) (9,081)
(Increase) decrease in:
Receivables.......................... (348,783) (140,406) (224,348) (222,564) (336,342)
Prepaid expenses..................... 28,202 1,344 (96,960) (52,235) (24,769)
Other assets......................... 198,041 29,666 29,667 149,056 223,315
Increase (decrease) in:
Accounts payable..................... (636,864) 87,384 273,173 (67,258) 3,049,688
Accrued expenses..................... (300,041) (302,349) (20,621) 604,851 257,071
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In) Operating
Activities.............................. (4,082,118) (1,860,145) 473,676 579,692 4,272,018
-------------- -------------- ------------- ------------- -------------
Cash Flows from Investing Activities
Repayment of advance................... 1,000,000 -- -- -- --
Additions--property, plant & equip .... (1,203,916) (749,668) (1,545,534) (1,075,816) (5,923,656)
Proceeds from sale of plant............ -- 24,592 40,456 44,463 106,344
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In)
Investing Activities................... (203,916) (725,076) (1,505,078) (1,031,353) (5,817,312)
-------------- -------------- ------------- ------------- -------------
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) (1,866,282) (2,024,981)
Payments on capital leases............. (217,642) (2,470) (2,470) (2,470) (100,625)
Payment by Liberty Cellular, Inc:
Income tax benefit................... -- -- 2,500,000 -- 3,865,140
Capital contributions................ 1,500,000 6,000,000 1,000,000 1,000,000 --
-------------- -------------- ------------- ------------- -------------
Net Cash Provided By (Used In)
Financing Activities................... 5,095,443 3,668,156 1,433,817 (416,376) 1,991,143
-------------- -------------- ------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents............................. 809,409 1,082,935 402,415 (868,037) 445,849
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 $ 1,418,323 $ 3,134,624
============== ============== ============= ============= =============
</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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $ 76,001 $3,308,202
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 $1,540,831 $1,445,070
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, 1996
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 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 September 30, 1996 and
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 $1,583,999 for the nine months ended September 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 nine
months ended September 30, 1997 was $4,875.
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 $12,569 for the nine months
ended September 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-66
<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,
---------------------------- SEPTEMBER 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 $28,118,534
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 29,466,425
Less current maturities.................................... 2,518,559 2,892,009 2,892,340
------------- ------------- ---------------
$31,655,696 $28,763,687 26,574,085
============= ============= ===============
</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-67
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments for property under capital leases at
September 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 September 30, 1997, respectively, leaving
certificate balances totaling $3,014,351 at September 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 $1,296,265 at September 30, 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 $75,449 for the
period ended September 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. 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 September 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 $599,610 for the period ended September 30, 1997.
F-68
<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 September 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 $1,062,378 at
September 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 $32,250 for
the period ended September 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 $2,481,315, including $60,352
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 $1,926,000 (28% of total network revenue) in 1997. At September
30, 1997, trade accounts receivable and accrued revenue includes
approximately $151,000 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
$33,750 at September 30, 1997.
F-69
<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>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- SEPTEMBER 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 $164,707
State taxes, net of federal benefit .... 228,582 162,532 66,765 19,377
Other................................... 5,480 (736) 51,296 3,016
------------ ------------ ---------- ---------------
$1,839,803 $1,303,549 $587,073 $187,100
============ ============ ========== ===============
<CAPTION>
AT DECEMBER 31, AT
------------------------------------------ SEPTEMBER 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 $ 4,947,538
Less valuation allowance...................... -- -- -- --
------------- ------------ ------------- ---------------
7,119,644 8,957,575 6,190,810 4,947,538
Total deferred tax liabilities--depreciation . (2,216,545) 2,750,927 (3,082,543) (4,922,008)
------------- ------------ ------------- ---------------
Net deferred tax assets....................... $ 4,903,099 $6,206,648 $ 3,108,267 $ 25,530
============= ============ ============= ===============
</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.
F-70
<PAGE>
KIN NETWORK, INC.
SALINA, KANSAS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. CREDIT RISK
The Company grants credit to customers, primarily local telephone
companies and local businesses.
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
September 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-71
<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.
ATM -- Asynchronous Transfer Mode is a packet switching technology in
which all data is encapsulated in packets or cells of exactly the same size.
By keeping all packets the same size, packets can be switched and transported
at extremely high speeds with very low delay. Cells travel across the network
in logical paths based on network addresses as permanent virtual circuits or
switched virtual circuits. ATM is principally used for high speed backbones
public and very large private networks. Because of high bandwidths, low delay
and advances in quality of service techniques, ATM is useful for transmitting
combined voice, data, and video.
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 LEC's central offices. Virtual collocation is
an alternative to physical collocation pursuant to which the LEC 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.
Fast Packet Service -- Fast packet service is a transport service for
moving data or digitized voice and video across a defined network. Fast
packet services may include routed, switched or dedicated connections. It
usually refers to frame relay, ATM, or other high bandwidth data transport.
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.
Frame Relay -frame relay is a form of packet switching in which data or
voice is converted to packets of varying sizes and routed through a digital
network along permanent virtual circuits or logical paths between
specifically defined network addresses. Frame relay has enjoyed commercial
success as an effective means of connecting local and wide area networks,
connecting business to the Internet, and providing combined voice and data
services between remote locations.
GTE -- GTE Corporation.
General Telephone Operating Companies -- Local exchange carriers
affiliated with GTE Corporation.
G-1
<PAGE>
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.
InterLATA -- Telecommunications services originating in a LATA and
terminating outside of that LATA.
IntraLATA -- Telecommunications services originating and terminating in
the same LATA.
ISP -- An Internet service provider.
KINNET -- KIN Network, Inc.
LAN (Local Area Network) -- Computers and peripherals linked together by
short distance facilities, such as wire, cable, fiber, radio signal or lasers
under a common control program. LANs are usually confined to buildings or
campuses. LANs allow users to share file, programs and messaging within the
definition of the network.
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, a corporation that has entered into
a merger agreement to be acquired by WorldCom.
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.
OSS or Operational Support System(s) -- An OSS is a combination of manual
business procedures, automated systems, and electronic interfaces which
support the delivery of telecommunications services. OSSs support functions
including customer order management, order processing, facilities
provisioning, customer care, trouble reporting and trouble ticket management,
billing, sales analysis, and product management.
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.
G-2
<PAGE>
"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.
Rural Telephone Finance Cooperative or RTFC -- A not-for-profit
association, having between 300 and 400 members, that makes loans for
telecommunications purposes to its members and others eligible for loans from
the Rural Utility Services department of the Department of Agriculture.
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.
Southwestern Bell -- Southwestern Bell Telephone Company.
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.
U S WEST -- U S WEST Communications, Inc.
Valu-Line -- Valu-Line of Longview, Inc.
Virtual LAN -- In general virtual local area networks are logical networks
based on campus or public networks which allow users to share information,
files, and send messages amongst each other based on rules permitting access
by network address. Membership within a Virtual LAN may vary by applications,
security level or other requirement, but may transcend location,
organization, or carrier.
Web Page -- A Web page is a specific address on the Internet supporting
inquiries from Internet users. Web pages usually display to an inquiring
party sophisticated graphics, interactive text, and the ability to link and
download to additional information or data bases maintained either by the Web
page provider or another party. Web pages are used to provide company
information, advertising and to conduct electronic commerce.
WorldCom -- WorldCom, Inc.
G-3
<PAGE>
INSIDE BACK COVER GRAPHIC:
[Graphic depicting ACG CLEC configuration strategy along with explanation of
strategy as detailed below. Strategy consists of five phases, described as
"Build Smart".]
<TABLE>
<CAPTION>
Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resell LEC local Use Intercity networks Add local service Collocate in Construct local and
service bundled with to aggregate traffic at circuit and packet appropriate LEC mid-haul fiber
L/D, cellular, yellow key switching points switches to key switch central offices to facilities where
pages, Internet access points; use ATM acquire access to economics warrant
and other premium backbone to reduce unbundled local loops
services switching costs
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<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............................... 23
Dividend Policy........................... 26
Use of Proceeds........................... 27
Capitalization............................ 28
Dilution.................................. 29
Selected Financial Data................... 30
Management's Discussion and Analysis
of Financial Condition and Results of
Operations of Certain Acquired Companies 32
Industry Background and Overview.......... 48
Business.................................. 50
Management................................ 65
Certain Transactions...................... 73
Principal Stockholders.................... 77
Description of Capital Stock.............. 79
Shares Eligible for Future Sale........... 82
Underwriting.............................. 83
Validity of Common Stock.................. 85
Experts................................... 85
Available Information..................... 85
Glossary.................................. G-1
Index to Financial Statements............. F-1
</TABLE>
Until , 1998 [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
[LOGO] ACG ADVANCED
COMMUNICATIONS
GROUP, INC.
COMMON STOCK
PROSPECTUS
PAINEWEBBER INCORPORATED
CIBC OPPENHEIMER CORP.
, 1998
<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>
<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.
In October 1996, the Predecessor agreed to issue non-transferable
five-year warrants to purchase an aggregate of 43,000 shares of Common Stock
at the initial public offering price per share to the following eight persons
for consulting services rendered in transactions exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved:
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME SUBJECT TO WARRANTS
- ---- -------------------
<S> <C>
Ronald Shapps ...... 25,000
Rod L. Crosby, Jr. 5,000
Ron Ormond ......... 1,500
Jim Neebling ....... 1,500
Howard Kra ......... 1,500
Julius Binetti ..... 3,500
Julius DeVito ...... 3,500
Errol Coern ........ 1,500
</TABLE>
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.
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 agreements entered into in May, July and July of 1997,
respectively, the Predecessor issued to Valerie A. Caser, Malcolm F. McNeill
and William McCaughey 2,245 shares of Common Stock, 9,765 shares of Common
Stock, and warrants to purchase 20,000 shares of Common Stock at a price of
$2.50 per share, respectively, in lieu of compensation for consulting
services in transactions exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
On December 29, 1997, the Predecessor issued non-transferable ten-year
warrants to purchase 175,000 shares and 350,000 shares and 20,000 shares of
Common Stock at a price of $2.50 per share to Brad K. Cutsinger and G. Edward
Powell, respectively, in transactions exempt from registration under the
Securities Act, no public offering being involved. The warrants were issued
to Messrs. Cutsinger and Powell in exchange for employee stock options having
the same economic terms.
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 637,135 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
II-5
<PAGE>
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>
*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.
**2.4A --Amendment No. 1 dated as of January , 1998 to the Agreement and Plan of Exchange filed as
Exhibit 2.4 to the Registration Statement.
*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.
II=6
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ------------
<S> <C>
10.2 --Non-Qualified Stock Option Plan for Non-Employee Directors.
10.3 --Employment Agreement between ACG and Richard P. Anthony.
*10.4 --Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
(see Annex V to Exhibit 2.1).
10.5 --Form of Employment Agreement between Feist Long Distance Service, Inc. and Todd Feist.
*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 executive officers
and directors.
*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).
10.15 --Management Agreement dated January 1, 1997 between KINI, L.C. and KIN Network, Inc.
10.16 --Sales Agreement Terms and Conditions dated July 16, 1997 between Big Stuff, Inc. and Great
Western Directories, Inc.
10.16A --Supplemental Letter dated December 22, 1997 from Big Stuff, Inc. to Great Western Directories,
Inc. regarding exclusively marketing rights to World Pages in certain areas.
10.17 --Employment Agreement between ACG and William H. Zimmer III.
10.18 --Employment Agreement between ACG and James F. Cragg.
10.19 --Form of Series E Warrant to be issued to certain shareholders of Tele-Systems, Inc.
10.20 --Form of Series F Warrant to be issued to certain shareholders of Tele-Systems, Inc.
10.21 --Form of Series G Warrant to be issued to certain shareholders of FirsTel, Inc. (see Annex
IV to Exhibit 2.4).
10.22 --Form of Series H Warrant to be issued to Daniel W. and Cheryl A. Peters (see Annex IV to
Exhibit 2.9).
10.23 --Form of Series I Warrant to be issued to Daniel W. and Cheryl A. Peters (see Annex V to
Exhibit 2.9).
10.24 --Warrant issued to Joseph C. Cook.
10.25 --Form of Series K Warrant issued to certain consultants.
10.26 --Form of Series L Warrant issued to G. Edward Powell, Brad K. Cutsinger and William McCaughey.
10.27 --Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
June 4, 1997 (Oklahoma).
10.28 --Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
April 4, 1997 (Kansas).
10.29 --Agreement for Service Resale dated as of June 6, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (South Dakota).
10.30 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (Wyoming).
10.31 --Agreement for Service Resale dated as of October 14, 1997 between FirsTel, Inc. and U S
West Communications, Inc. (Iowa).
II-7
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- ----------- ------------
<S> <C>
10.32 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc., as amended by a First Amendment to Agreement for Service Resale, dated
July , 1997 between FirsTel, Inc. and US West Communications, Inc. (North Dakota).
10.33 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc., as amended by a Second Amendment to Agreement for Service Resale,
dated November 6, 1997, between FirsTel, Inc. and US West Communications, Inc. (Nebraska).
10.34 --Agreement for Service Resale dated as of August 12, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (Minnesota).
10.35 --Resale Agreement dated as of April 30, 1997, between Southwestern Bell Telephone Company
and Valu-Line of Longview, Inc. (Texas).
10.36 --Resale Agreement dated as of September 12, 1997, between GTE Southwest Incorporated and
Valu-Line Long Distance (Texas).
10.37 --Master Resale Agreement dated as of May 9, 1997, among Valu-Line Long Distance and United
Telephone Company of Texas, Inc. dba Sprint and Central Telephone Company of Texas dba Sprint
and Southwest Incorporated and Valu-Line Long Distance (Texas).
10.38 --Form of Office Expense Agreement by and between Feist Publications, Inc., Feist Systems,
Inc. and Feist Long Distance Service, Inc.
10.39 --Form of Advertisement Agreement by and between Feist Publications, Inc. and Feist Long Distance
Service, Inc. (see Annex IV to Exhibit 2.3).
10.40 --Form of InterNet Reseller Agreement by and between Feist Systems, Inc. and Feist Long Distance
Service, Inc.
10.41 --Form of Standstill Agreement dated as of , 1998 between ACG and Rod K. Cutsinger.
10.42 --Form of Non-Competition Agreement dated as of , 1998 between ACG and Rod K. Cutsinger.
10.43 --Asset Purchase Agreement made and entered into as of September 3, 1997 by and between RAFT,
L.L.C., PAM Oil, Inc., Scott D. Scofield, William Pederson and FirsTel, Inc.
10.44 --Amendment to the Asset Purchase Agreement (filed as Exhibit 10.43 to the Registration Statement)
relating to extension of time for closing public offering.
10.45 --Form of Stockholders' Agreement among KIN Network, Inc. and its Stockholders.
*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 KPMG Peat Marwick LLP.
23.4 --Consent of KPMG Peat Marwick LLP.
23.5 --Consent of Hein + Associates LLP.
23.6 --Consent of Sartain Fischbein & Co.
23.7 --Consent of Kennedy and Coe LLC.
**23.14 --Consent of Bracewell & Patterson, L.L.P. (to be contained in Exhibit 5.1).
**23.15 --Consent of Reginald J. Hollinger to be named as a director.
24.1 --Power of Attorney (included on the Signature Page of Amendment No. 1 to this Registration
Statement).
27.1 --Financial Data Schedule.
27.2 --Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
All other exhibits are filed herewith.
II-8
<PAGE>
(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-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ADVANCED
COMMUNICATIONS GROUP, INC. HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF ST. LOUIS, STATE OF MISSOURI, ON DECEMBER 28,
1997.
ADVANCED COMMUNICATIONS GROUP, INC.
By: RICHARD P. ANTHONY
-------------------------------------
RICHARD P. ANTHONY
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below on this Amendment No. 1 to
Registration Statement hereby constitutes and appoints Richard P. Anthony and
William H. Zimmer III 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 AMENDMENT
TO THE 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>
RICHARD P. ANTHONY Chairman of the Board, President December 28, 1997
----------------------- and Chief Executive Officer
RICHARD P. ANTHONNY and Director (Principal Executive
Officer)
WILLIAM H. ZIMMER III Chief Financial Officer December 28, 1997
----------------------- and Director (Principal Financial and
WILLIAM H. ZIMMER III Accounting Officer)
JAMES F. CRAGG
-----------------------
JAMES F. CRAGG Director December 28, 1997
ROD K. CUTSINGER
-----------------------
ROD K. CUTSINGER Director December 28, 1997
G. EDWARD POWELL
-----------------------
G. EDWARD POWELL Director December 28, 1997
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS PAGE
- ----------- ---------------------------------------------------------------------------------------- --------
<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.
**2.4A --Amendment No. 1 dated as of January , 1998 to the Agreement and Plan of Exchange filed as
Exhibit 2.4 to the Registration Statement.
*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 Richard P. Anthony.
*10.4 --Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
(see Annex V to Exhibit 2.1).
10.5 --Form of Employment Agreement between Feist Long Distance Service, Inc. and Todd Feist.
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS PAGE
- ----------- ---------------------------------------------------------------------------------------- --------
<S> <C> <C>
*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 executive officers
and directors.
*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).
10.15 --Management Agreement dated January 1, 1997 between KINI, L.C. and KIN Network, Inc.
10.16 --Sales Agreement Terms and Conditions dated July 16, 1997 between Big Stuff, Inc. and Great
Western Directories, Inc.
10.16A --Supplemental Letter dated December 22, 1997 from Big Stuff, Inc. to Great Western Directories,
Inc. regarding exclusively marketing rights to World Pages in certain areas.
10.17 --Employment Agreement between ACG and William H. Zimmer III.
10.18 --Employment Agreement between ACG and James F. Cragg.
10.19 --Form of Series E Warrant to be issued to certain shareholders of Tele-Systems, Inc.
10.20 --Form of Series F Warrant to be issued to certain shareholders of Tele-Systems, Inc.
10.21 --Form of Series G Warrant to be issued to certain shareholders of FirsTel, Inc. (see Annex
IV to Exhibit 2.4).
10.22 --Form of Series H Warrant to be issued to Daniel W. and Cheryl A. Peters (see Annex IV to
Exhibit 2.9).
10.23 --Form of Series I Warrant to be issued to Daniel W. and Cheryl A. Peters (see Annex V to
Exhibit 2.9).
10.24 --Warrant issued to Joseph C. Cook.
10.25 --Form of Series K Warrant issued to certain consultants.
10.26 --Form of Series L Warrant issued to G. Edward Powell, Brad K. Cutsinger and William McCaughey.
10.27 --Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
June 4, 1997 (Oklahoma).
10.28 --Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
April 4, 1997 (Kansas).
10.29 --Agreement for Service Resale dated as of June 6, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (South Dakota).
10.30 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (Wyoming).
10.31 --Agreement for Service Resale dated as of October 14, 1997 between FirsTel, Inc. and U S
West Communications, Inc. (Iowa).
10.32 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc., as amended by a First Amendment to Agreement for Service Resale, dated
July , 1997 between FirsTel, Inc. and US West Communications, Inc. (North Dakota).
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS PAGE
- ----------- ---------------------------------------------------------------------------------------- --------
<S> <C> <C>
10.33 --Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc., as amended by a Second Amendment to Agreement for Service Resale,
dated November 6, 1997, between FirsTel, Inc. and US West Communications, Inc. (Nebraska).
10.34 --Agreement for Service Resale dated as of August 12, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (Minnesota).
10.35 --Resale Agreement dated as of April 30, 1997, between Southwestern Bell Telephone Company
and Valu-Line of Longview, Inc. (Texas).
10.36 --Resale Agreement dated as of September 12, 1997, between GTE Southwest Incorporated and
Valu-Line Long Distance (Texas).
10.37 --Master Resale Agreement dated as of May 9, 1997, among Valu-Line Long Distance and United
Telephone Company of Texas, Inc. dba Sprint and Central Telephone Company of Texas dba Sprint
and Southwest Incorporated and Valu-Line Long Distance (Texas).
10.38 --Form of Office Expense Agreement by and between Feist Publications, Inc., Feist Systems,
Inc. and Feist Long Distance Service, Inc.
10.39 --Form of Advertisement Agreement by and between Feist Publications, Inc. and Feist Long Distance
Service, Inc. (see Annex IV to Exhibit 2.3).
10.40 --Form of InterNet Reseller Agreement by and between Feist Systems, Inc. and Feist Long Distance
Service, Inc.
10.41 --Form of Standstill Agreement dated as of , 1998 between ACG and Rod K. Cutsinger.
10.42 --Form of Non-Competition Agreement dated as of , 1998 between ACG and Rod K. Cutsinger.
10.43 --Asset Purchase Agreement made and entered into as of September 3, 1997 by and between RAFT,
L.L.C., PAM Oil, Inc., Scott D. Scofield, William Pederson and FirsTel, Inc.
10.44 --Amendment to the Asset Purchase Agreement (filed as Exhibit 10.43 to the Registration Statement)
relating to extension of time for closing public offering.
10.45 --Form of Stockholders' Agreement among KIN Network, Inc. and its Stockholders.
*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 KPMG Peat Marwick LLP.
23.4 --Consent of KPMG Peat Marwick LLP.
23.5 --Consent of Hein + Associates LLP.
23.6 --Consent of Sartain Fischbein & Co.
23.7 --Consent of Kennedy and Coe LLC.
**23.14 --Consent of Bracewell & Patterson, L.L.P. (to be contained in Exhibit 5.1).
**23.15 --Consent of Reginald J. Hollinger to be named as a director.
24.1 --Power of Attorney (included on the Signature Page of Amendment No. 1 to this Registration
Statement).
27.1 --Financial Data Schedule.
27.2 --Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
All other exhibits are filed herewith.
<PAGE>
[INSERT DOCUMENT HERE]
<PAGE>
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
<PAGE>
than the Company (or one of its subsidiaries) or any employee benefit
plan sponsored by the 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;
-2-
<PAGE>
(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
(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.
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(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.
(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.
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(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.
(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.
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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.
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
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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 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
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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.
(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.
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(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 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
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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 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
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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 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
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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 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.
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(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. 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.
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(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 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.
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(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 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:
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(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
(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
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<PAGE>
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 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
<PAGE>
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 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
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Common Stock with respect to which the option is being exercised. The notice
shall be accompanied 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 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.
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<PAGE>
(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 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.
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<PAGE>
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 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
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<PAGE>
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.
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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<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is dated
as of December 22, 1997 but effective for all purposes as of October 31, 1997,
by Richard P. Anthony ("Executive") and Advanced Communications Group, Inc., a
Delaware corporation ("Company") (collectively referred to as the "Parties").
The 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 the Company, the Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. Unless the contract otherwise requires,
references to the Company in the last sentence of Section 4 and in Sections 5
and 7 of this Agreement include its subsidiaries and other affiliates.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on December 31, 2003. 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 Executive during the term
of this Agreement a base salary ("Base Salary") of (i) prior
to the initial public offering of the common stock, $.0001
par value, of the Company, (the "Offering"), not less than
$200,000 per annum and (ii) after the Offering, not less than
$250,000 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 On December 1, 1997, Executive shall receive a cash bonus of
$50,000. In addition, for 1998 and for each calendar year
thereafter during the term of this Agreement, Executive shall
be eligible to receive a cash bonus of up to 50% of his Base
Salary ("Bonus"). No later than March 31 in each year
<PAGE>
during the term of this Agreement, the Compensation Committee
of the Board of Directors of the Company ("Compensation
Committee") shall establish and communicate to Executive the
performance standard that the Company must achieve for the
current calendar year in order for Executive to receive his
entire Bonus for that year ("Target Performance Standard").
Prior to March 31 of the following year, the Compensation
Committee (i) shall determine the extent to which the Company
achieved the Target Performance Standard for the preceding
calendar year ("Achieved Performance Standard") and (ii)
shall cause the Company to pay to Executive the amount, if a
positive number, determined by multiplying half of
Executive's Base Salary for the preceding year by a fraction,
the numerator of which is the Actual Performance Standard for
that year and the denominator of which is the Target
Performance Standard for that year, provided that in no event
shall such fraction be greater than one ("Payment Fraction").
3.3 Executive will be entitled to three weeks of paid vacation
annually during the term of this Agreement.
3.4 Upon execution of this Agreement, Executive will be awarded
five hundred thousand (500,000) non-qualified stock options
("Signing Bonus Options") to acquire common stock, $.0001 par
value, of the Company ("Common Stock"). One hundred fifty
thousand (150,000) of these options (the "Three Month
Options") shall vest ninety (90) days after the date of grant
and shall be exercisable at a price of $2.50 per share. The
remaining three hundred fifty thousand options (the
"Remaining Options") shall vest in 331/3% increments,
commencing on the first anniversary of date of grant, and
shall be exercisable at a price per share equal to the price
to the public of the Common Stock in the Company's initial
underwritten public offering of its Common Stock (the
"Offering"). Accordingly, subject to Section 3.6, the Three
Month Options shall become fully vested ninety (90) days
after the date of grant and the Remaining Options shall
become fully vested three years after the date of grant. The
Signing Bonus Options shall have a term of ten years.
3.5 Prior to March 31 of each year during the term of this
Agreement, commencing in 1999, the Compensation Committee may
award Executive additional non-qualified stock options to
acquire Common Stock (the "Performance Options") in an amount
equal to the result obtained by multiplying 75,000 options by
the Payment Fraction for the preceding calendar year. Such
Performance Options shall be exercisable at the market price
of the Common Stock on the date of grant, as determined by
the
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<PAGE>
Compensation Committee. The Performance Options shall have a
term of ten years and shall become exercisable in 331/3%
increments on each anniversary date of the grant thereof.
Accordingly, subject to Section 3.6, the Performance Options
shall become fully vested three years after the date of
grant.
3.6 Notwithstanding the provisions of Section 3.4 or 3.5, the
vesting of all Signing Bonus Options and Performance Options
(collectively, the "Options") will be accelerated in the
event of the termination of Executive'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 Signing Bonus Options and Performance
Options shall be granted pursuant to the Company's 1997 Stock
Awards Plan ("Stock Awards Plan"), a copy of which has
heretofore been delivered to Executive.
3.7 Executive shall receive such other benefits commensurate with
his level of employment as are available under the executive
employee benefits plans of the Company. For example, the
Executive shall be entitled to participate in the Company's
401K plan which the Company intends to establish.
3.8 The Company will cause the Executive to be appointed to the
board of directors of the Company (with a term expiring in
2000) concurrently with or prior to the consummation of the
Offering.
3.9 To ensure the Executive's accessibility, the Company shall
furnish him during the term of his Employment with a cellular
telephone that is to be utilized primarily for Company
business. The Company shall pay the fixed charges associated
with the telephone as well as all charges directly associated
with its use in connection with Company business.
4. Duties and Extent of Service.
Executive shall hold the offices of Chairman and Chief Executive Officer of the
Company. Executive agrees to perform the duties incidental to his positions, as
determined from time to time by the Board of Directors of the Company.
Executive shall devote such time, attention, and energy to the business of the
Company as are required to perform his duties and responsibilities. Executive
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 Board of Directors of the Company. In any event after the date
hereof, Executive shall not take any action inconsistent with Executive's
relationship and responsibilities as an employee of the
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<PAGE>
Company, or take any action which is intended, or may be reasonably expected,
to harm the reputation, business, prospects, or operations of the Company.
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 the Company ("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
the Company's business and marketing plans, confidential
information and trade secrets relating to the distribution
and marketing of the Company's products and services; patents
pending; confidential characteristics of the Company's
products and services; customer comments; troubleshooting
requirements; product and service development; market
development; manuals written by the Company; 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 Executive acknowledges and agrees that the Confidential
Information constitutes valuable, special, and unique
property of the Company.
5.3 Executive will not, at any time during the term of this
Agreement or his employment with the Company, and for a
period of three years after the termination of this Agreement
or such employment, 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 Executive's possession before its disclosure
to Executive by the Company; (b) information that is or shall
lawfully be published or become part of the general knowledge
through no act or omission of Executive; or (c) any
information which Executive is authorized to disclose in the
performance of his duties. The Confidential Information
disclosed to Executive under this Agreement is not within the
foregoing exceptions merely because such
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<PAGE>
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
the Company and for a period of one year (in the case of a
termination pursuant to Section 6.1(a), (b), (d), (e) or (f))
or three years (in the case of termination pursuant to
Section 6.1(c)) immediately after the termination of this
Agreement or his employment with the Company, 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 the Company or solicit, accept,
divert, or take away from the Company 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 the Company to terminate his or her employment or
association in any manner whatsoever with the Company; or
(iii) engage in any commercial or technical activity
involving the development, formulation, manufacture,
production, distribution, marketing or sale of any product or
service that the Company designs, produces, manufactures,
distributes, markets or sells during the term of this
Agreement or Executive's employment with the Company. The
prescribed territory in which Executive shall not compete
with the Company as contemplated by this Section 5.5 shall
consist of all of those areas of the United States in which
the Company is doing business at the time of Executive's
termination of employment.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by the
Company and the need for senior officers to have a high
degree of technical knowledge concerning these products and
services, employment by the Company, including the special
training, knowledge, and confidential information that will
be acquired in the course of such employment, will give
Executive distinct and substantial advantages for potential
sales 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
Section 5.5 are reasonable and are not unduly onerous on
Executive. Executive therefore agrees that the limitations as
to time,
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<PAGE>
geographic area, and scope of activity contained in Section
5.5 do not impose a greater restraint than is necessary to
protect the Confidential Information, goodwill, and other
business interests of the Company. Executive also agrees that
in light of the facts acknowledged in this Section 5.6, the
substantial investment of the Company in developing its
business and providing special training to Executive, and the
certain and substantial harm that the Company would suffer if
Executive were to engage in any of the activities described
in Section 5.5, the Company's need for the protection
afforded by Section 5.5 is greater than any hardship
Executive might experience by complying with its terms.
Executive also agrees that, if any provision or covenant set
forth in Section 5.5 is found to be invalid in part or whole,
the Company 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 Section 5 may
cause irreparable damage to the Company. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Section 5, Executive agrees that the
Company 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, 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 and
non-solicitation provisions of this Agreement. Nothing herein
shall be construed as prohibiting the Company 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 renewal of this Agreement ends.
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(b) Death or Disability of Executive. If Executive 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 Executive, or to the estate of Executive if
he dies, (i) 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, and (ii)
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Upon such
payments, as well as applicable insurance benefits,
if any, all obligations of the Company to the
Executive or his estate shall be fully satisfied,
and this Agreement shall terminate. If Executive's
employment is terminated by his death, then the
Options theretofore granted to him prior to his
death shall immediately vest and be exercisable
within ninety (90) days therefrom by the executor or
administrator of Executive's estate or by the person
or persons to whom Executive's option rights shall
pass by will or the laws of descent and
distribution; provided, however, that in no event
may any option be exercised after the date of its
expiration under the terms of the relevant option
agreement.
(c) Resignation of Executive. If Executive resigns prior
to the end of the term of this Agreement, this
Agreement shall terminate immediately, and the
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 the Company to Executive shall be
fully satisfied.
(d) Change in Ownership, Management, or Executive's
Responsibilities. If there is a change in the
ownership or management of the Company after the
date hereof, and either of these changes
significantly alters Executive's job
responsibilities or compensation, Executive may
resign from his positions within 60 days of such a
change. If Executive resigns pursuant to this
Section 6.1(d), the Company (i) will continue to pay
Executive his Base Salary for a period of two years
after the initial date of any such change and (ii)
will pay to Executive any earned but unpaid Bonus or
other compensation for the prior year due to
Executive. Executive will not be entitled to receive
any Bonus for the current or any future year or
additional awards of Options if he resigns as
provided in this Section 6.1(d). For the period
after Executive's resignation during which Executive
will
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receive his Base Salary, Executive will not have any
authority to act on behalf of the Company.
(e) Termination by the Company "With Cause." If
Executive (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 the
Company; and/or (iv) is convicted of a crime that is
classified as a felony, the 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 the Company. Upon such
payment, all obligations of the Company to Executive
shall be fully satisfied, and this Agreement will
terminate. Executive shall not be entitled to
receive any Bonus, award of additional Options or
accrued vacation pay if his termination is "with
cause."
(f) Termination by the Company Without Cause. In the
event the Company terminates Executive's employment
for any reason other than as described in Sections
6.1(d) or (e), Executive shall be entitled (i) to
continue to receive his Base Salary for a period of
one year after such termination and (ii) to receive
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Executive shall
not be entitled to receive any Bonus or award of
additional Options in respect of the one-year period
in which he receives salary continuation.
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
Section 5. Except as expressly provided herein with respect
to the acceleration of the vesting of Options under certain
limited circumstances, the exercise of all Options in the
event of a termination of employment will be governed by the
terms of the Stock Awards Plan and the related stock option
agreements entered into with Executive. All vested Options
must be exercised within 90 days after the termination of
Executive's employment.
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<PAGE>
7. Return of Company 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 the Company shall be the sole and
exclusive property of the Company, 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 Company property shall not be removed
from the Company premises without the Company's prior written
consent.
7.2 Upon termination of this Agreement or whenever requested by
the Company, Executive immediately shall deliver to the
Company all of the Company property or any of the Company'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, accounting
machines, and all office furniture and fixtures, supplies,
equipment, and other personal property placed in the office
by the 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 16535 Baxter Forest Ridge, Chesterfield,
Missouri 63005, and to the Company, c/o Rod K. Cutsinger, 3355 West Alabama,
Suite 580, Houston, Texas 77098 (Telecopy No.: 713-599-0222), or to such other
address as either party shall designate by written notice to the other. Notices
may be sent by messenger, by telecopy 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 or telecopy 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.
Except for actions by the Company seeking to enforce the provisions of Sections
5 and 7 of this Agreement, any dispute, controversy, or claim brought by the
Company or Executive
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<PAGE>
concerning the subject matter contained in this Agreement, including, but not
limited to, Executive's employment, termination from, and/or affiliation with
the Company, shall be settled exclusively by binding arbitration in Houston,
Texas in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any other dispute, controversy, or claim
brought by the Executive against the Company or any of its officers, directors,
shareholders, or employees, or by the Company against Executive (except for
actions by the Company seeking to enforce the provisions of Sections 5 and 7 of
this Agreement), shall likewise be settled exclusively by binding arbitration
in Houston, Texas in accordance with the rules of the American Arbitration
Association. 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 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 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
the Company, the Executive and Rod K. Cutsinger in connection
with the subject matter hereof.
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<PAGE>
10.5 The waiver by the Company of a breach of any provision of
this Agreement by Executive shall not operate or be construed
as a waiver by the 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.
"COMPANY" "EXECUTIVE"
ADVANCED COMMUNICATIONS
GROUP, INC.
- ---------------------------------- ----------------------------------
By: Rod K. Cutsinger Richard P. Anthony
Its: Chairman and
Chief Executive Officer
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
December ____, 1997 by and between Todd J. Feist (the "Employee") and Feist
Long Distance Service, Inc., a Kansas corporation (the "Company") (collectively
referred to as the "Parties") for the benefit of the Parties, 1+ USA V
Acquisition Corp., a Delaware corporation ("Acquisition Subsidiary"), Advanced
Communications Corp. ("Corp.") and Advanced Communications Group, Inc.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger, as amended by
Amendment No. 1 thereto (as amended, the "Original Merger Agreement"),
Acquisition Subsidiary and Employee entered into an Employment Agreement dated
June 12, 1997 (the "Original Employment Agreement") which contemplated a merger
(the "Merger") between Feist Long Distance Service, Inc. and the Acquisition
Subsidiary, which is a wholly owned subsidiary of Advanced Communications Corp.
(formerly named Advanced Communications Group, Inc.);
WHEREAS, the parties amended and restated the Original Merger
Agreement pursuant to an Agreement and Plan of Exchange dated as of October 6,
1997 by and among Advanced Communications Group, Inc., Advanced Communications
Corp., Acquisition Subsidiary, Feist, Thomas J. Feist, Roberta Feist and
certain other stockholders of Feist (the
"Restated Acquisition Agreement");
WHEREAS, the Restated Acquisition Agreement superseded all provisions
relating to the Merger and now provides for the acquisition of all of the
issued and outstanding shares of Feist by a subsidiary of Advanced
Communications Corp. named Advanced Communications Group, Inc.;
WHEREAS, the parties wish to terminate the Original Employment
Agreement and replace it with the terms and provisions of this Agreement
effective upon the initial public offering of the common stock of Advanced
Communications Group, Inc.;
WHEREAS, all defined terms used herein that are not otherwise defined
herein shall have the meanings assigned them in the Restated Acquisition
Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by both parties, Company and Employee
agree as follows:
<PAGE>
1. Termination of Employment.
1.1 The Original Employment Agreement and Employee's employment
pursuant thereto are hereby terminated, without any further
action by any of the parties, effective upon the consummation
of the initial public offering of common stock, $.0001 par
value, of Advanced Communications Group, Inc. (the
"Offering"). The parties acknowledge that Employee shall not
be entitled to any compensation or benefits whatsoever as a
result of his termination other than payment of his salary of
$1,000 per month accrued through the date of termination.
Accordingly, the parties agree that upon such termination,
Employee shall be deemed to have released and waived all his
claims, contingent or matured, known or unknown against
Acquisition Subsidiary or Corp. under the Original Employment
Agreement, except for any claims for unpaid salary accrued
prior to the termination of the Original Employment Agreement
and his employment.
1.2 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, and effective upon
the Offering, the Company employs Employee, and Employee
accepts employment subject to the terms and conditions of
this Agreement. Unless the context otherwise clearly
requires, all references to ACG in this Agreement shall
include Advanced Communications Group, Inc., ACG Corp.,
Acquisition Subsidiary, and ACG's subsidiaries from time to
time, including Feist.
2. Term.
This following provisions of this Agreement shall commence and become effective
on the Closing Date and shall end on the fifth anniversary thereof. 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 not less
than $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 ACG for any employee
benefit plans.
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<PAGE>
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 Pursuant to the Original Agreement, Employee was awarded
250,000 options to acquire common stock in ACG Corp. for a
price of $2.50 per share. These options are hereby canceled
and surrendered. In substitution therefor, the Acquisition
Subsidiary and Corp. will cause Advanced Communications
Group, Inc. to award Employee 250,000 options to acquire
Advanced Communications Group, Inc. common stock, par value
$.0001, having a term of ten years, and exercisable in
one-third increments according to the following schedule: (i)
1/3 shall vest as of July 22, 1998; (ii) the next 1/3 shall
vest on July 22, 1999; and (iii) the final 1/3 shall vest on
July 22, 2000. Accordingly, the options shall become fully
vested three years from July 22, 1997; 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), 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, which is
substantively identical to the copy of Corp's 1997 Stock
Awards Plan heretofore delivered to Employee.
3.5 Employee shall receive benefits commensurate with his level
of employment under any health plan of ACG.
3.6 If ACG completes an initial underwritten public offering of
ACG common stock, par value $.0001 per share (the "IPO")
prior to January 31, 1998, the 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.
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<PAGE>
Employee shall hold the office of President of the Company. In addition,
Employee shall serve Advanced Communications Group, Inc. at no additional
compensation as its Vice President -- Kansas/Telecommunication Services 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 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
Advanced Communications Group, Inc.; 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
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 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.
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<PAGE>
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 or the Company 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 three years 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 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.
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 Company
declines to renew this Agreement upon the expiration of its
stated term. The obligations of Employee pursuant to this
Agreement are additional to the obligations described in
Sections 12 and 13 of the Restated Acquisition Agreement.
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
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<PAGE>
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.
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-
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<PAGE>
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.
(d) Change in Ownership, Management, or Employee's
Responsibilities: If there is a change in the
ownership or management of ACG after the Closing
Date, 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 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.
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<PAGE>
(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, 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 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 payable to Employee through the last date of
his employment and such compensation 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 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,
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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 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 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.
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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 remainder of this
Agreement, but the effect thereof shall be confined to the
clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
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<PAGE>
The Parties have executed this Agreement to be effective as of the day
and year first above written.
FEIST LONG DISTANCE SERVICE, INC.
- ---------------------------------- ----------------------------------
By: Todd J. Feist Todd J. Feist
Its: President
"COMPANY" "EMPLOYEE"
The following corporations execute this Agreement to evidence their awareness
of and consent to its terms:
ADVANCED COMMUNICATIONS GROUP, INC.
- ----------------------------------
Name: Rod K. Cutsinger
Title: Chairman
ADVANCED COMMUNICATIONS CORP.
- ----------------------------------
Name: Rod K. Cutsinger
Title: Chairman
1+ USA ACQUISITION V CORP.
- ----------------------------------
Name: Rod K. Cutsinger
Title: Chairman
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<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this ___ day of ________, 1997
("Agreement"), by and between Advanced Communications Group, Inc., a Delaware
corporation ("Company"), and ____________________ ("Indemnitee"):
WHEREAS, the Company has filed a Registration Statement on Form S-1
(Registration No. 333-37671) with the Securities and Exchange Commission
relating to its initial public offering; and
WHEREAS, the Indemnitee is willing either to serve as a member of the
Company's Board of Directors or to be designated to serve as a prospective
member of the Company's Board of Directors (collectively "to serve") if he is
provided with adequate protection through insurance and indemnification against
the inordinate risks of claims and actions against him arising out of his
service to and activities on behalf of the Company; and
WHEREAS, the Board of Directors of the Company has determined that it is
reasonable, prudent and necessary for the Company contractually to obligate
itself to indemnify the Indemnitee to the fullest extent permitted by
applicable law so that he will serve the Company free from undue concern that
he will not be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director of the Company. Indemnitee may at any time and for any reason resign
as a director of the Company (subject to any other contractual obligation or
any obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in such
position.
Section 2. Indemnification - General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) to the fullest extent permitted by applicable law in
effect on the date hereof and as amended from time to time. The rights of
Indemnitee provided under the preceding sentence shall include, but shall not
be limited to, the rights set forth in the other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason
<PAGE>
of his Corporate Status (as hereinafter defined), he is, or is threatened to be
made, a party to any threatened, pending, or completed Proceeding (as
hereinafter defined), other than a Proceeding by or in the right of the
Company. Pursuant to this Section 3, Indemnitee shall be indemnified against
all Expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with
such Proceeding or any claim, issue or matter therein, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company; provided, however, that, if
applicable law so provides, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company unless and to
the extent that the Court of Chancery of the State of Delaware, or the court in
which such Proceeding shall have been brought or is pending, shall determine
that such indemnification may be made.
Section 5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to
and is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section and without limitation,
the termination of any claim, issue or matter in such a Proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a
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<PAGE>
witness in any Proceeding to which Indemnitee is not a party, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change of Control shall not have
occurred, (A) by the Board of Directors by a majority vote of Disinterested
Directors (as hereinafter defined), even if less than a quorum (or by a
committee of Disinterested Directors designated by a majority vote of
Disinterested Directors, even if less than a quorum), or (B) if a majority of
Disinterested Directors so directs, even if less than a quorum, by Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall
be delivered to Indemnitee or (C) if so directed by the Board of Directors, by
the stockholders of the Company; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within 10 days
after such determination. Indemnitee shall cooperate with the person, persons
or entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from
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<PAGE>
disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within 10 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection;
provided, however, that such objection may be asserted only on the ground that
the Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 17 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and substantiated, the
Independent Counsel so selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a
written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition the Court of Chancery of the State of
Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person
as the court shall designate, and the person with respect to whom all
objections are so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel
in connection with acting pursuant to Section 8(b) hereof, and the Company
shall pay all reasonable fees and expenses incident to the procedures of this
Section 8(c), regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 10(a) hereof, Independent Counsel shall be
discharged
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<PAGE>
and relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee
has submitted a request for indemnification in accordance with Section 8(a)
hereof, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee has reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 8 hereof that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section
7 hereof, (iii) no determination of entitlement to indemnification shall have
been made pursuant to Section 8(b) hereof within 90 days after receipt by the
Company of the request for indemnification, (iv) payment of indemnification is
not made pursuant to Section 5 or 6 hereof within 10 days after receipt by the
Company of a written request therefor, or (v) payment of indemnification is not
made within 10 days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award
in arbitration within 180 days following the date on which Indemnitee first has
the right to commence such proceeding pursuant to this Section
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<PAGE>
10(a); provided, however, that the foregoing clause shall not apply in respect
of a proceeding brought by Indemnitee to enforce his rights under Section 5
hereof.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) hereof that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section
8(b) hereof that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification
under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 17 hereof actually and reasonably incurred by him in
such judicial adjudication or arbitration, but only if he prevails therein. If
it shall be determined in such judicial adjudication or arbitration that
Indemnitee is entitled to receive part but not all of the indemnification or
advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be
appropriately prorated.
Section 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's charter documents or bylaws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit
or restrict any right of Indemnitee under this Agreement in respect of any
action taken or omitted by such Indemnitee in his Corporate Status prior to
such amendment, alteration or repeal.
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<PAGE>
(b) To the extent that the Company or any controlling person of
the Company maintains an insurance policy or policies providing liability for
directors, officers, employees, or agents of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Company, Indemnitee
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents
as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee, or agent of the
Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of any Proceeding then
pending in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 hereof relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
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<PAGE>
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee, or any claim
therein prior to a Change in Control, unless the bringing of such Proceeding or
making of such claim shall have been approved by the Board of Directors.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the Sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) other than Consolidation Partners, L.L.C. becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities without the
prior approval of at least two-thirds of the members of the Board of Directors
in office immediately prior to such person attaining such percentage interest;
(ii) there occurs a proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other reorganization not
approved by at least two-thirds of the members of the Board of Directors then
in office, as a consequence of which members of the Boards of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of
two consecutive years, other than as a result of an event described in clause
(a)(ii) of this Section 17, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election or nomination for election by the Company's stockholders was
approved
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<PAGE>
by a vote of at least two-thirds of the members of the Board of Directors then
still in office who were members of the Board of Directors at the beginning of
such period) cease for any reason to constitute at least a majority of the
Board of Directors.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who
is not a party to the Proceeding in respect of which indemnification is sought
by Indemnitee.
(d) "Effective Date" means October 9, 1997.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(g) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative, except one (i) initiated by an Indemnitee pursuant to Section 10
hereof to enforce his rights under this Agreement or (ii) pending on or before
the Effective Date.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No
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<PAGE>
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (b) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company, to:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
Houston, Texas 77098
Attention: Corporate Secretary
;or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: ADVANCED COMMUNICATIONS GROUP, INC.
"COMPANY"
By: By:
------------------------------- -------------------------------
Name:
Title:
----------------------------------
"INDEMNITEE"
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<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered
into as of the 1st day of January, 1997, by and between KINI L.C., a Kansas
limited liability company ("KINI" or the "Manager"), and KIN NETWORK, INC., a
Kansas corporation ("KINNET").
WITNESSETH:
WHEREAS, the parties hereto wish to clarify and formalize the
arrangements under which KINI has been providing management services to KINNET;
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings herein contained, KINI and KINNET hereby agree as follows:
1. APPOINTMENT OF MANAGER
1.1 Subject to the terms and conditions hereinafter expressed, KINNET
hereby retains KINI as its Manager to perform certain services with respect to
KlNNET's business and the major state fiber optic cable network owned by KINNET
in the State of Kansas (the "Network") and KINI hereby agrees to serve as
KINNET's Manager. Such services shall be as now being provided to KINNET and as
specified in Section 2 hereof and shall be for the same costs as now being
charged to KINNET and as specified in Section 3 hereof.
2. SERVICES
2.1 Subject to the authority of the Board of Directors of KINNET to
control the Network and KINNET's business, the Manager shall be responsible for
the planning, construction, management and operation of the Network and the
conduct of KINNET's business, as requested by the Board of Directors of KINNET
from time to time. Consistent with the foregoing, the Manager shall (i)
provide or enter into contracts with others to provide management services to
KINNET; (ii) use its best efforts consistent with sound commercial practices to
provide or cause others to provide for the successful conduct of KINNET's
business; and (iii) render or obtain all services and perform or cause to be
performed all actions as shall be necessary or appropriate for the construction
and operation of the Network, including but not limited to the following:
(a) preparing and presenting to the Board of Directors of KlNNET for
approval (i) a construction budget detailing the timing and projected amounts
of all expected expenditures for purchases of equipment, acquisition and
preparation of easements and construction of the Network from time to time; and
(ii) a yearly operating budget detailing the projected costs of the
<PAGE>
administrative, technical and marketing personnel and the marketing program,
the office and administrative expenses, and the fees for billing and
collecting customer accounts;
(b) planning, acquiring assets or rights to use assets necessary for
and overseeing the construction of the Network, including any expansion,
modification or reduction thereof;
(c) hiring and supervising the personnel necessary to construct and
operate the Network (all of which personnel shall be employed by the Manager);
(d) establishing an office and hiring, training and managing the
administrative, technical and marketing personnel necessary to conduct KINNET's
business (all of which personnel shall be employed by the Manager);
(e) arranging to have the Manager's personnel participate in such
accident, health, life, insurance, pension, training, human resource
management and other similar programs as the parties may deem appropriate;
(f) developing and implementing a marketing Program, including but not
limited to making decisions with respect to the types of services to be
offered, the rates and prices to be charged for such services, advertising and
promotional campaigns, and entering into, on behalf of KINNET, such agreements
(with respect to the foregoing or otherwise) as the Manager may, from time to
time, deem necessary, appropriate or beneficial;
(g) arranging for the billing and collection of all fees, charges or
other compensation due to KINNET and arranging for the payment of all expenses
and fees incurred or payable by KINNET;
(h) arranging for the maintenance of the Network according to
standards reasonably acceptable to KINNET and for the provision of all
necessary or appropriate repairs and replacements;
(i) arranging for appropriate property, casualty and other insurance
for KINNET and the Network;
(j) taking all necessary action, including the execution and delivery
of applications and other instruments, to comply with rules, regulations and
orders of any federal, state, county, municipal or other governmental
authority having jurisdiction Over KINNET or the Network;
(k) arranging for appropriate office recordkeeping, bookkeeping and
accounting and for the preparation and filing of all unemployment compensation,
income and other tax returns or forms required to be prepared or filed by
KINNET;
(1) managing the funds of KINNET;
2
<PAGE>
(m) arranging for the provision of services and technical assistance
in connection with all aspects of operating the Network and the business of
KINNET, including, without limitation: practices, standards, methods, systems
and procedures; responding to emergency calls; engineering; safety and training
programs; marketing and sales; customer relations; budgets and plans;
preparation of specifications and contracts for the purchase of goods and
printing; legal, accounting, computer and other services; financing and
general administration; and
(n) generally, doing any and all other acts and executing such
agreements and documents as may reasonably be necessary to carry out the duties
and responsibilities of the Manager contemplated hereunder, whether or not
specifically enumerated herein.
All of the foregoing services shall be rendered by the Manager subject
to the approval of the Board of Directors of KINNET. The Manager understands
that ultimate discretion and control over the Network and KINNET's business
shall remain vested in the Board of Directors of KINNET and the Manager shall
do nothing inconsistent therewith. The Manager further agrees and understands
that all facilities and equipment used or employed in the construction or
operation of the Network, other than equipment leased or owned by the Manager
or a Subcontractor thereof, shall remain the property of KINNET and KINNET
shall have the unfettered use and ownership of all said facilities and
equipment.
2.2 Notwithstanding anything to the contrary contained in Section 2.1
hereof, the Manager shall not be authorized without the consent of the Board
of Directors of KINNET to:
(a) borrow money on behalf of KINNET for any purpose;
(b) enter into any long-term commitments on behalf of KINNET;
(c) sell, lease, trade, exchange or otherwise dispose of any property
of KINNET other than in the ordinary course of business;
(d) make calls for capital contributions from KINNET's Shareholder;
(e) determine the amount of any distributions to be made to KINNET's
shareholder; or
(f) take any actions to effect the liquidation or dissolution Of
KINNET.
2.3 All actions taken by the Manager under the provisions of Section
2.1 hereof shall be taken as a fiduciary and agent of KINNET and all
obligations or expenses incurred hereunder shall be for the account, on behalf
and at the expense of KINNET, including such obligations or expenses which are
incurred with respect to independent third parties. Any payments to be made by
the Manager hereunder for the account, on behalf and at the expense of KINNET
shall be made from such sums as are available in one or more accounts of
KINNET or as may be provided by KINNET to the Manager. Except as otherwise
specifically provided in any written
3
<PAGE>
agreement to which the Manager is a party, the Manager shall not be obligated
to make any advance to or for the account of KINNET or to pay any sum, other
than from funds held or provided as aforesaid.
3. REIMBURSEMENT OF DIRECT COSTS AND MANAGEMENT
3.1 KINNET shall reimburse the Manager for all reasonable costs
incurred directly in connection with the performance by the Manager of its
duties hereunder, including but not limited to the salaries of those employees
of the Manager who are directly engaged in the performance of services by the
Manager hereunder, the fees and expenses of independent consultants (whether to
provide technical, legal, accounting or other advisory services) engaged in
respect of the Network or KINNET's business, and all other reasonable costs
incurred by the Manager and directly related to the Network or KINNET's
business (collectively, the "Direct Costs"). All Direct Costs shall be payable
monthly up to ten (10) days in advance of the month in which such costs are
expected to be incurred and shall be paid by KINNET not later than five (5) days
after presentation of a written estimate of such costs from the Manager.
Between the fifteenth day and the last day of the month immediately following
the month for which KINNET has paid in advance an estimate of the Direct Costs
expected to be incurred, the Manager shall present an appropriate statement to
KINNET which shall set forth the actual Direct Costs incurred during the month
for which an advance payment was made together with either a check to refund to
KINNET the amount of any overpayment or an invoice to bill KINNET the amount
of any deficiency which deficiency shall be paid by KINNET not later than five
(5) days after notice thereof.
3.2 KINNET shall also pay the Manager a monthly management fee equal
to a percentage of the Direct Costs incurred each month (the "Management Fee"),
as follows:
Months Management Fee
January, February and March 15%
April, May and June 15%
July, August and September 15%
October, November and December 15%
The Management Fee shall be payable monthly up to ten (10) days in advance of
the month in which the Direct Costs to which the Management Fee relates are
expected to be incurred and shall be paid by KINNET not later than five (5)
days after presentation of a written estimate of such fee from the Manager.
Between the fifteenth day and the last day of the month immediately following
the month for which KINNET has paid in advance an estimate of the Management
Fee expected to be incurred, the Manager shall present an appropriate
statement to KINNET which
4
<PAGE>
shall set forth the actual Management Fee incurred during the month for which
an advance payment was made together with either a check to refund to KINNET
the amount of any overpayment or an invoice to bill KINNET the amount of any
deficiency which deficiency shall be paid by KINNET not later than five (S)
days after notice thereof.
3.3 It is expressly understood that if the Manager makes arrangements
to have one or more of its affiliates provide goods or services directly to
KINNET, then the provider of such goods or services may invoice KINNET directly
for such goods or services, in which event the cost of such goods and services
shall not be included as Direct Costs for purposes of Section 3.1 hereof;
provided, however, that such goods and services must be provided to KINNET on
terms no less favorable than could be obtained from an unrelated third party
dealing with KINNET on an arm's-length basis.
3.4 KINNET shall have the right to an accounting to determine whether
any Direct Costs or Management Fee should be paid under Section 3.1 hereof.
Any such accounting and any expenses associated therewith shall be paid or
reimbursed by KINNET.
4. OTHER INTERESTS
4.1 The Manager and its affiliates may engage in or possess an
interest in other business ventures of any nature or description,
independently or with others, whether currently existing or hereafter created,
including the acquisition, construction, management, operation and sale of
fiber optic cable networks, and KINNET shall not have any rights in or to such
independent ventures or the income or profits derived therefrom. Nothing in
this Agreement shall preclude transactions between the Manager or any affiliate
of the Manager acting in and for its own account and KINNET, provided that any
services performed by the Manager or any affiliate of the Manager are services
which the Manager reasonably believes, at the time of requesting such
services, to be in the best interests of KINNET, and are provided to KINNET on
terms no less favorable than could be obtained from an unrelated third party
dealing with KINNET on an arm's-length basis.
5. TERM OF THE AGREEMENT
5.1 This Agreement shall commence as of the date hereof and shall
continue until terminated as hereinafter provided. This Agreement may be
terminated upon default by the mutual agreement of the parties, or either party
may terminate this Agreement at any time upon six (6) months prior written
notice to the other, without any further obligation or liability except that
KINNET shall continue to be liable to the Manager pursuant to Section 3 hereof
for all Direct Costs and Management Fees accrued but unpaid through the last
day of the calendar month in which termination occurs.
5
<PAGE>
6. EVENTS OF DEFAULT
6.1 Each of the following events shall constitute a default by the
Manager under this Agreement and shall entitle KINNET to terminate this
Agreement upon ten (10) days prior written notice to the Manager (specifying
the reasons therefor), without any further obligation or liability to the
Manager (other than KINNET's liability, if any, pursuant to Section 3 hereof
for all Direct Costs and Management Fees accrued but unpaid through the last
day of the calendar month in which termination occurs):
(a) any willful and material violation by the Manager of a
specific material term of this Agreement; the willful failure by the
Manager to perform the material duties required under this Agreement;
or any act or omission by the Manager constituting gross negligence
with respect to KINNET, and the continuation of the same for a period
of forty-five (45) days after the Manager's receipt of written notice
thereof from KINNET; or
(b) the Manager's dissolution, liquidation, bankruptcy or
insolvency (including (i) the filing of a voluntary petition seeking
liquidation, reorganization, arrangement or readjustment, in any
form, of its debts under Title 11 of the United States Code or any
other federal or state insolvency law, or its filing of an answer
consenting to or acquiescing in any such petition; (ii) the making of
any assignment for the benefit of its creditors; or (iii) the
expiration of sixty (60) days after the filing of an involuntary
petition under Title 11 of the United States Code, an application for
the appointment of a receiver for its assets or an involuntary
petition seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other federal or state insolvency
law, provided that the same shall not have been vacated, set aside or
stayed within such 60-day period).
7. EXCULPATION AND LIABILITY
7.1 Neither the Manager nor any of its affiliates (nor any of their
respective officers, directors, partners or employees) shall be liable, in
damages or otherwise, to KINNET for any error of judgment or other act or
omission performed or omitted by the Manager under or otherwise in respect of
this Agreement, except if such error of judgment or other act or omission
results from willful misconduct or gross negligence. KINNET shall indemnify,
defend and hold harmless the Manager and its affiliates (and their respective
officers, directors, partners and employees) from and against any and all
claims or liabilities of any nature whatsoever (including reasonable attorneys'
fees) arising out of or in connection with any claim against the Manager under
or otherwise in respect of this Agreement or the duties of the Manager under
this Agreement, except where attributable to the willful misconduct or gross
negligence of the Manager. All of the obligations of the Manager hereunder have
been undertaken by the Manager solely for the benefit of KINNET and nothing set
forth in this Agreement shall (or shall be deemed to) grant to any other
person any interest (whether as a third party beneficiary or otherwise) herein.
6
<PAGE>
8. GENERAL PROVISIONS
8.1 For Purposes of this Agreement, an affiliate is (a) a person,
association, co-partnership, partnership, corporation or joint-stock company or
trust (hereinafter "person") that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with
another person, or (b) an officer or director of any affiliate within the
meaning of (a) above. For purposes of (a) above, (i) a person shall be deemed
to control another person if such person (A) owns a majority of the voting
power of all classes of voting stock; or (B) owns a majority of the beneficial
interests in income and capital of such other person, and (ii) a general
partner shall be deemed to control a limited partnership if such general
partner owns a majority of that portion of the beneficial interests in income
and capital of such limited partnership owned by all general partners of such
limited partnership.
8.2 This Agreement embodies the entire understanding between the
parties with respect to the subject matters covered hereby and supersedes any
prior agreement or understanding between the parties with respect to such
matters.
8.3 This Agreement may not be amended nor may any rights hereunder be
waived except by an instrument in writing signed by the party sought to be
charged with such amendment or waiver. The failure of a party to insist upon
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon adherence
to that term or any other term of this Agreement.
8.4 This Agreement shall be construed in accordance with and governed
by the laws of the State of Kansas.
8.5 This Agreement may not be assigned without the prior written
consent of the other party; provided, however, that KINNET agrees that this
Agreement may be assigned by KINI to KINI L.C., a Kansas limited liability
company. Except as provided otherwise herein, this Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and permitted assigns.
8.6 The section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year above written.
KINI L.C.
By: /s/ Robert A. Koch
--------------------------------
Robert A. Koch
Title: Chairman
KINI NETWORK, INC.
By: /s/ Arlyn C. Solomon
--------------------------------
Arlyn C. Solomon
Title: Chairman
8
<PAGE>
SALES AGREEMENT
TERMS & CONDITIONS
SELLER: Big Stuff, Inc., 4515 South Georgia, Suite 118, Amarillo, TX 79110
PURCHASER: Great Western Directories, Inc., 2400 Lakeview, Amarillo, TX 79109
GENERAL
This document is an agreement between Big Stuff, Inc. and Great Western
Directories, Inc. The Seller agrees to sell and the Purchaser agrees to
purchase the following services: 1) design and/or colorization of display
advertisements purchased by customers of the Purchaser for inclusion in any of
its directories, plus any applicable sales tax; and 2)design of web pages sold
by Purchaser World Page sales representatives. The cost of such services will
be as follows:
Custom Color Services: Spec Art $15.00 each ad
All Pages (Large) 45.00 per page (4 Color)
All Pages (Midi and Mini) 20.00 per page (4 Color)
All Pages (Mini Book) 10.00 per page (2 Color)
All Pages (Mini Book) 5.00 per page (1 Color)
Color Photos 15.00 each photo
Web Page Services: Basic Web Page 100.00 each page
Tagline 25.00 each
Additional Headings 25.00 each
Stock Animation 25.00 each
Changes 25.00 each
Target Banner 250.00 each
Such costs outlined above may be modified from time to time: however, they are,
and will continue to be, customary and reasonable in relation to what the
Seller charges its other customers for similar services. In no event shall the
Purchaser pay more per-item than the Seller's other customers.
This Agreement is effective until terminated by either party, without prior
notice. This Agreement shall be governed by the laws of the State of Texas.
Purchaser consents to the exclusive jurisdiction of the State Courts of Texas
for this Agreement. This Agreement is valid only when signed by the Seller and
Purchaser where applicable, and a fully executed copy of this contract has been
received as the Seller's office.
Accepted by Purchaser: Accepted by Seller:
Great Western Directories, Inc. Big Stuff, Inc.
By: By:
------------------------------- -------------------------------
Signature: /s/ Signature: /s/
------------------------ ------------------------
Title: President Title: V.P.
---------------------------- ----------------------------
Date: 7/16/97 Date: 7/16/97
----------------------------- -----------------------------
<PAGE>
December 22, 1997
Re: Great Western Directories
To whom it may concern:
Great Western Directories, Inc. has been granted exclusive marketing rights for
World Pages for markets in which it is currently located and for markets in
which it plans to enter.
Sincerely,
/s/ Richard A. O'Neal
- ------------------------
Richard A. O'Neal
President
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement"), entered
into as of December ___, 1997 but effective for all purposes as of December 12,
1997, between William Homer Zimmer, III ("Executive") and Advanced
Communications Group, Inc., a Delaware corporation ("Company") (collectively
referred to as the "Parties"), amends and restates the Employment Agreement
between the Parties dated December 12, 1997. The 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 the Company, the Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. Unless the contract otherwise requires,
references to the Company in the last sentence of Section 4 and in Sections 5
and 7 of this Agreement include its subsidiaries and other affiliates.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on December 31, 2003. 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 Executive during the term
of this Agreement a base salary ("Base Salary") of not less
than $185,000 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 Executive shall receive a signing bonus of $50,000. Such
bonus shall be paid as soon as practicable after the
execution of this Agreement but by no later than seven days
after December 22, 1997. In addition, for 1998 and for each
calendar year thereafter during the term of this Agreement,
Executive shall be eligible to receive a cash bonus of up to
50% of his Base Salary ("Bonus"). No later than March 31 in
each year after 1998 during the term of this
<PAGE>
Agreement, the Compensation Committee of the Board of
Directors of the Company ("Compensation Committee") shall
determine the extent of the Bonus based upon Executive's
performance as determined by the Compensation Committee
according to criteria it may establish from time to time.
3.3 Executive will be entitled to three weeks of paid vacation
annually during the term of this Agreement.
3.4 Upon execution of this Agreement, Executive will be awarded
three hundred fifty thousand (350,000) non-qualified stock
options ("Signing Bonus Options") to acquire common stock,
$.0001 par value, of the Company ("Common Stock"). The
Signing Bonus Options shall become exercisable in 331/3%
increments on each anniversary date of the date of grant and
shall be exercisable at a price per share equal to the price
to the public of the Common Stock in the Company's initial
underwritten public offering of its Common Stock (the
"Offering"). Accordingly, subject to Section 3.6, the Signing
Bonus Options will be fully vested three years after the date
of grant. The Signing Bonus Options shall have a term of ten
years.
3.5 Prior to March 31 of each year during the term of this
Agreement, commencing in 1999, the Compensation Committee may
award Executive up to 50,000 additional non-qualified stock
options to acquire Common Stock (the "Performance Options").
The Performance Options shall be exercisable at the market
price of the Common Stock on the date of grant, as determined
by the Compensation Committee. The Performance Options shall
have a term of ten years and shall become exercisable in
331/3% increments on each anniversary date of the grant
thereof. Accordingly, subject to Section 3.6, the Performance
Options shall become fully vested three years after the date
of grant.
3.6 Notwithstanding the provisions of Section 3.4 or 3.5, the
vesting of all Signing Bonus Options and Performance Options
(collectively, the "Options") will be accelerated in the
event of the termination of Executive'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 Signing Bonus Options and Performance
Options shall be granted pursuant to the Company's 1997 Stock
Awards Plan ("Stock Awards Plan"), a copy of which has
heretofore been delivered to Executive.
3.7 Executive shall receive such other benefits commensurate with
his level of employment as are available under the executive
employee benefits plans of
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<PAGE>
the Company. For example, the Executive shall be entitled to
participate in the Company's 401K plan which the Company
intends to establish.
3.8 The Company will cause the Executive to be appointed to the
board of directors of the Company (with a term expiring in
1999) concurrently with or prior to the consummation of the
Offering.
3.9 To ensure the Executive's accessibility, the Company shall
furnish him during the term of his Employment with a cellular
telephone that is to be utilized primarily for Company
business. The Company shall pay the fixed charges associated
with the telephone as well as all charges directly associated
with its use in connection with Company business.
3.10 Executive shall relocate to St. Louis, Missouri, and the
Company will pay the expenses incurred by him and his family
in searching for and moving to a new residence.
4. Duties and Extent of Service.
Executive shall hold the offices of Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company. Executive agrees to perform
the duties incidental to his positions, as determined from time to time by the
Chairman of the Board and Chief Executive Officer of the Company. Executive
shall devote such time, attention, and energy to the business of the Company as
are required to perform his duties and responsibilities. Executive 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 Chairman of the Board and Chief Executive Officer of the Company. In any
event after the date hereof, Executive shall not take any action inconsistent
with Executive's relationship and responsibilities as an employee of the
Company, or take any action which is intended, or may be reasonably expected,
to harm the reputation, business, prospects, or operations of the Company.
Executive may not, without the prior written approval of the Board of Directors
of the Company, serve on the board of directors or similar body of any other
company or organization.
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 the Company ("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;
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<PAGE>
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 the Company's
business and marketing plans, confidential information and
trade secrets relating to the distribution and marketing of
the Company's products and services; patents pending;
confidential characteristics of the Company's products and
services; customer comments; troubleshooting requirements;
product and service development; market development; manuals
written by the Company; 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 Executive acknowledges and agrees that the Confidential
Information constitutes valuable, special, and unique
property of the Company.
5.3 Executive will not, at any time during the term of this
Agreement or his employment with the Company, and for a
period of three years after the termination of this Agreement
or such employment, 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 Executive's possession before its disclosure
to Executive by the Company; (b) information that is or shall
lawfully be published or become part of the general knowledge
through no act or omission of Executive; or (c) any
information which Executive is authorized to disclose in the
performance of his duties. 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
the Company and for a period of one year (in the case of a
termination pursuant to Section 6.1(a), (b), (d), (e) or (f))
or three years (in the case of termination pursuant to
Section 6.1(c)) immediately after the termination of this
Agreement or his employment with the Company, he will not,
for himself, or on behalf of any other person, firm,
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<PAGE>
partnership, company, or corporation (i) generally compete in
any manner whatsoever with the Company or solicit, accept,
divert, or take away from the Company 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 the Company to terminate his or her employment or
association in any manner whatsoever with the Company; or
(iii) engage in any commercial or technical activity
involving the development, formulation, manufacture,
production, distribution, marketing or sale of any product or
service that the Company designs, produces, manufactures,
distributes, markets or sells during the term of this
Agreement or Executive's employment with the Company. The
prescribed territory in which Executive shall not compete
with the Company as contemplated by this Section 5.5 shall
consist of all of those areas of the United States in which
the Company is doing business at the time of Executive's
termination of employment.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by the
Company and the need for senior officers to have a high
degree of technical knowledge concerning these products and
services, employment by the Company, including the special
training, knowledge, and confidential information that will
be acquired in the course of such employment, will give
Executive distinct and substantial advantages for potential
sales 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
Section 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
Section 5.5 do not impose a greater restraint than is
necessary to protect the Confidential Information, goodwill,
and other business interests of the Company. Executive also
agrees that in light of the facts acknowledged in this
Section 5.6, the substantial investment of the Company in
developing its business and providing special training to
Executive, and the certain and substantial harm that the
Company would suffer if Executive were to engage in any of
the activities described in Section 5.5, the Company's need
for the protection afforded by Section 5.5 is greater than
any hardship Executive might experience by complying with its
terms. Executive also agrees that, if any provision or
covenant set forth
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<PAGE>
in Section 5.5 is found to be invalid in part or whole, the
Company 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 Section 5 may
cause irreparable damage to the Company. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Section 5, Executive agrees that the
Company 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, 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 and
non-solicitation provisions of this Agreement. Nothing herein
shall be construed as prohibiting the Company 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 renewal of this Agreement ends.
(b) Death or Disability of Executive. If Executive 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 Executive, or to the estate of Executive if
he dies, (i) 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, and (ii)
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Upon such
payments, as well as applicable insurance benefits,
if any, all obligations of the Company to the
Executive or his estate shall be fully satisfied,
and this
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Agreement shall terminate. Upon such payments, as
well as applicable insurance benefits, if any, all
obligations of the Company to the Executive or his
estate shall be fully satisfied, and this Agreement
shall terminate. If Executive's employment is
terminated by his death, then the Options
theretofore granted to him prior to his death shall
immediately vest and be exercisable within ninety
(90) days therefrom by the executor or administrator
of Executive's estate or by the person or persons to
whom Executive's option rights shall pass by will or
the laws of descent and distribution; provided,
however, that in no event may any option be
exercised after the date of its expiration under the
terms of the relevant option agreement.
(c) Resignation of Executive. If Executive resigns prior
to the end of the term of this Agreement, this
Agreement shall terminate immediately, and the
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 the Company to Executive shall be
fully satisfied.
(d) Change in Ownership, Management, or Executive's
Responsibilities. If there is a change in the
ownership or management of the Company after the
date hereof, and either of these changes
significantly alters Executive's job
responsibilities or compensation, Executive may
resign from his positions within 60 days of such a
change. If Executive resigns pursuant to this
Section 6.1(d), the Company (i) will continue to pay
Executive his Base Salary for a period of two years
after the initial date of any such change and (ii)
will pay to Executive any earned but unpaid Bonus or
other compensation for the prior year due to
Executive. Executive will not be entitled to receive
any Bonus for the current or any future year or
additional awards of Options if he resigns as
provided in this Section 6.1(d). For the period
after Executive's resignation during which Executive
will receive his Base Salary, Executive will not
have any authority to act on behalf of the Company.
(e) Termination by the Company "With Cause." If
Executive (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 the
Company; and/or (iv) is convicted of a crime that is
classified as a felony, the Company may terminate
the employment of Executive with cause. If Executive
is
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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 the Company. Upon such
payment, all obligations of the Company to Executive
shall be fully satisfied, and this Agreement will
terminate. Executive shall not be entitled to
receive any Bonus, award of additional Options or
accrued vacation pay if his termination is "with
cause."
(f) Termination by the Company Without Cause. In the
event the Company terminates Executive's employment
for any reason other than as described in Sections
6.1(d) or (e), Executive shall be entitled (i) to
continue to receive his Base Salary for a period of
one year after such termination and (ii) to receive
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Executive shall
not be entitled to receive any Bonus or award of
additional Options in respect of the one-year period
in which he receives salary continuation.
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
Section 5. Except as expressly provided herein with respect
to the acceleration of the vesting of Options under certain
limited circumstances, the exercise of all Options in the
event of a termination of employment will be governed by the
terms of the Stock Awards Plan and the related stock option
agreements entered into with Executive. All vested Options
must be exercised within 90 days after the termination of
Executive's employment.
7. Return of Company 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 the Company shall be the sole and
exclusive property of the Company, 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 Company property shall not be removed
from the Company premises without the Company's prior written
consent.
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7.2 Upon termination of this Agreement or whenever requested by
the Company, Executive immediately shall deliver to the
Company all of the Company property or any of the Company'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, accounting
machines, and all office furniture and fixtures, supplies,
equipment, and other personal property placed in the office
by the 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 2684 Devil's Backbone, Cincinnati, Ohio
45233 (Telecopy No.: 513-922-9137) and to the Company, c/o Rod K. Cutsinger,
3355 West Alabama, Suite 580, Houston, Texas 77098 (Telecopy No.:
713-599-0222), or to such other address as either party shall designate by
written notice to the other. Notices may be sent by messenger, by telecopy 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 or telecopy 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.
Except for actions by the Company seeking to enforce the provisions of Sections
5 and 7 of this Agreement, any dispute, controversy, or claim brought by the
Company or Executive concerning the subject matter contained in this Agreement,
including, but not limited to, Executive's employment, termination from, and/or
affiliation with the Company, shall be settled exclusively by binding
arbitration in Houston, Texas in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. Any other dispute,
controversy, or claim brought by the Executive against the Company or any of
its officers, directors, shareholders, or employees, or by the Company against
Executive (except for actions by the Company seeking to enforce the provisions
of Sections 5 and 7 of this Agreement), shall likewise be settled exclusively
by binding arbitration in Houston, Texas in accordance with the rules of the
American Arbitration Association. 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
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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 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 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
the Company, the Executive 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 Executive shall not operate or be construed
as a waiver by the 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.
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<PAGE>
The parties have executed this Agreement to be effective as of the day
and year first above written.
"COMPANY" "EXECUTIVE"
ADVANCED COMMUNICATIONS
GROUP, INC.
- ---------------------------------- ----------------------------------
By: Rod K. Cutsinger William Homer Zimmer, III
Its: Chairman and
Chief Executive Officer
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of December
__, 1997, between James Frederick Cragg ("Executive") and Advanced
Communications Group, Inc., a Delaware corporation ("Company") (collectively
referred to as the "Parties"). The 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 the Company, the Company
employs Executive, and Executive accepts employment subject to the terms and
conditions of this Agreement. Unless the contract otherwise requires,
references to the Company in the last sentence of Section 4 and in Sections 5
and 7 of this Agreement include its subsidiaries and other affiliates.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on December 31, 2003. 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 Executive during the term
of this Agreement a base salary ("Base Salary") of not less
than $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 Executive shall receive a signing bonus of $100,000. Such
bonus shall be paid as soon as practicable after the
execution of this Agreement but by no later than five
business days therefrom. In addition, for 1998 and for each
calendar year thereafter during the term of this Agreement,
the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee") may award Executive a cash
bonus of up to 100% of his Base Salary ("Bonus"). By March
31st of each year, the Compensation Committee shall determine
the fraction of the Bonus earned by the Executive with
<PAGE>
respect to the prior calendar year (the "Payment Fraction")
based upon its evaluation of the extent to which the Company
met the sales budget, sales projections and similar criteria
(the "Sales Budget") that the Compensation Committee
communicated to him prior to the commencement of that
calendar year.
3.3 Executive will be entitled to three weeks of paid vacation
annually during the term of this Agreement.
3.4 Upon execution of this Agreement, Executive will be awarded
four hundred twenty-five thousand (425,000) non-qualified
stock options ("Signing Bonus Options") to acquire common
stock, $.0001 par value, of the Company ("Common Stock"). One
hundred fifty thousand (150,000) of these options (the "Three
Month Options") shall become exercisable ninety days after
the date of grant and shall be exercisable at a price of
$2.50 per share. The remaining two hundred seventy-five
thousand options (the "Remaining Options") shall become
exercisable in 331/3% increments on each anniversary date of
the date of grant and shall be exercisable at a price per
share equal to the price to the public of the Common Stock in
the Company's initial underwritten public offering of its
Common Stock (the "Offering"). Accordingly, subject to
Section 3.6, the Three Month Options shall become fully
vested ninety days after the date of grant and the Remaining
Options shall become fully vested three years after the date
of grant. The Three Month Options and the Remaining Options
shall have a ten year term.
3.5 Prior to March 31 of each year during the term of this
Agreement, commencing in 1999, the Compensation Committee may
award Executive additional non-qualified stock options to
acquire Common Stock (the "Performance Options") in an amount
equal to the result obtained by multiplying 50,000 options by
the Payment Fraction for the preceding calendar year. Such
Performance Options shall be exercisable at the market price
of the Common Stock on the date of grant, as determined by
the Compensation Committee. The Performance Options shall
have a term of ten years and shall become exercisable in
331/3% increments on each anniversary date of the grant
thereof. Accordingly, subject to Section 3.6, the Performance
Options shall become fully vested three years after the date
of grant.
3.6 Notwithstanding the provisions of Section 3.4 or 3.5, the
vesting of all Signing Bonus Options and Performance Options
(collectively, the "Options") will be accelerated in the
event of the termination of Executive's employment hereunder
pursuant to Sections 6.1(b),(d) or (f); and in the event
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of any other termination, no Options shall vest after the
date of termination. The Signing Bonus Options and
Performance Options shall be granted pursuant to the
Company's 1997 Stock Awards Plan ("Stock Awards Plan"), a
copy of which has heretofore been delivered to Executive.
3.7 Executive shall receive such other benefits commensurate with
his level of employment as are available under the executive
employee benefits plans of the Company. For example, the
Executive shall be entitled to participate in the Company's
401K plan which the Company intends to establish.
3.8 To ensure the Executive's accessibility, the Company shall
furnish him during the term of his Employment with a cellular
telephone that is to be utilized primarily for Company
business. The Company shall pay the fixed charges associated
with the telephone as well as all charges directly associated
with its use in connection with Company business.
3.9 The Company will cause the Executive to be appointed to the
board of directors of the Company (with a term expiring in
1998) concurrently with or prior to the consummation of the
Offering.
4. Duties and Extent of Service.
Executive shall hold the office of Executive Vice President -- Sales and
Marketing of the Company. Executive agrees to perform the duties incidental to
his position, as determined from time to time by the Chairman of the Board and
Chief Executive Officer of the Company. Executive shall devote such time,
attention, and energy to the business of the Company as are required to perform
his duties and responsibilities. Executive 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 Chairman of the Board and
Chief Executive Officer of the Company. In any event after the date hereof,
Executive shall not take any action inconsistent with Executive's relationship
and responsibilities as an employee of the Company, or take any action which is
intended, or may be reasonably expected, to harm the reputation, business,
prospects, or operations of the Company. Executive may not, without the prior
written approval of the Board of Directors of the Company, serve on the board
of directors or similar body of any other company or organization.
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 the Company ("Confidential Information"). Such
Confidential Information includes, but is not limited to:
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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
the Company's business and marketing plans, confidential
information and trade secrets relating to the distribution
and marketing of the Company's products and services; patents
pending; confidential characteristics of the Company's
products and services; customer comments; troubleshooting
requirements; product and service development; market
development; manuals written by the Company; 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 Executive acknowledges and agrees that the Confidential
Information constitutes valuable, special, and unique
property of the Company.
5.3 Executive will not, at any time during the term of this
Agreement or his employment with the Company, and for a
period of three years after the termination of this Agreement
or such employment, 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 Executive's possession before its disclosure
to Executive by the Company; (b) information that is or shall
lawfully be published or become part of the general knowledge
through no act or omission of Executive; or (c) any
information which Executive is authorized to disclose in the
performance of his duties. 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
the Company and for a period of one year (in the case of a
termination pursuant to Section 6.1(a), (b), (d), (e) or (f))
or three years (in the case of termination pursuant to
Section 6.1(c))
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<PAGE>
immediately after the termination of this Agreement or his
employment with the Company, 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 the Company or solicit, accept, divert, or take away
from the Company 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 the Company to terminate
his or her employment or association in any manner whatsoever
with the Company; or (iii) engage in any commercial or
technical activity involving the development, formulation,
manufacture, production, distribution, marketing or sale of
any product or service that the Company designs, produces,
manufactures, distributes, markets or sells during the term
of this Agreement or Executive's employment with the Company.
The prescribed territory in which Executive shall not compete
with the Company as contemplated by this Section 5.5 shall
consist of all of those areas of the United States in which
the Company is doing business at the time of Executive's
termination of employment.
5.6 Executive understands and acknowledges that, due to the
unique nature of the products and services provided by the
Company and the need for senior officers to have a high
degree of technical knowledge concerning these products and
services, employment by the Company, including the special
training, knowledge, and confidential information that will
be acquired in the course of such employment, will give
Executive distinct and substantial advantages for potential
sales 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
Section 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
Section 5.5 do not impose a greater restraint than is
necessary to protect the Confidential Information, goodwill,
and other business interests of the Company. Executive also
agrees that in light of the facts acknowledged in this
Section 5.6, the substantial investment of the Company in
developing its business and providing special training to
Executive, and the certain and substantial harm that the
Company would suffer if Executive were to engage in any of
the activities described in Section 5.5, the Company's need
for the protection afforded by Section 5.5
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<PAGE>
is greater than any hardship Executive might experience by
complying with its terms. Executive also agrees that, if any
provision or covenant set forth in Section 5.5 is found to be
invalid in part or whole, the Company 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 Section 5 may
cause irreparable damage to the Company. Accordingly, in the
event of a breach or threatened breach by Executive of the
provisions of this Section 5, Executive agrees that the
Company 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, 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 and
non-solicitation provisions of this Agreement. Nothing herein
shall be construed as prohibiting the Company 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 renewal of this Agreement ends.
(b) Death or Disability of Executive. If Executive 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 Executive, or to the estate of Executive if
he dies, (i) 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, and (ii)
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Upon such
payments, as well as
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<PAGE>
applicable insurance benefits, if any, all
obligations of the Company to the Executive or his
estate shall be fully satisfied, and this Agreement
shall terminate. Upon such payments, as well as
applicable insurance benefits, if any, all
obligations of the Company to the Executive or his
estate shall be fully satisfied, and this Agreement
shall terminate. If Executive's employment is
terminated by his death, then the Options
theretofore granted to him prior to his death shall
immediately vest and be exercisable within ninety
(90) days therefrom by the executor or administrator
of Executive's estate or by the person or persons to
whom Executive's option rights shall pass by will or
the laws of descent and distribution; provided,
however, that in no event may any option be
exercised after the date of its expiration under the
terms of the relevant option agreement.
(c) Resignation of Executive. If Executive resigns prior
to the end of the term of this Agreement, this
Agreement shall terminate immediately, and the
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 the Company to Executive shall be
fully satisfied.
(d) Change in Ownership, Management, or Executive's
Responsibilities. If there is a change in the
ownership or management of the Company after the
date hereof, 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
Section 6.1(d), the Company (i) will continue to pay
Executive his Base Salary for a period of two years
after the initial date of any such change and (ii)
will pay to Executive any earned but unpaid Bonus or
other compensation for the prior year due to
Executive. Executive will not be entitled to receive
any Bonus for the current or any future year or
additional awards of Options if he resigns as
provided in this Section 6.1(d). For the period
after Executive's resignation during which Executive
will receive his Base Salary, Executive will not
have any authority to act on behalf of the Company.
(e) Termination by the Company "With Cause." If
Executive (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 the
Company; and/or (iv) is
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<PAGE>
convicted of a crime that is classified as a felony,
the 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 the Company. Upon such payment, all
obligations of the Company to Executive shall be
fully satisfied, and this Agreement will terminate.
Executive shall not be entitled to receive any
Bonus, award of additional Options or accrued
vacation pay if his termination is "with cause."
(f) Termination by the Company Without Cause. In the
event the Company terminates Executive's employment
for any reason other than as described in Sections
6.1(d) or (e), Executive shall be entitled (i) to
continue to receive his Base Salary for a period of
one year after such termination and (ii) to receive
any earned but unpaid Bonus or other compensation
for the prior year due to Executive. Executive shall
not be entitled to receive any Bonus or award of
additional Options in respect of the one-year period
in which he receives salary continuation.
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
Section 5. Except as expressly provided herein with respect
to the acceleration of the vesting of Options under certain
limited circumstances, the exercise of all Options in the
event of a termination of employment will be governed by the
terms of the Stock Awards Plan and the related stock option
agreements entered into with Executive. All vested Options
must be exercised within 90 days after the termination of
Executive's employment.
7. Return of Company 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 the Company shall be the sole and
exclusive property of the Company, and none of such data,
drawings or other records and written material, or copies
thereof, shall be retained by Executive upon termination
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<PAGE>
of his employment. This Company property shall not be removed
from the Company premises without the Company's prior written
consent.
7.2 Upon termination of this Agreement or whenever requested by
the Company, Executive immediately shall deliver to the
Company all of the Company property or any of the Company'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, accounting
machines, and all office furniture and fixtures, supplies,
equipment, and other personal property placed in the office
by the 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 427 North Taylor Avenue, Kirkwood,
Missouri 63122, and to the Company, c/o Rod K. Cutsinger, 3355 West Alabama,
Suite 580, Houston, Texas 77098 (Telecopy No.: 713-599-0222), or to such other
address as either party shall designate by written notice to the other. Notices
may be sent by messenger, by telecopy 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 or telecopy 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.
Except for actions by the Company seeking to enforce the provisions of Sections
5 and 7 of this Agreement, any dispute, controversy, or claim brought by the
Company or Executive concerning the subject matter contained in this Agreement,
including, but not limited to, Executive's employment, termination from, and/or
affiliation with the Company, shall be settled exclusively by binding
arbitration in Houston, Texas in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. Any other dispute,
controversy, or claim brought by the Executive against the Company or any of
its officers, directors, shareholders, or employees, or by the Company against
Executive (except for actions by the Company seeking to enforce the provisions
of Sections 5 and 7 of this Agreement), shall likewise be settled exclusively
by binding arbitration in Houston, Texas in accordance with the rules of the
American Arbitration Association. Judgment upon the
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<PAGE>
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 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 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
the Company, the Executive 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 Executive shall not operate or be construed
as a waiver by the 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
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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" "EXECUTIVE"
ADVANCED COMMUNICATIONS
GROUP, INC.
- ---------------------------------- ----------------------------------
By: Richard P. Anthony James Frederick Cragg
Its: Chairman and
Chief Executive Officer
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<PAGE>
ANNEX V
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES E WARRANT
Total Number of Series E Warrants: 18,000 Warrant No. E-
Number of Series E 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 Agreement and Plan of Exchange dated as of
October 6, 1997 by and among Company, Advanced Communications Corp., ACG
Acquisition II Corp., Tele-Systems and certain individuals, including the
initial registered holder of this Warrant Certificate.
"Anniversary Date" means the first anniversary of the Issuance Date.
"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.
"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.
<PAGE>
"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.
"Issuance Date" means _______ __, 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, Series B
Warrants, Series C Warrants, Series D Warrants, Series F Warrants, Series G
Warrants, Series H Warrants, and Series I Warrants 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
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.
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<PAGE>
"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 E 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 Anniversary 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 PURSUANT TO THE LAWS OF
DESCENT AND DISTRIBUTION OR IN CONNECTION WITH A TENDER OFFER OR EXCHANGE OFFER
FOR ALL SHARES OF COMMON STOCK. 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 and 18 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
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<PAGE>
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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<PAGE>
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
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<PAGE>
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
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<PAGE>
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 equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
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<PAGE>
(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;
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
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<PAGE>
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.
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:
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<PAGE>
------------------
------------------
------------------
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
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 VI
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES F WARRANT
Total Number of Series F Warrants: 18,000 Warrant No. F-
Number of Series F 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 Agreement and Plan of Exchange, dated as of
October 6, 1997, by and among Company, Advanced Communications Corp., ACG
Acquisition II Corp., Tele-Systems and certain individuals, including the
initial registered holder of this Warrant Certificate.
"Anniversary Date" means the second anniversary of the Issuance Date.
"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.
"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.
<PAGE>
"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.
"Issuance Date" means _______ __, 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, Series B
Warrants, Series C Warrants, Series D Warrants, Series E Warants, Series G
Warants, Series H Warants, and Series I Warants 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 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.
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<PAGE>
"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 F 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 Anniversary 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 PURSUANT TO THE LAWS OF
DESCENT AND DISTRIBUTION OR IN CONNECTION WITH A TENDER OFFER OR EXCHANGE OFFER
FOR ALL SHARES OF COMMON STOCK. 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, and 18 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
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<PAGE>
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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<PAGE>
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
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<PAGE>
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
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<PAGE>
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 equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 3.
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<PAGE>
(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;
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
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<PAGE>
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.
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:
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<PAGE>
------------------
------------------
------------------
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>
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT PURSUANT TO
THE ACTS OR IN RELIANCE ON AN OPINION, REASONABLY SATISFACTORY TO ADVANCED
COMMUNICATIONS GROUP, INC. IN FORM AND SUBSTANCE, OF COUNSEL REASONABLY
ACCEPTABLE TO SUCH COMPANY, THAT SUCH SALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON AN EXEMPTION FROM THE ACTS.
WARRANT
Number of Warrants: 20,000 Warrant No. JC-1
This Warrant Certificate certifies that, for value received,
JOSEPH C. COOK
is the registered holder of the number of Warrants (the "Warrants") set forth
above. Each Warrant entitles the holder thereof, at any time or from time to
time (a) after the date of consummation of an IPO 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.
"Common Stock" means the Common Stock, $.00004 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Company" means Advanced Communications Group, Inc., a Delaware
corporation.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $1.00.
"Expiration Date" means 5:00 p.m., Houston Time on May 2, 2007.
"IPO" means a firm commitment underwritten public offering of the
Common Stock generating gross proceeds to the Company in an amount exceeding
$25,000,000.
"Issuance Date" means May 2, 1997.
"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
<PAGE>
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 of the Company 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.
"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. Likewise, upon
the presentation and surrender of this Warrant Certificate at the office of the
Company and at the request of the holder, the Company will, at the option of
the holder, issue to the holder in substitution for this Warrant Certificate
one or more warrant certificates in identical form and for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Time, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. The Warrants evidenced hereby have not
been registered under the Securities Act of 1933, as amended, or under any
state securities law (collectively, the "Acts"), in reliance on exemptions from
the registration provisions thereof. The holder hereof
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<PAGE>
acknowledges that the Warrants evidenced hereby and the Common Stock or other
securities or property purchasable on the exercise of the Warrants
(collectively, 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 at the head of
this Warrant Certificate. 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 Issuance 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 average Price per share of Common Stock for the
20 trading days immediately preceding the date of the authorization of such
issuance (the "Market Price") by the Board of Directors, 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 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 ("Employee Benefit
Plans") that otherwise would cause an adjustment under paragraph (c) of this
section 3; provided that
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<PAGE>
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 (as defined in paragraph
(d) of this section 3) (i) which was outstanding on the Issuance 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
Issuance Date, issue any security or evidence of indebtedness which is
convertible into or exchangeable for Common Stock ("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
(together with Convertible Securities, "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
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<PAGE>
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 the 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.
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<PAGE>
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.
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 date hereof 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.
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. (a) The Company may at its option, but shall
not be obligated to, at any time during the term of the Warrants, reduce the
then current Exercise Price by any amount selected by the Board of Directors;
provided that if the Company elects so to reduce the then current Exercise
Price, such reduction shall be irrevocable during its effective period and
remain in effect for a minimum of 20 days following the date of such election,
after which time the Company may, at its option, reinstate the Exercise Price
in effect prior to such reduction. 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.
(b) The Company may make such decreases in the Exercise
Price, in addition to those required or allowed by this section 5, 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.
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<PAGE>
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 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, 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:
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<PAGE>
(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) The Company shall pay all expenses, taxes (other than
stock transfer taxes or charges) and other charges payable in connection with
the preparation, issuance and delivery of new warrant certificates on transfer
of the Warrants evidenced by this Warrant Certificate.
(c) 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.
(d) The Company shall not be required to pay any tax or
charge imposed in connection with any transfer involved in the issuance of any
certificate representing shares of Common Stock (and other securities) in any
name other than that of the registered holder hereof, and in such case the
Company shall not be required to issue or deliver any certificate representing
shares of Common Stock (and other securities) until such tax or other charge
has been paid or it has been established to the Company's satisfaction that no
such tax or charge is due.
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:
Joseph C. Cook
521 Missionary Ridge
DeSoto, Texas 75115
and, if to the Company:
Advanced Communications Group, Inc.
3355 West Alabama, Suite 580
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<PAGE>
Houston, Texas 77098
Attention: President 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 May, 1997 by its President, thereunto duly
authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-----------------------------------
Rod K. Cutsinger
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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.
- -------------------------------------------------------------------------------
TRANSFER FORM
[To be executed only upon transfer of the Warrants
evidenced by this Warrant Certificate]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ the
Warrants represented by the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _____________________________________ Attorney-in-Fact, to transfer
same on the books of the Company with full power of substitution in the
premises.
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.
WITNESS:
- ----------------------------------
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<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES K WARRANT
Total Number of Series K Warrants: 43,000 Warrant No. K-
Number of Series K Warrants Represented
by This Warrant Certificate: ___________, subject to adjustment(1)
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, (a) after the IPO Date at any time and
from time to time thereafter but (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.
"ACG Corp." means Advanced Communications Corp., a Delaware
corporation organized in June, 1996 that was formerly named Advanced
Communications Group, Inc.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Common Stock" means the Common Stock, $.0001 par value per share, of
the Company.
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(1) Notwithstanding any provision herein to the contrary, the parties
agree that since the warrants granted hereby are granted in substitution for
warrants approved by the board of directors of ACG Corp. but not memorialized,
(i) any stock split or other change in the capitalization of ACG Corp. prior to
the consummation of the reverse triangular merger among the Company, ACG Corp.
and Advanced Communications Group Acquisition, Inc. shall be treated for the
purposes of this Warrant Certificate as a stock split or other change in the
capitalization of the Company and (ii) except for the matters described in (i),
no antidilution adjustments shall be made pursuant to Section 3 prior the
consummation of the initial public offering of the Common Stock and the
acquisition transactions associated therewith (including the acquisition of ACG
Corp.).
<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," means a price per share that will, after any
proportionate adjustment to account for a pre-IPO reverse stock split of ACG
Corp.'s common stock, equal the price to the public per share of the Common
Stock offered by ACG in connection with the initial underwritten public
offering thereof, subject in all circumstances to adjustment in accordance with
Section 3.
"Expiration Date" means 5:00 p.m., Houston Time on the fifth
anniversary of the IPO Date.
"IPO Date" means the date upon which the initial public offering of
the Common Stock and the acquisitions contemplated in connection therewith are
consummated.
"Issuance Date" means December 15, 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.
"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
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<PAGE>
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 K 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 IPO 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 HEREBY HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF, AND THEY MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT PURSUANT TO THE ACTS OR
IN RELIANCE ON AN OPINION, REASONABLY SATISFACTORY TO THE COMPANY AND ACG CORP.
IN FORM AND SUBSTANCE, OF COUNSEL REASONABLY ACCEPTABLE TO SUCH COMPANIES, THAT
SUCH SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON AN EXEMPTION
FROM THE ACTS. 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
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<PAGE>
shall not be required to recognize the same. Compliance with this provision is
the responsibility of the holder. 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.
In addition, the holder of this Warrant further agrees and
acknowledges that for a period of one year from the date of the original
issuance of any Conversion Securities issued upon the exercise of a Warrant
such holder may not -- except in full compliance with all of the applicable
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder and the
provisions of applicable state securities laws and regulations -- sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any Conversion Securities. The Conversion Securities delivered to the
Sellers upon exercise of the Warrants will bear legends substantially in the
form set forth below and containing such other information as the Company 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
[THE 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.
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
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<PAGE>
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
All of the Conversion Securities to be acquired by the holder of this
Warrant shall be acquired solely for their own account, for investment purposes
only, and not with a view to the distribution thereof. The holder of this
Warrant represents that he or she has received, has read and understands the
registration statement filed October 10, 1997 by the Company on Form S-1 with
the Securities and Exchange Commission and, in particular, understands the risk
factors described therein. The holder further represents that he or she is able
to bear the economic risk of an investment in the Warrants and Conversion
Securities and can afford to sustain a total loss of such investment and 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. The
holder has had an adequate opportunity to ask questions and receive answers
from the officers of 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 the Company,
the plans for the operations of the business of the Company, and any plans for
additional acquisitions and the like. The holder has asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to his or her satisfaction.
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 (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
that were issuable upon exercise of a Warrant had
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<PAGE>
the Warrants evidenced by this Warrant Certificate 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 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 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 IPO 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
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<PAGE>
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 of the Company or ACG
(i) which was or will foreseeably be outstanding on the IPO 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
IPO 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 the 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.
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean, except as otherwise provided in
Footnote 1, 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 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
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<PAGE>
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 that, after the IPO Date:
(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 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) Prior to thirty (30) days after the IPO Date and 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) The Company shall pay all expenses, taxes (other than
stock transfer taxes or charges) and other charges payable in connection with
the preparation, issuance and delivery of new warrant certificates on transfer
of the Warrants evidenced by this Warrant Certificate.
(c) 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.
(d) The Company shall not be required to pay any tax or
charge imposed in connection with any transfer involved in the issuance of any
certificate representing shares of Common Stock (and other securities) in any
name other than that of the registered holder hereof, and
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<PAGE>
in such case the Company shall not be required to issue or deliver any
certificate representing shares of Common Stock (and other securities) until
such tax or other charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is due.
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:
-----------------------------------
-----------------------------------
-----------------------------------
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) 622-0222
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 December, 1997 by Rod K. Cutsinger, 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.
- -------------------------------------------------------------------------------
TRANSFER FORM
[To be executed only upon transfer of the Warrants
evidenced by this Warrant Certificate]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ the
Warrants represented by the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _____________________________________ Attorney-in-Fact, to transfer
same on the books of the Company with full power of substitution in the
premises.
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.
WITNESS:
- ----------------------------------
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<PAGE>
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT PURSUANT TO
THE ACTS OR IN RELIANCE ON AN OPINION, REASONABLY SATISFACTORY TO ADVANCED
COMMUNICATIONS GROUP, INC. IN FORM AND SUBSTANCE, OF COUNSEL REASONABLY
ACCEPTABLE TO SUCH COMPANY, THAT SUCH SALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON AN EXEMPTION FROM THE ACTS.
WARRANT
Total Number of Series L Warrants: 545,000 Warrant No. L-1
Number of Series L Warrants Represented by
This Warrant Certificate: ________, subject to adjustment(1)
This Warrant Certificate certifies that, in consideration of the
rescission of the Nonqualified Stock Option Agreement dated as of June 16, 1997
between Advanced Communications Group, Inc and _____________, and for other
value received,
BRAD K. CUTSINGER
is the registered holder of the number of Warrants (the "Warrants") set forth
above. Each Warrant entitles the holder thereof, (a) after the IPO Date and
from time to time thereafter but (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.
"ACG Corp." means Advanced Communications Corp., a Delaware
corporation organized in June, 1996 that was formerly named Advanced
Communications Group, Inc.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"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.
- --------------
(1) Notwithstanding any provision herein to the contrary, the parties
agree that since the warrants granted hereby are granted in substitution for an
option granted by ACG Corp., (i) any stock split or other change in the
capitalization of Corp. prior to the consummation of the reverse triangular
merger among the Company, ACG Corp. and Advanced Communications Group
Acquisition, Inc. shall be treated for the purposes of this Warrant Certificate
as a stock split or other change in the capitalization of the Company and (ii)
except for the matters described in (i), no antidilution adjustments shall be
made pursuant to Section 3 prior the consummation of the initial public
offering of the Common Stock and the acquisition transactions associated
therewith (including the acquisition of ACG Corp.).
<PAGE>
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September, 1997.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3 and Footnote 1, means $2.50.
"Expiration Date" means 5:00 p.m., Houston Time on June 16, 2007.
"IPO Date" means the date upon which the initial public offering of
the Common Stock and the acquisitions contemplated in connection therewith are
consummated.
"Issuance Date" means December 15, 1997.
"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 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.
"Warrant Shares" means the shares of Common Stock and other
securities, property or cash receivable upon the exercise of the Warrants.
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<PAGE>
"Warrants" means the Series L 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, after the IPO 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. Likewise, upon the presentation and surrender of this Warrant
Certificate at the office of the Company and at the request of the holder, the
Company will, at the option of the holder, issue to the holder in substitution
for this Warrant Certificate one or more warrant certificates in identical form
and for an aggregate number of Warrants equal to the number of Warrants
evidenced by this Warrant Certificate.
(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 hereby have not
been registered under the Securities Act of 1933, as amended, or under any
state securities law (collectively, the "Acts"), in reliance on exemptions from
the registration provisions thereof. The holder hereof acknowledges that the
Warrants evidenced hereby and the Common Stock or other securities or property
purchasable on the exercise of the Warrants (collectively, 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 at the head of this
Warrant Certificate. 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.
In addition, the holder of this Warrant further agrees and
acknowledges that for a period of one year from the date of the original
issuance of any Conversion Securities issued upon the exercise of a Warrant
such holder may not -- except in full compliance with all of the applicable
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and
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<PAGE>
Exchange Commission thereunder and the provisions of applicable state
securities laws and regulations -- sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint, or otherwise dispose of any Conversion Securities.
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 (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
that were issuable upon exercise of a Warrant had the Warrants evidenced by
this Warrant Certificate 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 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
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<PAGE>
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 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 IPO 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 average Price per share of Common Stock for the
20 trading days immediately preceding the date of the authorization of such
issuance (the "Market Price") by the Board of Directors, 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 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 ("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;
-5-
<PAGE>
(w) are issued pursuant to any Common Stock Equivalent (as defined in
paragraph (d) of this Section 3) of the Company or ACG Corp. (i) which
was or will foreseeably be outstanding on the IPO 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
IPO Date, issue any security or evidence of indebtedness which is convertible
into or exchangeable for Common Stock ("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 (together
with Convertible Securities, "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,
-6-
<PAGE>
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 the 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.
-7-
<PAGE>
iv. For the purposes of this Section 3, the term
"shares of Common Stock" shall mean, except as otherwise provided in
Footnote 1, 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 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. (a) The Company may at its option, but shall
not be obligated to, at any time during the term of the Warrants, reduce the
then current Exercise Price by any amount selected by the Board of Directors;
provided that if the Company elects so to reduce the then current Exercise
Price, such reduction shall be irrevocable during its effective period and
remain in effect for a minimum of 20 days following the date of such election,
after which time the Company may, at its option, reinstate the Exercise Price
in effect prior to such reduction. 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.
(b) The Company may make such decreases in the Exercise
Price, in addition to those required or allowed by this Section 5, 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.
-8-
<PAGE>
6. NOTICES TO WARRANT HOLDER. In the event that, after the IPO Date:
(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 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, 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:
-9-
<PAGE>
(a) Prior to thirty (30) days after the IPO Date and 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) The Company shall pay all expenses, taxes (other than
stock transfer taxes or charges) and other charges payable in connection with
the preparation, issuance and delivery of new warrant certificates on transfer
of the Warrants evidenced by this Warrant Certificate.
(c) 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.
(d) The Company shall not be required to pay any tax or
charge imposed in connection with any transfer involved
in the issuance of any certificate representing shares
of Common Stock (and other securities) in any name
other than that of the registered holder hereof, and in
such case the Company shall not be required to issue or
deliver any certificate representing shares of Common
Stock (and other securities) until such tax or other
charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is
due.
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:
--------------------------
--------------------------
--------------------------
-10-
<PAGE>
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) 622-0222
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 December, 1997 by Rod K. Cutsinger, its Chairman
and Chief Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Rod K. Cutsinger
Chairman and Chief Executive Officer
-11-
<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.
- -------------------------------------------------------------------------------
TRANSFER FORM
[To be executed only upon transfer of the Warrants
evidenced by this Warrant Certificate]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________________________________ the
Warrants represented by the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _____________________________________ Attorney-in-Fact, to transfer
same on the books of the Company with full power of substitution in the
premises.
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.
WITNESS:
- ----------------------------------
-12-
<PAGE>
[Oklahoma]
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND FEIST LONG DISTANCE
TABLE OF CONTENTS
I. DESCRIPTION AND CHARGES FOR SERVICES .............................. 1
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES ....................... 2
A. Permitted Use of Resold Services by LSP and Its End ........ 2
Users
B. Use of SWBT Trademarks ..................................... 4
C. Network and Service Order Conditions ....................... 5
III. ADDITIONAL SERVICES ............................................... 5
A. 911/E911 ................................................... 5
B. Dialing Parity ............................................. 6
C. White Page Directories: Listings. Distribution and ......... 6
Information Page
D. Directory Assistance (DA) .................................. 8
E. Operator Services (OS) ..................................... 9
IV. RESPONSIBILITIES OF SWBT .......................................... 9
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES ........................ 10
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS .......................... 10
VII. ADDITIONAL RESPONSIBILITIES OF LSP ................................ 11
A. Payment of Rates and Charges ............................... 11
B. Interfaces with SWBT ....................................... 12
C. Repair Contact Arrangements ................................ 12
D. LSP Operating Company Number (OCN) ......................... 13
E. Special Service Arrangements ............................... 13
F. DA/OS Branding ............................................. 13
VIII. NONEXCLUSIVITY .................................................... 14
IX. SUPPORT SYSTEMS SERVICES .......................................... 14
A. Support Systems Services ................................... 14
B. Network Management Controls ................................ 15
C. Law Enforcement and Civil Process .......................... 16
X. CALL TRACE ........................................................ 16
<PAGE>
XI TAXES ............................................................ 17
XII. TERMINATION OF SERVICE TO LSP .................................... 17
XIII. FORCE MAJEURE .................................................... 19
XIV. LIMITATION OF LIABILITY .......................................... 19
XV. NONDISCLOSURE .................................................... 20
XVI. PUBLICITY ........................................................ 21
XVII. ASSIGNMENT ....................................................... 21
XVIII. DISPUTE RESOLUTION ............................................... 21
A. Finality of Disputes ...................................... 21
B. Alternative to Litigation ................................. 21
XIX VERIFICATION REVIEWS ............................................. 23
XX COMPLIANCE WITH LAWS ............................................. 24
XXI CERTIFICATION REQUIREMENTS ....................................... 25
XXII EFFECT OF OTHER AGREEMENTS ....................................... 25
XXIII NOTIFICATION ..................................................... 25
XXIV NOTICES .......................................................... 26
XXV. BENEFICIARIES .................................................... 26
XXVI. TERM ............................................................. 26
XXVII. EFFECTIVE DATE ................................................... 26
XXVIII. WAIVER ........................................................... 27
XXIX. DISCLAIMER OF WARRANTIES ......................................... 27
XXX. RELATIONSHIP OF THE PARTIES ...................................... 27
XXXI. COMPLETE TERMS ................................................... 27
<PAGE>
PAGE 1
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND
FEIST LONG DISTANCE
This Agreement is between Southwestern Bell Telephone Company (SWBT), a
Missouri corporation, and Feist Long Distance, a Kansas corporation, ("LSP")
(collectively, the "Parties") entered into this 4th day of June, 1997.
WHEREAS, pursuant to the Telecommunications Act of 1996 (the "Act"), the
Parties wish to establish terms for the purchase by LSP of certain SWBT retail
telecommunications services and certain other services for resale by LSP to its
local exchange end users in the State of Oklahoma. Therefore, the Parties hereby
agree as follows:
I. DESCRIPTION AND CHARGES FOR SERVICES
A. Attached hereto as Exhibit A is a list of Telecommunications
Services currently available for resale at the wholesale
discount rate set by the Commission through arbitration, i.e.,
19.8% off the retail rate for each service. Except as otherwise
expressed herein and consistent with SWBT's obligation under ss.
251(c)(4)(A) of the Act, LSP may resell other Telecommunications
Services offered by SWBT and not listed in Exhibit A. Exhibit B
contains a list of other services available for resale at the
discount included in the exhibit.
B. SWBT shall make available for resale by LSP SWBT's Bill Plus or
Consolidated Billing service at a discount of five percent (5%)
off SWBT's tariffed rate for each service (or in the event these
services are not tariffed, at the rate SWBT charges its
subscribers).
C. SWBT shall make available for resale by LSP the following SWBT
services at SWBT's tariffed rate for each service (or in the
event a service is not tariffed, at the rate SWBT charges its
subscribers, except as otherwise provided herein):
- Construction Charges
- Connections with Terminal Equipment and Communication System
- Maintenance of Service Charges
- Suspension Services
- Telecommunications Service Priority Systems
- Access Services
- Wireless Carrier Interconnection Services
- Exchange Connection Services
<PAGE>
PAGE 2
D. Suspension of Service discounts apply to the discounted rate for
the underlying service.
E. SWBT shall be under no obligation to offer the following for
resale:
- BDS/LAN
- Customer Provided Equipment
- Customized Billing Reports
- InLine(R) Products
- Inside Wiring
- Semi-Public Telephone Booths and Enclosures
- 911 Universal Emergency Number Equipment
F. Services priced on an Individual Customer Basis (ICB), e.g.,
Plexar Custom, will not be offered at a discount below cost.
G. Grandfathered services are also available for resale at the
applicable wholesale discount to the same customers to which
SWBT offers the service.
H. Telecommunications Services will be resold to LSP on terms and
conditions that are reasonable and nondiscriminatory.
I. LSP may offer to resell Customer Initiated Suspension and
Restoral Service to their end users. SWBT will offer to LSP
Company Initiated Suspension service for their own purposes at
the SWBT retail tariffed rate. Should LSP choose to suspend
their end user through Company Initiated Suspension Service,
this suspension period shall not exceed fifteen (15) calendar
days. If LSP issues a disconnect on their end user account
within the fifteen (15) day period, appropriate services will
not be billed for the suspension period. However, should LSP
issue a disconnect after the fifteen (15) day suspension period,
LSP will be responsible for all appropriate charges on the
account back to the suspension date. Should LSP restore their
end user, restoral charges at the SWBT retail tariffed rate will
apply and LSP will be billed for the appropriate service from
the time of suspension.
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES
The following terms and conditions are applicable to all services
purchased under this Agreement.
A. Permitted Use of Resold Services by LSP and Its End Users
<PAGE>
PAGE 3
1. For services included in this Agreement which are
offered through tariffs by SWBT to its end users, the
rules and regulations associated with the applicable
State General Exchange Tariff, Local Exchange Service
Tariff, and the other tariffs for the resold service
(such tariffs collectively referred to herein as
"corresponding tariffs"), apply except for applicable
resale restrictions and except as otherwise provided
herein.
2. LSP shall only sell Plexar(R) services to a single end
user or multiple end users on continuous properties.
3. Except where otherwise explicitly provided in the
corresponding tariffs, or except where SWBT permits such
sharing by its own end users, LSP shall not permit the
sharing of a service by multiple end users or the
aggregation of traffic from multiple end users onto a
single service; however, based upon the Commission's
Arbitration Order, SWBT will not retain its limitation
on aggregation for purposes of the resale of volume
discount offers.
4. LSP shall only resell services purchased under this
Agreement to the same class of end users to whom SWBT
sells such services (e.g. residence service shall not be
resold to business end users). LSP may only resell
Lifeline Assistance, Link-Up, and other like services to
similarly situated customers who are eligible for such
services. Further, to the extent LSP resells services
that require certification on the part of the buyer, LSP
will ensure that the buyer has received proper
certification and complies with all rules and
regulations as established by the Commission.
5. SWBT promotions of ninety (90) days or less shall not be
available to the LSP for resale.
6. LSP shall not use a resold service to avoid the rates,
terms and conditions of SWBT's corresponding tariffs.
7. LSP shall not use resold local exchange telephone
service to provide access or interconnection services to
itself interexchange carriers (IXCs), wireless carriers,
competitive access providers (CAPs), or other
telecommunications providers. Provided however, that LSP
may permit its end users to use resold local exchange
telephone service to access IXCs, wireless carriers,
CAPs, or other retail telecommunications providers.
8. If LSP is found to be in violation of a provision of
this Agreement, SWBT shall notify LSP of the violation
in writing of the specific
<PAGE>
PAGE 4
provision being violated. At such time, LSP shall have
thirty (30) days to correct the violation and notify
SWBT in writing that the violation has been corrected.
SWBT shall then bill LSP for the charges which should
have been collected by SWBT or the actual revenues
collected by LSP from its end users for the stated
violation, whichever is greater. If LSP disputes the
violation, it shall notify SWBT in writing within
fourteen (14) days of receipt of notice from SWBT.
Disputes shall be resolved as outlined in the Dispute
Resolution section of the Agreement.
9. An End User Common Line (EUCL) charge will continue to
apply for each local exchange line resold under this
agreement. All federal rules and regulations associated
with EUCL charges, as found in Tariff FCC 73, also
apply.
10. To the extent allowable by law, LSP shall be responsible
for Primary Interexchange Carrier (PIC) change charges
associated with such local exchange line. LSP shall pay
for PlC changes at the tariffed rate.
11. SWBT is not required to make services available for
resale at wholesale rates to LSP for its own use. SWBT,
however, shall at its option agree to allow LSP to
purchase SWBT's Telecommunications Services and other
services available for resale as outlined in the
exhibits to this Agreement, as long as said services are
not resold exclusively or predominately to LSP, its
subsidiaries, or affiliates.
B. Use of SWBT Trademarks
Except where otherwise required by law, LSP shall not, without
SWBT's written authorization, offer the services covered by this
Agreement using the trademarks, service marks, trade names,
brand names, logos, insignia, symbols or decorative designs of
SWBT or its affiliates. Nor shall LSP state or imply that there
is any joint business association or similar arrangement with
SWBT in the provision of telecommunications services to LSP's
own end users. LSP may brand services included in this Agreement
with its own brand name, but SWBT shall not be responsible for
providing such branding.
C. Network and Service Order Conditions
1. SWBT shall provide the services covered by this
Agreement subject to availability of existing facilities
and on a nondiscriminatory basis with its other
customers. LSP shall resell the services provided
<PAGE>
PAGE 5
herein only in those service areas in which such resale
services or any feature or capability thereof are
offered at retail by SWBT as the incumbent local
exchange carrier to its end users.
2. The price of converting an end user currently receiving
service from the SWBT network, without any changes to
SWBT's network, will be based upon forward looking
economic cost studies. Until such studies have been
approved by the Commission, customer change charges will
be priced at $5.00 per order (i.e., per billable
telephone number) on an interim basis, subject to
true-up. Custom Services conversions (e.g. Plexar
Custom) will be handled on a Customer Specific Proposal
basis.
When LSP converts an end user's service and adds or
changes are made to the network, the respective
conversion charge will apply, as well as any normal
service order charges associated with said changes. All
non-recurring service connection charges, excluding the
conversion charge mentioned above, will be charged at a
discount for those services listed in Exhibits A and B.
3. For the purposes of new ordering service under this
Agreement, each request for service shall be handled as
a separate and initial request for service per billable
telephone number. The additional line rate for Service
Order Charges shall apply only to those requests for
additional residential service at the end user's same
location where a residential line is currently provided
on SWBT's network, regardless of the non-facilities
based local service provider of record.
4. For purposes of this section, service orders for LSPs
shall be handled in the same fashion as SWBT requires
for its end users.
III. ADDITIONAL SERVICES
A. 911/E911
1. Access to the 911 or E911 service, available to SWBT end
users in the area(s) served by LSP, shall be made
available to LSP's end users.
3. LSP shall be responsible for collecting and remitting
all applicable 911 surcharges on a per line basis to the
Public Safety Answering Point (PSAP).
<PAGE>
PAGE 6
3. When requested by SWBT, LSP shall provide timely,
accurate and complete information on each of LSP's end
users as needed for the provisioning of 911 service to
LSPs end users. Such information shall be in a format
and a time frame pre-subscribed by SWBT for purposes of
911 administration.
B. Dialing Parity
1. Local Dialing Parity
SWBT agrees that local dialing parity shall be available
to LSP. That is, end users of SWBT and end users of LSP
shall have the same exchange boundaries, such end users
shall be able to dial the same number of digits when
making a "local" call.
2. IntraLATA Toll Dialing Parity.
SWBT agrees to make IntraLATA toll dialing parity
available in accordance with Section 251(b)(3) of the
Telecommunications Act of 1996.
C. White Page Directories: Listings. Distribution and Information
Page
1. LSP's subscribers to basic residential and business
service will receive a basic listing in SWBT's White
Pages directories in the same form and under the same
conditions as SWBT provides to its subscribers.
a. Subscriber listing information on resold lines
shall remain the property of SWBT. Upon receipt
of a request from a third party directory
publisher, including Southwestern Bell Yellow
Pages, for subscriber listing information, SWBT
will provide to that third party directory
publisher LSP subscriber's listing information
on an interfiled basis and indistinguishable
from SWBT's subscriber listing information.
b. Each LSP subscriber will receive one copy of
SWBT's White Pages directory, and a Yellow Pages
directory when cobound with the White Pages, in
the same manner and at the same time that they
are provided to SWBT's subscribers. It is the
Parties' expectation that separately bound
Southwestern Bell Yellow Pages directories will
be delivered in the same manner and at the same
time to LSP's subscribers as to SWBT's
subscribers.
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PAGE 7
c. If an LSP end user already has a current SWBT
directory, SWBT shall not be required to deliver
a directory to that end user until new
directories are published for that end user's
location.
d. The listings and directories described above are
included in the wholesale price LSP owes SWBT
for resold lines and Will be provided by SWBT at
no additional charges.
e. Additional Listing Services (e.g., foreign
listings and signature listing) can be purchased
by LSP for its end users on a per listing basis.
LSP shall pay SWBT for all such listings
provided to LSP's end users. The discounts
applicable to listing services are contained in
Exhibit B.
f. LSP hereby releases SWBT from any and all
liability for damages due to errors or omissions
in LSP's subscriber listing information as it
appears in the White Pages directory, including,
but not limited to, special, indirect,
consequential, punitive or incidental damages.
To the extent LSP reimburses its end user
subscriber any listing charge due to errors or
omissions caused directly by SWBT, SWBT shall
reimburse LSP any associated wholesale rate.
g. LSP shall indemnify, protect, save harmless and
defend SWBT (or SWBT's officers, employees,
agents, assigns, and representatives) from and
against any and all losses, liability, damages
and expense arising out of any demand, claim,
suit, or judgment by a third party in any way
related to any error or omission in LSP's
subscriber listing information as it appears in
the White Pages directory, including any error
or omission related to nonpublished or nonlisted
subscriber listing information; provided,
however, LSP shall not be required to indemnify
SWBT for gross negligence or willful misconduct.
LSP shall so indemnify regardless of whether the
demand, claim, or suit by the third party as
brought jointly against LSP and SWBT, and/or
against SWBT alone.
2. Information Page
a. At LSP's request, SWBT shall include in the
"Informational Page" section of SWBT's White
Pages directory, for those geographical areas in
which LSP provides local exchange
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PAGE 8
services, LSP's customer contact information
regarding emergency services, billing and
service information, repair services and other
pertinent information similar to that provided
by SWBT in its "Informational Pages." Such
information shall be included on the same page
with other LSP information.
b. At LSP's option, LSP shall be provided a single
"Informational Page" (one side of one page) in
the informational section of the White Pages
directory covering a geographic area where an
LSP provides local exchange service. This page
shall be no different in style, size, color and
format than SWBT "Informational Pages." Sixty
(60) days prior to the directory close date, LSP
shall provide to SWBT the "Informational Page"
in the form of camera-ready copy. The charges
associated with this service vary from
geographic market to market, and are charged
outside this Agreement.
D. Directory Assistance (DA)
SWBT shall provide access to DA to LSP's end users. LSP shall
pay the charges associated with the use of such services by
LSP's end users. The discounts applicable to such services are
contained in Exhibits A and B, which is attached hereto and made
a part hereof.
E. Operator Services (OS)
1. SWBT shall provide access to Operator Services to LSP's
end users. LSP shall pay the charges associated with the
use of such services by LSP's end users. The discounts
applicable to such services are contained in Exhibits A
and B, which are attached hereto and incorporated by
reference.
2. SWBT shall provide Line Status Verification and Busy
Line Interrupt on calls made on SWBT's network to LSP
end users. LSP shall pay SWBT associated charges when
its end users request such services, with discounts to
apply as listed in Exhibits A and B.
IV. RESPONSIBILITIES OF SWBT
A. SWBT shall allow LSP to place service orders and receive phone
number assignments (for new lines). These service order
activities shall be accomplished by facsimile or electronic
interface when established. SWBT, with input from LSP, shall
provide interface specifications for electronic
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PAGE 9
access for these functions to LSP once such electronic
interfaces become technically feasible and are in place.
However, LSP shall be responsible for modifying and connecting
any of its systems with SWBT provided interfaces when such
interfaces become available, as outlined in Appendix OSS.
B. SWBT shall implement LSP service orders within the same time
intervals SWBT uses to implement service orders for similar
services for its own end users.
C. LSP will have the ability to report trouble for its end users to
appropriate SWBT trouble reporting centers 24 hours a day, 7
days a week. LSP will be assigned a customer contact center when
initial service agreements are made. To the extent the current
provider can be determined, LSP end users calling SWBT will be
referred to LSP at the number provided by LSP.
Methods and procedures for ordering and trouble reporting are
outlined in the Handbook for Non-Switched Based Providers dated
11/15/95, as amended by SWBT from time to time. Both parties
agree to abide by the procedures contained therein.
D. On no less than sixty (60) days advance written notice, LSP may
request SWBT to make certain usage information available to LSP
on a daily basis in a standard electronic format. The
information will consist of usage sensitive charges SWBT will
bill to LSP arising out of the use of resold lines. LSP agrees
to pay SWBT three tenths of a cent ($.003) per message for this
service, plus other charges outlined in Appendix OSS.
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES
Cooperation on Fraud
SWBT shall not be liable to LSP for any fraudulent usage on LSP's end
users' accounts.
The Parties agree to cooperate with one another to investigate, minimize
and take corrective action in cases of fraud. The Parties' fraud
minimization procedures are to be cost effective and implemented so as
not to unduly burden or harm one Party as compared to the other.
At a minimum, such cooperation shall include providing to the other
Party, upon request, information concerning end users who terminate
services to that Party without paying all outstanding charges, when such
end user seeks service from the
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PAGE 10
other Party. The Party seeking such information is responsible for
securing the end user's permission to obtain such information.
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS
A. Prior to submitting an order under this Agreement, LSP shall
obtain end user authorization as required by applicable state or
federal laws and regulations, and assumes responsibility for
applicable charges as specified in Section 258 (b) of the
Telecommunications Act of 1996. SWBT shall abide by the same
applicable laws and regulations.
B. Only an end user can initiate a challenge to change in its local
exchange service provider. If an end user notifies SWBT or LSP
that the end user requests local exchange service, the Party
receiving such request shall be free to immediately provide
service to such end user. SWBT shall be free to connect the end
user to any local service provider based upon the local service
provider's request and local service provider's assurance that
proper end user authorization has been obtained. Both parties
shall make authorization available to the other party upon
request and at no charge.
C. When an end user changes or withdraws authorization, each Party
shall release customer-specific facilities in accordance with
the end user customer's direction or the direction of the end
user's authorized agent. Further, when an end user abandons the
premise, SWBT is free to reclaim the facilities for use by
another customer and is free to issue service orders required to
reclaim such facilities.
D. Neither Party shall be obligated by this Agreement to
investigate any allegations of unauthorized changes in local
exchange service (slamming) on behalf of the other Party or a
third party. If SWBT, on behalf of LSP, agrees to investigate an
alleged incidence of slamming, SWBT shall charge LSP a fifty
dollar ($50) investigation fee.
E. When SWBT receives an order from LSP for services under this
Agreement and SWBT is currently providing the same services to
another local service provider for the same end user, SWBT shall
notify the end user's local service provider of record of such
order coincident with processing the order should LSP subscribe
to the Local Disconnect Report (LDR) as outlined below. It shall
then be the responsibility of the local service provider of
record and LSP to resolve any issues related to the end user.
This paragraph shall not apply to new additional lines and
services purchased by an end user from multiple LSPs or from
SWBT.
F. On no less than sixty (60) days notice, LSP may request the
Local Disconnect Report. SWBT agrees to furnish to LSP the
Billing Telephone
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PAGE 11
Number (BTN), Working Telephone Number (WTN), and terminal
number of all end users who have disconnected LSP's service. LSP
understands and agrees that the CARE interface will be used to
provide such information and such information will only be
available via the CARE electronic data transmission. Information
will be provided on a per-WTN basis to be priced on a per-WTN
basis. SWBT will provide LSP no less than thirty (30) days
notice prior to any change of the per-WTN charge. SWBT grants to
LSP a non-exclusive right to use the information provided by
SWBT. LSP will not permit anyone but its duly authorized
employees or agents to inspect or use this information. LSP
agrees to pay SWBT ten cents ($0.10) per WTN and any applicable
charges for the LDR as outlined in Appendix OSS.
G. The LSP agrees to hold harmless and indemnify SWBT against any
and all liability and claims, including reasonable attorney's
fees, that may result from SWBT acting under this Article.
H. Nothing herein shall be interpreted to apply to conversion of
LSP end users pursuant to Article XII. (Termination of Service
to LSP).
VII. ADDITIONAL RESPONSIBILITIES OF LSP
A. Payment of Rates and Charges
1. LSP is solely responsible for the payment of charges for
all services furnished under this Agreement including,
but not limited to, calls originated or accepted at
LSP's location and its end users' service locations,
with the exception of any retail services provided
directly by SWBT to the end user which SWBT shall be
responsible for billing.
Interexchange carried traffic (e.g., sent-paid,
information services and alternate operator services
messages) received by SWBT for billing to resold
end-user accounts will be returned as unbillable and
will not be passed on to LSP for billing. An unbillable
code returned with those messages to the carrier will
indicate that the messages originated from a resold
account and will not be billed by SWBT.
In accordance with industry standards, IXC PIC
selections for lines resold to LSP will not be processed
from IXCs or end users, but will only be processed if
received from LSP.
2. SWBT shall not be responsible for the manner in which
the use of resold service, or the associated charges are
allocated to others by
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PAGE 12
LSP. All applicable rates and charges for such services
will be billed to and shall be the responsibility of
LSP, with the exception of other retail services
provided directly to the end user by SWBT as described
in paragraph I above.
3. Compensation for all services shall be paid by LSP
regardless of LSP's ability or inability to collect
charges from its end user for such service.
4. If LSP does not wish to be responsible for collect,
third number billed, toll and information services
(e.g., 900) calls, it must order the appropriate
blocking for resold lines under this Appendix and pay
any applicable charges. LSP acknowledges that blocking
is not available for certain types of calls, including
800 numbers.
B. Interfaces with SWBT
LSP shall be responsible for modifying and connecting any of its
systems with SWBT-provided interfaces as described in this
Agreement.
C. Repair Contact Arrangements
LSP shall be responsible for providing to its end users and to
SWBT a telephone number or numbers that LSP's end users can use
to contact LSP in the event of service or repair requests. In
the event that LSP's end users contact SWBT with regard to such
requests, SWBT shall inform the end user that they should call
LSP and may provide LSP contact number.
D. LSP Operating Company Number (OCN)
For the purposes of establishing service and providing efficient
and consolidated billing to the LSP, the LSP is required to
provide SWBT its authorized and nationally recognized OCN.
E. Special Service Arrangements
For special service arrangements for LSP not covered under this
Agreement, special charges shall apply as provided in the
applicable corresponding tariffs.
F. Development of Branding and Customized Routing for Directory
Assistance and Operator Services
1. Requirements - Pursuant to ss. 226 (b) of The
Telecommunications Act of 1996, each provider of
Operator Services is required to:
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PAGE 13
a) provide its brand at the beginning of each
telephone call and before the consumer incurs
any charge for the call; and
b) disclose immediately to the consumer, upon
request a quote of its rates or charges for the
call.
c) Where SWBT provides LSPs OS and DA services via
the same trunk, both the OS and DA calls will be
branded with the same brand. Since SWBT's DA and
OS utilize the same trunk group, LSP will
receive the same brand for both DA/OS. Such
branding will be provided pursuant Section 2.
below.
2. Call Branding - In compliance with F. 1. above, SWBT
will brand DA/OS in LSP's name based upon the criteria
outlined below:
a) LSP will provide SWBT with written specification
of its company name to be used in creating LSP
specific branding messages for its DA/OS calls.
b) An initial non-recurring charge applies per load
for the establishment of Call Branding as well
as a charge per subsequent load to change the
brand. In addition, a per call charge applies
for every DA/OS call handled by SWBT on behalf
of LSP when such services are provided in
conjunction with resale services. Prices for
Call Branding are as outlined in Exhibit C,
attached hereto and incorporated herein.
3. Rate/Reference Information - SWBT will provide LSP DA/OS
Rate/Reference Information based upon the criteria
outlined below:
a) LSP will furnish DA/OS Rate and Reference
Information in a mutually agreed to format or
media thirty (30) days in advance of the date
when the DA/OS Services are to be undertaken.
b) LSP will inform SWBT, in writing, of any changes
to be made to such Rate/Reference Information
ten (10) working days prior to the effective
Rate/Reference change date. LSP acknowledges
that it is responsible to provide SWBT updated
Rate/Reference Information in advance of when
the Rates/Reference Information are to become
effective.
c) In all cases when a SWBT Operator receives a
rate request from a LSP end user, SWBT will
quote the applicable DA/OS rates as provided by
LSP.
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PAGE 14
d) An initial non-recurring charge will apply for
loading of LSP's DA/OS Rate/Reference
Information as well as a charge for each
subsequent change to either the LSP's DA/OS
Services Rate or Reference Information as
outlined in Exhibit C, attached hereto and
incorporated herein.
4. Customized Routing - SWBT shall also offer LSP the
opportunity to customize route DA/OS where technically
feasible. LSP agrees to pay SWBT appropriate charges
associated with customized routing on an ICB basis.
VIII. NONEXCLUSIVITY
This Agreement is nonexclusive. LSP acknowledges that SWBT will be
providing the same or similar services to other local services providers
in accordance with negotiated agreements which will be filed with the
appropriate state commission(s). LSP also acknowledges that SWBT may,
upon end user request, provide any and all of the services provided to
LSP under this Agreement directly to the end users. SWBT acknowledges
that LSP may obtain the same or similar services from other local
exchange companies.
IX. SUPPORT SYSTEMS SERVICES
A. Support Systems Services
1. Transfer of Service Announcements (Intercept)
The Party formerly providing service to an end user
shall provide a Basic Referral announcement,
reciprocally and free of charge on the abandoned
telephone number. The announcement states that the
called number has been disconnected or changed and
provides the end user's new telephone number to the
extent that it is listed. SWBT shall provide an
intercept referral on behalf of LSP to their end user as
indicated on the appropriate service order.
Basic Intercept Referral Announcements are to be
provided on residential numbers for a minimum of thirty
(30) days where facilities exist and the threat of
telephone number exhaustion is not imminent.
Basic Intercept Referral Announcements for a single line
business end user and the primary listed telephone
number for Direct Inward Dial (DID) and "Centrex-type"
end users, shall be available for a minimum of thirty
(30) days or for the life of the white pages
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PAGE 15
directory, whichever is greater. If the threat of
telephone number exhaustion becomes imminent for a
particular central office, the service provider may
reissue a disconnected number prior to the expiration of
the directory, but no earlier than thirty (30) days
after the disconnection of the business telephone
number.
2. Coordinated Repair Calls
SWBT shall be responsible for repairing its own network.
However, LSP shall maintain telephone numbers where its
end user may call to report instances of trouble.
The Parties shall employ the following procedures for
handling misdirected repair calls:
a. The Parties shall inform their respective end
users of the correct telephone numbers to call
to access their respective repair bureaus.
b. To the extent the correct provider can be
determined, each Party shall refer misdirected
repair calls to the proper provider of local
exchange service, at no charge, and shall
provide the end user the contact telephone
number provided by the other party.
In responding to repair calls, neither Party
shall make disparaging remarks about each other,
nor shall they use these repair calls as the
basis for internal referrals or to solicit
customers or to market services. Either Party
may respond with accurate information in
answering customer questions.
c. The Parties shall provide each other their
respective repair contact numbers.
d. Notwithstanding anything contained herein to the
contrary, SWBT and LSP agree that SWBT shall
have no obligation to unbrand or rebrand the
uniforms or training of its customer-contact
employees, trucks, vehicles, any customer
premises equipment or other customer-owned
facilities or SWBT's outside plant or network
components.
e. Where LSP requires SWBT personnel to interface
directly with LSP end user customers in any form
of communication (including, but not limited to,
written, face-to-face, by
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PAGE 16
telephone or electronic transmission of any
kind), such SWBT personnel shall be identified
as SWBT employees representing the customer's
provider.
B. Network Management Controls
Each Party shall provide a 24-hour contact number for Network
Traffic Management issues to the other. A FAX number must also
be provided to facilitate event notifications for planned mass
calling events. Additionally, both Parties agree that they shall
work cooperatively that all such events shall attempt to be
conducted in such a manner as to avoid deregulation or loss of
service to other end users.
C. Law Enforcement and Civil Process
SWBT and LSP shall handle law enforcement requests as follows:
1. Intercept Devices
Local and federal law enforcement agencies periodically
request information or assistance from local telephone
service providers. When either Party receives a request
associated with an end user of the other Party, it shall
refer such request to the appropriate Party, unless the
request directs the receiving Party to attach a pen
register, trap and trace or form of intercept on that
Party's own facilities, in which case that Party shall
comply with any valid request.
2. Subpoenas
If a Party receives a subpoena for information
concerning an end user the Party knows to be an end user
of the other Party, it shall refer the subpoena to the
requesting entity with an indication that the other
Party is the responsible company. Provided, however, if
the subpoena requests records for a period of time
during which the receiving Party was the end user's
service provider, the receiving Party will respond to
any valid request.
3. Emergencies
If a Party receives a request from a law enforcement
agency to implement a temporary number change, temporary
disconnect or one way denial of outbound calls for an
end user of the other party, the receiving Party will
comply so long as it is a valid emergency request. In
the case of the LSP, the LSP shall refer such request to
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PAGE 17
SWBT and SWBT shall honor such request in accordance
with this paragraph. Neither Party shall be held liable
for any claims or damages arising from compliance with
such requests, and the Party serving the end user agrees
to indemnify and hold the other Party harmless against
any and all such claims.
X. CALL TRACE
An LSP end user's activation of Call Trace for a line purchased under
this Appendix, shall be handled by the SWBT Call Trace Center (CTC).
SWBT shall notify LSP of requests by LSP's end users to provide the call
records to the proper authorities. Subsequent communication and
resolution of the case with LSP's end user (whether that end user is the
victim or the suspect) will be coordinated through LSP.
LSP understands that for services where reports are provided to law
enforcement agencies (e.g., Call Trace) SWBT shall only provide billing
number and address information. LSP shall provide additional information
necessary for any police investigation. LSP shall indemnify SWBT against
any claims that insufficient information led to inadequate prosecution,
except to the extent caused by SWBT's gross negligence or willful
misconduct.
XI. TAXES
LSP shall be responsible for all federal, state or local, sales, use,
excise or gross receipts taxes or fees imposed on or with respect to the
services provided under this Agreement including those taxes and fees,
imposed on SWBT. LSP shall reimburse SWBT for the amount of any such
taxes or fees which SWBT is required to pay or collect for services
provided to LSP hereunder.
XII. TERMINATION OF SERVICE TO LSP
A. If LSP fails to pay when due (within 30 days of the bill date),
any and all charges billed to them under this Agreement,
including any late payment charges (Unpaid Charges), and any
portion of such charges remain unpaid more than fifteen (15)
days after the due date of such Unpaid Charges, SWBT shall
notify LSP in writing that in order to avoid having service
disconnected, LSP must remit all Unpaid Charges to SWBT within
fourteen (14) business days.
B. If LSP disputes the billed charges, it shall, within the
fourteen (14) day period provided for above, inform SWBT in
writing which portion of the charges it disputes, including the
specific details and reasons for its dispute; immediately pay to
SWBT all undisputed charges; and pay all disputed charges into
an interest bearing escrow account.
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PAGE 18
C. Disputes hereunder shall be resolved in accordance with the
procedures identified in Article XVIII (Dispute Resolution).
Failure of LSP to pay charges deemed owed to SWBT after
conclusion of the Arbitration shall be grounds for termination
under this Article.
D. If any LSP charges remain unpaid or undisputed twenty-nine (29)
days past the due date, SWBT shall notify LSP, the Comission and
the end user's IXC(s) of Record in writing, that unless all
charges are paid within sixteen (16) days, LSP's service shall
be disconnected and its end users shall be switched to SWBT
local service. SWBT will also suspend order acceptance at this
time.
E. If any LSP charges remain unpaid or undisputed forty (40) days
past the due date, LSP shall, at its sole expense, notify its
end users, the Commission and the end user's of Record that
their service may be disconnected for LSP failure to pay Unpaid
Charges, and that its end users must select a new local service
provider within five (5) days. The notice shall also advise the
end user that SWBT will assume the end user's account at the end
of the five (5) day period should the end user fail to select a
new local service provider.
F. If any LSP charges remain unpaid or undisputed forty-five (45)
days past the due date, SWBT shall disconnect LSP and transfer
all LSP's end users who have not selected another local service
provider directly to SWBT's service. These end users shall
receive the same services provided through LSP at the time of
transfer. SWBT shall inform the Commission and the end user's
IXC(s) of Record of the names of all end users transferred
through this process. Applicable service establishment charges
for switching end users from LSP to SWBT shall be assessed to
LSP.
G. Within five (5) days of the transfer (50 days past LSP's due
date), SWBT shall notify all affected end users that because of
an LSP's failure to pay, their service is now being provided by
SWBT. SWBT shall also notify the end user that they have thirty
(30) days to select a local service provider, after which time
should the end user not select an LSP, the end user's service
shall be terminated.
H. SWBT may discontinue service to LSP upon failure to pay
undisputed charges as provided in this section, and shall have
no liability to LSP or LSP end users in the event of such
disconnection.
I. If any end user fails to select a local service provider within
thirty (30) days of the change of providers (80 days past LSP's
due date), SWBT shall terminate the end user's service. SWBT
shall notify the Commission and
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PAGE 19
the end user's IXC of Record of the names of all end users whose
service has been terminated. The end user shall be responsible
for any and all charges incurred during the selection period.
J. Nothing herein shall be interpreted to obligate SWBT to continue
to provide service to any such end users. Nothing herein shall
be interpreted to limit any and all disconnection rights SWBT
may have with regard to such end users.
K. After disconnect procedures have begun, SWBT shall not accept
service orders from LSP until all unpaid charges are paid. SWBT
shall have the right to require a deposit equal to one month's
charges (based on the highest previous month of service from
SWBT) prior to resuming service to LSP after disconnect for
nonpayment.
XIII. FORCE MAJEURE
Neither party shall be responsible for delays or failures in performance
resulting from acts or occurrences beyond the reasonable control of such
Party, regardless of whether such delays or failures in performance were
foreseen or foreseeable as of the date of this Agreement, including,
without limitation: fire, explosion, power failure, cable cuts, acts of
God, war, revolution, civil commotion, or acts of public enemies; any
law, order, regulation, ordinance or requirement of any government or
legal body; or labor unrest, including, without limitation, strikes,
slowdowns, picketing or boycotts; or delays caused by the other party or
by other service or equipment vendors; or any other circumstances beyond
the Party's reasonable control. In such event, the Party affected shall,
upon giving prompt notice to the other Party, be excused from such
performance on a day-to-day basis to the extent of such interference
(and the other Party shall likewise be excused from performance of its
obligations on a day-for-day basis to the extent such Party's
obligations relate to the performance so interfered with). The affected
party shall use its best efforts to avoid or remove the cause of
nonperformance and both parties shall proceed to perform with dispatch
once the causes are removed or cease.
XIV. LIMITATION OF LIABILITY
SWBT's liability, if any, for its gross negligence or willful misconduct
is not limited by its corresponding tariffs. With respect to any other
claim or suit, by a LSP or any others, for damages arising out of
mistakes, omissions, interruptions, delays or efforts, or defects in
transmission occurring in the course of furnishing service hereunder,
SWBT's liability, if any, shall not exceed an amount equivalent to the
proportionate charge to the LSP for the period of service during which
such mistake, omission, interruption, delay, error, or defect in
transmission or service occurs and continues. In no event shall SWBT be
responsible for any special,
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PAGE 20
indirect, consequential or exemplary damages. This liability shall be in
addition to any amounts that may otherwise be due to the LSP under
corresponding tariffs as an allowance for interruptions. However, any
such mistakes, omissions, interruptions, delays, errors, or defects in
transmission or service which are caused or contributed to by the
negligence or willful act of the LSP or which arise from the use of
LSP-provided facilities or equipment shall not result in the imposition
of any liability whatsoever upon SWBT.
SWBT shall be indemnified and held harmless by the LSP against claims
and damages arising from provision of the LSP's services or equipment
except those directly associated with the provision of local service to
the LSP which is governed by corresponding tariffs.
SWBT shall be indemnified and held harmless from all claims and damages
arising from the discontinuance of service for nonpayment to SWBT by the
LSP. Notice of discontinuance shall be as specified in the Substantive
Rules of the State Commission.
SWBT shall have no liability to the end users of the LSP for claims
arising from the provision of the LSP's service to its end users
including, but not limited to, claims for interruption of service,
quality of service or billing disputes.
When the lines or services of other companies and carriers are used in
establishing connections to and/or from points not reached by SWBT's
lines, SWBT is not liable for any act or omission of the other companies
or carriers.
XV. NONDISCLOSURE
The Parties to this Agreement anticipate and recognize that they will
exchange or come into possession of, data about each other's end users
and each other's business as a result of this Agreement which will be
designated as confidential by that Party. Each Party agrees (1) to treat
all such data as strictly confidential and (2) to use such data only for
purposes of performance under this Agreement. Each Party agrees not to
disclose data on the other Party's end users or business which has been
designated as confidential to any person without first securing the
written consent of the other Party. The foregoing shall not apply to
information which is in the public domain.
If a court or governmental agency orders, or a third party requests, a
Party to disclose or to provide any data or information covered by this
Section, that Party will immediately inform the other Party of the order
or request both by telephone and overnighted mail before disclosing the
data or information. Notification and consent requirements described
above are not applicable in cases where a court order requires the
production of toll billing records of an individual residence or
business end user customer.
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This section will not preclude the disclosure by the Parties of
information or material described in this Section to consultants,
agents, or attorneys representing the respective Parties or the Office
of the Public Counsel for the state of Oklahoma, and state Corporation
Commission or staffs, or FCC Staff, provided that these third parties
are bound by the same or comparable confidentiality requirements as the
Parties to this Agreement. The provisions of this Section will remain in
effect notwithstanding the termination of this Agreement, unless agreed
to in writing by both Parties.
Pursuant to Section 222 of the Act, both Parties agree to limit their
use of proprietary information received from the other to the permitted
purposes identified in the Act.
XVI. PUBLICITY
The Parties agree not to use in any advertising or sales promotion,
press releases or other publicity matters any endorsements, direct or
indirect quotes, or pictures implying endorsement by the other Party or
any of its employees without such Party's prior written approval. The
Parties will submit to each other for written approval, prior to
publication, all publicity matters that mention or display one another's
name and/or marks or contain language from which a connection to said
name and/or marks may be inferred or implied.
XVII. ASSIGNMENT
Neither Party may assign, subcontract, or otherwise transfer its rights
or obligations under this Agreement except under such terms and
conditions as are mutually acceptable to the other Party (e.g.. a
conversion charge will apply per billable telephone number) and with
such Party's prior written consent, which consent shall not be
unreasonably withheld. Assignment without consent shall be grounds for
immediate termination of this Agreement.
XVIII. DISPUTE RESOLUTION
A. Finality of Disputes
No claims shall be brought for disputes arising from this
Agreement more than 24 months from the date of occurrence which
gives rise to the dispute. If any portion of an amount due to
SWBT under such agreement is subject to a bona fide dispute
between the Parties, LSP shall within fourteen (14) days of its
receipt of the invoice containing such disputed amount give
notice to SWBT of the amounts it disputes and include in such
notice the specific details and reasons for disputing each item.
LSP shall pay when due (i) all undisputed amounts to SWBT and
(ii) all Disputed Amounts into
<PAGE>
PAGE 22
an interest bearing escrow account with a third party escrow
agent mutually agreed upon by the Parties.
B. Alternative to Litigation
The Parties desire to resolve disputes arising out of this
Agreement without litigation. Accordingly, except for action
seeking a temporary restraining order or an injunction related
to the purposes of this Agreement, or suit to compel compliance
with this dispute resolution process, the Parties agree to use
the following alternative dispute resolution procedure as their
sole remedy with respect to any controversy or claim of $25,000
or less, arising out of or relating to this Agreement or its
breach. The procedures hereunder may be used with disputes for
$25,000 or more, if mutually agreeable to the Parties.
1. Resolution of Disputes Between Parties to the Agreement
At the written request of a Party, each Party will
appoint a knowledgeable, responsible representative to
meet and negotiate in good faith to resolve any dispute
arising under this Agreement. The location, form,
frequency, duration and conclusion of these discussions
shall be left to the discretion of the representatives.
Upon agreement, the representatives may utilize other
alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and
correspondence among the representatives for purposes of
settlement are exempt from discovery and production and
shall not be admissible in the arbitration described
below or in any lawsuit without the concurrence of all
Parties. Documents identified in or provided with such
communications, which are not prepared for purposes of
the negotiations, are not so exempted and, if otherwise
admissible, may be admitted in evidence in the
arbitration or lawsuit.
2. Arbitration
If the negotiations do not resolve the dispute within
thirty (30) days of the initial written request, the
dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. A Party
may demand such arbitration in accordance with the
procedures set out in those rules. Discovery shall be
controlled by the arbitrator and shall be permitted to
the extent set out in this section. Each Party may
submit in writing to a Party, and that Party shall so
respond, to a maximum of any combination
<PAGE>
PAGE 23
of thirty-five (35) (none of which may have subparts) of
the following:
(a) Interrogatories
(b) Demands to produce documents
(c) Requests for admission
Additional discovery may be permitted upon mutual
agreement of the Parties. The arbitration hearing shall
be commenced within thirty (30) days of the demand for
arbitration. If the dispute arises in Oklahoma, the
arbitration shall be held in St. Louis, Missouri. The
arbitrator shall control the scheduling so as to process
the matter expeditiously. The Parties shall submit
written briefs five days before the hearing. The
arbitrator shall rule on the dispute by issuing a
written opinion within twenty (20) days after the close
of hearings. The arbitrator has no authority to order
punitive or consequential damages. The times specified
in this section may be extended upon mutual agreement of
the Parties or by the arbitrator upon a showing of good
cause. Judgment upon the award rendered by the
arbitrator may be entered in any court having
jurisdiction.
3. Costs
Each Party shall bear its own costs of these procedures.
A Party seeking discovery shall reimburse the responding
Party the costs of production of documents (including
search time and reproduction costs). The Parties shall
equally split the fees of the arbitration and the
arbitrator.
XIX. VERIFICATION REVIEWS
Each Party to this Agreement will be responsible for the accuracy and
quality of its data as submitted to the respective Parties involved.
Upon reasonable written notice, each Party or its authorized
representative (providing such authorized representative does not have a
conflict of interest related to other matters before one of the Parties)
shall have the right to conduct a review and verification of the other
Party to give assurances of compliance with the provisions of this
Agreement. This includes on-site verification reviews at the other
Party's or the Party's vendor locations.
After the initial year of this Agreement verification reviews will
normally be conducted on an annual basis with provision for staged
reviews, as mutually agreed, so that all subject matters are not
required to be reviewed at the same time. Follow up reviews will be
permitted between annual reviews where significant
<PAGE>
PAGE 24
deviations are found. During the initial year of the Agreement more
frequent reviews may occur.
The review will consist of an examination and verification of data
involving records, systems, procedures and other information related to
the services performed by either Party as related to settlement charges
or payments made in connection with this Agreement as determined by
either Party to be reasonably required. Each Party, whether or not in
connection with an on-site verification review, shall maintain
reasonable records for a period of time no less than twenty-four (24)
months from the date such records are created and provide the other
Party with reasonable access to such information as is necessary to
determine amounts receivable or payable under this Agreement.
Each Party's right to access information for verification review
purposes is limited to data not in excess of 24 months in age. Once
specific data has been reviewed and verified, it is unavailable for
future reviews. Any items not reconciled at the end of a review will,
however, be subject to a follow-up review effort. Any retroactive
adjustments required subsequent to previously reviewed and verified data
will also be subject to follow-up review. Information of either Party
involved with a verification review shall be subject to the
nondisclosure terms of this Agreement.
The Party requesting a verification review shall fully bear its costs
associated with conducting the review. The Party being reviewed will
provide access to required information, as outlined in this Section, at
no charge to the reviewing Party. Should the reviewing Party request
information or assistance beyond that reasonably required to conduct
such a review, the Party being reviewed may, as its option, decline to
comply with such request or may bill actual costs incurred in complying
subsequent to the concurrence of reviewing Party.
XX. COMPLIANCE WITH LAWS
The Parties believe in good faith that the Services to be provided under
this Agreement satisfy the requirements of the Act. In the event a court
or regulatory agency of competent jurisdiction should determine that
modifications of this Agreement are required to bring the Services being
provided hereunder into compliance with the Act, the affected Party
shall promptly give the other Party written notice of the modifications
deemed required. Upon delivery of such notice, the Parties shall expend
diligent efforts to arrive at an agreement respecting such modifications
required, and if the Parties are unable to arrive at such agreement,
either Party may terminate this Agreement, without penalty, effective
the day the affected Party is ordered to implement the modifications
deemed required, or effective on the day either Party concludes and
gives notice that the Parties will not be able to arrive at any
agreement respecting such modifications, whichever date shall occur
earlier.
<PAGE>
PAGE 25
This Agreement is an integrated package that reflects a balancing of
interests critical to the Parties. It will be submitted to the
applicable state regulatory Commission and the FCC as a compliance
filing, and the Parties will specifically request that the applicable
state regulatory Commission and the FCC refrain from taking any action
to change, suspend or otherwise delay implementation of the Agreement.
In the event the Commission or the FCC rejects any portion or provision
of this Agreement or subsequently issues a ruling or order that results
in a provision being contrary to law, or is invalid for any reason, the
parties shall continue to be bound by the terms of this Agreement,
insofar as possible, except for the portion rejected or subsequently
determined to be unlawful, invalid, or unenforceable. In such event, the
Parties shall negotiate in good faith to replace the rejected, unlawful,
invalid, or unenforceable provision and shall not discontinue service to
the other Party during such period if to do so would disrupt existing
service being provided to an end user. So long as the Agreement remains
in effect, the Parties shall not advocate before any legislative,
regulatory, or other public forum that any terms of this specific
Agreement be modified or eliminated. Notwithstanding this mutual
commitment, however, the Parties enter into this Agreement without
prejudice to any positions they have taken previously, or may take in
the future in any legislative, regulatory, or other public forum
addressing any matters, including matters related to the types of
arrangements prescribed by this Agreement.
XXI. CERTIFICATION REOUIREMENTS
LSP warrants that it has obtained all certifications required in those
jurisdictions in which LSP has ordered services pursuant to this
Agreement. Subject to restrictions in Article II.A. (Permitted Use of
Resold Service by LSP and Its End Users), LSP covenants that any
originating service provider utilizing the resold services under this
Agreement has obtained all required certification.
Upon request by any governmental entity, the LSP is required to provide
proof of certification.
XXII. EFFECT OF OTHER AGREEMENTS
The Parties agree that pursuant to the requirements of the
Telecommunications Act of 1996, a Party shall treat the other Party no
less favorably than it treats similarly situated local service providers
with whom such Party has an operational interconnection or resale
agreement which has been approved by the State PUC. If either Party
enters into an agreement (the "Other Agreement") approved by the
Commission pursuant to Section 252 of the Act which provides for the
provision of arrangements covered in this Agreement to another
requesting Telecommunications Carrier, such Party shall make available
to the other Party
<PAGE>
PAGE 26
such arrangements upon the same rates, terms and conditions as those
provided in the Other Agreement.
XXIII. NOTIFICATION
SWBT will notify LSP of any changes in the prices, terms and conditions
under which SWBT offers telecommunications services at retail to
subscribers who are not telecommunications service providers or
carriers, including, but not limited to, the introduction of any new
features, functions, services, promotions, grandfathering or the
discontinuance of current features or services at the time a tariff
filing is transmitted to the State Commission, or, in situations where a
tariff filing is not so transmitted, no less than ninety (90) days
(forty-five (45) days for price changes) prior to the expected effective
date of such change.
With regard to new services, the notification shall advise LSP of the
category in which such new service shall be placed and the discount
applicable to the new service.
SWBT currently uses the Accessible Letter process to notify LSP of such
changes to the services available for resale. Any change to the process
of notification to the LSP will provide no less notice than the current
Accessible Letter process.
XXIV. NOTICES
In the event any notices are required to be sent under the terms of this
Agreement, they shall be sent by registered mail, return receipt
requested to:
To LSP: To SWBT:
Todd Feist Debbie Watson
Feist Long Distance SWBT
1105. Main, Ste. 1000 One Bell Plaza, Room 522
Wichita, KS 67202 Dallas, TX 75202
XXV. BENEFICIARIES
This Agreement shall not provide any nonparty with any remedy, claim,
cause of action or other right.
XXVI. TERM
SWBT and LSP agree that the initial term of this Agreement shall be for
90 days, and thereafter the Agreement shall continue in force and effect
unless and until terminated as provided herein. Either Party may
terminate this Agreement by providing written notice of termination to
the other Party, at least 60 days in
<PAGE>
PAGE 27
advance of the date of termination. At the conclusion of the first term,
this Agreement shall continue without interruption unless terminated by
either Party or superseded by a new Agreement between the Parties. By
mutual agreement, SWBT and LSP may amend this Agreement to modify the
term of this Agreement. Where LSP has not made arrangements to provide
service over its own facilities to its end users, the notification and
transfer of end user procedures outlined in Article XII. D.-F.
(Termination of service to LSP) shall apply.
XXVII. EFFECTIVE DATE
The effective date of this Agreement shall be ten (10) days after the
date that the appropriate state regulatory Commission approves this
Agreement.
XXVIII. WAIVER
The failure of either Party to enforce or insist that the other party
comply with any of the terms or conditions of this Agreement, or the
waiver by either Party in a particular instance of any of the terms and
conditions of this Agreement, shall not be construed as a general waiver
or relinquishment of the terms and conditions, but the Agreement shall
be and remain at all times in full force and effect.
XXIX. DISCLAIMER OF WARRANTIES
SWBT MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR INTENDED OR PARTICULAR PURPOSE WITH RESPECT TO SERVICES
PROVIDED HEREUNDER. ADDITIONALLY, SWBT ASSUMES NO RESPONSIBILITY WITH
REGARD TO THE CORRECTNESS OF DATA OR INFORMATION SUPPLIED BY LSP WHEN
THIS DATA OR INFORMATION IS ACCESSED AND USED BY A THIRD PARTY.
XXX. RELATIONSHIP OF THE PARTIES
This Agreement shall not establish, be interpreted as establishing, or
be used by either Party to establish or to represent their relationship
as any form of agency, partnership or joint venture. Neither Party shall
have any authority to bind the other or to act as an agent for the other
unless written authority, separate from this Agreement, is provided.
Nothing in the Agreement shall be construed as providing for the sharing
of profits or losses arising out of the efforts of either or both of the
Parties. Nothing herein shall be construed as making either Party
responsible or liable for the obligations and undertakings of the other
Party.
XXXI. COMPLETE TERMS
<PAGE>
PAGE 28
This Agreement, together with its exhibits constitutes the entire
agreement between the Parties and supersedes all prior discussions,
representations or oral understandings reached between the Parties.
The corresponding tariffs and this Agreement (including the exhibits)
contain all of the applicable rates and charges to be paid by the LSP to
SWBT in connection with SWBT's provision of telecommunications service
to LSP for Resale to its end user customers.
Neither Party shall be bound by any amendment, modification or
additional terms unless it is reduced to writing signed by an authorized
representative of the Party sought to be bound.
By their signatures in the space provided below, LSP and SWBT indicate
their acceptance of this Agreement. This agreement shall not bind LSP
and SWBT until executed by both Parties. This Agreement will be governed
by and interpreted in accordance with the laws of the State of Oklahoma.
<PAGE>
PAGE 29
THIS AGREEMENT CONTAINS A BINDING ARBITRATION AGREEMENT.
FEIST LONG DISTANCE SOUTHWESTERN BELL TELEPHONE
AECN/OCN: 7775 COMPANY
/s/ Todd Feist /s/ Dennis B. Eidson
-------------------- ---------------------------
Signature Signature
Todd Feist Dennis B. Eidson
-------------------- -----------------------------------------
Printed Name Printed Name
President General Manager-- Local Interconnection
-------------------- -----------------------------------------
Position/Title Position/Title
3-24-97 6/4/97
-------------------- -----------------------------------------
Date Date
<PAGE>
PAGE 29
THIS AGREEMENT CONTAINS A BINDING ARBITRATION AGREEMENT.
FEIST LONG DISTANCE SOUTHWESTERN BELL TELEPHONE
AECN/OCN: 7775 COMPANY
/s/ Todd Feist /s/ Dennis B. Edison
-------------------- ---------------------------
Signature Signature
TODD FEIST Dennis B. Edison
-------------------- ---------------------------
Printed Name Printed Name
President [Illegible]
-------------------- ---------------------------
Position/Title Position/Title
3-24-97 6/4/97
-------------------- ---------------------------
Date Date
<PAGE>
EXHIBIT A
Page 1 of 6
Southwestern Bell's Resale Telecommunications Services* List - Business
Oklahoma
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Business 1 Party 19.8% 19.8%
Business - Multi-Line Hunting 19.8% 19.8%
Semi Public Coin Telephone Service 19.8% 19.8%
Semi Public Coinless Telephone Service 19.8% 19.8%
Semi Public Coinless - Outward only 19.8% 19.8%
Semi Public Outgoing Only/1 Way Originating only 19.8% 19.8%
EXPANDED LOCAL CALLING
Expanded Local Calling (Mandatory) 19.8% 19.8%
Mandatory Extended Area Calling Service (EACS)- 1 19.8% 19.8%
Party
Mandatory EACS - Hotel/Motel Measured Trunk 19.8% 19.8%
Mandatory EACS - Multi-Line Hunting 19.8% 19.8%
Mandatory EACS - PBX Trunk 19.8% 19.8%
Mandatory EACS - Semi Public-1 Party 19.8% 19.8%
VERTICAL SERVICES
Auto Redial 19.8% 19.8%
Call Blocker 19.8% 19.8%
Call Forwarding 19.8% 19.8%
Call Forwarding - Busy Line 19.8% 19.8%
Call Forwarding - Busy Line/Don't Answer 19.8% 19.8%
Call Forwarding - Don't Answer 19.8% 19.8%
Call Return 19.8% 19.8%
Call Trace 19.8% 19.8%
Call Waiting 19.8% 19.8%
Calling Name 19.8% 19.8%
Calling Number 19.8% 19.8%
ComCall(R) 19.8% 19.8%
Personalized Ring (1 dependent number) 19.8% 19.8%
Personalized Ring (2 dependent numbers - 1st number) 19.8% 19.8%
Personalized Ring (2 dependent numbers - 2nd number) 19.8% 19.8%
Priority Call 19.8% 19.8%
Remote Access to Call Forwarding 19.8% 19.8%
Selective Call Forwarding 19.8% 19.8%
Simultaneous Call Forwarding 19.8% 19.8%
* Some services not available in all Areas.
Resale products available subject to state and federal rules, regulations and
tariffs.
<PAGE>
EXHIBIT A
Page 2 of 6
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
VERTICAL SERVICES (cont.)
Speed Calling 8 19.8% 19.8%
Speed Calling 30 19.8% 19.8%
Three Way Calling 19.8% 19.8%
DID
DID (First Block of 100 - Category 1) 19.8% 19.8%
DID (First Block of 10- Category 1) 19.8% 19.8%
DID (Ea. adl. block of 10 after first 10- Category 1) 19.8% 19.8%
DID (Ea. adl. block of 100 after first 100- Category 2) 19.8% 19.8%
DID (Ea. adl. block of 10 assigned over 1st 100 - 19.8% 19.8%
Category 2)
DID (with Multifrequency) 19.8% 19.8%
DID (with Dual-Tone Multifrequency) 19.8% 19.8%
DID (1st 10 Trunks or access lines) 19.8% 19.8%
DID (11th thru 50th trunk or network access line) 19.8% 19.8%
DID (51st trunk or network access line) 19.8% 19.8%
TRUNKS
Analog Trunks 19.8% 19.8%
Digital Trunks 19.8% 19.8%
AIN
Area Wide Networking 19.8% 19.8%
Caller Intellidat(R) 19.8% 19.8%
Disaster Routing Service 19.8% 19.8%
Intelligent Redirect(TM) 19.8% 19.8%
Positive ID 19.8% 19.8%
OTHER
Bundled Telecommunications Services (e.g., the Works) 19.8% 19.8%
Busy Out Arrangements 19.8% 19.8%
Customer Alerting Enablement 19.8% 19.8%
Grandfathered Services 19.8% 19.8%
Hot Line 19.8% 19.8%
Hunting 19.8% 19.8%
Local Operator Assistance Service 19.8% 19.8%
Night Number associated with Telephone Number 19.8% 19.8%
Night Number associated with a Terminal 19.8% 19.8%
Promotions (Greater than 90 days) 19.8% 19.8%
Telebranch(R) 19.8% 19.8%
Toll Restriction 19.8% 19.8%
* Some Services not available in all Areas.
<PAGE>
EXHIBIT A
Page 3 of 6
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
OTHER (cont.)
TouchTone 19.8% 19.8%
Voice Dial 19.8% 19.8%
Warm Line 19.8% 19.8%
ISDN
Circuit Switched Video/Circuit Switched Data 19.8% 19.8%
Select Video Plus(R) 19.8% 19.8%
Smart Trunk(TM) 19.8% 19.8%
DIRECTORY ASSISTANCE SERVICES 19.8% 19.8%
TOLL
900 Call Restriction 19.8% 19.8%
IntraLATA MTS 19.8% 19.8%
MaxiMizer 800(R) 19.8% 19.8%
OutWATS 19.8% 19.8%
Toll Billing Exception 19.8% 19.8%
800 Service 19.8% 19.8%
OPTIONAL TOLL CALLING PLANS
1+ SAVER(TM) 19.8% 19.8%
1+ SAVER Direct(TM) 19.8% 19.8%
Circle Saver 19.8% 19.8%
Corridor Optional Saver 19.8% 19.8%
Extended Community Saver 19.8% 19.8%
PLEXAR(R)
Plexar I(R) 19.8% 19.8%
Plexar II(R) 19.8% 19.8%
Plexar Custom(1) Variable Variable
- ----------
(1) The Resale Discount cannot be set such that SWBT provides Plexar Custom
below underlying costs.
*Some Services not available in all Areas.
<PAGE>
EXHIBIT A
Page 4 of 6
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
PRIVATE LINE
Analog Private Lines 19.8% 19.8%
Automated Distribution Services 19.8% 19.8%
Digital Loop Service 19.8% 19.8%
Foreign Exchange Service 19.8% 19.8%
Foreign Serving Office 19.8% 19.8%
Frame Relay 19.8% 19.8%
Group Alerting Services 19.8% 19.8%
MegaLink I(R) 19.8% 19.8%
MegaLink II(R) 19.8% 19.8%
MegaLink III(R) 19.8% 19.8%
MicroLink I(R) 19.8% 19.8%
MicroLink II(R) 19.8% 19.8%
MultiPoint Video 19.8% 19.8%
Service Loop Facility Modification Service 19.8% 19.8%
* Some Services not available in all Areas.
<PAGE>
EXHIBIT A
Page 5 of 6
Southwestern Bell's Resale Telecommunications Services* List - Residence
Oklahoma
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Life Line and Link Up America Services 19.8% 19.8%
Residence 1 Party 19.8% 19.8%
Residence Measured 19.8% 19.8%
EXPANDED LOCAL CALLING
Expanded Local Calling (Mandatory) 19.8% 19.8%
Mandatory Extended Area Calling Service (EACS)- 1 19.8% 19.8%
Party
Mandatory EACS - One element measured, 1 Party 19.8% 19.8%
VERTICAL SERVICES
Auto Redial 19.8% 19.8%
Call Blocker 19.8% 19.8%
Call Forwarding 19.8% 19.8%
Call Forwarding - Busy Line 19.8% 19.8%
Call Forwarding - Busy Line/Don't Answer 19.8% 19.8%
Call Forwarding - Don't Answer 19.8% 19.8%
Call Return 19.8% 19.8%
Call Trace 19.8% 19.8%
Call Waiting 19.8% 19.8%
Calling Name 19.8% 19.8%
Calling Number 19.8% 19.8%
ComCall(R) 19.8% 19.8%
Personalized Ring (1 dependent number) 19.8% 19.8%
Personalized Ring (2 dependent numbers -1st number) 19.8% 19.8%
Personalized Ring (2 dependent numbers -2nd number) 19.8% 19.8%
Priority Call 19.8% 19.8%
Remote Access to Call Forwarding 19.8% 19.8%
Selective Call Forwarding 19.8% 19.8%
Simultaneous Call Forwarding 19.8% 19.8%
Speed Calling 8 19.8% 19.8%
Three Way Calling 19.8% 19.8%
DIRECTORY ASSISTANCE SERVICES 19.8% 19.8%
* Some Services not available in all Areas.
<PAGE>
EXHIBIT A
Page 6 of 6
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
ISDN 19.8% 19.8%
OTHER
Bundled Telecommunications Services (e.g., the Works) 19.8% 19.8%
Customer Alerting Enablement 19.8% 19.8%
Grandfathered Services 19.8% 19.8%
Hot Line 19.8% 19.8%
Local Operator Assistance Service 19.8% 19.8%
Promotions (Greater than 90 days) 19.8% 19.8%
Preferred Number Service 19.8% 19.8%
Toll Restriction 19.8% 19.8%
TouchTone 19.8% 19.8%
Voice Dial 19.8% 19.8%
Warm Line 19.8% 19.8%
TOLL
900/976 Call Restriction 19.8% 19.8%
Home 800(TM) 19.8% 19.8%
IntraLATA MTS 19.8% 19.8%
Toll Billing Exception 19.8% 19.8%
OPTIONAL TOLL CALLING PLANS
1+ SAVER(TM) 19.8% 19.8%
1+ SAVER Direct(TM) 19.8% 19.8%
Circle Saver 19.8% 19.8%
Corridor Optional Saver 19.8% 19.8%
Extended Community Saver 19.8% 19.8%
* Some Services not available in all Areas.
<PAGE>
EXHIBIT B
Page 1 of 1
Southwestern Bell's Resale Other Services* List
Oklahoma
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
Additional Directory Listings 19.8% 19.8%
Bill Plus 5% 5%
Consolidated Billing 5% 5%
Access Services 0% 0%
Wireless Carrier Interconnection Services 0% 0%
Company Initiated Suspension Service 0% 0%
Construction Charges 0% 0%
Customer Initiated Suspension Service 0% 0%
Exchange Connection Service 0% 0%
Connections with Terminal Equipment and 0% 0%
Communications
Equipment
Maintenance of Service Charges 0% 0%
Telecommunications Service Priority Systems 0% 0%
* Some Services not available in all Areas.
Resale products available subject to state and federal rules, regulations and
tariffs.
<PAGE>
EXHIBIT C
Page 1 of 1
APPENDIX RESALE
OKLAHOMA
OS/DA PRICING - BRANDING, RATE & REFERENCE
The following rates will apply for each service element:
- --------------------------------------------------------------------------------
A. CALL BRANDING
An initial non-recurring charge applies per trunk group for
the establishment of LSP specific Call Branding. A Per Call
charge also applies. When there are subsequent changes to
the branding announcement, an additional non-recurring
charge will also apply per change.
Rate per initial load group $2700.00
Rate per load for Brand change $2700.00
Per Call $ 0.02
- --------------------------------------------------------------------------------
B. DIRECTORY ASSISTANCE RATE/REFERENCE INFORMATION
An initial non-recurring charge applies for the initial load
of LSP's DA Services Rate/Reference Information. An
additional non-recurring charge applies for each subsequent
change to Rate/Reference Information.
Rate per initial load $4250.00
Rate per subsequent rate change $3050.00
Rate per subsequent reference change $3050.00
- --------------------------------------------------------------------------------
C. OPERATOR SERVICES RATE/REFERENCE INFORMATION
An initial non-recurring charge applies for the initial load
of LSP's Operator Services Rate/Reference Information. An
additional non-recurring charge applies for each subsequent
change to Rate/Reference Information.
Rate per initial load $4250.00
Rate per subsequent rate change $3050.00
Rate per subsequent reference change $3050.00
- --------------------------------------------------------------------------------
<PAGE>
[Kansas]
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND FEIST LONG DISTANCE
TABLE OF CONTENTS
I. DESCRIPTION AND CHARGES FOR SERVICES ........................... 1
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES .................... 1
A. Permitted Use of Resold Services by LSP and Its End Users 2
B. Use of SWBT Trademarks ................................... 3
C. Network and Service Order Conditions ..................... 3
III. ADDITIONAL SERVICES ............................................ 4
A. 911/E911 ................................................. 4
B. Dialing Parity ........................................... 5
C. White Page Directories: Listings, Distribution and
Information Page ......................................... 5
D. Directory Assistance (DA) ................................ 6
E. Operator Services (OS) ................................... 7
IV. RESPONSIBILITIES OF SWBT ....................................... 7
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES ..................... 8
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS ....................... 9
VII. ADDITIONAL RESPONSIBILITIES OF LSP ............................. 10
A. Payment of Rates and Charges ............................. 10
B. Interfaces with SWBT ..................................... 11
C. Repair Contact Arrangements .............................. 11
D. LSP Operating Company Number (0CN) ....................... 11
E. Special Service Arrangements ............................. 11
F. DA/OS Branding ........................................... 11
VIII. NONEXCLUSIVITY ................................................. 12
IX. SUPPORT SYSTEMS SERVICES ....................................... 12
A. Support Systems Services ................................. 12
B. Network Management Controls .............................. 14
C. Law Enforcement and Civil Process ........................ 14
D. Usage Data ............................................... 15
X. CALL TRACE ..................................................... 15
<PAGE>
XI. TAXES ........................................................... 15
XII. TERMINATION OF SERVICE TO LSP ................................... 15
XIII. FORCE MAJEURE ................................................... 17
XIV. LIMITATION OF LIABILITY ......................................... 17
XV. NONDISCLOSURE ................................................... 18
XVI. PUBLICITY ....................................................... 19
XVII. ASSIGNMENT ...................................................... 19
XVIII. DISPUTE RESOLUTION .............................................. 19
A. Finality of Disputes ..................................... 19
B. Alternative to Litigation ................................. 20
XIX. VERIFICATION REVIEWS ............................................ 21
XX. COMPLIANCE WITH LAWS ............................................ 22
XXI. CERTIFICATION REQUIREMENTS ...................................... 23
XXII. EFFECT OF OTHER AGREEMENTS ...................................... 24
XIII. NOTIFICATION .................................................... 24
XXIV. NOTICES ......................................................... 24
XXV. BENEFICIARIES ................................................... 24
XXVI. TERM ............................................................ 25
XXVII. EFFECTIVE DATE .................................................. 25
XXVIII. WAIVER .......................................................... 25
XXIX. DISCLAIMER OF WARRANTIES ........................................ 25
XXX. RELATIONSHIP OF THE PARTIES ..................................... 25
XXXI. COMPLETE TERMS .................................................. 26
<PAGE>
PAGE 1
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND
FEIST LONG DISTANCE
This Agreement is between Southwestern Bell Telephone Company ("SWBT"),
a Missouri corporation, and Feist Long Distance ("LSP") (collectively, the
"Parties") entered into this_______ day of ___________, 1997.
WHEREAS, pursuant to the Telecommunications Act of 1996 (the "Act"), the
Parties wish to establish terms for the purchase by LSP of certain SWBT retail
telecommunications services and certain other services for resale by LSP to its
local exchange end users in the State of Kansas. Therefore, the Parties hereby
agree as follows:
I. DESCRIPTION AND CHARGES FOR SERVICES
The services available to LSP for resale and the discounts for such
services are identified in Attachments A and B. Furthermore, to the
extent that a federal or state regulatory agency adopts a final order
establishing wholesale discounts under 252(d)(3) of the
Telecommunications Act, which is not stayed and which directs SWBT to
apply state-specific wholesale discount percentages which are different
from those incorporated within this Agreement, either Party shall have
the option of converting to that discount level upon ten (10) days'
written notice to the other Party.
LSP may offer to resell Customer Initiated Suspension and Restoral
Service to their end users as outlined in the corresponding retail
tariff. SWBT will offer to LSP Company Initiated Suspension Service for
their own purposes at the SWBT retail tariffed rate. Should LSP choose
to suspend their end user through Company Initiated Suspension Service,
this suspension period shall not exceed fifteen (15) calendar days. If
LSP issues a disconnect on their end user account within the fifteen
(15) day period, appropriate services will not be billed for the
suspension period. However, should LSP issue a disconnect after the
fifteen (15) day suspension period, LSP will be responsible for all
appropriate charges on the account back to the suspension date. Should
LSP restore their end user, restoral charges at the SWBT retail tariffed
rate will apply and LSP will be billed for the appropriate service from
the time of suspension.
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES
The following terms and conditions are applicable to all services
purchased under this Agreement.
<PAGE>
PAGE 2
A. Permitted Use of Resold Services by LSP and Its End Users
1. For services included in this Agreement, which are
offered through tariffs by SWBT to its end users, the
rules and regulations associated with the applicable
State General Exchange Tariff, Local Exchange Service
Tariff, and the other tariffs for the resold service
(such tariffs collectively referred to herein as
"corresponding tariffs"), apply except as otherwise
provided herein.
2. LSP shall only sell Plexar(R) services to a single end
user.
3. Except where otherwise explicitly provided in the
corresponding tariffs, LSP shall not permit the sharing
of a service or services by multiple end users or the
aggregation of traffic from multiple end users onto a
single service.
4. LSP shall only resell services purchased under this
Agreement to the same class of end users to whom SWBT
sells such services (e.g. residence service shall not be
resold to business end users). LSP may only resell
Lifeline Assistance, Link-Up, and other like services to
similarly situated customers who are eligible for such
services. Further, to the extent LSP resells services
that require certification on the part of the buyer, LSP
will ensure that the buyer has received proper
certification and complies with all rules and
regulations as established by the Commission.
5. SWBT promotions of ninety (90) days or less shall not be
available to LSP for resale.
6. LSP shall not use a resold service to avoid the rates,
terms and conditions of SWBT's corresponding tariffs.
7. LSP shall not use resold local exchange telephone
service to provide access or interconnection services to
itself, interexchange carriers (IXCs), wireless
carriers, competitive access providers (CAPs), or other
telecommunications providers. Provided however, that LSP
may permit its end users to use resold local exchange
telephone service to access IXCs, wireless carriers,
CAPs, or other retail telecommunications providers.
8. If LSP is in violation of a provision of this Agreement,
SWBT shall notify LSP of the violation in writing of the
specific provision being violated. At such time, LSP
shall have thirty (30) days to correct the violation and
notify SWBT in writing that the violation has been
<PAGE>
PAGE 3
corrected. SWBT shall then bill LSP for the charges
which should have been collected by SWBT or the actual
revenues collected by LSP from its end users for the
stated violation, whichever is greater. If LSP disputes
the violation, it shall notify SWBT in writing within
fourteen (14) days of receipt of notice from SWBT.
Disputes shall be resolved as outlined in the Dispute
Resolution section of the Agreement.
9. An End User Common Line (EUCL) charge will continue to
apply for each local exchange line resold under this
Agreement. All federal rules and regulations associated
with EUCL charges, as found in Tariff FCC 73, also
apply.
10. To the extent allowable by law, LSP shall be responsible
for Primary Interexchange Carrier (PIC) change charges
associated with such local exchange line. LSP shall pay
for PlC changes at the tariffed rate.
11. SWBT is not required to make services available for
resale at wholesale rates to LSP for its own use. SWBT,
however, shall at its option agree to allow LSP to
purchase SWBT's Telecommunications Services and other
services available for resale as outlined in the
exhibits to this Agreement, as long as said services are
not resold exclusively or predominately to LSP, its
subsidiaries, or affiliates.
B. Use of SWBT Trademarks
Except where otherwise required by law, LSP shall not, without
SWBT's written authorization, offer the services covered by this
Agreement using the trademarks, service marks, trade names,
brand names, logos, insignia, symbols or decorative designs of
SWBT or its affiliates. Nor shall LSP state or imply that there
is any joint business association or similar arrangement with
SWBT in the provision of telecommunications services to LSP's
own end users. LSP may brand services included in this Agreement
with its own brand name, but SWBT shall not be responsible for
providing such branding.
C. Network and Service Order Conditions
I. SWBT shall provide the services covered by this
Agreement subject to availability of existing facilities
and on a nondiscriminatory basis with its other
customers. LSP shall resell the services provided herein
only in those service areas in which such resale
services or
<PAGE>
PAGE 4
any feature or capability thereof are offered at retail
by SWBT as the incumbent local exchange carrier to its
end users.
2. When LSP converts an end user currently receiving
noncomplex service from the SWBT network, without any
changes to SWBT's network, LSP will be charged a per
order (i.e., per billable telephone number) conversion
charge of twenty-five dollars ($25.00) in Kansas.
Conversion orders processed and completed electronically
will be charged five dollars ($5.00) per order on an
interim basis. Complex orders will be charged at a rate
of one hundred twenty-five dollars ($125.00). Custom
Services conversions (e.g. Plexar Custom) will be
handled on a Customer Specific Proposal basis.
When LSP converts an end user and adds or changes are
made to the network, the respective conversion charge
will apply, as well as any normal service order charges
associated with said changes. All nonrecurring service
connection charges, excluding the conversion charge
mentioned above, will be charged at a discount for those
services listed in Exhibits A and B.
3. For the purposes of ordering new service under this
Agreement, each request for service shall be handled as
a separate and initial request for service per billable
telephone number. The additional line rate for Service
Order Charges shall apply only to those requests for
additional residential service at the end user's same
location where a residential line is currently provided
on SWBT's network, regardless of the nonfacilities based
local service provider of record.
4. For purposes of this section, service orders for LSPs
shall be handled in the same fashion as SWBT requires
for its end users.
III. ADDITIONAL SERVICES
A. 911/E911
1. Access to the 911 or E911 service, available to SWBT
end users in the area(s) served by LSP, shall be made
available to LSP's end users.
2. LSP shall be responsible for collecting and remitting
all applicable 911 surcharges on a per line basis to the
Public Safety Answering Point (PSAP).
<PAGE>
PAGE 5
3. When requested by SWBT, LSP shall timely provide
accurate and complete information on each of LSP's end
users as needed for the provisioning of 911 service to
LSPs end users. Such information shall be in a format
determined by SWBT.
B. Dialing Parity
1. Local Dialing Parity
SWBT agrees that local dialing parity shall be available
to LSP. That is, end users of SWBT and end users of LSP
shall have the same exchange boundaries, such end users
shall be able to dial the same number of digits when
making a "local" call.
2. IntraLATA Toll Dialing Parity.
SWBT agrees to make intraLATA toll dialing parity
available in accordance with Section 251(b)(3) of the
Telecommunications Act of 1996.
C. White Page Directories: Listings, Distribution and Information
Page
1. At LSP's request, SWBT shall provide nondiscriminatory
access to White Pages directory listing and distribution
services under the terms and conditions described
herein:
a) SWBT shall provide, at no additional charge, a
straight line listing in the appropriate SWBT
white pages for each of LSP's local exchange
service end users. Subscriber listing
information shall, however, remain the property
of SWBT.
b) Additional Listing Services (e.g., foreign and
signature listings) can be purchased by LSP for
its end users on a per listing basis. LSP shall
pay SWBT for all such listings provided to LSP's
end users. The discounts applicable to Listing
Services are contained in Exhibits A and B to
this Agreement.
c) LSP end users shall be entitled to one directory
per basic residential or business line provided
by SWBT pursuant to this Agreement.
d) SWBT, or its agents shall deliver a White Pages
Directory to LSP end user's premises at the same
time that such directories are delivered to SWBT
end users. If an LSP's
<PAGE>
PAGE 6
end user already has a current SWBT directory,
SWBT shall not be required to deliver a new
directory to that end user until the new
directories are published for that end user's
location.
e) LSP hereby releases SWBT from any and all
liability for damages due to errors or omissions
in LSP's subscriber listing information as it
appears in the White Pages directory, including
but not limited to, special, indirect,
consequential, punitive or incidental damages.
To the extent LSP reimburses its end user
subscriber any listing charge due to errors or
omissions caused directly by SWBT, SWBT shall
reimburse LSP any associated wholesale rate.
f) LSP shall indemnify, protect, save harmless and
defend SWBT (or SWBT's officers, employees,
agents, assigns, and representatives) from and
against any and all losses, liability, damages
and expense arising out of any demand, claim,
suit, or judgment by a third party in any way
related to any error or omission in LSP's
subscriber listing information as it appears in
the White Pages directory, including any error
or omission related to nonpublished or nonlisted
subscriber listing information, provided,
however, LSP shall not be required to indemnify
SWBT for gross negligence or willful misconduct.
LSP shall so indemnify regardless of whether the
demand, claim, or suit by the third party is
brought jointly against LSP and SWBT, and/or
against SWBT alone.
2. Information Page
a) At LSP's request, SWBT shall include in the
"Informational Page" section of SWBT's White
Pages directory, for those geographical areas in
which LSP provides local exchange services,
LSP's customer contact information regarding
emergency services, billing and service
information, repair services and other pertinent
information similar to that provided by SWBT in
its "Informational Pages." Such information
shall be included on the same page with other
LSP information.
b) At LSP's option, LSP shall be provided a single
"Informational Page" (one side of one page) in
the informational section of the White Pages
directory covering a geographic area where an
LSP provides local exchange
<PAGE>
PAGE 7
service. This page shall be no different in
style, size, color and format than SWBT
"Informational Pages." Sixty (60) days prior to
the directory close date, LSP shall provide to
SWBT the "Informational Page" in the form of
camera-ready copy. The charges associated with
this service vary from geographic market to
market, and are charged outside this Agreement.
D. Directory Assistance (DA)
SWBT shall provide access to DA to LSP's end users. LSP shall
pay the charges associated with the use of such services by
LSP's end users. The discounts applicable to such services are
contained in Exhibits A and B, which is attached hereto and made
a part hereof.
E. Operator Services (OS)
1. SWBT shall provide access to Operator Services to LSP's
end users. LSP shall pay the charges associated with the
use of such services by LSP's end users. The discounts
applicable to such services are contained in Exhibits A
and B, which is attached hereto and incorporated by
reference.
2. SWBT shall provide Line Status Verification and Busy
Line Interrupt on calls made on SWBT's network to LSP
end users. LSP shall pay SWBT associated charges when
its end users request such services, with discounts to
apply as listed in Exhibits A and B.
IV. RESPONSIBILITIES OF SWBT
A. SWBT shall allow LSP to place service orders and receive phone
number assignments (for new lines). These activities shall be
accomplished by telephone call or facsimile until electronic
interface capability has been established. SWBT, with input from
LSP, shall provide interface specifications for electronic
access for these functions to LSP once such electronic
interfaces become technically feasible and are in place.
However, LSP shall be responsible for modifying and connecting
any of its systems with SWBT provided interfaces when such
interfaces become available, as outlined in Appendix OSS.
B. SWBT shall implement LSP service orders within the same time
intervals SWBT uses to implement service orders for similar
services for its own end users.
<PAGE>
PAGE 8
C. LSP will have the ability to report trouble for its end users to
appropriate SWBT trouble reporting centers 24 hours a day, 7
days a week. LSP will be assigned a customer contact center when
initial service agreements are made. LSP end users calling SWBT
may be referred to LSP at the number provided by LSP.
Methods and procedures for ordering and trouble reporting are
outlined in the Handbook for Non-Switched Based Providers dated
11/15/95, as amended by SWBT from time to time. Both parties
agree to abide by the procedures contained therein.
D. On no less than sixty (60) days advance written notice, LSP may
request SWBT to make certain usage information available to LSP
on a daily basis in a standard electronic format. The
information will consist of usage sensitive charges SWBT will
bill to LSP arising out of the use of resold lines. LSP agrees
to pay SWBT three tenths of a cent ($.003) per message for this
service, plus other charges outlined in Appendix OSS
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES
Cooperation on Fraud
SWBT shall not be liable to LSP for any fraudulent usage on LSP's end
users' accounts.
The Parties agree to cooperate with one another to investigate, minimize
and take corrective action in cases of fraud. The Parties' fraud
minimization procedures are to be cost effective and implemented so as
not to unduly burden or harm one Party as compared to the other.
At a minimum, such cooperation shall include providing to the other
Party, upon request, information concerning end users who terminate
services to that Party without paying all outstanding charges, when such
end user seeks service from the other Party. The Party seeking such
information is responsible for securing the end user's permission to
obtain such information.
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS
A. Prior to submitting an order under this Agreement, LSP shall
obtain end user authorization as required by applicable state or
federal laws and regulations, and assumes responsibility for
applicable charges as specified in Section 258(b) of the
Telecommunications Act of 1996. SWBT shall abide by the same
applicable laws and regulations.
<PAGE>
PAGE 9
B. Only an end user can initiate a challenge to a change in its
local exchange service provider. If an end user notifies SWBT or
LSP that the end user requests local exchange service, the Party
receiving such request shall be free to immediately provide
service to such end user. SWBT shall be free to connect the end
user to any local service provider based upon the local service
provider's request and local service provider's assurance that
proper end user authorization has been obtained. LSP shall make
authorization available to SWBT upon request and at no charge.
C. When an end user changes or withdraws authorization, each Party
shall release customer-specific facilities in accordance with
the end user customer's direction or the direction of the end
user's authorized agent. Further, when an end user abandons the
premise, SWBT is free to reclaim the facilities for use by
another customer and is free to issue service orders required to
reclaim such facilities.
D. Neither Party shall be obligated by this Agreement to
investigate any allegations of unauthorized changes in local
exchange service (slamming) on behalf of the other Party or a
third party. If SWBT, on behalf of LSP, agrees to investigate an
alleged incidence of slamming, SWBT shall charge LSP a fifty
dollar ($50) investigation fee.
E. When SWBT receives an order from LSP for services under this
Agreement and SWBT is currently providing the same services to
another local service provider for the same end user, SWBT shall
notify the end user's local service provider of record of such
order coincident with processing the order. It shall then be the
responsibility of the local service provider of record and LSP
to resolve any issues related to the end user. This paragraph
shall not apply to new additional lines and services purchased
by an end user from multiple LSPs or from SWBT.
F. On no less than sixty (60) days notice, LSP may request the
Local Disconnect Report. SWBT agrees to furnish to LSP the
Billing Telephone Number (BTN), Working Telephone Number (WTN),
and terminal number of all end users who have disconnected LSP's
service. LSP understands and agrees that the CARE interface will
be used to provide such information and such information will
only be available via the CARE electronic data transmission.
Information will be provided on a per-WTN basis to be priced on
a per-WTN basis. SWBT will provide LSP no less than thirty (30)
days notice prior to any change of the per-WTN charge. SWBT
grants to LSP a non-exclusive right to use the information
provided by SWBT. LSP will not permit anyone but its duly
authorized employees or agents to inspect or use this
information. LSP agrees to pay SWBT ten cents ($0.10) per WTN
and any applicable transmission charges for the Local Disconnect
Report.
<PAGE>
PAGE 10
G. The LSP agrees to hold harmless and indemnify SWBT against any
and all liability and claims, including reasonable attorney's
fees, that may result from SWBT acting under this Article.
H. Nothing herein shall be interpreted to apply to conversion of
LSP end users pursuant to Article XII. (Termination of Service
to LSP).
VII. ADDITIONAL RESPONSIBILITIES OF LSP
A. Payment of Rates and Charges
1. LSP is solely responsible for the payment of charges for
all services furnished under this Agreement including,
but not limited to, calls originated or accepted at
LSP's location and its end users' service locations,
with the exception of any retail services provided
directly by SWBT to the end user which SWBT shall be
responsible for billing.
Interexchange carried traffic (e.g., sent-paid,
information services and alternate operator services
messages) received by SWBT for billing to resold
end-user accounts will be returned as unbillable and
will not be passed on to LSP for billing. An unbillable
code returned with those messages to the carrier will
indicate that the messages originated from a resold
account and will not be billed by SWBT.
2. SWBT shall not be responsible for the manner in which
the use of resold service, or the associated charges are
allocated to others by LSP. All applicable rates and
charges for such services will be billed to and shall be
the responsibility of LSP, with the exception of retail
services provided directly to the end user by SWBT as
described in paragraph 1 above.
3. Compensation for all services shall be paid by LSP
regardless of LSP's ability or inability to collect
charges from its end user for such service.
4. If LSP does not wish to be responsible for collect,
third number billed, toll, and information services
(e.g., 900) calls, it must order the appropriate
blocking for resold lines under this Agreement and pay
any applicable charges. LSP acknowledges that blocking
is not available for certain types of calls, including
800 numbers.
B. Interfaces with SWBT
<PAGE>
PAGE 11
LSP shall be responsible for modifying and connecting any of its
systems with SWBT-provided interfaces as described in this
Agreement.
C. Repair Contact Arrangements
LSP shall be responsible for providing to its end users and to
SWBT a telephone number or numbers that LSP's end users can use
to contact LSP in the event of service or repair requests. In
the event that LSP's end users contact SWBT with regard to such
requests, SWBT shall inform the end user that they should call
LSP and may provide LSP contact number.
D. LSP Operating Company Number (0CN)
For the purposes of establishing service and providing efficient
and consolidated billing to the LSP, the LSP is required to
provide SWBT its authorized and nationally recognized OCN.
E. Special Service Arrangements
For special service arrangements for LSP not covered under this
Agreement, special charges shall apply as provided in the
applicable corresponding tariffs.
F. Development of Branding and Customized Routing for Directory
Assistance and Operator Services
1. Requirements - Pursuant to ss. 226 (b) of The
Telecommunications Act of 1996, each provider of
Operator Services is required to:
a) provide its brand at the beginning of each
telephone call and before the consumer incurs
any charge for the call; and
b) disclose immediately to the consumer, upon
request a quote of its rates or charges for the
call.
c) Where SWBT provides LSPs OS and DA services via
the same trunk, both the OS and DA calls will be
branded with the same brand. Since SWBT's DA and
OS utilize the same trunk group, LSP will
receive the same brand for both DA/OS. Such
branding will be provided pursuant Section 2.
below.
2. Call Branding - In compliance with F.1. above, SWBT will
brand DA/OS in LSP's name based upon the criteria
outlined below:
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PAGE 12
a) LSP will provide SWBT with written specification
of its company name to be used in creating LSP
specific branding messages for its DA/OS calls.
b) An initial non-recurring charge applies per load
for the establishment of Call Branding as well
as a charge per subsequent load to change the
brand. In addition, a per call charge applies
for every DA/OS call handled by SWBT on behalf
of LSP when such services are provided in
conjunction with resale services. Prices for
Call Branding are as outlined in Exhibit C,
attached hereto and incorporated herein.
3. Rate/Reference Information - SWBT will provide LSP DA/OS
Rate/Reference Information based upon the criteria
outlined below:
a) LSP will furnish DA/OS Rate and Reference
Information in a mutually agreed to format or
media thirty (30) days in advance of the date
when the DA/OS Services are to be undertaken.
b) LSP will inform SWBT, in writing, of any changes
to be made to such Rate/Reference Information
ten (10) working days prior to the effective
Rate/Reference change date. LSP acknowledges
that it is responsible to provide SWBT updated
Rate/Reference Information in advance of when
the Rates/Reference Information are to become
effective.
c) In all cases when a SWBT Operator receives a
rate request from a LSP end user, SWBT will
quote the applicable DA/OS rates as provided by
LSP.
d) An initial non-recurring charge will apply for
loading of LSP's DA/OS Rate/Reference
Information as well as a charge for each
subsequent change to either the LSP's DA/OS
Services Rate or Reference Information as
outlined in Exhibit C, attached hereto and
incorporated herein.
4. Customized Routing - SWBT shall also offer LSP the
opportunity to customize route DA/OS where technically
feasible. LSP agrees to pay SWBT appropriate charges
associated with customized routing on an ICB basis.
VIII. NONEXCLUSIVITY
This Agreement is nonexclusive. LSP acknowledges that SWBT will be
providing the same or similar services to other local services
providers in accordance with
<PAGE>
PAGE 13
negotiated agreements which will be filed with the appropriate state
commission(s). LSP also acknowledges that SWBT may, upon end user
request, provide any and all of the services provided to LSP under this
Agreement directly to the end users. SWBT acknowledges that LSP may
obtain the same or similar services from other local exchange companies.
IX. SUPPORT SYSTEMS SERVICES
A. Support Systems Services
1. Transfer of Service Announcements (Intercept)
The Party formerly providing service to an end user
shall provide a Basic Referral announcement,
reciprocally and free of charge on the abandoned
telephone number. The announcement states that the
called number has been disconnected or changed and
provides the end user's new telephone number to the
extent that it is listed. SWBT shall provide an
intercept referral on behalf of LSP to their end user as
indicated on the appropriate service order.
Basic Intercept Referral Announcements are to be
provided on residential numbers for a minimum of thirty
(30) days where facilities exist and the threat of
telephone number exhaustion is not imminent.
Basic Intercept Referral Announcements for a single line
business end users and the primary listed telephone
number for Direct Inward Dial (DID) and "Centrex-type"
end users, shall be available for a minimum of thirty
(30) days or the life of the white pages directory,
whichever is greater. If the threat of telephone number
exhaustion becomes imminent for a particular central
office, the service provider may reissue a disconnected
number prior to the expiration of the directory, but no
earlier than thirty (30) days after the disconnection of
the business telephone number.
2. Coordinated Repair Calls
SWBT shall be responsible for repairing its own network.
However, LSP shall maintain telephone numbers where its
end user may call to report instances of trouble.
The Parties shall employ the following procedures for
handling misdirected repair calls:
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PAGE 14
a. The Parties shall inform their respective end
users of the correct telephone numbers to call
to access their respective repair bureaus.
b. To the extent the correct provider can be
determined, each Party shall refer misdirected
repair calls to the proper provider of local
exchange service, at no charge, and shall
provide the end user the contact telephone
number provided by the other party.
In responding to repair calls, neither Party
shall make disparaging remarks about each other,
nor shall they use these repair calls as the
basis for internal referrals or to solicit
customers or to market services. Either Party
may respond with accurate information in
answering customer questions.
c. The Parties shall provide each other their
respective repair contact numbers.
B. Network Management Controls
Each Party shall provide a 24-hour contact number for Network
Traffic Management issues to the other. A FAX number must also
be provided to facilitate event notifications for planned mass
calling events. Additionally, both Parties agree that they shall
work cooperatively that all such events shall attempt to be
conducted in such a manner as to avoid degradation or loss of
service to other end users.
C. Law Enforcement and Civil Process
SWBT and LSP shall handle law enforcement requests as follows:
1) INTERCEPT DEVICES Local and federal law enforcement
agencies periodically request information or assistance
from local telephone service providers. When either
Party receives a request associated with an end user of
the other Party, it shall refer such request to the
appropriate Party, unless the request directs the
receiving Party to attach a pen register, trap and trace
or form of intercept on that Party's own facilities, in
which case that Party shall comply with any valid
request.
2) SUBPOENAS If a Party receives a subpoena for information
concerning an end user the Party knows to be an end user
of the other Party, it shall refer the subpoena to the
requesting entity with
<PAGE>
PAGE 15
an indication that the other Party is the responsible
company. Provided, however, if the subpoena requests
records for a period of time during which the receiving
Party was the end user's service provider, the receiving
Party will respond to any valid request.
3) EMERGENCIES If a Party receives a request from a law
enforcement agency for a temporary number change,
temporary disconnect or one way denial of outbound calls
for an end user of the other party, the receiving Party
will comply so long as it is a valid emergency request.
In the case of the LSP, the LSP shall refer such request
to SWBT and SWBT shall honor such request in accordance
with this paragraph. However, neither Party shall be
held liable for any claims or damages arising from
compliance with such requests, and the Party serving the
end user agrees to indemnify and hold the other Party
harmless against any and all such claims.
D. Usage Data
On no less than 60 days advance written notice, LSP may request
SWBT to make certain usage information available to LSP on a
daily basis via a mechanized feed. The information will consist
of usage sensitive charges SWBT will bill to LSP arising out of
the use of resold lines. LSP agrees to pay SWBT $.003 per
message for this service.
X. CALL TRACE
LSP end user's activation of Call Trace shall be handled by the SWBT
Call Trace Center (CTC) or its Annoying and Anonymous Call Bureau. SWBT
shall notify LSP of requests by its end users to provide the call
records to the proper authorities. Subsequent communication and
resolution of the case with LSP's end user (whether that end user is the
victim or the suspect) will be coordinated through the LSP.
LSP understands that for services where reports are provided to law
enforcement agencies (e.g., Call Trace) only billing number and address
information shall be provided. It shall be the LSP's responsibility to
provide additional information necessary for any police investigation.
LSP shall indemnify SWBT against any claims that insufficient
information led to inadequate prosecution.
XI. TAXES
LSP shall be responsible for all federal, state or local, sales, use,
excise or gross receipts taxes or fees imposed on or with respect to the
services provided under this Agreement including those taxes and fees
imposed on SWBT. LSP shall
<PAGE>
PAGE 16
reimburse SWBT for the amount of any such taxes or fees which SWBT is
required to pay or collect for services provided to LSP hereunder.
XII. TERMINATION OF SERVICE TO LSP
A. If LSP fails to pay when due, any and all charges billed to them
under this Agreement, including any late payment charges (Unpaid
Charges), and any portion of such charges remain unpaid more
than fifteen (15) days after the due date of such Unpaid
Charges, SWBT shall notify LSP in writing that in order to avoid
having service disconnected, LSP must remit all Unpaid Charges
to SWBT within fourteen (14) business days.
B. If LSP disputes the billed charges, it shall, within the
fourteen (14) day period provided for above, inform SWBT in
writing which portion of the charges it disputes, including the
specific details and reasons for its dispute; immediately pay to
SWBT all undisputed charges; and pay all disputed charges into
an interest bearing escrow account with a third party escrow
agent mutually agreed upon by the Parties.
C. Disputes hereunder shall be resolved in accordance with the
procedures identified in Article XVIII (Dispute Resolution).
Failure of LSP to pay charges deemed owed to SWBT after
conclusion of the Arbitration shall be grounds for termination
under this Article.
D. If any LSP charges remain unpaid or undisputed twenty-nine (29)
days past the due date, SWBT shall notify LSP, the Commission
and the end user's IXC(s) of Record in writing, that unless all
charges are paid within sixteen (16) days, LSP's service shall
be disconnected and its end users shall be switched to SWBT
local service. SWBT will also suspend order acceptance at this
time.
E. If any LSP charges remain unpaid or undisputed forty (40) days
past the due date, LSP shall, at its sole expense, notify its
end users, the Commission and the end user's of Record that
their service may be disconnected for LSP failure to pay Unpaid
Charges, and that its end users must select a new local service
provider within five (5) days. The notice shall also advise the
end user that SWBT will assume the end user's account at the end
of the five (5) day period should the end user fail to select a
new local service provider.
F. If any LSP charges remain unpaid or undisputed forty-five (45)
days past the due date, SWBT shall disconnect LSP and transfer
all LSP's end users who have not selected another local service
provider directly to SWBT's service. These end users shall
receive the same services provided through LSP at the time of
transfer. SWBT shall inform the Commission and the
<PAGE>
PAGE 17
end user's IXC(s) of Record of the names of all end users
transferred through this process. Applicable service
establishment charges for switching end users from LSP to SWBT
shall be assessed to LSP.
G. Within five (5) days of the transfer (50 days past ISP's due
date), SWBT shall notify all affected end users that because of
an LSP's failure to pay, their service is now being provided by
SWBT. SWBT shall also notify the end user that they have thirty
(30) days to select a local service provider.
H. SWBT may discontinue service to LSP upon failure to pay
undisputed charges as provided in this section, and shall have
no liability to LSP or LSP end users in the event of such
disconnection.
I. If any end user fails to select a local service provider within
thirty (30) days of the change of providers (80 days past LSP's
due date), SWBT shall terminate the end user's service. SWBT
shall notify the Commission and the end user's IXC of Record of
the names of all end users whose service has been terminated.
The end user shall be responsible for any and all charges
incurred during the selection period.
J. Nothing herein shall be interpreted to obligate SWBT to continue
to provide service to any such end users. Nothing herein shall
be interpreted to limit any and all disconnection rights SWBT
may have with regard to such end users.
K. After disconnect procedures have begun. SWBT shall not accept
service orders from LSP until all unpaid charges are paid. SWBT
shall have the right to require a deposit equal to one month's
charges (based on the highest previous month of service from
SWBT) prior to resuming service to LSP after disconnect for
nonpayment.
XIII. FORCE MAJEURE
Neither party shall be responsible for delays or failures in performance
resulting from acts or occurrences beyond the reasonable control of such
Party, regardless of whether such delays or failures in performance were
foreseen or foreseeable as of the date of this Agreement, including,
without limitation: fire, explosion, power failure, cable cuts, acts of
God, war, revolution, civil commotion, or acts of public enemies; any
law, order, regulation, ordinance or requirement of any government or
legal body; or labor unrest, including, without limitation, strikes,
slowdowns, picketing or boycotts; or delays caused by the other party or
by other service or equipment vendors; or any other circumstances beyond
the Party's reasonable control. In such event, the Party affected shall,
upon giving prompt notice to the other Party, be excused from such
performance on a day-to-day basis to the extent of such interference
(and the other Party shall likewise be excused from
<PAGE>
PAGE 18
performance of its obligations on a day-for-day basis to the extent such
Party's obligations relate to the performance so interfered with). The
affected party shall use its best efforts to avoid or remove the cause
of nonperformance and both parties shall proceed to perform with
dispatch once the causes are removed or cease.
XIV. LIMITATION OF LIABILITY
SWBT's liability, if any, for its gross negligence or willful misconduct
is not limited by its corresponding tariffs. With respect to any other
claim or suit, by a LSP or any others, for damages arising out of
mistakes, omissions, interruptions, delays or efforts, or defects in
transmission occurring in the course of furnishing service hereunder,
SWBT's liability, if any, shall not exceed an amount equivalent to the
proportionate charge to the LSP for the period of service during which
such mistake, omission, interruption, delay, error, or defect in
transmission or service occurs and continues. In no event shall SWBT be
responsible for any special, indirect, consequential or exemplary
damages. This liability shall be in addition to any amounts that may
otherwise be due to the LSP under corresponding tariffs as an allowance
for interruptions. However, any such mistakes, omissions, interruptions,
delays, errors, or defects in transmission or service which are caused
or contributed to by the negligence or willful act of the LSP or which
arise from the use of LSP-provided facilities or equipment shall not
result in the imposition of any liability whatsoever upon SWBT.
SWBT shall be indemnified and held harmless by the LSP against claims
and damages arising from provision of the LSP's services or equipment
except those directly associated with the provision of local service to
the LSP which is governed by corresponding tariffs.
SWBT shall be indemnified and held harmless from all claims and damages
arising from the discontinuance of service for nonpayment to SWBT by the
LSP. Notice of discontinuance shall be as specified in the Substantive
Rules of the State Commission.
SWBT shall have no liability to the end users of the LSP for claims
arising from the provision of the LSP's service to its end users
including, but not limited to, claims for interruption of service,
quality of service or billing disputes.
When the lines or services of other companies and carriers are used in
establishing connections to and/or from points not reached by SWBT's
lines, SWBT is not liable for any act or omission of the other companies
or carriers.
XV. NONDISCLOSURE
<PAGE>
PAGE 19
The Parties to this Agreement anticipate and recognize that they will
exchange or come into possession of data about each other's end users
and each other's business as a result of this Agreement which will be
designated as confidential by that Party. Each Party agrees (1) to treat
all such data as strictly confidential and (2) to use such data only for
purposes of performance under this Agreement. Each Party agrees not to
disclose data on the other Party's end users or business which has been
designated as confidential to any person without first securing the
written consent of the other Party. The foregoing shall not apply to
information which is in the public domain.
If a court or governmental agency orders or a third party requests a
Party to disclose or to provide any data or information covered by this
Section, that Party will immediately inform the other Party of the order
or request both by telephone and overnighted mail before disclosing the
data or information. Notification and consent requirements described
above are not applicable in cases where a court order requires the
production of toll billing records of an individual residence or
business end user customer.
This section will not preclude the disclosure by the Parties of
information or material described in this Section to consultants,
agents, or attorneys representing the respective Parties or the Office
of the Public Counsel for the state of Kansas, and state regulatory
commissions or staffs, or FCC Staff; provided that these third parties
are bound by the same or comparable confidentiality requirements as the
Parties to this Agreement. The provisions of this Section will remain in
effect notwithstanding the termination of this Agreement, unless agreed
to in writing by both Parties.
Pursuant to Section 222 of the Act, both Parties agree to limit their
use of proprietary information received from the other to the permitted
purposes identified in the Act.
XVI. PUBLICITY
The Parties agree not to use in any advertising or sales promotion,
press releases or other publicity matters any endorsements, direct or
indirect quotes, or pictures implying endorsement by the other Party or
any of its employees without such Party's prior written approval. The
Parties will submit to each other for written approval, prior to
publication, all publicity matters that mention or display one another's
name and/or marks or contain language from which a connection to said
name and/or marks may be inferred or implied.
XVII. ASSIGNMENT
Neither Party may assign, subcontract, or otherwise transfer its rights
or obligations under this Agreement except under such terms and
conditions as are
<PAGE>
PAGE 20
mutually acceptable to the other Party (e.g., a conversion charge will
apply per billable telephone number) and with such Party's prior written
consent, which consent shall not be unreasonably withheld. Assignment
without consent shall be grounds for immediate termination of this
Agreement.
XVIII. DISPUTE RESOLUTION
A. Finality of Disputes
No claims shall be brought for disputes arising from this
Agreement more than 24 months from the date of occurrence which
gives rise to the dispute. If any portion of an amount due to
SWBT under such agreement is subject to a bona fide dispute
between the Parties, LSP shall within fourteen (14) days of its
receipt of the invoice containing such disputed amount give
notice to SWBT of the amounts it disputes and include in such
notice the specific details and reasons for disputing each item.
LSP shall pay when due (i) all undisputed amounts to SWBT and
(ii) all Disputed Amounts into an interest bearing escrow
account with a third party escrow agent mutually agreed upon by
the Parties.
B. Alternative to Litigation
The Parties desire to resolve disputes arising out of this
Agreement without litigation. Accordingly, except for action
seeking a temporary restraining order or an injunction related
to the purposes of this Agreement, or suit to compel compliance
with this dispute resolution process, the Parties agree to use
the following alternative dispute resolution procedure as their
sole remedy with respect to any controversy or claim of $25,000
or less, arising out of or relating to this Agreement or its
breach. The procedures hereunder may be used with disputes for
$25,000 or more, if mutually agreeable to the Parties.
1. Resolution of Disputes Between Parties to the Agreement
At the written request of a Party, each Party will
appoint a knowledgeable, responsible representative to
meet and negotiate in good faith to resolve any dispute
arising under this Agreement. The location, form,
frequency, duration and conclusion of these discussions
shall be left to the discretion of the representatives.
Upon agreement, the representatives may utilize other
alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and
correspondence among the representatives for purposes of
settlement are exempt from discovery and production and
shall not be admissible in the arbitration described
below or in any lawsuit without the
<PAGE>
PAGE 21
concurrence of all Parties. Documents identified in or
provided with such communications, which are not
prepared for purposes of the negotiations, are not so
exempted and, if otherwise admissible, may be admitted
in evidence in the arbitration or lawsuit.
2. Arbitration
If the negotiations do not resolve the dispute within
thirty (30) days of the initial written request, the
dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. A Party
may demand such arbitration in accordance with the
procedures set out in those rules. Discovery shall be
controlled by the arbitrator and shall be permitted to
the extent set out in this section. Each Party may
submit in writing to a Party, and that Party shall so
respond, to a maximum of any combination of thirty-five
(35) (none of which may have subparts) of the following:
(a) Interrogatories
(b) Demands to produce documents
(c) Requests for admission
Additional discovery may be permitted upon mutual
agreement of the Parties. The arbitration hearing shall
be commenced within thirty (30) days of the demand for
arbitration. The arbitration shall be held in the city
where this Agreement was executed by SWBT. The
arbitrator shall control the scheduling so as to process
the matter expeditiously. The Parties shall submit
written briefs five days before the hearing. The
arbitrator shall rule on the dispute by issuing a
written opinion within twenty (20) days after the close
of hearings. The arbitrator has no authority to order
punitive or consequential damages. The times specified
in this section may be extended upon mutual agreement of
the Parties or by the arbitrator upon a showing of good
cause. Judgment upon the award rendered by the
arbitrator may be entered in any court having
jurisdiction.
3. Costs
Each Party shall bear its own costs of these procedures.
A Party seeking discovery shall reimburse the responding
Party the costs of production of documents (including
search time and reproduction costs). The Parties shall
equally split the fees of the arbitration and the
arbitrator.
<PAGE>
PAGE 22
XIX. VERIFICATION REVIEWS
Each Party to this Agreement will be responsible for the accuracy and
quality of its data as submitted to the respective Parties involved.
Upon reasonable written notice, each Party or its authorized
representative (providing such authorized representative does not have a
conflict of interest related to other matters before one of the Parties)
shall have the right to conduct a review and verification of the other
Party to give assurances of compliance with the provisions of this
Agreement. This includes on-site verification reviews at the other
Party's or the Party's vendor locations.
After the initial year of this Agreement verification reviews will
normally be conducted on an annual basis with provision for staged
reviews, as mutually agreed, so that all subject matters are not
required to be reviewed at the same time. Follow up reviews will be
permitted between annual reviews where significant deviations are found.
During the initial year of the Agreement more frequent reviews may
occur.
The review will consist of an examination and verification of data
involving records, systems, procedures and other information related to
the services performed by either Party as related to settlement charges
or payments made in connection with this Agreement as determined by
either Party to be reasonably required. Each Party, whether or not in
connection with an on-site verification review, shall maintain
reasonable records for a period of time no less than twenty-four (24)
months from the date such records are created and provide the other
Party with reasonable access to such information as is necessary to
determine amounts receivable or payable under this Agreement.
Each Party's right to access information for verification review
purposes is limited to data not in excess of 24 months in age. Once
specific data has been reviewed and verified, it is unavailable for
future reviews. Any items not reconciled at the end of a review will,
however, be subject to a follow-up review effort. Any retroactive
adjustments required subsequent to previously reviewed and verified data
will also be subject to follow-up review. Information of either Party
involved with a verification review shall be subject to the
nondisclosure terms of this Agreement.
The Party requesting a verification review shall fully bear its costs
associated with conducting the review. The Party being reviewed will
provide access to required information, as outlined in this Section, at
no charge to the reviewing Party. Should the reviewing Party request
information or assistance beyond that reasonably required to conduct
such a review, the Party being reviewed may, as its option, decline to
comply with such request or may bill actual costs incurred in complying
subsequent to the concurrence of reviewing Party.
<PAGE>
PAGE 23
XX. COMPLIANCE WITH LAWS
The Parties believe in good faith that the Services to be provided under
this Agreement satisfy the requirements of the Act. In the event a court
or regulatory agency of competent jurisdiction should determine that
modifications of this Agreement are required to bring the Services being
provided hereunder into compliance with the Act, the affected Party
shall promptly give the other Party written notice of the modifications
deemed required. Upon delivery of such notice, the Parties shall expend
diligent efforts to arrive at an agreement respecting such modifications
required, and if the Parties are unable to arrive at such agreement,
either Party may terminate this Agreement, without penalty, effective
the day the affected Party is ordered to implement the modifications
deemed required, or effective on the day either Party concludes and
gives notice that the Parties will not be able to arrive at any
agreement respecting such modifications, whichever date shall occur
earlier.
This Agreement is an integrated package that reflects a balancing of
interests critical to the Parties. It will be submitted to the
applicable state regulatory Commission and the FCC as a compliance
filing, and the Parties will specifically request that the applicable
state regulatory Commission and the FCC refrain from taking any action
to change, suspend or otherwise delay implementation of the Agreement.
In the event the Commission or the FCC rejects any portion or provision
of this Agreement or subsequently issues a ruling or order that results
in a provision being contrary to law, or is invalid for any reason, the
parties shall continue to be bound by the terms of this Agreement,
insofar as possible, except for the portion rejected or subsequently
determined to be unlawful, invalid, or unenforceable. In such event, the
Parties shall negotiate in good faith to replace the rejected, unlawful,
invalid, or unenforceable provision and shall not discontinue service to
the other Party during such period if to do so would disrupt existing
service being provided to an end user. So long as the Agreement remains
in effect, the Parties shall not advocate before any legislative,
regulatory, or other public forum that any terms of this specific
Agreement be modified or eliminated. Notwithstanding this mutual
commitment, however, the Parties enter into this Agreement without
prejudice to any positions they have taken previously, or may take in
the future in any legislative, regulatory, or other public forum
addressing any matters, including matters related to the types of
arrangements prescribed by this Agreement.
XXI. CERTIFICATION REQUIREMENTS
LSP warrants that it has obtained all certifications required in those
jurisdictions in which LSP has ordered services pursuant to this
Agreement. Subject to restrictions in Article II.A. (Permitted Use of
Resold Service by LSP and Its End Users), LSP covenants that any
originating service provider utilizing the resold services under this
Agreement has obtained all required certification. Upon
<PAGE>
PAGE 24
request by any governmental entity, the LSP is required to provide proof
of certification.
XXII. EFFECT OF OTHER AGREEMENTS
The Parties agree that pursuant to the requirements of the
Telecommunications Act of 1996, a Party shall treat the other Party no
less favorably than it treats similarly situated local service providers
with whom such Party has an operational interconnection or resale
agreement which has been approved by the State PUC or PSC. If either
Party enters into an agreement (the "Other Agreement") approved by the
Commission pursuant to Section 252 of the Act which provides for the
provision of arrangements covered in this Agreement to another
requesting Telecommunications Carrier, such Party shall make available
to the other Party such arrangements upon the same rates, terms and
conditions as those provided in the Other Agreement.
XXIII. NOTIFICATION
SWBT shall make telecommunications services that SWBT provides at retail
to subscribers who are not telecommunications carriers available for
resale consistent with its obligation under Section 251(c)(4)(a) of the
Telecommunications Act. The notification shall advise LSP of the
category in which such new service shall be placed and the same discount
already applicable to LSP in that category shall apply to the new
service.
SWBT currently uses the Accessible Letter process to notify LSP of such
changes to the services available for resale. Any change to the process
of notification to the LSP will provide no less notice than the current
Accessible Letter process.
XXIV. NOTICES
In the event any notices are required to be sent under the terms of this
Agreement, they shall be sent by registered mail, return receipt
requested to:
To LSP: To SWBT:
Todd Feist Debbie Watson
Feist Long Distance SWBT
110 S. Main, Suite 1000 One Bell Plaza, Room 522
Wichita, KS 67202 Dallas, TX 75202
XXV. BENEFICIARIES
This Agreement shall not provide any nonparty with any remedy, claim,
cause of action or other right.
<PAGE>
PAGE 25
XXVI. TERM
SWBT and LSP agree that the initial term of this Agreement shall be for
90 days, and thereafter the Agreement shall continue in force and effect
unless and until terminated as provided herein. Either Party may
terminate this Agreement by providing written notice of termination to
the other Party, at least 60 days in advance of the date of termination.
At the conclusion of the first term, this Agreement shall continue
without interruption unless terminated by either Party or superseded by
a new Agreement between the Parties. By mutual agreement, SWBT and LSP
may amend this Agreement to modify the term of this Agreement. Where LSP
has not made arrangements to provide service over its own facilities to
its end users, the notification and transfer of end user procedures
outlined in Article XII.D.-F. (Termination of service to LSP) shall
apply.
XXVII. EFFECTIVE DATE
The effective date of this Agreement shall be ten (10) days after the
date that the appropriate state regulatory Commission approves this
Agreement.
XXVIII. WAIVER
The failure of either Party to enforce or insist that the other party
comply with any of the terms or conditions of this Agreement, or the
waiver by either Party in a particular instance of any of the terms and
conditions of this Agreement, shall not be construed as a general waiver
or relinquishment of the terms and conditions, but the Agreement shall
be and remain at all times in full force and effect.
XXIX. DISCLAIMER OF WARRANTIES
SWBT MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR INTENDED OR PARTICULAR PURPOSE WITH RESPECT TO SERVICES
PROVIDED HEREUNDER. ADDITIONALLY, SWBT ASSUMES NO RESPONSIBILITY WITH
REGARD TO THE CORRECTNESS OF DATA OR INFORMATION SUPPLIED BY LSP WHEN
THIS DATA OR INFORMATION IS ACCESSED AND USED BY A THIRD PARTY.
XXX. RELATIONSHIP OF THE PARTIES
This Agreement shall not establish, be interpreted as establishing, or
be used by either Party to establish or to represent their relationship
as any form of agency, partnership or joint venture. Neither Party shall
have any authority to bind the other or to act as an agent for the other
unless written authority, separate from this
<PAGE>
PAGE 26
Agreement, is provided. Nothing in the Agreement shall be construed as
providing for the sharing of profits or losses arising out of the
efforts of either or both of the Parties. Nothing herein shall be
construed as making either Party responsible or liable for the
obligations and undertakings of the other Party.
XXXI. COMPLETE TERMS
This Agreement, together with its Attachments constitutes the entire
agreement between the Parties and supersedes all prior discussions,
representations or oral understandings reached between the Parties.
The corresponding tariffs and this Agreement (including the Attachments)
contain all of the applicable rates and charges to be paid by the LSP to
SWBT in connection with SWBT's provision of telecommunications service
to LSP for Resale to its end user customers.
Neither Party shall be bound by any amendment, modification or
additional terms unless it is reduced to writing signed by an authorized
representative of the Party sought to be bound.
By their signatures in the space provided below, LSP and SWBT indicate
their acceptance of this Agreement. This agreement shall not bind LSP
and SWBT until executed by both Parties. This Agreement will be governed
by and interpreted in accordance with the laws of the State of________.
<PAGE>
PAGE 27
THIS AGREEMENT CONTAINS A BINDING ARBITRATION AGREEMENT.
FEIST LONG DISTANCE SOUTHWESTERN BELL TELEPHONE
AECN/OCN: 7775 COMPANY
/s/ Todd Feist /s/ Ricardo Zamora
-------------------- ---------------------------
Signature Signature
TODD FEIST RICARDO ZAMORA
-------------------- ---------------------------
Printed Name Printed Name
President VP-Local Interconnection
-------------------- ---------------------------
Position/Title Position/Title
3-24-97 4/7/97
-------------------- ---------------------------
Date Date
<PAGE>
RESALE AGREEMENT (MO, KS, AR) - EXHIBIT A
PAGE 1 OF 2
SWBT/LSP
M307
Southwestern Bell's Resale Product* List - Residence
Kansas
AVOIDED COST DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Link Up America Service 14.9% 14.9%
Residence 1 Party 14.9% 14.9%
Res Flat Rate Trunks 14.9% 14.9%
EXPANDED LOCAL CALLING
Expanded Local Calling (Mandatory) 14.9% 14.9%
MetroPlus 14.9% 14.9%
CALL MANAGEMENT SERVICES
Auto Redial 14.9% 14.9%
Auto Redial - Usage Sensitive 14.9% 14.9%
Call Blocker 14.9% 14.9%
Call Forwarding 14.9% 14.9%
Call Forwarding - Busy Line 14.9% 14.9%
Call Forwarding - Busy Line/Don't Answer 14.9% 14.9%
Call Forwarding - Don't Answer 14.9% 14.9%
Call Return 14.9% 14.9%
Call Return - Usage Sensitive 14.9% 14.9%
Call Trace 14.9% 14.9%
Call Waiting 14.9% 14.9%
Calling Name 14.9% 14.9%
Calling Number 14.9% 14.9%
Personalized Ring (1 dependent number) 14.9% 14.9%
Personalized Ring (2 dependent numbers - 1st number) 14.9% 14.9%
Personalized Ring (2 dependent numbers - 2nd number) 14.9% 14.9%
Preferred Number Service 14.9% 14.9%
Priority Call 14.9% 14.9%
Remote Access to Call Forwarding 14.9% 14.9%
Selective Call Forwarding 14.9% 14.9%
Simultaneous Call Forwarding 14.9% 14.9%
Speed Calling 8 14.9% 14.9%
Three Way Calling 14.9% 14.9%
AIN
Selective Call Acceptance 14.9% 14.9%
* Some products not available in all areas.
Resale products available subject to state and federal rules, regulations, and
tariffs.
<PAGE>
RESALE AGREEMENT (MO, KS, AR) - EXHIBIT A
PAGE 2 OF 2
SWBT/LSP
M307
Southwestern Bell's Resale Product* List - Residence
Kansas
AVOIDED COST DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
DIRECTORY ASSISTANCE SERVICES 14.9% 14.9%
ISDN
Digiline (SM) 14.9% 14.9%
OTHER
Customer Alerting Enablement 14.9% 14.9%
Grandfathered Services 14.9% 14.9%
Hot Line 14.9% 14.9%
Hunting 14.9% 14.9%
Improved Data Transmission Service 14.9% 14.9%
Local Operator Assistance Service 14.9% 14.9%
Packages 14.9% 14.9%
Promotions (greater than 90 days) 14.9% 14.9%
Preferred Number Service 14.9% 14.9%
Second Line Control 14.9% 14.9%
Toll Restriction 14.9% 14.9%
TouchTone 14.9% 14.9%
Voice Dial 14.9% 14.9%
Warm Line 14.9% 14.9%
TOLL
900 Call Restriction 14.9% 14.9%
Home 800 (SM) 14.9% 14.9%
IntraLATA MTS 14.9% 14.9%
Toll Billing Exception 14.9% 14.9%
NON-TELECOMMUNICATION SERVICES
Bill Plus (SM) 14.9% 14.9%
Consolidated Billing 14.9% 14.9%
Company Initiated Suspension and Restoral Service 0.0% 0.0%
Customer Initiated Suspension and Restoral Service 0.0% 0.0%
Enhanced Directory Listings 14.9% 14.9%
* Some products not available in all areas.
Resale products available subject to state and federal rules, regulations, and
tariffs.
<PAGE>
RESALE AGREEMENT (MO, KS, AR) - EXHIBIT B
PAGE 1 OF 3
SWBT/LSP
M307
Southwestern Bell's Resale Product* List - Residence
Kansas
AVOIDED COST DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Business 1 Party 14.9% 14.9%
Business - Multi-Line 14.9% 14.9%
Business - Message Rate 1 Party 14.9% 14.9%
Semi Public Coin Telephone Service 14.9% 14.9%
Semi Public Coinless Telephone Service 14.9% 14.9%
Semi Public Coinless - Outward only 14.9% 14.9%
Semi Public Outgoing Only/1 Way Originating only 14.9% 14.9%
TRUNKS
Analog Trunk 14.9% 14.9%
DID 14.9% 14.9%
Digital Trunk 14.9% 14.9%
Hotel/Motel Message Trunks 14.9% 14.9%
EXPANDED LOCAL CALLING
Expanded Local Calling (Mandatory) 14.9% 14.9%
MetroPlus 14.9% 14.9%
CALL MANAGEMENT SERVICES
Auto Redial 14.9% 14.9%
Auto Redial - Usage Sensitive 14.9% 14.9%
Call Blocker 14.9% 14.9%
Call Forwarding 14.9% 14.9%
Call Forwarding - Busy Line 14.9% 14.9%
Call Forwarding - Busy Line/Don't Answer 14.9% 14.9%
Call Forwarding - Don't Answer 14.9% 14.9%
Call Return 14.9% 14.9%
Call Return - Usage Sensitive 14.9% 14.9%
Call Trace 14.9% 14.9%
Call Waiting 14.9% 14.9%
Calling Name 14.9% 14.9%
Calling Number 14.9% 14.9%
Personalized Ring (1 dependent number) 14.9% 14.9%
Personalized Ring (2 dependent numbers -1st number) 14.9% 14.9%
Personalized Ring (2 dependent numbers -2nd number) 14.9% 14.9%
Priority Call 14.9% 14.9%
Remote Access to Call Forwarding 14.9% 14.9%
Selective Call Forwarding 14.9% 14.9%
Simultaneous Call Forwarding 14.9% 14.9%
Speed Calling 30 14.9% 14.9%
Three Way Calling 14.9% 14.9%
* Some products not available in all areas.
Resale products available subject to state and federal rules, regulations and
tariffs
<PAGE>
RESALE AGREEMENT (MO, KS, AR) - EXHIBIT B
PAGE 2 OF 3
SWBT/LSP
M307
Southwestern Bell's Resale Product* List - Residence
Kansas
AVOIDED COST DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
DID (First Block of 100) 14.9% 14.9%
DID (First Block of 10) 14.9% 14.9%
DID (Ea. adl. block of 10 after first 10) 14.9% 14.9%
DID (Ea.adl. block of 100 after first 100) 14.9% 14.9%
DID (with dial pulse) 14.9% 14.9%
DID (with Multifrequency) 14.9% 14.9%
DID (with Dual-Tone Multifrequency) 14.9% 14.9%
AIN
Area Wide Networking 14.9% 14.9%
Caller lntellidata(R) 14.9% 14.9%
Disaster Routing Service 14.9% 14.9%
Intelligent Redirect(SM) 14.9% 14.9%
lntelliNumber (SM) 14.9% 14.9%
Positive ID 14.9% 14.9%
Selective Call Acceptance 14.9% 14.9%
OTHER
Busy Out Arrangement 14.9% 14.9%
Customer Alerting Enablement 14.9% 14.9%
Grandfathered Services 14.9% 14.9%
Foreign Exchange 14.9% 14.9%
Foreign Serving Office 14.9% 14.9%
Frame Relay 14.9% 14.9%
Hot Line 14.9% 14.9%
Hunting 14.9% 14.9%
Improved Data Transmission Service 14.9% 14.9%
Local Operator Assistance Service 14.9% 14.9%
MicroLink I(R) 14.9% 14.9%
Multi Pt. Video 14.9% 14.9%
Network Reconfiguration Service 14.9% 14.9%
Night Number associated with a Terminal 14.9% 14.9%
Night Number associated with Telephone Number 14.9% 14.9%
Packages 14.9% 14.9%
Promotions (greater than 90 days) 14.9% 14.9%
Telebranch(R) 14.9% 14.9%
Telephone Answering Secretarial 14.9% 14.9%
Toll Restriction 14.9% 14.9%
TouchTone (Business) 14.9% 14.9%
TouchTone (Trunk) 14.9% 14.9%
Voice Dial 14.9% 14.9%
Warm Line 14.9% 14.9%
* Some products not available in all areas.
Resale products available subject to state and federal rules, regulations and
tariffs
<PAGE>
RESALE AGREEMENT (MO, KS, AR) - EXHIBIT B
PAGE 3 OF 3
SWBT/LSP
M307
Southwestern Bell's Resale Product* List - Residence
Kansas
AVOIDED COST DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
ISDN
Digiline (SM) 14.9% 14.9%
Select Video Plus(R) 14.9% 14.9%
Smart Trunk (SM) 14.9% 14.9%
DIRECTORY ASSISTANCE SERVICES 14.9% 14.9%
TOLL
900 Call Restriction 14.9% 14.9%
IntraLATA MTS 14.9% 14.9%
Maximizer 800(R) 14.9% 14.9%
OutWATS 14.9% 14.9%
Toll Billing Exception 14.9% 14.9%
PLEXAR(R)
Plexar I(R) 14.9% 14.9%
Plexar II(R) 14.9% 14.9%
NON-TELECOMMUNICATION SERVICES
Bill Plus(SM) 14.9% 14.9%
Consolidated Billing 14.9% 14.9%
Company Initiated Suspension and Restoral Service 0.0% 0.0%
Customer Initiated Suspension and Restoral Service 0.0% 0.0%
Enhanced Directory Listings 14.9% 14.9%
* Some products not available in all areas.
Resale products available subject to state and federal rules, regulations and
tariffs
<PAGE>
APPENDIX RESALE
KANSAS
OS/DA PRICING - BRANDING, RATE & REFERENCE
The following rates will apply for each service element:
- --------------------------------------------------------------------------------
A. CALL BRANDING
An initial non-recurring charge applies per trunk group for
the establishment of LSP specific Call Branding. A Per Call
charge also applies. When there are subsequent changes to
the branding announcement, an additional non-recurring
charge will also apply per change.
Rate per initial load group $2100.00
Rate per load for Brand change $2100.00
Per Call $0.02
- --------------------------------------------------------------------------------
B. DIRECTORY ASSISTANCE RATE/REFERENCE INFORMATION
An initial non-recurring charge applies for the initial load
of LSP's DA Services Rate/Reference Information. An
additional non-recurring charge applies for each subsequent
change to Rate/Reference Information.
Rate per initial load $3375.00
Rate per subsequent rate change $2375.00
Rate per subsequent reference change $2375.00
- --------------------------------------------------------------------------------
C. OPERATOR SERVICES RATE/REFERENCE INFORMATION
An initial non-recurring charge applies for the initial load
of LSP's Operator Services Rate/Reference Information. An
additional non-recurring charge applies for each subsequent
change to Rate/Reference Information.
Rate per initial load $3375.00
Rate per subsequent rate change $2375.00
Rate per subsequent reference change $2375.00
- --------------------------------------------------------------------------------
Proprietary: Not for Use or Disclosure Outside the Southwestern Bell Corporation
Family of Companies Except Under Written Agreement
<PAGE>
[South Dakota]
AGREEMENT
FOR SERVICE RESALE
Between
FIRSTEL, Inc.
and
U S WEST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
----
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 4
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 6
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (OSS) 13
VI. DIRECTORY LISTINGS 13
VII. GENERAL PROVISIONS 14
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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<PAGE>
E. Taxes 16
F. Force Majeure 17
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 19
K. Warranties 21
L. Assignment 21
M. Default 21
N. Severability 21
0. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 25
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 26
X. Publicity and Advertising 26
V. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed In Counterparts 26
SB. Headings of No force or Effect 26
CC. Entire Agreement 27
Page 2
<PAGE>
AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state of South Dakota. Where required, this Agreement or the
portions of this Agreement relative to a particular state, will be submitted to
the appropriate Public Utilities Commission ("Commission") and the Parties will
specifically request that the Commission promptly approve this Agreement and
refrain from taking any action to change, suspend or otherwise delay
implementation of this Agreement. The Parties enter into this Agreement without
prejudice to any positions they have taken previously, or may take in the future
in any legislative, regulatory, or other public forum addressing any matters,
including matters related to the types of arrangements prescribed by this
Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 1st
Order") and the Second Report and Order and Memorandum Opinion and Order, In the
Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1st Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act) was signed into law
on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements for
service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell services
for resale, on the terms and subject to the conditions of this Agreement; and,
WHEREAS, Reseller is a Telecommunications Carrier and has requested that
USWC negotiate an Agreement with Reseller for the provision of USWC services for
resale pursuant to the Act and in conformance with USWC's duties under the Act;
and
Page 3
<PAGE>
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Reseller and USWC hereby covenant and agree as follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under
which USWC agrees to provide services for resale. Unless otherwise
provided in this Agreement, USWC will perform all of its obligations
hereunder to the extent provided in the Appendices attached hereto.
The Agreement includes all accompanying appendices.
B. In the performance of their obligations under this Agreement, the
Parties shall act in good faith and consistently with the intent of
the Act. Where notice, approval or similar action by a Party is
permitted or required by any provision of this Agreement, the Act,
FCC 1st and 2nd Orders, or a state Commission, (including, without
limitation, the obligation of the parties to further negotiate the
resolution of new or open issues under this Agreement) such action
shall not be unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties, and for
that reason will, unless otherwise agreed, implement this Agreement
as an integrated package without alteration of any material term or
condition, or the inclusion or deletion of terms and conditions that
would serve to alter a material term or condition herein unless such
term or condition is altered pursuant to Section IV, E. I herein or
to comply with a court order or an FCC or state Commission order.
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service offered
to end users which provides the end user with a telephonic
connection to, and a unique local telephone number address on, the
public switched telecommunications network, and which enables such
end user to generally place calls to, or receive calls from, other
stations on the public switched telecommunications network. Basic
residence and business line services are Basic Exchange
Telecommunication Services. As used solely in the context of this
Agreement and unless otherwise agreed, Basic Exchange
Telecommunication Services includes access to ancillary services
such as 911, directory assistance and operator services.
B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which include,
but are not necessarily limited to: Automatic Call Back; Call Trace;
Caller ID and Related Blocking Features; Distinctive Ringing/Call
Waiting; Selective Call Forward; Selective Call Rejection. (See
Bellcore documentation for definition.)
Page 4
<PAGE>
C. "Commission" means the Public Utilities Commission(s) in the state
of South Dakota.
D. Directory Listings are any information: (1) identifying the listed
names of subscribers of a telecommunications carrier and such
subscribers' telephone numbers and addresses and (2) that the
telecommunications carrier or an affiliate has published, caused to
be published, or accepted for publication in any directory format.
E. "Enhanced Services" means any service offered over common carrier
transmission facilities that employ computer processing applications
that act on format, content, code, protocol or similar aspects of
the subscriber's transmitted information; that provide the
subscriber with additional, different or restructured information;
or involve customer interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of information
between telecommunications carriers about current or proposed
customer products and services.
G. "Reseller" is a category of Local Exchange service providers that
are certified to obtain dial tone and associated telecommunications
services from another provider through the purchase of bundled
finished services for resale to its end user customers.
H. "Tariff Services" as used throughout this Agreement refers to USWC
state tariffs, price lists, price schedules and catalogs.
I. "Technically feasible". Branding of Operator Services and Directory
Assistance shall be deemed technically feasible absent technical or
operational concerns that prevent the fulfillment of a request by a
telecommunications carrier for such branding. A determination of
technical feasibility does not include consideration of economic,
accounting, billing, space, or site concerns, except that space and
site concerns may be considered in circumstances where there is no
possibility of expanding the space available. The fact that an
incumbent LEC must modify its facilities or equipment to respond to
such request does not determine whether satisfying such request is
technically feasible. An incumbent LEC that claims that it cannot
satisfy such request because of adverse network reliability impacts
must prove to the state Commission by clear and convincing evidence
that such interconnection, access, or methods would result in
specific and significant adverse network reliability impacts.
J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to such
class of users as to be effectively available directly to the
public, regardless of the facilities used. As used in this
definition, "telecommunications" means the transmission, between or
among points specified by the user, of information of the user's
choosing, without change in the form or content of the information
sent and received.
Page 5
<PAGE>
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A. and B.) and
intraLATA toll originating from USWC exchanges (hereinafter
"intraLATA toll") will be available for resale by USWC
pursuant to the Act and will reference terms and conditions
(except prices) in USWC tariffs, where applicable. Appendix A
lists services which are available for resale under this
Agreement and the applicable discounts, and is attached and
incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC services
are not available for resale under this Agreement, including
but not limited to promotions of more than 90 days duration
and packages of services comprised of services available for
resale separately, and certain other USWC services are
available for resale but at no discount, as identified in
Appendix A or in individual state tariffs. The availability of
services and applicable discounts identified in Appendix A or
in individual tariffs are subject to change pursuant to
Section IV E.1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic Exchange
Switched Features and IntraLATA toll may be resold only for
their intended or disclosed use and only to the same class of
customer to whom USWC sells such services; e.g., residence
service may not be resold to business customers.
2. USWC shall provide to Reseller services for resale that are
equal in quality, subject to the same conditions (including
the conditions in USWC's effective tariffs), within the same
provisioning time intervals that USWC provides these services
to others, including end users, and in accordance with any
applicable state Commission service quality standards,
including standards a state Commission may impose pursuant to
Section 252(e)(3) of the Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single point of
contact for its end users' service needs, including without
limitation, sales, service design, order taking, provisioning,
change orders, training, maintenance, trouble reports, repair,
post-sale servicing, billing, collection and inquiry. Reseller
shall make it clear to its end users that they are customers
of the Reseller for resold services. Reseller's end users
contacting USWC will be instructed to contact the Reseller;
however, nothing in this Agreement, except as provided in
Section IV.C.7(e), shall be deemed to prohibit
Page 6
<PAGE>
USWC from discussing its products and services with Reseller's
customers who call USWC for any reason.
2. Reseller shall transmit to USWC all information necessary for
the installation (billing, listing and other information),
repair, maintenance and post-installation servicing according
to USWC's standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end users new service provider
discontinues the end user's service in anticipation of moving
to another service provider, USWC will render its closing bill
to end user customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a bill to
Reseller for that portion of the service provided to the
Reseller should Reseller's end user customer, a new service
provider, or Reseller request service be discontinued to the
end user. USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service provider.
USWC will not provide Reseller with the name of the other
reseller or service provider selected by the end user.
The Parties agree that they will not transfer their respective
end user customers whose accounts are in arrears between each
other. The Parties further agree that they work cooperatively
together to develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide Reseller
with points of contact for order entry, problem resolution and
repair of the resold services.
4. Prior to placing orders on behalf of the end user, Reseller
shall be responsible for obtaining and have in its possession
Proof of Authorization ("POA"). POA shall consist of
documentation acceptable to USWC of the end user's selection
of Reseller. Such selection may be obtained in the following
ways:
a. The end user's written Letter of Authorization or LOA.
b. The end user's electronic authorization by use of an 800
number.
c. The end user's oral authorization verified by an
independent third party (with third party verification
as POA).
d. A prepaid returnable postcard supplied by Reseller which
has been signed and returned by end user. Reseller will
wait fourteen (14) days after mailing the postcard
before placing an order to change.
Page 7
<PAGE>
Reseller shall make POAs available to USWC upon request.
Prior to placing orders that will disconnect a line from
another reseller's account the Reseller is responsible
for obtaining all information needed to process the
disconnect order and re-establish the service on behalf
of the end user. If a Reseller is displaced by another
reseller or service provider, the Reseller is
responsible for coordination with the other reseller or
service provider. Should an end user dispute or a
discrepancy arise regarding the authority of Reseller to
act on behalf of the end user, the Reseller is
responsible for providing written evidence of its
authority to USWC within three (3) business days. If
there is a conflict between the end user designation and
Reseller's written evidence of its authority, USWC shall
honor the designation of the end user and change the end
user back to the previous service provider. If the
Reseller does not provide the POA within three (3)
business days, or if the end user disputes the authority
of the POA, then the Reseller must, by the end of the
third business day:
o notify USWC to change the end user back to the
previous reseller or service provider, and
o provide any end user information and billing
records the Reseller has obtained relating to the
end user to the previous reseller, and
o notify the end user and USWC that the change has
been made,
o remit to USWC a charge of $100.00 ("slamming
charge") as compensation for the change back to
the previous reseller or service provider.
If an end user customer is switched from Reseller back
to USWC and there is a dispute or discrepancy with
respect to such change in service provider, Reseller may
request to see a copy of the POA which USWC has obtained
from the end user to effectuate a return to USWC as the
end user's service provider. If USWC is unable to
produce a POA within three (3) business days, USWC shall
change the end user back to Reseller (or other previous
reseller) without imposition of any Customer Transfer
Charge.
5. Reseller shall designate Primary Interexchange Carrier
(PlC) assignments on behalf of its end-users for
interLATA services and intraLATA services when intraLATA
presubscription is implemented.
6. When end user customers switch from USWC to Reseller, or
to Reseller from any other reseller, such customers
shall be permitted to retain their current telephone
numbers if they so desire and do not change their
service address to an address served by a different
central office. USWC shall take no action to prevent
Reseller customers from retaining their current
telephone numbers.
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<PAGE>
7. Reseller and USWC will employ the following procedures
for handling misdirected repair calls:
a. Reseller and USWC will provide their respective
customers with the correct telephone numbers to
call for access to their respective repair
bureaus.
b. Customers of Reseller shall be instructed to
report all cases of trouble to Reseller.
Customers, of USWC shall be instructed to report
all cases of trouble to USWC.
c. To the extent the correct provider can be
determined, misdirected repair calls will be
referred to the proper provider of Basic Exchange
Telecommunications Service.
d. Reseller and USWC will provide their respective
repair contact numbers to one another on a
reciprocal basis.
e. Notwithstanding the provisions of Section IV.C.
1., USWC will not discuss its products and
services with Reseller's customers during the
course of repair calls or visits.
D. Reseller Responsibilities.
1. Reseller must send USWC complete and accurate end-user listing
information for Directory Assistance, Directory, and 911
Emergency Services using USWC's resale order form and process.
Reseller must provide to USWC accurate end-user information to
ensure appropriate listings in any databases in which USWC is
required to retain and/or maintain end-user information. USWC
assumes no liability for the accuracy of information provided
by Reseller.
2. Reseller may not reserve blocks of USWC telephone numbers,
except as allowed by tariffs.
3. Reseller is liable for all fraud associated with Service to
its end-users and accounts. USWC takes no responsibility, will
not investigate, and will make no adjustments to Reseller's
account in cases of fraud unless such fraud is the result of
any intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of potential
fraud with respect to Reseller's accounts, USWC will promptly
inform Reseller and, at the direction of Reseller, take
reasonable action to mitigate the fraud where such action is
possible.
4. Reseller will indicate the date it will offer to residential
and business subscribers telephone exchange services. The
Reseller will provide a two year forecast within ninety (90)
days of signing this Agreement. During the first year of the
term of this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter, during
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the term of this Agreement, Reseller will provide updated
forecasts from time to time, as requested by USWC. The initial
forecast will provide:
o The date service will be offered (by city and/or state)
o The type and quantity of service(s) which will be
offered
o Reseller's anticipated order volume
o Reseller's key contact personnel
The information provided pursuant to this paragraph shall be
considered Proprietary Information under Section VII.0. of
this Agreement.
5. In the event USWC terminates the provisioning of any resold
services to Reseller for any reason, Reseller shall be
responsible for providing any and all necessary notice to its
end users of the termination. In no case shall USWC be
responsible for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of its
termination of a resold service on a timely basis consistent
with Commission rules and notice requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are available for
resale at the applicable discount percentage or rate per
minute set forth in Appendix A or at the retail tariff rates
for services available for resale but excluded from the
wholesale pricing arrangement in this Agreement.
However, state Commissions may do any of the following
(collectively referred to hereinafter as "Order") during the
term of this Agreement:
o establish wholesale discount rates through decisions in
arbitration, interconnection and/or resale cost
proceedings;
o establish other recurring and nonrecurring rates related
to resale, including but not limited to Customer
Transfer Charges and Slamming Charges ("Other Resale
Charges"); and
o order that certain services be made available for resale
at specified wholesale discount rates.
If a state Commission orders services to be available for
resale, the Parties agree that they will, on a state-by-state
basis, revise Appendix A to incorporate the services
determined by such Order into this Agreement, effective on the
date ordered by a Commission. When a state Commission, through
a decision in arbitration, identifies services that must be
available for resale at wholesale discount rates, such
decision shall be deemed to have defined that such services
are generally available to resellers in that state. If a state
Commission establishes wholesale discount rates and Other
Resale Charges to be made generally available to resellers or
establishes a resale tariff, the Parties agree that they will,
on a state-by-state basis, revise Appendix A to incorporate
such wholesale discount rates and/or Other Resale
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Charges into this Agreement effective on the date ordered by a
commission; provided, however, that USWC shall have a
reasonable time to implement system or other changes necessary
to bill the commission ordered rates or charges.
The rates for those resold services initially included in the
wholesale pricing arrangement under this Agreement shall be
subject to true-up to the wholesale discount rates established
by a Commission Order making such rates generally available to
resellers or established by a resale tariff, retroactively to
the effective date of this Agreement. Any true-up shall be on
a service-by-service basis if wholesale discount rates are
established by a Commission on such a basis.
Services excluded from the wholesale pricing arrangement under
this Agreement as identified in Appendix A, shall be made
available on a going forward basis from the date a of
Commission Order that orders such services be made generally
available to any reseller in the state where such a Commission
Order is issued. Such services shall be available at the
discount rate applicable to basic exchange business service
identified in Section 2 of Appendix A; provided, however, that
when a Commission order establishes wholesale discount rates
for such services as generally available to resellers,
Appendix A shall be revised to incorporate the wholesale
discount rates generally available to resellers.
If a state Commission fails to issue such an Order or make
effective such a tariff by the end of the first year this
Agreement, either USWC or Reseller may elect to renegotiate
this Section of the Agreement.
2. If the resold services are purchased pursuant to Tariffs and
the Tariff rates change, charges billed to Reseller for such
services will be based upon the new Tariff rates less the
applicable wholesale discount as agreed to herein or
established by resale Tariff. The new rate will be effective
upon Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in Appendix A
applies when transferring any existing account or lines to a
Reseller. Tariffed non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be paid by the
Reseller without discount to USWC for each local exchange line
resold under this Agreement. All federal and state rules and
regulations associated with SLC as found in the applicable
tariffs also apply.
4. Reseller will pay to USWC the PlC change charge without
discount associated with Reseller end user changes of
inter-exchange or intraLATA carriers.
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6. Reseller agrees to pay USWC when its end user activates any
services or features that are billed on a per use or per
activation basis subject to the applicable discount in
Appendix A as such may be amended pursuant to Section IV.E.1
(e.g., continuous redial, last call return, call back calling,
call trace, etc.).
7. Resold services are available only where facilities currently
exist and are capable of providing such services without
construction of additional facilities or enhancement of
existing facilities. However, if Reseller requests that
facilities be constructed or enhanced to provide resold
services, USWC will review such requests on a case-by-case
basis and determine, in its sole discretion, if it is
economically feasible for USWC to build or enhance facilities.
If USWC decides to build or enhance the requested facilities,
USWC will develop and provide to Reseller a price quote for
the construction. If the quote is accepted, Reseller will be
billed the quoted price and construction will commence after
receipt of payment.
8. Nonrecurring charges will not be discounted and will be billed
at the applicable Tariff rates.
9. As part of the resold line, USWC provides and Reseller
accepts, at this time, operator services, directory
assistance, and IntraLATA long distance with standard USWC
branding. Reseller is not permitted to alter the branding of
these services in any manner when the services are a part of
the resold line without the prior written approval of USWC.
However, at the request of Reseller and where technically
feasible, USWC will rebrand operator services and directory
assistance in the Reseller's name, provided the costs
associated with such rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding Reseller's use
of USWC's retail product training materials. Except for any rights
granted by USWC to Reseller for the use or copying of product
training material, product training provided under this Agreement
shall be considered "Proprietary Information" as described in
Section VII.O., and shall be subject to the terms and conditions
specified therein.
G. Cooperation
The Parties agree that this Agreement involves the provision of USWC
services in ways such services were not previously available and the
introduction of new processes and procedures to provide and bill
such services. Accordingly, the Parties agree to work jointly and
cooperatively in testing and implementing processes for
pre-ordering, ordering, maintenance, provisioning and billing and in
reasonably resolving issues which result from such implementation on
a timely basis.
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V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal for
access to its Operational Support Systems (OSS) to meet the
requirements of the FCC's 1st and 2nd Orders and to provide Reseller
and other telecommunications carriers with electronic interfaces for
pre-ordering, ordering, repair and billing functions by January 1,
1997 for Plain Old Telephone services (POTs). Subsequent phases of
the plan will incorporate the capabilities to support designed
services for preordering, ordering and repair, which are estimated
to be available between the second and third quarters of 1997.
Reseller understands that USWC is proposing that these interfaces
will have the necessary mediation to protect the integrity of the
network and protect the privacy of customer information.
B. The Parties further acknowledge that USWC is, or soon will be,
presenting its OSS proposal to state Commissions for approval,
including approval of fees or cost recovery methods that USWC may
charge or use to charge Reseller in connection with the design,
implementation and on-going maintenance and support of the OSS ("OSS
fees"). The Parties further acknowledge that, because the OSS is
still in the conceptual stage of development at the time of
execution of this Agreement, USWC is unable to specify or estimate
the amount of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to USWC's OSS
become operational and a state Commission approves USWC's OSS plan
and establishes OSS fees or cost recovery methods, the Parties will
amend this Agreement to incorporate terms and conditions regarding
Reseller's access to USWC's OSS, including OSS fees, on a
state-by-state basis. The Parties further agree that Reseller may
terminate this Agreement if the amount of OSS fees turns out to be
so excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such termination,
Reseller shall give USWC (sixty) 60 days written notice.
D. Prior to approval and deployment of USWC's OSS interfaces, USWC
shall continue to provide all pre-ordering, ordering, repair and
billing functions and services through manual procedures outlined in
a separately provided Resale Resource Guide. Such manual procedures
shall be available where USWC's OSS interfaces are unable to handle
pre-ordering, ordering, repair and billing functions for the
services available to Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in any
manner in any state Commission proceeding that addresses USWC's OSS
interface proposal, including the establishment of OSS fees to the
extent such participation is permitted by a Commission.
VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each main
telephone number belonging to Reseller's end user customer based on
end user
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information provided to USWC by Reseller. USWC will place Reseller's
listings in USWC's directory listing database for directory
assistance purposes and will make listings available to directory
publishers and other third parties. Additional terms and conditions
with respect to directory listings are described in Appendix B which
by this reference is incorporated and made a part of this Agreement.
VII. GENERAL PROVISIONS
A. Term.
This Agreement shall be effective upon approval by a Commission(s)
and shall continue for a period of two (2) years. Thereafter the
Agreement shall continue in force and effect unless and until a new
agreement, addressing all of the terms of this Agreement, becomes
effective between the Parties. The Parties agree to commence
negotiations on a new agreement no later than 1 1/2 years after this
Agreement becomes effective. This Agreement shall be effective
pursuant to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible for all
applicable charges for the resold services as provided herein.
The Reseller shall also be responsible for all tariffed
charges and charges separately identified in this Agreement
associated with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis, within 7-10
days of the last day of the most recent billing period, in an
agreed upon standard electronic billing format, billing
information including (1) a summary bill, and (2) individual
end user customer sub-account information consistent with the
samples provided to Reseller for Reseller to render end user
customer bills indicating all recurring and nonrecurring
charges associated with each individual customer's account for
the most recent billing period.
C. Payment.
1. Amounts payable under this Agreement are due and payable
within thirty (30) days after the bill date of USWC's invoice.
During the initial three billing cycles of this Agreement,
Reseller and USWC agree that undisputed amounts shall be paid
as provided herein. Reseller and USWC further agree that,
during said three billing cycle period, they will cooperate to
resolve amounts in dispute or billing process issues in a
timely manner but no later than sixty (60) days after the bill
date of USWC's invoice or identification and notice of the
billing process issue. Disputed amounts will be paid within
thirty (30) days following resolution of the dispute.
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2. After the three (3) month period outlined in Section C.1.
above, the Reseller will pay the bill in full within 30 days
after the bill date of the invoice. Billing disputes will be
processed and jointly resolved. Any disputed amounts that USWC
remits to the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
3. A late payment charge of 1.5% applies to all billed balances
which are not paid by 30 days after the bill date shown on the
invoice. USWC agrees, however, that the application of this
provision will be suspended for the initial three billing
cycles of this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the failure by
Reseller to make full payment for the resold services provided
under this Agreement within thirty (30) days of the due date
on Reseller's bill. USWC agrees, however, that the application
of this provision will be suspended for the initial three
billing cycles of this Agreement and will not apply to amounts
billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to make full
payment for the resold services provided under this Agreement
within sixty (60) days of the due date on Reseller's bill.
Reseller will pay the tariff charge required to reconnect each
end user line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this provision will
be suspended for the first three billing cycles under this
Agreement and will not apply to amounts billed during those
three cycles.
USWC will not disconnect an end user customer without first
obtaining the approval of the Commission. USWC will notify
Reseller of the date of Reseller's disconnection thirty (30)
days prior to the effective date of the disconnection.
Reseller shall notify its end user customers that service will
be disconnected on the date specified in USWC's notice to
Reseller for Reseller's failure to make payment due hereunder
ten (10) days prior to the effective date of Reseller's
disconnection. If Reseller is granted a stay of the
disconnection, then Reseller shall notify its end users that
service will be disconnected ten (10) days prior to the
subsequent disconnection date, if any, established by the
Commission or by USWC pursuant to Commission order.
6. Collection procedures and the requirements for deposit are
unaffected by the application of a late payment charge.
7. The Parties agree that this payment and dispute resolution
process is a new procedure and they further agree that this
Section VII.C. can be reopened for negotiation at any time
within the first twelve (12) months of this Agreement.
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8. USWC shall credit Reseller's account the amount due for any
trouble or out-of-service conditions in the same manner that
USWC credits the accounts of its own end-user customers and
pursuant to any applicable provisions in USWC's tariffs. USWC
shall reflect the amount of such credits on an individual
customer telephone number basis in the billing information
USWC provides Reseller.
9. In the event billing disputes relate to service quality
issues, the dispute shall be referred to the USWC account
executive assigned to Reseller who will evaluate the facts and
circumstances of the service quality issues and will work with
Reseller to resolve the dispute.
D. Deposit.
1. USWC may require Reseller to make a suitable deposit to be
held by USWC as a guarantee of the payment of charges. Any
deposit required of an existing reseller is due and payable
within ten days after the requirement is imposed. The amount
of the deposit shall be the estimated charges for the resold
Service which will accrue for a two-month period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the initial or
additional deposit, with any interest due as set forth in
applicable tariffs, will, at Reseller's option, either be
credited to Reseller's account or refunded. Satisfactory
credit for a reseller is defined as twelve consecutive months
service as a reseller without a termination for nonpayment and
with no more than one notification of intent to terminate
Service for nonpayment. Interest will be paid on cash deposits
at the rate applying to deposits under applicable Commission
rules, regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or refunded,
as appropriate, upon the earlier of the termination of this
Agreement or one full year of timely payments in full, by
Reseller. The fact that a deposit has been made does not
relieve Reseller from any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise or
gross receipts taxes, fees or surcharges (collectively "Taxes")
imposed on or with respect to its sale of services or equipment
provided under this Agreement, except those Taxes which are
explicitly required by a governmental authority to be collected by
USWC. Reseller shall seek sale for resale exemptions from any
applicable governmental or taxing body for payment of any and all
Taxes related to Reseller's purchase of services or equipment from
USWC under this Agreement. Until such time as exemptions are
obtained or applicable, Reseller shall pay USWC for the amount of
any such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes payable
by USWC.
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F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures
in performance were foreseen or foreseeable as of the date of this
Agreement, including, without limitation: fire, explosion, power
failure, acts of God, war, revolution, civil commotion, or acts of
public enemies; any law, order, regulation, ordinance or requirement
of any government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or delays
caused by the other Party or by other service or equipment vendors;
or any other circumstances beyond the Party's reasonable control. In
such event, the Party affected shall, upon giving prompt notice to
the other Party, be excused from such performance on a day-to-day
basis to the extent of such interference (and the other Party shall
likewise be excused from performance of its obligations on a
day-for-day basis to the extent such Party's obligations relate to
the performance so interfered with). The affected Party shall use
its best efforts to avoid or remove the cause of non-performance and
both parties shall proceed to perform with dispatch once the causes
are removed or cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby retains
the right to exercise full control of and supervision over its own
performance of its obligations under this Agreement and retains full
control over the employment, direction, compensation and discharge
of all employees assisting in the performance of such obligations.
Each Party will be solely responsible for all matters relating to
payment of such employees, including compliance with social security
taxes, withholding taxes and all other regulations governing such
matters. Each Party will be solely responsible for proper handling,
storage, transport and disposal at its own expense of all (i)
substances or materials that it or its contractors or agents bring
to, create or assume control over at Work Locations or, (ii) Waste
resulting therefrom or otherwise generated in connection with its or
its contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as otherwise
provided in this Agreement, each Party shall be responsible for (i)
its own acts and performance of all obligations imposed by
Applicable Law in connection with its activities, legal status and
property, real or personal and, (ii) the acts of its own affiliates,
employees, agents and contractors during the performance of that
Party's obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to the
other for any loss related to or arising out of any negligent act or
omission in its performance of this Agreement, whether in contract
or in tort, shall be limited to the total amount that is or would
have been charged to the other Party by such negligent or breaching
Party for the service(s) or function(s) not performed or improperly
performed.
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In no event shall either Party be liable to the other in connection
with the provision or use of services offered under this Agreement
for indirect, incidental, consequential, reliance or special
damages, including (without limitation) damages for lost profits,
lost revenues, lost savings suffered by such other Parties
regardless of the form of action, whether in contract, warranty,
strict liability, or tort, including (without limitation) negligence
of any kind and regardless of whether the Parties know the
possibility that such damages could result. Nothing contained in
this Section H shall limit USWC's or Reseller's liability to the
other for (i) willful or intentional misconduct (including gross
negligence); (ii) bodily injury, death or damage to tangible real or
tangible personal property proximately caused by USWC's or
Reseller's negligent act or omission or that of their respective
agents, subcontractors or employees, nor shall anything contained in
this section limit the parties indemnification obligations, as
specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify, defend and
hold harmless the other Party and each of its officers,
directors, employees and agents (each an "Indemnitee") from
and against and in respect of any loss, debt, liability,
damage, obligation, claim, demand, judgment or settlement of
any nature or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs and
attorneys' fees, whether suffered, made, instituted, or
asserted by any other party or person, for invasion of
privacy, personal injury to or death of any person or persons,
or for loss, damage to, or destruction of property, whether or
not owned by others, resulting from the indemnifying Party's
performance, breach of Applicable Law, or status of its
employees, agents and subcontractors; or for failure to
perform under this Agreement, regardless of the form of
action.
2. The indemnification provided herein shall be conditioned upon:
a. The indemnified Party shall promptly notify the
indemnifying Party of any action taken against the
indemnified Party relating to the indemnification.
Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that the
Indemnifying Party might have, except to the extent that
such failure prejudices the Indemnifying Party's ability
to defend such Claim.
b. The indemnifying Party shall have sole authority to
defend any such action, including the selection of legal
counsel, and the indemnified Party may engage separate
legal counsel only at its sole cost and expense.
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c. In no event shall the indemnifying Party settle or
consent to any judgment pertaining to any such action
without the prior written consent of the indemnified
Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend, indemnify
or hold harmless, or acquire any license or right for the
benefit of, or owe any other obligation or have any liability
to, the other based on or arising from any claim, demand, or
proceeding (hereinafter "claim") by any third party alleging
or asserting that the use of any circuit, apparatus, or
system, or the use of any software, or the performance of any
service or method, or the provision of any facilities by
either Party under this Agreement constitutes direct or
contributory infringement, or misuse or misappropriation of
any patent, copyright, trademark, trade secret, or any other
proprietary or intellectual property right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be construed as the
grant of a license, either express or implied, with
respect to any patent, copyright, logo, trademark,
tradename, trade secret or any other intellectual,
property right now or hereafter owned, controlled or
licensable by either Party. Reseller may not use any
patent, copyright, logo, trademark, tradename, trade
secret or other intellectual property right of USWC or
its affiliates without execution of a separate agreement
between the Parties.
b. Reseller shall not, without the express written
permission of USWC, state or imply that; 1) Reseller is
connected, or in any way affiliated with USWC or its
affiliates or, 2) Reseller is part of a joint business
association or any similar arrangement with USWC or its
affiliates or, 3) USWC and its affiliates are in any way
sponsoring, endorsing or certifying Reseller and its
goods and services or, 4) the resold goods and services
are in any way associated with or originated from USWC
or any of its affiliates. Notwithstanding the above,
Reseller may state in response to a specific customer
inquiry concerning the origin of the resold services
that "Reseller is reselling USWC services." No other
statements may be made.
3. Notwithstanding the above, unless otherwise prohibited by USWC
pursuant to an applicable provision herein, Reseller may use
the phrase "(Name of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase") in
Reseller's printed materials provided:
a) The Authorized Phrase is not used in connection with any
goods or services other than USWC services resold by
Reseller.
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b) Reseller's use of the Authorized Phrase does not, in
USWC's sole discretion, cause customers to believe that
Reseller is USWC.
c) The Authorized Phrase, when displayed, appears only in
text form (Reseller may not use the U S WEST logo) with
all letters being the same font and point size. The
point size of the Authorized Phrase shall be no greater
than one fourth the point size of the smallest use of
Reseller's name and in no even shall exceed 8 point
size.
d) Reseller shall provide all printed materials to USWC for
its prior written approval.
e) If USWC determines that Reseller's use of the Authorized
Phrase causes customer confusion, USWC may in it's sole
discretion, immediately terminate Reseller's right to
use the Authorized Phrase.
f) Upon termination of the Reseller's right to use the
Authorized Phrase or termination of this Agreement, all
permission or right to use the Authorized Phrase shall
immediately cease to exist and Reseller shall
immediately cease any and all such use of the Authorized
Phrase. Reseller shall either promptly return to USWC or
destroy all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S WEST" and
"U S WEST Communications" (the "Marks") and the goodwill
associated therewith and acknowledges that such goodwill is a
property right belonging to U S WEST, Inc. and USWC
respectively (the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an assignment or
grant to Reseller of any right, title or interest in or to the
Marks and that this Agreement does not confer any right or
license to grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will do nothing
inconsistent with the Owner's ownership of the Marks, and all
rights, if any, that may be acquired by use of the Marks shall
inure to the benefit of the Owners. Reseller will not adopt,
use (other than as authorized in Section 3 herein,) register
or seek to register any mark anywhere in the world which is
identical or confusingly similar to the Marks or which is so
similar thereto as to constitute a deceptive colorable
imitation thereof or to suggest or imply some association,
sponsorship, or endorsement by the Owners; The Owners make no
warranties regarding its ownership of any rights in or the
validity of the Marks.
5. As a condition to the access or use of patents, copyrights,
trade secrets and other intellectual property (including
software) owned or controlled by a third party to the extent
necessary to implement this Agreement or specifically required
by the then applicable federal and state rules and
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regulations relating to resale and access to
telecommunications facilities and services, the party
providing access may require the other upon written notice,
from time to time, to obtain permission for such access or
use, make all payments in connection with obtaining such
permission, and providing evidence of such permission.
K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTIES
AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE DOES NOT EXIST,
ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of negotiations
between the Parties. As such, this Agreement can be assigned only
with the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld.
M. Default.
If either Party defaults in the payment of any amount due hereunder,
or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for thirty (30) days
after written notice thereof, the other Party may terminate this
Agreement forthwith by written instrument. The failure of either
Party to enforce any of the provisions of this Agreement or the
waiver thereof in any instance shall not be construed as a general
waiver or relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules addressing
issues contained in this Agreement. To the extent that certain of
the rules contained in the FCC 1st Order and the FCC 2d Order are
deemed by the courts to be not effective, this contract shall be
modified to comport with the final court decisions and subsequent
FCC or state Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision of this
Agreement is held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not invalidate the entire
Agreement The Agreement shall be construed as if it did not contain
the invalid or unenforceable provision or provisions, and the rights
and obligations of each Party shall be construed and enforced
accordingly; provided, however, that in the event that such invalid
or
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unenforceable provision or provisions are essential elements of this
Agreement and, in the opinion of either party, substantially impair
the rights or obligations of either party, Reseller and USWC shall
promptly negotiate a replacement provision or provisions. If the
Parties cannot negotiate such a replacement provision or provisions,
the Parties may agree to terminate the Agreement, In the event of
termination as described herein, for service arrangements made
available under this Agreement and existing at the time of
termination, those arrangements shall continue without interruption
under either a) a new agreement executed by the Parties, b) standard
resale terms and conditions approved and made generally effective by
the Commission, or c) tariff terms and conditions generally
available to resellers. If a) does not come about, or b) or c) are
not available, the Agreement shall remain in effect until a
replacement provision is determined through arbitration.
O. Nondisclosure.
1. All information including, but not limited to, specifications,
drawings, sketches, models, tools, technical information,
employee records, maps, financial reports, and market data,
(i) furnished by one Party to the other Party or to which one
Party provides to the other Party access (such as to a
database) dealing with customer specific, facility specific,
or usage specific information, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time
of delivery as "Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual presentation
and declared to the receiving Party at the time of delivery,
or by written notice given to the receiving Party within ten
(10) days after delivery, to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary
Information"), shall remain the property of the disclosing
Party.
2. Upon request by the disclosing Party, the receiving Party
shall return all tangible copies of Proprietary Information,
whether written, graphic or otherwise, except that the
receiving Party may retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that Proprietary
Information constitutes trade secrets of the disclosing Party.
The receiving Party shall maintain in confidence all of the
disclosing Party's Proprietary Information and shall use the
disclosing Party's Proprietary Information only for performing
the covenants contained, or exercising any rights granted, in
this Agreement. Only the employees and agents with a need to
know shall have access to the Proprietary Information and each
such employee and agent shall be advised of his or her
obligations under this Section O. Neither Party shall use the
other Party's Proprietary Information for any other purpose
except upon such terms and conditions as may be agreed upon
between the parties in writing.
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4. Unless otherwise agreed, the obligations of confidentiality
and non-use set forth in this Agreement do not apply to the
extent that such Proprietary Information:
a. was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential (evidenced by written records prepared
prior to delivery by the disclosing Party);
b. is or becomes publicly known, through no wrongful act of
the receiving Party;
c. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligation
to the disclosing Party with respect to such
information; or
d. is independently developed by receiving Party
individuals who do not have access to the Proprietary
Information;
e. is disclosed to a third person by the disclosing Party
without restrictions on disclosure;
f. is approved for release by written authorization of the
disclosing Party; or
g. is required to be made public by the receiving Party
pursuant to applicable law, regulation, or governmental
order, provided that the receiving Party shall give
sufficient notice of the requirement to the disclosing
Party to enable the disclosing Party to seek protective
orders where possible.
5. USWC grants Reseller the limited, personal, nonexclusive right
and license to access and use information contained in certain
of USWC's databases (Directory Assistance and Operator
Services databases, certain Advanced Intelligent Network
databases and Operation Support System databases) but only to
the extent as specifically required by the then applicable
federal and state rules and regulations relating to access to
and use of such databases, as they may be amended from time to
time, and for no other purpose. Without limiting the
generality of the foregoing, this right and license to
Reseller does not include the license and right to extract or
copy (including by any manual, mechanical or electronic means)
or use any such database information, in whole or in part, to
enhance the quality of any of Reseller's own database services
or offerings, as inputs to Reseller's or other's directory
assistance or directory publishing operations or for the
creation of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and all
information contained in any of such USWC's databases shall be
Proprietary Information subject to the terms and conditions of
this section O; provided, however, that Sections 4a, b, and c
shall not apply even though the individual parts or components
of the
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information contained in any such databases may otherwise fall
within such Sections.
6. Notwithstanding any other provision of this Agreement, the
Proprietary Information provisions of this Agreement shall
apply to all information furnished by either Party to the
other in furtherance of the purpose of this Agreement, even if
furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be considered
Proprietary Information by either or both Parties, and agree
to limit distribution of this Agreement to those individuals
in their respective companies with a need to know the contents
of this Agreement.
P. Survival.
Any liabilities or obligations of a Party for acts or omissions
prior to the cancellation or termination of this Agreement; any
obligation of a Party under the provisions regarding
indemnification, Confidential Information, limitations on liability,
and any other provisions of this Agreement which, by their terms,
are contemplated to survive (or to be performed after) termination
of this Agreement, shall survive cancellation or termination
thereof.
0. Dispute Resolution.
Except as provided by the Act, if any claim, controversy or dispute
between the Parties, their agents, employees, officers, directors or
affiliated agents ("Dispute") cannot be settled through negotiation,
it shall be resolved by arbitration conducted by a single arbitrator
engaged in the practice of law, under the then current rules of the
American Arbitration Association ("AAA"). The Federal Arbitration
Act, 9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's award
shall be final and binding and may be entered in any court having
jurisdiction thereof. Each Party shall bear its own costs and
attorneys' fees, and shall share equally in the fees and expenses of
the arbitrator. The laws of the state where the services subject to
this Agreement are provided shall govern the construction and
interpretation of this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain issues
during negotiation, the Parties will identify such issues for
arbitration before an appropriate state regulatory agency. Only
those points identified by the Parties for arbitration will be
submitted. All other terms on which the Parties reach agreement will
be submitted for approval in their final form.
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S. Governing Law.
This Agreement shall be deemed to be a contract made under and shall
be construed, interpreted and enforced in accordance with the Act,
where applicable, and the laws of the state of South Dakota and
shall be subject to the exclusive jurisdiction of the courts in that
state, unless otherwise provided by the Act.
USWC shall be responsible for obtaining and keeping in effect all
Federal Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may be
required in connection with the performance of its obligations under
this Agreement. Reseller shall be responsible for obtaining and
keeping in effect all Federal Communications Commission, state
regulatory Commission, franchise authority and other regulatory
approvals that may be required in connection with its offering of
services to Reseller Customers contemplated by this Agreement.
T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement, whether in
contract, tort, or other theory, may be brought by either party more
than two (2) years after the cause of action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives of the
Parties. For convenience, it has been drafted in final form by one
of the Parties. Accordingly, in the event of ambiguities, no
inferences will be drawn against either Party solely on the basis of
authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to be
given or delivered under this Agreement shall be in hard-copy
writing (unless otherwise specifically provided herein) and shall be
sufficiently given if delivered personally or delivered by prepaid
overnight express service to the following (unless otherwise
specifically required by this Agreement to be delivered to another
representative or point of contact)
Any notices required by or concerning this Agreement shall be sent
to the Parties at the addresses shown below:
USWC Reseller
Katherine L. Fleming Brad VanLeur
U S WEST Communications Firstel, Inc.
Interconnection Services Sales & Marketing Director
1801 California, Suite 4920 110 South Phillips, Suite 202
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Denver, Colorado 80202-9184 Souix Falls, SD 57102
303-896-6100 (phone) 605-332-3232 (phone)
303-896-9641 (fax) 605-332-8004 (fax)
Each Party shall inform the other of any changes in the above
addresses.
W. No Third-Party Beneficiaries
Except as may be specifically set forth in this Agreement, this
Agreement does not provide and shall not be construed to provide
third parties with any remedy, claim, liability, reimbursement,
cause of action, or other privilege.
X. Publicity and Advertising
Neither party shall publish or use any advertising, sales promotions
or other publicity materials that use the other party's name, logo,
trademarks or service marks without the prior written approval of
the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment or
waiver of any provision of this Agreement, and no consent to any
default under this Agreement, shall be effective unless the same is
in writing and signed by an officer of the Party against whom such
amendment, waiver or consent is claimed.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(l) of the Act
shall apply, including state and federal interpretive regulations in
effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original; but such counterparts shall
together constitute one and the same instrument.
BB. Headings of No Force or Effect
The headings of Articles and Sections of this Agreement are for
convenience of reference only, and shall in no way define, modify or
restrict the meaning or interpretation of the terms or provisions of
this Agreement.
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CC. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings, proposals
and undertakings with respect to the subject matter hereof. This
Agreement shall prevail in the event of any conflict between the
"Resale Resource Guide" and the terms and conditions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
FIRSTEL, Inc. U S WEST Communications, Inc.
/s/ /s/ Fred L. Thurman /s/ /s/ Katherine L. Fleming
------------------------- ----------------------------
Signature Signature
/s/ Fred L. Thurman /s/ Katherine L. Fleming
------------------------- ----------------------------
Name Printed/Typed Name Printed/Typed
President Exec. Director-Interconnect
------------------------- ----------------------------
Title Title
June 4, 1997 6/06/97
------------------------- ----------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement as a result of
successful adminstrative/judicial review and/or future settlement agreements
between the Parties to this Agreement.
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APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access
(Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC
tariffs, the product specific nonrecurring charges, without
discount, will apply when additional lines or trunks are added
or when the end user adds features or services to existing
lines or trunks.
2. The following USWC services are available for resale at the
rates listed below:
Category: Discount Rate
o Basic Exchange Business, PBX Trunks 12%
o ISDN, Frame Relay 12%
o Listings, CO Features 12%
IntraLATA toll is available for resale at the contract toll rates
listed below without application of a further wholesale discount:
State: Rate Per Minute of Use
South Dakota .10
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APPENDIX A - Continued
3. The following services are available for resale under this Agreement but are
not included in the wholesale pricing reflected above unless and until the state
public utilities Commission in a particular state orders that wholesale discount
rates are generally available to resellers with respect to these products in
that state:
Basic Exchange Residence Line
Centrex
Private Line
Special Access
Public Access Lines
Volume Discount and/or Term Arrangement (where contained in customer
contracts or USWC tariffs)
4. The following services are not available for resale:
Lifeline
Concession Service
Technical Trials
Grandfathered Products and Services (except to customers currently
served with such services)
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e. To the extent that state tariffs limit USWC's liability with regard to
Listings, the applicable state tariff(s) is incorporated herein and supersedes
Section VII.G., "Limitation of Liability", of this Agreement with respect to
Listings only.
2. USWC Responsibilities.
USWC is responsible for maintaining Listings, including entering, changing,
correcting, rearranging and removing Listings in accordance with Reseller
orders. USWC will take reasonable steps in accordance with industry practices to
accommodate non-published and non-listed listings provided that Reseller has
supplied USWC the necessary privacy indicators on such Listings.
USWC will include Reseller's Listings in USWC's Directory Assistance service to
ensure that callers to USWC's Directory Assistance service have
non-discriminatory access to Reseller's Listings.
USWC will incorporate Reseller's Listings provided to USWC in the white pages
directory published on USWC's behalf.
3. Reseller Responsibilities.
a. Reseller agrees to provide to USWC its end user names, addresses and
telephone numbers in a standard format, as specified by USWC.
b. Reseller will supply its ACNA/CIC or CLCC/OCN, as appropriate, with each
order to provide USWC the means of identifying Listings ownership.
c. Reseller represents and warrants the end user information provided to USWC is
accurate and correct. Reseller further represents and warrants that it has
reviewed all Listings provided to USWC, including end user requested
restrictions on use such as non-published and non-listed. Reseller shall be
solely responsible for knowing and adhering to state laws or rulings regarding
Listings (e.g., no solicitation requirements in the states of Arizona and
Oregon, privacy requirements in Colorado), and for supplying USWC the applicable
Listing information.
d. Reseller is responsible for all dealings with and on behalf of Reseller's end
users, including:
i. All end user account activity, e.g., end user queries and complaints.
ii. All account maintenance activity, e.g., additions, changes, issuance of
orders for Listings to USWC.
iii. Determining privacy requirements and accurately coding the privacy
indicators for Reseller's end user information. If end user information provided
by Reseller to USWC does not contain a privacy indicator, no privacy
restrictions will apply.
iv. Any additional services requested by Reseller's end users.
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AGREEMENT
FOR SERVICE RESALE
Between
FIRSTEL, Inc.
and
U S WEST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 4
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 6
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (0SS) 13
V. DIRECTORY LISTINGS 14
VI. GENERAL PROVISIONS 14
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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E. Taxes 16
F. Force Majeure 16
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 18
K. Warranties 21
L. Assignment 21
M. Default 21
N. Severability 21
0. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 24
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 25
X. Publicity and Advertising 26
Y. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed in Counterparts 26
BB. Headings of No force or Effect 26
CC. Entire Agreement 26
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AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state(s) of Minnesota, South Dakota, North Dakota, Iowa,
Nebraska, Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Idaho, Oregon
and Washington. Where required, this Agreement or the portions of this Agreement
relative to a particular state, will be submitted to the appropriate Public
Utilities Commission ("Commission") and the Parties will specifically request
that the Commission promptly approve this Agreement and refrain from taking any
action to change, suspend or otherwise delay implementation of this Agreement.
The Parties enter into this Agreement without prejudice to any positions they
have taken previously, or may take in the future in any legislative, regulatory,
or other public forum addressing any matters, including matters related to the
types of arrangements prescribed by this Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996, ("FCC
1st Order") and the Second Report and Order and Memorandum Opinion and Order, In
the Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1st Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed into
law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements for
service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell services
for resale, on the terms and subject to the conditions of this Agreement; and,
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WHEREAS, Reseller is a Telecommunications Carrier and has requested that
USWC negotiate an Agreement with Reseller for the provision of USWC services for
resale pursuant to the Act and in conformance with USWC's duties under the Act;
and
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Reseller and USWC hereby covenant and agree as follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under
which USWC agrees to provide services for resale. Unless otherwise
provided in this Agreement, USWC will perform all of its obligations
hereunder to the extent provided in the Appendices attached hereto.
The Agreement includes all accompanying appendices.
B. In the performance of their obligations under this Agreement, the
Parties shall act in good faith and consistently with the intent of
the Act. Where notice, approval or similar action by a Party is
permitted or required by any provision of this Agreement, the Act,
FCC 1st and 2nd Orders, or a state Commission, (including, without
limitation, the obligation of the parties to further negotiate the
resolution of new or open issues under this Agreement) such action
shall not be unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties, and for
that reason will, unless otherwise agreed, implement this Agreement
as an integrated package without alteration of any material term or
condition, or the inclusion or deletion of terms and conditions that
would serve to alter a material term or condition herein unless such
term or condition is altered pursuant to Section IV, E. 1 herein or
to comply with a court order or an FCC or state Commission order.
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service offered
to end users which provides the end user with a telephonic
connection to, and a unique local telephone number address on, the
public switched telecommunications network, and which enables such
end user to generally place calls to, or receive calls from, other
stations on the public switched telecommunications network. Basic
residence and business line services are Basic Exchange
Telecommunication Services. As used solely in the context of this
Agreement and unless otherwise agreed, Basic Exchange
Telecommunication Services includes access to ancillary services
such as 911, directory assistance and operator services.
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B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which include,
but are not necessarily limited to: Automatic Call Back; Call Trace;
Caller ID and Related Blocking Features; Distinctive Ringing/Call
Waiting; Selective Call Forward; Selective Call Rejection. (See
Bellcore documentation for definition.)
C. "Commission" means the Public Utilities Commission(s) in the
state(s) of Minnesota, South Dakota, North Dakota, Iowa, Nebraska,
Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Idaho, Oregon
and Washington.
D. Directory Listings are any information: (1) identifying the listed
names of subscribers of a telecommunications carrier and such
subscribers' telephone numbers and addresses and (2) that the
telecommunications carrier or an affiliate has published, caused to
be published, or accepted for publication in any directory format.
E. "Enhanced Services" means any service offered over common carrier
transmission facilities that employ computer processing applications
that act on format, content, code, protocol or similar aspects of
the subscriber's transmitted information; that provide the
subscriber with additional, different or restructured information;
or involve customer interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of information
between telecommunications carriers about current or proposed
customer products and services.
G. "Reseller" is a category of Local Exchange service providers that
are certified to obtain dial tone and associated telecommunications
services from another provider through the purchase of bundled
finished services for resale to its end user customers.
H. "Tariff Services" as used throughout this Agreement refers to USWC
state tariffs, price lists, price schedules and catalogs.
I. "Technically feasible". Branding of Operator Services and Directory
Assistance shall be deemed technically feasible absent technical or
operational concerns that prevent the fulfillment of a request by a
telecommunications carrier for such branding. A determination of
technical feasibility does not include consideration of economic,
accounting, billing, space, or site concerns, except that space and
site concerns may be considered in circumstances where there is no
possibility of expanding the space available. The fact that an
incumbent LEC must modify its facilities or equipment to respond to
such request does not determine whether satisfying such request is
technically feasible. An incumbent LEC that claims that it cannot
satisfy such request because of adverse network reliability impacts
must prove to the state Commission by clear and convincing evidence
that such interconnection, access, or methods would result in
specific and significant adverse network reliability impacts.
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J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to such
class of users as to be effectively available directly to the
public, regardless of the facilities used. As used in this
definition, "telecommunications" means the transmission, between or
among points specified by the user, of information of the user's
choosing, without change in the form or content of the information
sent and received.
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A. and B.) and
intraLATA toll originating from USWC exchanges (hereinafter
"intraLATA toll") will be available for resale by USWC
pursuant to the Act and will reference terms and conditions
(except prices) in USWC tariffs, where applicable. Appendix A
lists services which are available for resale under this
Agreement and the applicable discounts, and is attached and
incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC services
are not available for resale under this Agreement, including
but not limited to promotions of more than 90 days duration
and packages of services comprised of services available for
resale separately, and certain other USWC services are
available for resale but at no discount, as identified in
Appendix A or in individual state tariffs. The availability of
services and applicable discounts identified in Appendix A or
in individual tariffs are subject to change pursuant to
Section IV E.1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic Exchange
Switched Features and intraLATA toll may be resold only for
their intended or disclosed use and only to the same class of
customer to whom USWC sells such services; e.g., residence
service may not be resold to business customers.
2. USWC shall provide to Reseller services for resale that are
equal in quality, subject to the same conditions (including
the conditions in USWC's effective tariffs), within the same
provisioning time intervals that USWC provides these services
to others, including end users, and in accordance with any
applicable state Commission service quality standards,
including standards a state Commission may impose pursuant to
Section 252(e)(3) of the Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single point of
contact for its end users' service needs, including without
limitation, sales, service design, order taking, provisioning,
change orders, training, maintenance,
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trouble reports, repair, post-sale servicing, billing,
collection and inquiry. Reseller shall make it clear to its
end users that they are customers of the Reseller for resold
services. Reseller's end users contacting USWC will be
instructed to contact the Reseller; however, nothing in this
Agreement, except as provided in Section IV.C.7(e), shall be
deemed to prohibit USWC from discussing its products and
services with Reseller's customers who call USWC for any
reason.
2. Reseller shall transmit to USWC all information necessary for
the installation (billing, listing and other information),
repair, maintenance and post-installation servicing according
to USWC's standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end user's new service provider
discontinues the end user's service in anticipation of moving
to another service provider, USWC will render its closing bill
to end user customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a bill to
Reseller for that portion of the service provided to the
Reseller should Reseller's end user customer, a new service
provider, or Reseller request service be discontinued to the
end user. USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service provider.
USWC will not provide Reseller with the name of the other
reseller or service provider selected by the end user.
The Parties agree that they will not transfer their respective
end user customers whose accounts are in arrears between each
other. The Parties further agree that they work cooperatively
together to develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide Reseller
with points of contact for order entry, problem resolution and
repair of the resold services.
4. Prior to placing orders on behalf of the end user, Reseller
shall be responsible for obtaining and have in its possession
Proof of Authorization ("POA"). POA shall consist of
documentation acceptable to USWC of the end user's selection
of Reseller. Such selection may be obtained in the following
ways:
a. The end user's written Letter of Authorization or LOA.
b. The end user's electronic authorization by use of an 800
number.
c. The end user's oral authorization verified by an
independent third party (with third party verification
as POA).
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d. A prepaid returnable postcard supplied by Reseller which
has been signed and returned by end user. Reseller will
wait fourteen (14) days after mailing the postcard
before placing an order to change.
Reseller shall make POAs available to USWC upon request. Prior
to placing orders that will disconnect a line from another
reseller's account the Reseller is responsible for obtaining
all information needed to process the disconnect order and
re-establish the service on behalf of the end user. If a
Reseller is displaced by another reseller or service provider,
the Reseller is responsible for coordination with the other
reseller or service provider. Should an end user dispute or a
discrepancy arise regarding the authority of Reseller to act
on behalf of the end user, the Reseller is responsible for
providing written evidence of its authority to USWC within
three(3) business days. If there is a conflict between the end
user designation and Reseller's written evidence of its
authority, USWC shall honor the designation of the end user
and change the end user back to the previous service provider.
If the Reseller does not provide the POA within three (3)
business days, or if the end user disputes the authority of
the POA, then the Reseller must, by the end of the third
business day:
o notify USWC to change the end user back to the previous
reseller or service provider, and
o provide any end user information and billing records the
Reseller has obtained relating to the end user to the
previous reseller, and
o notify the end user and USWC that the change has been
made,
o remit to USWC a charge of $100.00 ("slamming charge") as
compensation for the change back to the previous
reseller or service provider.
If an end user customer is switched from Reseller back to USWC
and there is a dispute or discrepancy with respect to such
change in service provider, Reseller may request to see a copy
of the POA which USWC has obtained from the end user to
effectuate a return to USWC as the end user's service
provider. If USWC is unable to produce a POA within three (3)
business days, USWC shall change the end user back to Reseller
(or other previous reseller) without imposition of any
Customer Transfer Charge.
5. Reseller shall designate Primary Interexchange Carrier (PIC)
assignments on behalf of its end-users for interLATA services
and intraLATA services when intraLATA presubscription is
implemented.
6. When end user customers switch from USWC to Reseller, or to
Reseller from any other reseller, such customers shall be
permitted to retain their
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current telephone numbers if they so desire and do not change
their service address to an address served by a different
central office. USWC shall take no action to prevent Reseller
customers from retaining their current telephone numbers.
7. Reseller and USWC will employ the following procedures for
handling misdirected repair calls:
a. Reseller and USWC will provide their respective
customers with the correct telephone numbers to call for
access to their respective repair bureaus.
b. Customers of Reseller shall be instructed to report all
cases of trouble to Reseller. Customers of USWC shall be
instructed to report all cases of trouble to USWC.
c. To the extent the correct provider can be determined,
misdirected repair calls will be referred to the proper
provider of Basic Exchange Telecommunications Service.
d. Reseller and USWC will provide their respective repair
contact numbers to one another on a reciprocal basis.
e. Notwithstanding the provisions of Section IV.C.1., USWC
will not discuss its products and services with
Reseller's customers during the course of repair calls
or visits.
D. Reseller Responsibilities.
1. Reseller must send USWC complete and accurate end-user listing
information for Directory Assistance, Directory, and 911
Emergency Services using USWC's resale order form and process.
Reseller must provide to USWC accurate end-user information to
ensure appropriate listings in any databases in which USWC is
required to retain and/or maintain end-user information. USWC
assumes no liability for the accuracy of information provided
by Reseller.
2. Reseller may not reserve blocks of USWC telephone numbers,
except as allowed by tariffs.
3. Reseller is liable for all fraud associated with Service to
its end-users and accounts. USWC takes no responsibility, will
not investigate, and will make no adjustments to Reseller's
account in cases of fraud unless such fraud is the result of
any intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of potential
fraud with respect to Reseller's accounts, USWC will promptly
inform Reseller and, at the direction of Reseller, take
reasonable action to mitigate the fraud where such action is
possible.
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4. Reseller will indicate the date it will offer to residential
and business subscribers telephone exchange services. The
Reseller will provide a two year forecast within ninety (90)
days of signing this Agreement. During the first year of the
term of this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter, during the
term of this Agreement, Reseller will provide updated
forecasts from time to time, as requested by USWC. The initial
forecast will provide:
o The date service will be offered (by city and/or state)
o The type and quantity of service(s) which will be
offered
o Reseller's anticipated order volume
o Reseller's key contact personnel
The information provided pursuant to this paragraph shall be
considered Proprietary Information under Section VII.0. of
this Agreement.
5. In the event USWC terminates the provisioning of any resold
services to Reseller for any reason, Reseller shall be
responsible for providing any and all necessary notice to its
end users of the termination. In no case shall USWC be
responsible for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of its
termination of a resold service on a timely basis consistent
with Commission rules and notice requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are available for
resale at the applicable discount percentage or rate per
minute set forth in Appendix A or at the retail tariff rates
for services available for resale but excluded from the
wholesale pricing arrangement in this Agreement.
However, state Commissions may do any of the following
(collectively referred to hereinafter as "Order") during the
term of this Agreement:
o establish wholesale discount rates through
decisions in arbitration, interconnection and/or
resale cost proceedings;
o establish other recurring and nonrecurring rates
related to resale, including but not limited to
Customer Transfer Charges and Slamming Charges
("Other Resale Charges"); and
o order that certain services be made available for
resale at specified wholesale discount rates.
If a state Commission orders services to be available for
resale, the Parties agree that they will, on a state-by-state
basis, revise Appendix A to incorporate the services
determined by such Order into this Agreement, effective on the
date ordered by a Commission. When a state Commission, through
a decision in arbitration, identifies services that must be
available for resale at wholesale discount rates, such
decision shall be deemed to have defined that such services
are
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generally available to resellers in that state. If a state
Commission establishes wholesale discount rates and Other
Resale Charges to be made generally available to resellers or
establishes a resale tariff, the Parties agree that they will,
on a state-by-state basis, revise Appendix A to incorporate
such wholesale discount rates and/or Other Resale Charges into
this Agreement effective on the date ordered by a Commission;
provided, however, that USWC shall have a reasonable time to
implement system or other changes necessary to bill the
Commission ordered rates or charges.
The rates for those resold services initially included in the
wholesale pricing arrangement under this Agreement shall be
subject to true-up to the wholesale discount rates established
by a Commission Order making such rates generally available to
resellers or established by a resale tariff, retroactively to
the effective date of this Agreement. Any true-up shall be on
a service-by-service basis if wholesale discount rates are
established by a Commission on such a basis.
Services excluded from the wholesale pricing arrangement under
this Agreement as identified in Appendix A, shall be made
available on a going forward basis from the date a of
Commission Order that orders such services be made generally
available to any reseller in the state where such a Commission
Order is issued. Such services shall be available at the
discount rate applicable to basic exchange business service
identified in Section 2 of Appendix A; provided, however, that
when a Commission order establishes wholesale discount rates
for such services as generally available to resellers,
Appendix A shall be revised to incorporate the wholesale
discount rates generally available to resellers.
If a state Commission fails to issue such an Order or make
effective such a tariff by the end of the first year this
Agreement, either USWC or Reseller may elect to renegotiate
this Section of the Agreement.
2. If the resold services are purchased pursuant to Tariffs and
the Tariff rates change, charges billed to Reseller for such
services will be based upon the new Tariff rates less the
applicable wholesale discount as agreed to herein or
established by resale Tariff. The new rate will be effective
upon Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in Appendix A
applies when transferring any existing account or lines to a
Reseller. Tariffed non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be paid by the
Reseller without discount to USWC for each local exchange line
resold under this Agreement. All federal and state rules and
regulations associated with SLC as found in the applicable
tariffs also apply.
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5. Reseller will pay to USWC the PIC change charge without
discount associated with Reseller end user changes of
inter-exchange or intraLATA carriers.
6. Reseller agrees to pay USWC when its end user activates any
services or features that are billed on a per use or per
activation basis subject to the applicable discount in
Appendix A as such may be amended pursuant to Section IV.E.1
(e.g., continuous redial, last call return, call back calling,
call trace, etc.).
7. Resold services are available only where facilities currently
exist and are capable of providing such services without
construction of additional facilities or enhancement of
existing facilities. However, if Reseller requests that
facilities be constructed or enhanced to provide resold
services, USWC will review such requests on a case-by-case
basis and determine, in its sole discretion, if it is
economically feasible for USWC to build or enhance facilities.
If USWC decides to build or enhance the requested facilities,
USWC will develop and provide to Reseller a price quote for
the construction. If the quote is accepted, Reseller will be
billed the quoted price and construction will commence after
receipt of payment.
8. Nonrecurring charges will not be discounted and will be billed
at the applicable Tariff rates.
9. As part of the resold line, USWC provides and Reseller
accepts, at this time, operator services, directory
assistance, and intraLATA long distance with standard USWC
branding. Reseller is not permitted to alter the branding of
these services in any manner when the services are a part of
the resold line without the prior written approval of USWC.
However, at the request of Reseller and where technically
feasible, USWC will rebrand operator services and directory
assistance in the Reseller's name, provided the costs
associated with such rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding Reseller's use
of USWC's retail product training materials. Except for any rights
granted by USWC to Reseller for the use or copying of product
training material, product training provided under this Agreement
shall be considered "Proprietary Information" as described in
Section VII. 0., and shall be subject to the terms and conditions
specified therein.
G. Cooperation
The Parties agree that this Agreement involves the provision of USWC
services in ways such services were not previously available and the
introduction of new processes and procedures to provide and bill
such services. Accordingly, the
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Parties agree to work jointly and cooperatively in testing and
implementing processes for pre-ordering, ordering, maintenance,
provisioning and billing and in reasonably resolving issues which
result from such implementation on a timely basis.
V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal for
access to its Operational Support Systems (OSS) to meet the
requirements of the FCC's 1st and 2nd Orders and to provide Reseller
and other telecommunications carriers with electronic interfaces for
pre-ordering, ordering, repair and billing functions by January 1,
1997 for Plain Old Telephone services (POTs). Subsequent phases of
the plan will incorporate the capabilities to support designed
services for pre-ordering, ordering and repair, which are estimated
to be available between the second and third quarters of 1997.
Reseller understands that USWC is proposing that these interfaces
will have the necessary mediation to protect the integrity of the
network and protect the privacy of customer information.
B. The Parties further acknowledge that USWC is, or soon will be,
presenting its OSS proposal to state Commissions for approval,
including approval of fees or cost recovery methods that USWC may
charge or use to charge Reseller in connection with the design,
implementation and on-going maintenance and support of the OSS ("OSS
fees"). The Parties further acknowledge that, because the OSS is
still in the conceptual stage of development at the time of
execution of this Agreement, USWC is unable to specify or estimate
the amount of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to USWC's
OSS become operational and a state Commission approves USWC's OSS
plan and establishes OSS fees or cost recovery methods, the Parties
will amend this Agreement to incorporate terms and conditions
regarding Reseller's access to USWC's OSS, including OSS fees, on a
state-by-state basis. The Parties further agree that Reseller may
terminate this Agreement if the amount of OSS fees turns out to be
so excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such termination,
Reseller shall give USWC (sixty) 60 days written notice.
D. Prior to approval and deployment of USWC's OSS interfaces, USWC
shall continue to provide all pre-ordering, ordering, repair and
billing functions and services through manual procedures outlined in
a separately provided Resale Resource Guide. Such manual procedures
shall be available where USWC's OSS interfaces are unable to handle
pre-ordering, ordering, repair and billing functions for the
services available to Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in any
manner in any state Commission proceeding that addresses USWC's OSS
interface proposal, including the establishment of OSS fees to the
extent such participation is permitted by a Commission.
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VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each main
telephone number belonging to Reseller's end user customer based on
end user information provided to USWC by Reseller. USWC will place
Reseller's listings in USWC's directory listing database for
directory assistance purposes and will make listings available to
directory publishers and other third parties. Additional terms and
conditions with respect to directory listings are described in
Appendix B which by this reference is incorporated and made a part
of this Agreement.
VII. GENERAL PROVISIONS
A. Term.
This Agreement shall be effective upon approval by a Commission(s)
and shall continue for a period of two (2) years. Thereafter the
Agreement shall continue in force and effect unless and until a new
agreement, addressing all of the terms of this Agreement, becomes
effective between the Parties. The Parties agree to commence
negotiations on a new agreement no later than 1 1/2 years after this
Agreement becomes effective. This Agreement shall be effective
pursuant to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible for all
applicable charges for the resold services as provided herein.
The Reseller shall also be responsible for all tariffed
charges and charges separately identified in this Agreement
associated with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis, within 7-10
days of the last day of the most recent billing period, in an
agreed upon standard electronic billing format, billing
information including (1) a summary bill, and (2) individual
end user customer sub-account information consistent with the
samples provided to Reseller for Reseller to render end user
customer bills indicating all recurring and nonrecurring
charges associated with each individual customer's account for
the most recent billing period.
C. Payment.
1. Amounts payable under this Agreement are due and payable
within thirty (30) days after the bill date of USWC's invoice.
During the initial three billing cycles of this Agreement,
Reseller and USWC agree that undisputed amounts shall be paid
as provided herein. Reseller and USWC further agree that,
during said three billing cycle period, they will cooperate to
resolve amounts in dispute or billing process issues in a
timely manner but no later than sixty (60) days after the bill
date of USWC's invoice or identification and notice of the
billing process issue.
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Disputed amounts will be paid within thirty (30) days
following resolution of the dispute.
2. After the three (3) month period outlined in Section C.1.
above, the Reseller will pay the bill in full within 30 days
after the bill date of the invoice. Billing disputes will be
processed and jointly resolved. Any disputed amounts that USWC
remits to the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
3. A late payment charge of 1.5% applies to all billed balances
which are not paid by 30 days after the bill date shown on the
invoice. USWC agrees, however, that the application of this
provision will be suspended for the initial three billing
cycles of this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the failure by
Reseller to make full payment for the resold services provided
under this Agreement within thirty (30) days of the due date
on Reseller's bill. USWC agrees, however, that the application
of this provision will be suspended for the initial three
billing cycles of this Agreement and will not apply to amounts
billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to make full
payment for the resold services provided under this Agreement
within sixty (60) days of the due date on Reseller's bill.
Reseller will pay the tariff charge required to reconnect each
end user line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this provision will
be suspended for the first three billing cycles under this
Agreement and will not apply to amounts billed during those
three cycles.
6. Collection procedures and the requirements for deposit are
unaffected by the application of a late payment charge.
7. The Parties agree that this payment and dispute resolution
process is a new procedure and they further agree that this
Section VII. C. can be reopened for negotiation at any time
within the first twelve (12) months of this Agreement.
8. USWC shall credit Reseller's account the amount due for any
trouble or out-of-service conditions in the same manner that
USWC credits the accounts of its own end-user customers and
pursuant to any applicable provisions in USWC's tariffs. USWC
shall reflect the amount of such credits on an individual
customer telephone number basis in the billing information
USWC provides Reseller.
9. In the event billing disputes relate to service quality
issues, the dispute shall be referred to the USWC account
executive assigned to Reseller
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who will evaluate the facts and circumstances of the service
quality issues and will work with Reseller to resolve the
dispute.
D. Deposit.
1. USWC may require Reseller to make a suitable deposit to be
held by USWC as a guarantee of the payment of charges. Any
deposit required of an existing reseller is due and payable
within ten days after the requirement is imposed. The amount
of the deposit shall be the estimated charges for the resold
Service which will accrue for a two-month period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the initial or
additional deposit, with any interest due as set forth in
applicable tariffs, will, at Reseller's option, either be
credited to Reseller's account or refunded. Satisfactory
credit for a reseller is defined as twelve consecutive months
service as a reseller without a termination for nonpayment and
with no more than one notification of intent to terminate
Service for nonpayment. Interest will be paid on cash deposits
at the rate applying to deposits under applicable Commission
rules, regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or refunded,
as appropriate, upon the earlier of the termination of this
Agreement or one full year of timely payments in full by
Reseller. The fact that a deposit has been made does not
relieve Reseller from any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise or
gross receipts taxes, fees or surcharges (collectively "Taxes")
imposed on or with respect to its sale of services or equipment
provided under this Agreement, except those Taxes which are
explicitly required by a governmental authority to be collected by
USWC. Reseller shall seek sale for resale exemptions from any
applicable governmental or taxing body for payment of any and all
Taxes related to Reseller's purchase of services or equipment from
USWC under this Agreement. Until such time as exemptions are
obtained or applicable, Reseller shall pay USWC for the amount of
any such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes payable
by USWC.
F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures
in performance were foreseen or foreseeable as of the date of this
Agreement, including, without limitation: fire, explosion, power
failure, acts of God, war, revolution, civil commotion, or acts of
public enemies; any law, order, regulation, ordinance or requirement
of any
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government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or delays
caused by the other Party or by other service or equipment vendors;
or any other circumstances beyond the Party's reasonable control. In
such event, the Party affected shall, upon giving prompt notice to
the other Party, be excused from such performance on a day-to-day
basis to the extent of such interference (and the other Party shall
likewise be excused from performance of its obligations on a
day-for-day basis to the extent such Party's obligations relate to
the performance so interfered with). The affected Party shall use
its best efforts to avoid or remove the cause of non-performance and
both parties shall proceed to perform with dispatch once the causes
are removed or cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby retains
the right to exercise full control of and supervision over its own
performance of its obligations under this Agreement and retains full
control over the employment, direction, compensation and discharge
of all employees assisting in the performance of such obligations.
Each Party will be solely responsible for all matters relating to
payment of such employees, including compliance with social security
taxes, withholding taxes and all other regulations governing such
matters. Each Party will be solely responsible for proper handling,
storage, transport and disposal at its own expense of all (i)
substances or materials that it or its contractors or agents bring
to, create or assume control over at Work Locations or, (ii) Waste
resulting therefrom or otherwise generated in connection with its or
its contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as otherwise
provided in this Agreement, each Party shall be responsible for (i)
its own acts and performance of all obligations imposed by
Applicable Law in connection with its activities, legal status and
property, real or personal and, (ii) the acts of its own affiliates,
employees, agents and contractors during the performance of that
Party's obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to the
other for any loss related to or arising out of any negligent act or
omission in its performance of this Agreement, whether in contract
or in tort, shall be limited to the total amount that is or would
have been charged to the other Party by such negligent or breaching
Party for the service(s) or function(s) not performed or improperly
performed.
In no event shall either Party be liable to the other in connection
with the provision or use of services offered under this Agreement
for indirect, incidental, consequential, reliance or special
damages, including (without limitation) damages for lost profits,
lost revenues, lost savings suffered by such other Parties
regardless of the form of action, whether in contract, warranty,
strict liability, or tort, including (without limitation) negligence
of any kind and regardless of whether the Parties know the
possibility that such damages could result. Nothing contained in
this Section H shall limit USWC's or Reseller's
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liability to the other for (i) willful or intentional misconduct
(including gross negligence); (ii) bodily injury, death or damage to
tangible real or tangible personal property proximately caused by
USWC's or Reseller's negligent act or omission or that of their
respective agents, subcontractors or employees, nor shall anything
contained in this section limit the parties indemnification
obligations, as specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify, defend and
hold harmless the other Party and each of its officers,
directors, employees and agents (each an "Indemnitee") from
and against and in respect of any loss, debt, liability,
damage, obligation, claim, demand, judgment or settlement of
any nature or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs and
attorneys' fees, whether suffered, made, instituted, or
asserted by any other party or person, for invasion of
privacy, personal injury to or death of any person or persons,
or for loss, damage to, or destruction of property, whether or
not owned by others, resulting from the indemnifying Party's
performance, breach of Applicable Law, or status of its
employees, agents and subcontractors; or for failure to
perform under this Agreement, regardless of the form of
action.
2. The indemnification provided herein shall be conditioned upon:
a. The indemnified Party shall promptly notify the
indemnifying Party of any action taken against the
indemnified Party relating to the indemnification.
Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that the
Indemnifying Party might have, except to the extent that
such failure prejudices the Indemnifying Party's ability
to defend such Claim.
b. The indemnifying Party shall have sole authority to
defend any such action, including the selection of legal
counsel, and the indemnified Party may engage separate
legal counsel only at its sole cost and expense.
c. In no event shall the indemnifying Party settle or
consent to any judgment pertaining to any such action
without the prior written consent of the indemnified
Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend, indemnify
or hold harmless, or acquire any license or right for the
benefit of, or owe any other obligation or have any liability
to, the other based on or arising from any claim, demand, or
proceeding (hereinafter "claim") by any third party alleging
or asserting that the use of any circuit, apparatus, or
system, or
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the use of any software, or the performance of any service or
method, or the provision of any facilities by either Party
under this Agreement constitutes direct or contributory
infringement, or misuse or misappropriation of any patent,
copyright, trademark, trade secret, or any other proprietary
or intellectual property right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be construed as the
grant of a license, either express or implied, with
respect to any patent, copyright, logo, trademark,
tradename, trade secret or any other intellectual
property right now or hereafter owned, controlled or
licensable by either Party. Reseller may not use any
patent, copyright, logo, trademark, tradename, trade
secret or other intellectual property right of USWC or
its affiliates without execution of a separate agreement
between the Parties.
b. Reseller shall not, without the express written
permission of USWC, state or imply that; 1) Reseller is
connected, or in any way affiliated with USWC or its
affiliates or, 2) Reseller is part of a joint business
association or any similar arrangement with USWC or its
affiliates or, 3) USWC and its affiliates are in any way
sponsoring, endorsing or certifying Reseller and its
goods and services or, 4) the resold goods and services
are in any way associated with or originated from USWC
or any of its affiliates. Notwithstanding the above,
Reseller may state in response to a specific customer
inquiry concerning the origin of the resold services
that "Reseller is reselling USWC services." No other
statements may be made.
3. Notwithstanding the above, unless otherwise prohibited by USWC
pursuant to an applicable provision herein, Reseller may use
the phrase "(Name of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase") in
Reseller's printed materials provided:
a) The Authorized Phrase is not used in connection with any
goods or services other than USWC services resold by
Reseller.
b) Reseller's use of the Authorized Phrase does not, in
USWC's sole discretion, cause customers to believe that
Reseller is USWC.
c) The Authorized Phrase, when displayed, appears only in
text form (Reseller may not use the U S WEST logo) with
all letters being the same font and point size. The
point size of the Authorized Phrase shall be no greater
than one fourth the point size of the smallest use of
Reseller's name and in no even shall exceed 8 point
size.
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d) Reseller shall provide all printed materials to USWC for
its prior written approval.
e) If USWC determines that Reseller's use of the Authorized
Phrase causes customer confusion, USWC may in it's sole
discretion, immediately terminate Reseller's right to
use the Authorized Phrase.
f) Upon termination of the Reseller's right to use the
Authorized Phrase or termination of this Agreement, all
permission or right to use the Authorized Phrase shall
immediately cease to exist and Reseller shall
immediately cease any and all such use of the Authorized
Phrase. Reseller shall either promptly return to USWC or
destroy all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S WEST" and
"U S WEST Communications" (the "Marks") and the goodwill
associated therewith and acknowledges that such goodwill is a
property right belonging to U S WEST, Inc. and USWC
respectively (the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an assignment or
grant to Reseller of any right, title or interest in or to the
Marks and that this Agreement does not confer any right or
license to grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will do nothing
inconsistent with the Owner's ownership of the Marks, and all
rights, if any, that may be acquired by use of the Marks shall
inure to the benefit of the Owners. Reseller will not adopt,
use (other than as authorized in Section 3 herein,) register
or seek to register any mark anywhere in the world which is
identical or confusingly similar to the Marks or which is so
similar thereto as to constitute a deceptive colorable
imitation thereof or to suggest or imply some association,
sponsorship, or endorsement by the Owners; The Owners make no
warranties regarding its ownership of any rights in or the
validity of the Marks.
5. As a condition to the access or use of patents, copyrights,
trade secrets and other intellectual property (including
software) owned or controlled by a third party to the extent
necessary to implement this Agreement or specifically required
by the then applicable federal and state rules and regulations
relating to resale and access to telecommunications facilities
and services, the party providing access may require the other
upon written notice, from time to time, to obtain permission
for such access or use, make all payments in connection with
obtaining such permission, and providing evidence of such
permission.
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K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTIES
AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE DOES NOT EXIST,
ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of negotiations
between the Parties. As such, this Agreement can be assigned only
with the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld.
M. Default.
If either Party defaults in the payment of any amount due hereunder,
or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for thirty (30) days
after written notice thereof, the other Party may terminate this
Agreement forthwith by written instrument. The failure of either
Party to enforce any of the provisions of this Agreement or the
waiver thereof in any instance shall not be construed as a general
waiver or relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules addressing
issues contained in this Agreement. To the extent that certain of
the rules contained in the FCC 1st Order and the FCC 2d Order are
deemed by the courts to be not effective, this contract shall be
modified to comport with the final court decisions and subsequent
FCC or state Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision of this
Agreement is held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not invalidate the entire
Agreement. The Agreement shall be construed as if it did not contain
the invalid or unenforceable provision or provisions, and the rights
and obligations of each Party shall be construed and enforced
accordingly; provided, however, that in the event that such invalid
or unenforceable provision or provisions are essential elements of
this Agreement and, in the opinion of either party, substantially
impair the rights or obligations of either party, Reseller and USWC
shall promptly negotiate a replacement provision or provisions. If
the Parties cannot negotiate such a replacement provision or
provisions, the Parties may agree to terminate the Agreement, In the
event of termination as described herein, for service arrangements
made available under this Agreement and existing at the time of
termination, those arrangements shall continue without interruption
under either a) a new agreement executed by the Parties, b) standard
resale terms and conditions approved and made generally effective by
the Commission, or c) tariff terms and
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conditions generally available to resellers. If a) does not come
about, or b) or c) are not available, the Agreement shall remain in
effect until a replacement provision is determined through
arbitration.
O. Nondisclosure.
1. All information including, but not limited to, specifications,
drawings, sketches, models, tools, technical information,
employee records, maps, financial reports, and market data,
(i) furnished by one Party to the other Party or to which one
Party provides to the other Party access (such as to a
database) dealing with customer specific, facility specific,
or usage specific information, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time
of delivery as "Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual presentation
and declared to the receiving Party at the time of delivery,
or by written notice given to the receiving Party within ten
(10) days after delivery, to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary
Information"), shall remain the property of the disclosing
Party.
2. Upon request by the disclosing Party, the receiving Party
shall return all tangible copies of Proprietary Information,
whether written, graphic or otherwise, except that the
receiving Party may retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that Proprietary
Information constitutes trade secrets of the disclosing Party.
The receiving Party shall maintain in confidence all of the
disclosing Party's Proprietary Information and shall use the
disclosing Party's Proprietary Information only for performing
the covenants contained, or exercising any rights granted, in
this Agreement. Only the employees and agents with a need to
know shall have access to the Proprietary Information and each
such employee and agent shall be advised of his or her
obligations under this Section O. Neither Party shall use the
other Party's Proprietary Information for any other purpose
except upon such terms and conditions as may be agreed upon
between the parties in writing.
4. Unless otherwise agreed, the obligations of confidentiality
and non-use set forth in this Agreement do not apply to the
extent that such Proprietary Information:
a. was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential (evidenced by written records prepared
prior to delivery by the disclosing Party);
b. is or becomes publicly known through no wrongful act of
the receiving Party;
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c. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligation
to the disclosing Party with respect to such
information; or
d. is independently developed by receiving Party
individuals who do not have access to the Proprietary
Information;
e. is disclosed to a third person by the disclosing Party
without restrictions on disclosure;
f. is approved for release by written authorization of the
disclosing Party; or
g. is required to be made public by the receiving Party
pursuant to applicable law, regulation, or governmental
order, provided that the receiving Party shall give
sufficient notice of the requirement to the disclosing
Party to enable the disclosing Party to seek protective
orders where possible.
5. USWC grants Reseller the limited, personal, nonexclusive right
and license to access and use information contained in certain
of USWC's databases (Directory Assistance and Operator
Services databases, certain Advanced Intelligent Network
databases and Operation Support System databases) but only to
the extent as specifically required by the then applicable
federal and state rules and regulations relating to access to
and use of such databases, as they may be amended from time to
time, and for no other purpose. Without limiting the
generality of the foregoing, this right and license to
Reseller does not include the license and right to extract or
copy (including by any manual, mechanical or electronic means)
or use any such database information, in whole or in part, to
enhance the quality of any of Reseller's own database services
or offerings, as inputs to Reseller's or other's directory
assistance or directory publishing operations or for the
creation of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and all
information contained in any of such USWC's databases shall be
Proprietary Information subject to the terms and conditions of
this section O; provided, however, that Sections 4a, b, and c
shall not apply even though the individual parts or components
of the information contained in any such databases may
otherwise fall within such Sections.
6. Notwithstanding any other provision of this Agreement, the
Proprietary Information provisions of this Agreement shall
apply to all information furnished by either Party to the
other in furtherance of the purpose of this Agreement, even if
furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be considered
Proprietary Information by either or both Parties, and agree
to limit distribution of this Agreement
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to those individuals in their respective companies with a need
to know the contents of this Agreement.
P. Survival.
Any liabilities or obligations of a Party for acts or omissions
prior to the cancellation or termination of this Agreement; any
obligation of a Party under the provisions regarding
indemnification, Confidential Information, limitations on liability,
and any other provisions of this Agreement which, by their terms,
are contemplated to survive (or to be performed after) termination
of this Agreement, shall survive cancellation or termination
thereof.
Q. Dispute Resolution.
Except as provided by the Act, if any claim, controversy or dispute
between the Parties, their agents, employees, officers, directors or
affiliated agents ("Dispute") cannot be settled through negotiation,
it shall be resolved by arbitration conducted by a single arbitrator
engaged in the practice of law, under the then current rules of the
American Arbitration Association ("AAA"). The Federal Arbitration
Act, 9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's award
shall be final and binding and may be entered in any court having
jurisdiction thereof. Each Party shall bear its own costs and
attorneys' fees, and shall share equally in the fees and expenses
of the arbitrator. The laws of the state where the services subject
to this Agreement are provided shall govern the construction and
interpretation of this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain issues
during negotiation, the Parties will identify such issues for
arbitration before an appropriate state regulatory agency. Only
those points identified by the Parties for arbitration will be
submitted. All other terms on which the Parties reach agreement will
be submitted for approval in their final form.
S. Governing Law.
This Agreement shall be deemed to be a contract made under and shall
be construed, interpreted and enforced in accordance with the Act,
where applicable, and the laws of the state where the services
subject to this Agreement are provided and shall be subject to the
exclusive jurisdiction of the courts in that state, unless otherwise
provided by the Act.
USWC shall be responsible for obtaining and keeping in effect all
Federal Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may be
required in connection with the performance of its obligations under
this Agreement. Reseller shall be
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responsible for obtaining and keeping in effect all Federal
Communications Commission, state regulatory Commission, franchise
authority and other regulatory approvals that may be required in
connection with its offering of services to Reseller Customers
contemplated by this Agreement.
T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement, whether in
contract, tort, or other theory, may be brought by either party more
than two (2) years after the cause of action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives of the
Parties. For convenience, it has been drafted in final form by one
of the Parties. Accordingly, in the event of ambiguities, no
inferences will be drawn against either Party solely on the basis of
authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to be
given or delivered under this Agreement shall be in hard-copy
writing (unless otherwise specifically provided herein) and shall be
sufficiently given if delivered personally or delivered by prepaid
overnight express service to the following (unless otherwise
specifically required by this Agreement to be delivered to another
representative or point of contact).
Any notices required by or concerning this Agreement shall be sent
to the Parties at the addresses shown below:
USWC Reseller
Katherine L. Fleming Brad VanLeur
U S WEST Communications Firstel, Inc.
Interconnection Services Sales & Marketing Director
1801 California, Suite 4920 110 South Phillips, Suite 202
Denver, Colorado 80202-9184 Souix Falls, SD 57102
303-896-6100 (phone) 605-332-3232 (phone)
303-896-9641 (fax) 605-332-8004 (fax)
Each Party shall inform the other of any changes in the above
addresses.
W. No Third-Party Beneficiaries
Except as may be specifically set forth in this Agreement, this
Agreement does not provide and shall not be construed to provide
third parties with any remedy, claim, liability, reimbursement,
cause of action, or other privilege.
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X. Publicity and Advertising
Neither party shall publish or use any advertising, sales promotions
or other publicity materials that use the other party's name, logo,
trademarks or service marks without the prior written approval of
the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment or
waiver of any provision of this Agreement, and no consent to any
default under this Agreement, shall be effective unless the same is
in writing and signed by an officer of the Party against whom such
amendment, waiver or consent is claimed.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(I) of the Act
shall apply, including state and federal interpretive regulations in
effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original; but such counterparts shall
together constitute one and the same instrument.
BB. Headings of No Force or Effect
The headings of Articles and Sections of this Agreement are for
convenience of reference only, and shall in no way define, modify or
restrict the meaning or interpretation of the terms or provisions
of this Agreement.
CC. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings, proposals
and undertakings with respect to the subject matter hereof. This
Agreement shall prevail in the event of any conflict between the
"Resale Resource Guide" and the terms and conditions of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
FIRSTEL, Inc. U S WEST Communications, Inc.
/s/ Fred L. Thurman /s/ Katherine L. Fleming
- ------------------------------ --------------------------------------
Signature Signature
Fred L. Thurman Katherine L. Fleming
- ------------------------------ --------------------------------------
Name Printed/Typed Name Printed/Typed
President Exec Director - Interconnect
- ------------------------------ --------------------------------------
Title Title
3-14-97 3/19/97
- ------------------------------ --------------------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform this
Agreement as a result of successful administrative/judicial review and/or future
settlement agreements between the Parties to this Agreement.
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<PAGE>
APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access
(Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs, the
product specific nonrecurring charges, without discount, will apply when
additional lines or trunks are added or when the end user adds features or
services to existing lines or trunks.
2. The following USWC services are available for resale at the rates listed
below:
Category: Discount Rate
o Basic Exchange Business, PBX Trunks o 12%
o ISDN, Frame Relay 12%
o Listings, CO Features 12%
IntraLATA toll is available for resale at the contract toll rates listed below
without application of a further wholesale discount:
State: Rate Per Minute of Use
------ ----------------------
Arizona $ .125
Colorado .14
Idaho .12
Iowa .13
Minnesota .135
Montana .12
Nebraska .175
New Mexico .155
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North Dakota .16
Oregon .09
South Dakota .10
Utah .11
Washington .11
Wyoming .16
3. The following services are available for resale under this Agreement but are
not included in the wholesale pricing reflected above unless and until the state
public utilities Commission in a particular state orders that wholesale discount
rates are generally available to resellers with respect to these products in
that state:
Basic Exchange Residence Line
Centrex
Private Line
Special Access
Public Access Lines
Volume Discount and/or Term Arrangement (where contained in customer
contracts or USWC tariffs)
4. The following services are not available for resale:
Lifeline
Concession Service
Technical Trials
Grandfathered Products and Services (except to customers currently served
with such services)
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APPENDIX B
DIRECTORY LISTINGS
Directory Listings
1. Scope.
a. Reseller Listings Service ("Listings") consists of USWC placing the names,
addresses and telephone numbers of Reseller's end users in USWC's listing
database, based on end user information provided to USWC by Reseller. USWC is
authorized to use Listings in Directory Assistance (DA) and as noted in 1.D.i or
1.D.ii.
b. Reseller will provide in standard, format, and USWC will accept at no charge,
one primary listing for each main telephone number belonging to Reseller's end
user customers. Primary listings are as defined for USWC end users in USWC's
general exchange tariffs. Reseller will be charged for privacy listings and
premium listings, e.g., additional, foreign, cross reference, informational,
etc., at USWC's general exchange listing tariff rates minus the applicable
standard resale discount in each state.
c. USWC will furnish Reseller the Listings format specifications. USWC cannot
accept Listings with advance completion dates.
d. Reseller grants USWC a non-exclusive license to incorporate Listings
information into its directory assistance database. Reseller hereby selects one
of two options for USWC's use of Listings and dissemination of Listings to third
parties.
EITHER:
i. Treat the same as USWC's end user listings -- No prior authorization is
needed for USWC to release Listings to directory publishers or other third
parties. USWC will incorporate Listings information in all existing and future
directory assistance applications developed by USWC. Reseller will authorize
USWC to sell and otherwise make Listings available to directory publishers
including USWC's publisher affiliate for inclusion in white pages published on
USWC's behalf. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
OR:
ii. Restrict to USWC's directory assistance -- Prior authorization required by
Reseller for all other uses. Reseller makes its own, separate agreements with
USWC, third parties and directory publishers for all uses of its listings beyond
DA. USWC will sell Listings to directory publishers (including USWC'S publisher
affiliate for inclusion in white pages published on USWC's behalf), other third
parties and USWC products only after third party presents proof of Reseller's
authorization. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
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e. To the extent that state tariffs limit USWC's liability with regard to
Listings, the applicable state tariff(s) is incorporated herein and supersedes
Section VII.G., "Limitation of Liability", of this Agreement with respect to
Listings only.
2. USWC Responsibilities.
USWC is responsible for maintaining Listings, including entering, changing,
correcting, rearranging and removing Listings in accordance with Reseller
orders. USWC will take reasonable steps in accordance with industry practices to
accommodate non-published and non-listed listings provided that Reseller has
supplied USWC the necessary privacy indicators on such Listings.
USWC will include Reseller's Listings in USWC's Directory Assistance service to
ensure that callers to USWC's Directory Assistance service have
non-discriminatory access to Reseller's Listings.
USWC will incorporate Reseller's Listings provided to USWC in the white pages
directory published on USWC's behalf.
3. Reseller Responsibilities.
a. Reseller agrees to provide to USWC its end user names, addresses and
telephone numbers in a standard format, as specified by USWC.
b. Reseller will supply its ACNA/CIC or CLCC/OCN, as appropriate, with each
order to provide USWC the means of identifying Listings ownership.
c. Reseller represents and warrants the end user information provided to USWC is
accurate and correct. Reseller further represents and warrants that it has
reviewed all Listings provided to USWC, including end user requested
restrictions on use such as non-published and non-listed. Reseller shall be
solely responsible for knowing and adhering to state laws or rulings regarding
Listings (e.g., no solicitation requirements in the states of Arizona and
Oregon, privacy requirements in Colorado), and for supplying USWC the applicable
Listing information.
d. Reseller is responsible for all dealings with and on behalf of Reseller's end
users, including:
i. All end user account activity, e.g., end user queries and complaints.
ii. All account maintenance activity, e.g., additions, changes, issuance of
orders for Listings to USWC.
iii. Determining privacy requirements and accurately coding the privacy
indicators for Reseller's end user information. If end user information provided
by Reseller to USWC does not contain a privacy indicator, no privacy
restrictions will apply.
iv. Any additional services requested by Reseller's end users.
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<PAGE>
[Iowa]
AGREEMENT
FOR SERVICE RESALE
Between
Firstel, Inc.
and
U S WEST Communications, Inc.
TABLE OF CONTENTS
Page
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 5
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 7
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (OSS) 13
V. DIRECTORY LISTINGS 13
VI. GENERAL PROVISIONS 14
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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<PAGE>
E. Taxes 16
F. Force Majeure 16
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 18
K. Warranties 20
L Assignment 21
M. Default 21
N. Severability 21
0. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 24
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 25
X. Publicity and Advertising 26
Y. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed in Counterparts 26
BB. Headings of No force or Effect 26
CC. Entire Agreement 26
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<PAGE>
AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller, and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state of Iowa. Where required, this Agreement or the
portions of this Agreement relative to a particular state, will be submitted to
the appropriate Public Utilities Commission ("Commission") and the Parties will
specifically request that the Commission promptly approve this Agreement and
refrain from taking any action to change, suspend or otherwise delay
implementation of this Agreement. The Parties enter into this Agreement without
prejudice to any positions they have taken previously, or may take in the future
in any legislative, regulatory, or other public forum addressing any matters,
including matters related to the types of arrangements prescribed by this
Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996 CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 1st
Order") and the Second Report and Order and Memorandum Opinion and Order, In the
Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996. CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1st Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed into
law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements for
service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell services
for resale, on the terms and subject to the conditions of this Agreement; and,
WHEREAS, Reseller is a Telecommunications Carrier and has requested that
USWC negotiate an Agreement with Reseller for the provision of USWC services for
resale pursuant to the Act and in conformance with USWC's duties under the Act;
and
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<PAGE>
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Reseller and USWC hereby covenant and agree as follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under
which USWC agrees to provide services for resale. Unless otherwise
provided in this Agreement, USWC will perform all of its obligations
hereunder to the extent provided in the Appendices attached hereto.
The Agreement includes all accompanying appendices.
B. In the performance of their obligations under this Agreement, the
Parties shall act in good faith and consistently with the intent of
the Act. Where notice, approval or similar action by a Party is
permitted or required by any provision of this Agreement, the Act,
FCC 1st and 2nd Orders, or a state Commission, (including, without
limitation, the obligation of the parties to further negotiate the
resolution of new or open issues under this Agreement) such action
shall not be unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties, and for
that reason will, unless otherwise agreed, implement this Agreement
as an integrated package without alteration of any material term or
condition, or the inclusion or deletion of terms and conditions that
would serve to alter a material term or condition herein unless such
term or condition is altered pursuant to Section IV, E. 1 herein or
to comply with a court order or an FCC or state Commission order.
D. This Agreement is entered into as a result of both private
negotiations between the Parties and the incorporation of some of
the results of arbitrated decisions by the Iowa Commission acting
pursuant to Section 252 (b) of the Act involving
interconnection/resale agreements of other parties. The Parties have
included for convenience certain rates and services in this
Agreement which reflect rates and services established in some of
those other arbitrations. Reseller acknowledges (1) that those rates
and services are extended only because of the arbitrated results in
other dockets, (2) that USWC intends to appeal certain of those
decisions and (3) that any negotiations, appeal, stay injunction,
settlement or similar proceedings impacting the applicability of
those rates and services to the local services providers who were
parties to those arbitrations will similarly impact the
applicability of those rates and services to Reseller. The Parties
further recognize that this Agreement is subject to the generic
proceedings by the Commission addressing the rates and services in
this Agreement.
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<PAGE>
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service offered
to end users which provides the end user with a telephonic
connection to, and a unique local telephone number address on, the
public switched telecommunications network, and which enables such
end user to generally place calls to, or receive calls from, other
stations on the public switched telecommunications network. Basic
residence and business line services are Basic Exchange
Telecommunication Services. As used solely in the context of this
Agreement and unless otherwise agreed, Basic Exchange
Telecommunication Services includes access to ancillary services
such as 911, directory assistance and operator services.
B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which include,
but are not necessarily limited to: Automatic Call Back; Call Trace;
Caller ID and Related Blocking Features; Distinctive Ringing/Call
Waiting; Selective Call Forward; Selective Call Rejection. (See
BelIcore documentation for definition.)
C. "Commission" means the Public Utilities Commission in the state of
Iowa.
D. Directory Listings are any information: (1) identifying the listed
names of subscribers of a telecommunications carrier and such
subscribers' telephone numbers and addresses and (2) that the
telecommunications carrier or an affiliate has published, caused to
be published, or accepted for publication in any directory format.
E. "Enhanced Services" means any service offered over common carrier
transmission facilities that employ computer processing applications
that act on format, content, code, protocol or similar aspects of
the subscriber's transmitted information; that provide the
subscriber with additional, different or restructured information;
or involve customer interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of information
between telecommunications carriers about current or proposed
customer products and services.
G. "Reseller" is a category of Local Exchange service providers that
are certified to obtain dial tone and associated telecommunications
services from another provider through the purchase of bundled
finished services for resale to its end user customers.
H. "Tariff Services" as used throughout this Agreement refers to USWC
state tariffs, price lists, price schedules and catalogs.
I. "Technically feasible". Branding of Operator Services and Directory
Assistance shall be deemed technically feasible absent technical or
operational concerns that prevent the fulfillment of a request by a
telecommunications carrier for such
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<PAGE>
branding. A determination of technical feasibility does not include
consideration of economic, accounting, billing, space, or site
concerns, except that space and site concerns may be considered in
circumstances where there is no possibility of expanding the space
available. The fact that an incumbent LEC must modify its facilities
or equipment to respond to such request does not determine whether
satisfying such request is technically feasible. An incumbent LEC
that claims that it cannot satisfy such request because of adverse
network reliability impacts must prove to the state Commission by
clear and convincing evidence that such interconnection, access, or
methods would result in specific and significant adverse network
reliability impacts.
J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to such
class of users as to be effectively available directly to the
public, regardless of the facilities used. As used in this
definition, "telecommunications" means the transmission, between or
among points specified by the user, of information of the user's
choosing, without change in the form or content of the information
sent and received.
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A and B.) and
intraLATA toll originating from USWC exchanges (hereinafter
"intraLATA toll") will be available for resale by USWC
pursuant to the Act and will reference terms and conditions
(except prices) in USWC tariffs, where applicable. Appendix A
lists services which are available for resale under this
Agreement and the applicable discounts, and is attached and
incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC services
are not available for resale under this Agreement, including
but not limited to promotions of more than 90 days duration
and packages of services comprised of services available for
resale separately, and certain other USWC services are
available for resale but at no discount, as identified in
Appendix A or in individual state tariffs. The availability of
services and applicable discounts identified in Appendix A or
in individual tariffs are subject to change pursuant to
Section IV E.1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic Exchange
Switched Features and IntraLATA toll may be resold only for
their intended or disclosed use and only to the same class of
customer to whom USWC sells such services; e.g., residence
service may not be resold to business customers.
2. USWC shall provide to Reseller services for resale that are
equal in quality, subject to the same conditions (including
the conditions in
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USWC's effective tariffs), within the same provisioning time
intervals that USWC provides these services to others,
including end users, and in accordance with any applicable
state Commission service quality standards, including
standards a state Commission may impose pursuant to Section
252 (e)(3) of the Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single point of
contact for its end users' service needs, including without
limitation, sales, service design, order taking, provisioning,
change orders, training, maintenance, trouble reports, repair,
post-sale servicing, billing, collection and inquiry. Reseller
shall make it clear to its end users that they are customers
of the Reseller for resold services. Reseller's end users
contacting USWC will be instructed to contact the Reseller;
however, nothing in this Agreement, except as provided in
Section IV.C.7(e), shall be deemed to prohibit USWC from
discussing its products and services with Reseller's customers
who call USWC for any reason.
2. Reseller shall transmit to USWC all information necessary for
the installation (billing, listing and other information),
repair, maintenance and post-installation servicing according
to USWC's standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end user's new service provider
discontinues the end user's service in anticipation of moving
to another service provider, USWC will render its closing bill
to end user customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a bill to
Reseller for that portion of the service provided to the
Reseller should Reseller's end user customer, a new service
provider, or Reseller request service be discontinued to the
end user. USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service provider.
USWC will not provide Reseller with the name of the other
reseller or service provider selected by the end user.
The Parties agree that they will not transfer their respective
end user customers whose accounts are in arrears between each
other. The Parties further agree that they work cooperatively
together to develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide Reseller
with points of contact for order entry, problem resolution and
repair of the resold services.
4. Prior to placing orders on behalf of the end user. Reseller
shall be responsible for obtaining and have in its possession
Proof of Authorization ("POA"). POA shall consist of
documentation acceptable to
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USWC of the end user's selection of Reseller. Such selection
may be obtained in the following ways:
a. The end user's written Letter of Authorization or LOA.
b. The end user's electronic authorization by use of an 800
number.
c. The end user's oral authorization verified by an
independent third party (with third party verification
as POA).
d. A prepaid returnable postcard supplied by Reseller which
has been signed and returned by end user. Reseller
will wait fourteen (14) days after mailing the postcard
before placing an order to change.
Reseller shall make POAs available to USWC upon request. Prior
to placing orders that will disconnect a line from another
reseller's account the Reseller is responsible for obtaining
all information needed to process the disconnect order and
re-establish the service on behalf of the end user. If a
Reseller is displaced by another reseller or service provider,
the Reseller is responsible for coordination with the other
reseller or service provider. Should an end user dispute or a
discrepancy arise regarding the authority of Reseller to act
on behalf of the end user, the Reseller is responsible for
providing written evidence of its authority to USWC within
three (3) business days. If there is a conflict between the
end user designation and Reseller's written evidence of its
authority, USWC shall honor the designation of the end user
and change the end user back to the previous service provider.
If the Reseller does not provide the POA within three (3)
business days, or if the end user disputes the authority of
the POA, then the Reseller must, by the end of the third
business day:
o notify USWC to change the end user back to the previous
reseller or service provider, and
o provide any end user information and billing records the
Reseller has obtained relating to the end user to the
previous reseller, and
o notify the end user and USWC that the change has been
made,
o remit to USWC a charge of $100.00 ("slamming charge") as
compensation for the change back to the previous
reseller or service provider.
If an end user customer is switched from Reseller back to USWC
and there is a dispute or discrepancy with respect to such
change in service provider. Reseller may request to see a copy
of the POA which USWC has obtained from the end user to
effectuate a return to USWC as the end user's service
provider. If USWC is unable to produce a POA within
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three (3) business days, USWC shall change the end user back
to Reseller (or other previous reseller) without imposition of
any Customer Transfer Charge.
5. Reseller shall designate Primary lnterexchange Carrier (PLC)
assignments on behalf of its end-users for interLATA services
and intraLATA services when intraLATA presubscription is
implemented.
6. When end user customers switch from USWC to Reseller, or to
Reseller from any other reseller, such customers shall be
permitted to retain their current telephone numbers if they so
desire and do not change their service address to an address
served by a different central office. USWC shall take no
action to prevent Reseller customers from retaining their
current telephone numbers.
7. Reseller and USWC will employ the following procedures for
handling misdirected repair calls:
a. Reseller and USWC will provide their respective
customers with the correct telephone numbers to call for
access to their respective repair bureaus.
b. Customers of Reseller shall be instructed to report all
cases of trouble to Reseller. Customers of USWC shall be
instructed to report all cases of trouble to USWC.
c. To the extent the correct provider can be determined,
misdirected repair calls will be referred to the proper
provider of Basic Exchange Telecommunications Service.
d. Reseller and USWC will provide their respective repair
contact numbers to one another on a reciprocal basis.
e. Notwithstanding the provisions of Section IV. C. 1.,
USWC will not discuss its products and services with
Reseller's customers during the course of repair calls
or visits.
D. Reseller Responsibilities
1. Reseller must send USWC complete and accurate end-user listing
information for Directory Assistance, Directory, and 911
Emergency Services using USWC's resale order form and process.
Reseller must provide to USWC accurate end-user information to
ensure appropriate listings in any databases in which USWC is
required to retain and/or maintain end-user information. USWC
assumes no liability for the accuracy of information provided
by Reseller.
2. Reseller may not reserve blocks of USWC telephone numbers,
except as allowed by tariffs.
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3. Reseller is liable for all fraud associated with Service to
its end-users and accounts. USWC takes no responsibility, will
not investigate, and will make no adjustments to Reseller's
account in cases of fraud unless such fraud is the result of
any intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of potential
fraud with respect to Reseller's accounts, USWC will promptly
inform Reseller and, at the, direction of Reseller, take
reasonable action to mitigate the fraud where such action is
possible.
4. Reseller will indicate the date it will offer to residential
and business subscribers telephone exchange services. The
Reseller will provide a two year forecast within ninety (90)
days of signing this Agreement. During the first year of the
term of this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter, during the
term of this Agreement, Reseller will provide updated
forecasts from time to time, as requested by USWC. The initial
forecast will provide:
o The date service will be offered (by city and/or state)
o The type and quantity of service(s) which will be
offered
o Reseller's anticipated order volume
o Reseller's key contact personnel
The information provided pursuant to this paragraph shall be
considered Proprietary Information under Section VII. 0. of
this Agreement.
5. In the event USWC terminates the provisioning of any resold
services to Reseller for any reason, Reseller shall be
responsible for providing any and all necessary notice to its
end users of the termination. In no case shall USWC be
responsible for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of its
termination of a resold service on a timely basis consistent
with Commission rules and notice requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are available for
resale at the applicable discount percentage or rate per
minute set forth in Appendix A or at the retail tariff rates
for services available for resale but excluded from the
wholesale pricing arrangement in this Agreement.
The wholesale discounts rates in Appendix A were established
as interim rates in Iowa Docket No. ARB-96-1, AT&T
Communications of the Midwest, Agreement for Local Wireline
Network Interconnection and Service Resale, (the "AT&T Rate")
and are pending the outcome of a final Commission decision in
an interconnection cost docket. Such rates will be subject to
true-up from the date of this Agreement to the effective date
of the final interconnection cost docket order.
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It is the intent of the Parties that, if the AT&T Rate,
whether established as a result of interim rates or final
rates established as a result of the cost docket order, is
impacted by a judicial or administrative order as described
below, the AT&T Rate made available to Reseller shall be
impacted in the same way and to the same extent. If the AT&T
Rate or applicability of the wholesale discount rate(s) to the
services set forth in Appendix A is stayed or enjoined, the
Parties agree that the telecommunications services still
available for resale following the stay or injunction will be
available to Reseller, effective as of the date of the stay
order or injunction, at a wholesale discount rate of 12% (the
"Standard Rate") until such time as a nonappealable order
establishes a wholesale discount rate(s). If the Standard Rate
becomes effective pursuant to this paragraph, the Standard
Rate will also be subject to true-up to the rate(s)
established in the nonappealable order for the period that the
Standard Rate was in effect. If the AT&T Rate or the
applicability of the rate to the services in Appendix A is
changed by a nonappealable administrative or judicial order
following approval of negotiated rates, rates reached in an
approved settlement agreement, a decision on appeal or other
similar proceeding, such changed rate(s) will be available to
Reseller, effective as of the date of the order. The AT&T Rate
shall be subject to true-up to the changed rates for the
period of time the AT&T Rate was in effect.
USWC shall have a reasonable time to implement system or other
changes necessary to bill any Commission ordered rates or
services.
2. If the resold services are purchased pursuant to Tariffs and
the Tariff rates change, charges billed to Reseller for such
services will be based upon the new Tariff rates less the
applicable wholesale discount as agreed to herein or
established by resale Tariff. The new rate will be effective
upon Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in Appendix A
applies when transferring any existing account or lines to a
Reseller. Tariffed non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be paid by the
Reseller without discount to USWC for each local exchange line
resold under this Agreement. All federal and state rules and
regulations associated with SLC as found in the applicable
tariffs also apply.
5. Reseller will pay to USWC the PlC change charge without
discount associated with Reseller end user changes of
inter-exchange or intraLATA carriers.
6. Reseller agrees to pay USWC when its end user activates any
services or features that are billed on a per use or per
activation basis subject to the applicable discount in
Appendix A as such may be amended pursuant to Section IV.E.1
(e.g.. continuous redial. last call return, call back calling,
call trace, etc.).
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7. Resold services are available only where facilities currently
exist and are capable of providing such services without
construction of additional facilities or enhancement of
existing facilities. However, if Reseller requests that
facilities be constructed or enhanced to provide resold
services, USWC will review such requests on a case-by-case
basis and determine, in its sole discretion, if it is
economically feasible for USWC to build or enhance facilities.
If USWC decides to build or enhance the requested facilities,
USWC will develop and provide to Reseller a price quote for
the construction. If the quote is accepted, Reseller will be
billed the quoted price and construction will commence after
receipt of payment.
8. Nonrecurring charges will not be discounted and will be billed
at the applicable Tariff rates.
9. As part of the resold line, USWC provides and Reseller
accepts, at this time, operator services, directory
assistance, and IntraLATA long distance with standard USWC
branding. Reseller is not permitted to alter the branding of
these services in any manner when the services are a part of
the resold line without the prior written approval of USWC.
However, at the request of Reseller and where technically
feasible, USWC will rebrand operator services and directory
assistance in the Reseller's name, provided the costs
associated with such rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding Reseller's use
of USWCs retail product training materials. Except for any rights
granted by USWC to Reseller for the use or copying of product
training material, product training provided under this Agreement
shall be considered "Proprietary Information" as described in
Section VII. 0., and shall be subject to the terms and conditions
specified therein.
G. Cooperation
The Parties agree that this Agreement involves the provision of USWC
services in ways such services were not previously available and the
introduction of new processes and procedures to provide and bill
such services. Accordingly, the Parties agree to work jointly and
cooperatively in testing and implementing processes for
pre-ordering, ordering, maintenance, provisioning and billing and in
reasonably resolving issues which result from such implementation on
a timely basis.
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V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal for
access to its Operational Support Systems (OSS) to meet the
requirements of the FCC's 1st and 2nd Orders and to provide Reseller
and other telecommunications carriers with electronic interfaces for
pre-ordering, ordering, repair and billing functions by January 1,
1997 for Plain Old Telephone services (POTs). Subsequent phases of
the plan will incorporate the capabilities to support designed
services for preordering, ordering and repair, which are estimated
to be available between the second and third quarters of 1997.
Reseller understands that USWC is proposing that these interfaces
will have the necessary mediation to protect the integrity of the
network and protect the privacy of customer information.
B. The Parties further acknowledge that USWC is, or soon will be,
presenting its OSS proposal to state Commissions for approval,
including approval of fees or. cost recovery methods that USWC may
charge or use to charge Reseller in connection with the design,
implementation and on-going maintenance and support of the OSS ("OSS
fees"). The Parties further acknowledge that, because the OSS is
still in the conceptual stage of development at the time of
execution of this Agreement, USWC is unable to specify or estimate
the amount of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to USWC's OSS
become operational and a state Commission approves USWC's OSS plan
and establishes OSS fees or cost recovery methods, the Parties will
amend this Agreement to incorporate terms and conditions regarding
Reseller's access to USWC's OSS, including OSS fees, on a
state-by-state basis. The Parties further agree that Reseller may
terminate this Agreement if the amount of OSS fees turns out to be
so excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such termination,
Reseller shall give USWC (sixty) 60 days written notice.
D. Prior to approval and deployment of USWC's OSS interfaces, USWC
shall continue to provide all pre-ordering, ordering, repair and
billing functions and services through manual procedures outlined in
a separately provided Resale Resource Guide. Such manual procedures
shall be available where USWC's OSS interfaces are unable to handle
pre-ordering, ordering, repair arid billing functions for the
services available to Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in any
manner in any state Commission proceeding that addresses USWC's OSS
interface proposal, including the establishment of OSS fees to the
extent such participation is permitted by a Commission.
VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each main
telephone number belonging to Reseller's end user customer based on
end user
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information provided to USWC by Reseller. USWC will place Reseller's
listings in USWC's directory listing database for directory
assistance purposes and will make listings available to directory
publishers and other third parties. Additional terms and conditions
with respect to directory listings are described in Appendix B which
by this reference is incorporated and made a part of this Agreement.
VII. GENERAL PROVISIONS
A. Term.
This Agreement shall be effective upon approval by a Commission(s)
and shall continue for a period of two (2) years. Thereafter the
Agreement shall continue in force and effect unless and until a new
agreement, addressing all of the terms of this Agreement, becomes
effective between the Parties. The Parties agree to commence
negotiations on a new agreement no later than 1 1/2 years after this
Agreement becomes effective. This Agreement shall be effective
pursuant to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible for all
applicable charges for the resold services as provided herein.
The Reseller shall also be responsible for all tariffed
charges and charges separately identified in this Agreement
associated with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis, within 7-10
days of the last day of the most recent billing period, in an
agreed upon standard electronic billing format, billing
information including (1) a summary bill, and (2) individual
end user customer sub-account information consistent with the
samples provided to Reseller for Reseller to render end user
customer bills indicating all recurring and nonrecurring
charges associated with each individual customer's account for
the most recent billing period.
C. Payment.
I. Amounts payable under this Agreement are due and payable
within thirty (30) days after the bill date of USWC's invoice.
During the initial three billing cycles of this Agreement,
Reseller and USWC agree that undisputed amounts shall be paid
as provided herein. Reseller and USWC further agree that,
during said three billing cycle period, they will cooperate to
resolve amounts in dispute or billing process issues in a
timely manner but no later than sixty (60) days after the bill
date of USWC's invoice or identification and notice of the
billing process issue. Disputed amounts will be paid within
thirty (30) days following resolution of the dispute.
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2. After the three (3) month period outlined in Section C. 1.
above, the Reseller will pay the bill in full within 30 days
after the bill date of the invoice. Billing disputes will be
processed and jointly resolved. Any disputed amounts that USWC
remits to the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
3. A late payment charge of 1.5% applies to all billed balances
which are not paid by 30 days after the bill date shown on the
invoice. USWC agrees, however, that the application of this
provision will be suspended for the initial three billing
cycles of this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the failure by
Reseller to make full payment for the resold services provided
under this Agreement within thirty (30) days of the due date
on Reseller's bill. USWC agrees, however, that the application
of this provision will be suspended for the initial three
billing cycles of this Agreement and will not apply to amounts
billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to make full
payment for the resold services provided under this Agreement
within sixty (60) days of the due date on Reseller's bill.
Reseller will pay the tariff charge required to reconnect each
end user line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this provision will
be suspended for the first three billing cycles under this
Agreement and will not apply to amounts billed during those
three cycles.
6. Collection procedures and the requirements for deposit are
unaffected by the application of a late payment charge.
7. The Parties agree that this payment and dispute resolution
process is a new procedure and they further agree that this
Section VII. C. can be reopened for negotiation at any time
within the first twelve (12) months of this Agreement.
8. USWC shall credit Reseller's account the amount due for any
trouble or out-of-service conditions in the same manner that
USWC credits the accounts of its own end-user customers and
pursuant to any applicable provisions in USWC's tariffs. USWC
shall reflect the amount of such credits on an individual
customer telephone number basis in the billing information
USWC provides Reseller.
9. In the event billing disputes relate to service quality
issues, the dispute shall be referred to the USWC account
executive assigned to Reseller who will evaluate the facts and
circumstances of the service quality issues and will work with
Reseller to resolve the dispute.
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D. Deposit.
1. USWC may require Reseller to make a suitable deposit to be
held by USWC as a guarantee of the payment of charges. Any
deposit required of an existing reseller is due and payable
within ten days after the requirement is imposed. The amount
of the deposit shall be the estimated charges for the resold
Service which will accrue for a two-month period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the initial or
additional deposit, with any interest due as set forth in
applicable tariffs, will, at Reseller's option, either be
credited to Reseller's account or refunded. Satisfactory
credit for a reseller is defined as twelve consecutive months
service as a reseller without a termination for nonpayment and
with no more than one notification of intent to terminate
Service for nonpayment. Interest will be paid on cash deposits
at the rate applying to deposits under applicable Commission
rules, regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or refunded,
as appropriate, upon the earlier of the termination of this
Agreement or one full year of timely payments in full by
Reseller. The fact that a deposit has been made does not
relieve Reseller from any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise or
gross receipts taxes, fees or surcharges (collectively "Taxes")
imposed on or with respect to its sale of services or equipment
provided under this Agreement, except those Taxes which are
explicitly required by a governmental authority to be collected by
USWC. Reseller shall seek sale for resale exemptions from any
applicable governmental or taxing body for payment of any and all
Taxes related to Reseller's purchase of services or equipment from
USWC under this Agreement. Until such time as exemptions are
obtained or applicable, Reseller shall pay USWC for the amount of
any such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes payable
by USWC.
F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures
in performance were foreseen or foreseeable as of the date of this
Agreement, including, without limitation: fire, explosion, power
failure, acts of God, war, revolution, civil commotion, or acts of
public enemies; any law, order, regulation, ordinance or requirement
of any government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or delays
caused by the other Party or by other service or equipment vendors;
or any other circumstances beyond the
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Party's reasonable control. In such event, the Party affected shall,
upon giving prompt notice to the other Party, be excused from such
performance on a day-to-day basis to the extent of such interference
(and the other Party shall likewise be excused from performance of
its obligations on a day-for-day basis to the extent such Party's
obligations relate to the performance so interfered with). The
affected Party shall use its best efforts to avoid or remove the
cause of non-performance and both parties shall proceed to perform
with dispatch once the causes are removed or cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby retains
the right to exercise full control of and supervision over its own
performance of its obligations under this Agreement and retains full
control over the employment, direction, compensation and discharge
of all employees assisting in the performance of such obligations.
Each Party will be solely responsible for all matters relating to
payment of such employees, including compliance with social security
taxes, withholding taxes and all other regulations governing such
matters. Each Party will be solely responsible for proper handling,
storage, transport and disposal at its own expense of all (i)
substances or materials that it or its contractors or agents bring
to, create or assume control over at Work Locations or, (ii) Waste
resulting therefrom or otherwise generated in connection with its or
its contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as otherwise
provided in this Agreement, each Party shall be responsible for (i)
its own acts and performance of all obligations imposed by
Applicable Law in connection with its activities, legal status and
property, real or personal and, (ii) the acts of its own affiliates,
employees, agents and contractors during the performance of that
Party's obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to the
other for any loss related to or arising out of any negligent act or
omission in its performance of this Agreement, whether in contract
or in tort, shall be limited to the total amount that is or would
have been charged to the other Party by such negligent or breaching
Party for the service(s) or function(s) not performed or improperly
performed.
In no event shall either Party be liable to the other in connection
with the provision or use of services offered under this Agreement
for indirect, incidental, consequential, reliance or special
damages, including (without limitation) damages for lost profits,
lost revenues, lost savings suffered by such other Parties
regardless of the form of action, whether in contract, warranty,
strict liability, or tort, including (without limitation) negligence
of any kind and regardless of whether the Parties know the
possibility that such damages could result. Nothing contained in
this Section H shall limit USWC's or Reseller's liability to the
other for (i) willful or intentional misconduct (including gross
negligence); (ii) bodily injury, death or damage to tangible real or
tangible personal property proximately caused by USWC's or Resellers
negligent act or
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omission or that of their respective agents, subcontractors or
employees, nor shall anything contained in this section limit the
parties indemnification obligations, as specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify, defend and
hold harmless the other Party and each of its officers,
directors, employees and agents (each an "Indemnitee") from
and against and in respect of any loss, debt, liability,
damage, obligation, claim, demand, judgment or settlement of
any nature or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs and
attorneys' fees, whether suffered, made, instituted, or
asserted by any other party or person, for invasion of
privacy, personal injury to or death of any person or persons,
or for loss, damage to, or destruction of property, whether or
not owned by others; resulting from the indemnifying Party's
performance, breach of Applicable Law, or status of its
employees, agents and subcontractors; or for failure to
perform under this Agreement, regardless of the form of
action.
2. The indemnification provided herein shall be conditioned upon:
a. The indemnified Party shall promptly notify the
indemnifying Party of any action taken against the
indemnified Party relating to the indemnification.
Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that the
Indemnifying Party might have, except to the extent that
such failure prejudices the Indemnifying Party's ability
to defend such Claim.
b. The indemnifying Party shall have sole authority to
defend any such action, including the selection of legal
counsel, and the indemnified Party may engage separate
legal counsel only at its sole cost and expense.
c. In no event shall the indemnifying Party settle or
consent to any judgment pertaining to any such action
without the prior written consent of the indemnified
Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend, indemnify
or hold harmless, or acquire any license or right for the
benefit of, or owe any other obligation or have any liability
to, the other based on or arising from any claim, demand, or
proceeding (hereinafter "claim") by any third party alleging
or asserting that the use of any circuit, apparatus, or
system, or the use of any software, or the performance of any
service or method, or the provision of any facilities by
either Party under this Agreement constitutes direct or
contributory infringement, or misuse or
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misappropriation of any patent, copyright, trademark, trade
secret, or any other proprietary or intellectual property
right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be construed as the
grant of a license, either express or implied, with
respect to any patent, copyright, logo, trademark,
tradename, trade secret or any other intellectual
property right now or hereafter owned, controlled or
licensable by either Party. Reseller may not use any
patent, copyright, logo, trademark, tradename, trade
secret or other intellectual property right of USWC or
its affiliates without execution of a separate agreement
between the Parties.
b. Reseller shall not, without the express written
permission of USWC, state or imply that; 1) Reseller is
connected, or in any way affiliated with USWC or its
affiliates or, 2) Reseller is part of a joint business
association or any similar arrangement with USWC or its
affiliates or, 3) USWC and its affiliates are in any way
sponsoring, endorsing or certifying Reseller and its
goods and services or, 4) the resold goods and services
are in any way associated with or originated from USWC
or any of its affiliates. Notwithstanding the above,
Reseller may state in response to a specific customer
inquiry concerning the origin of the resold services
that "Reseller is reselling USWC services." No other
statements may be made.
3. Notwithstanding the above, unless otherwise prohibited by USWC
pursuant to an applicable provision herein, Reseller may use
the phrase "(Name of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase") in
Reseller's printed materials provided:
a) The Authorized Phrase is not used in connection with any
goods or services other than USWC services resold by
Reseller.
b) Reseller's use of the Authorized Phrase does not, in
USWC's sole discretion, cause customers to believe that
Reseller is USWC.
c) The Authorized Phrase, when displayed, appears only in
text form (Reseller may not use the U S WEST logo) with
all letters being the same font and point size. The
point size of the Authorized Phrase shall be no greater
than one fourth the point size of the smallest use of
Reseller's name and in no even shall exceed 8 point
size.
d) Reseller shall provide all printed materials to USWC for
its prior written approval.
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e) If USWC determines that Reseller's use of the Authorized
Phrase causes customer confusion, USWC may in it's sole
discretion, immediately terminate Reseller's right to
use the Authorized Phrase.
f) Upon termination of the Reseller's right to use the
Authorized Phrase or termination of this Agreement, all
permission or right to use the Authorized Phrase shall
immediately cease to exist and Reseller shall
immediately cease any and all such use of the Authorized
Phrase. Reseller shall either promptly return to USWC or
destroy all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S WEST" and "U
S WEST Communications" (the "Marks") and the goodwill
associated therewith and acknowledges that such goodwill is a
property right belonging to U S WEST, Inc. and USWC
respectively (the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an assignment or
grant to Reseller of any right, title or interest in or to the
Marks and that this Agreement does not confer any right or
license to grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will do nothing
inconsistent with the Owner's ownership of the Marks, and all
rights, if any, that may be acquired by use of the Marks
shall inure to the benefit of the Owners. Reseller will not
adopt, use (other than as authorized in Section 3 herein,)
register or seek to register any mark anywhere in the world
which is identical or confusingly similar to the Marks or
which is so similar thereto as to constitute a deceptive
colorable imitation thereof or to suggest or imply some
association, sponsorship, or endorsement by the Owners; The
Owners make no warranties regarding its ownership of any
rights in or the validity of the Marks.
5. As a condition to the access or use of patents, copyrights,
trade secrets and other intellectual property (including
software) owned or controlled by a third party to the extent
necessary to implement this Agreement or specifically required
by the then applicable federal and state rules and regulations
relating to resale and access to telecommunications facilities
and services, the party providing access may require the other
upon written notice, from time to time, to obtain permission
for such access or use, make all payments in connection with
obtaining such permission, and providing evidence of such
permission.
K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTIES
AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE DOES NOT EXIST,
ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING
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BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of negotiations
between the Parties. As such, this Agreement can be assigned only
with the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld.
M. Default.
If either Party defaults in the payment of any amount due hereunder,
or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for thirty (30) days
after written notice thereof, the other Party may terminate this
Agreement forthwith by written instrument. The failure of either
Party to enforce any of the provisions of this Agreement or the
waiver thereof in any instance shall not be construed as a general
waiver or relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules addressing
issues contained in this Agreement. To the extent that certain of
the rules contained in the FCC 1st Order and the FCC 2d Order are
deemed by the courts to be not effective, this contract shall be
modified to comport with the final court decisions and subsequent
FCC or state Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision of
this Agreement is held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not invalidate the
entire Agreement. The Agreement shall be construed as if it did not
contain the invalid or unenforceable provision or provisions, and
the rights and obligations of each Party shall be construed and
enforced accordingly; provided, however, that in the event that such
invalid or unenforceable provision or provisions are essential
elements of this Agreement and, in the opinion of either party,
substantially impair the rights or obligations of either party,
Reseller and USWC shall promptly negotiate a replacement provision
or provisions. If the Parties cannot negotiate such a replacement
provision or provisions, the Parties may agree to terminate the
Agreement, In the event of termination as described herein, for
service arrangements made available under this Agreement and
existing at the time of termination, those arrangements shall
continue without interruption under either a) a new agreement
executed by the Parties, b) standard resale terms and conditions
approved and made generally effective by the Commission, or c)
tariff terms and conditions generally available to resellers. If a)
does not come about, or b) or c) are not available, the Agreement
shall remain in effect until a replacement provision is determined
through arbitration.
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0. Nondisclosure.
1. All information including, but not limited to, specifications,
drawings, sketches, models, tools, technical information,
employee records, maps, financial reports, and market data,
(i) furnished by one Party to the other Party or to which one
Party provides to the other Party access (such as to a
database) dealing with customer specific, facility specific,
or usage specific information, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time
of delivery as "Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual presentation
and declared to the receiving Party at the time of delivery,
or by written notice given to the receiving Party within ten
(10) days after delivery, to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary
Information"), shall remain the property of the disclosing
Party.
2. Upon request by the disclosing Party, the receiving Party
shall return all tangible copies of Proprietary Information,
whether written, graphic or otherwise, except that the
receiving Patty may retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that Proprietary
Information constitutes trade secrets of the disclosing Party.
The receiving Party shall maintain in confidence all of the
disclosing Party's Proprietary Information and shall use the
disclosing Party's Proprietary Information only for performing
the covenants contained, or exercising any rights granted, in
this Agreement. Only the employees and agents with a need to
know shall have access to the Proprietary Information and each
such employee and agent shall be advised of his or her
obligations under this Section 0. Neither Party shall use the
other Party's Proprietary Information for any other purpose
except upon such terms and conditions as may be agreed upon
between the parties in writing.
4. Unless otherwise agreed, the obligations of confidentiality
and non-use set forth in this Agreement do not apply to the
extent that such Proprietary Information:
a. was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential (evidenced by written records prepared
prior to delivery by the disclosing Party);
b. is or becomes publicly known through no wrongful act of
the receiving Party;
c. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligation
to the disclosing Party with respect to such
information; or
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d. is independently developed by receiving Party
individuals who do not have access to the Proprietary
Information;
e. is disclosed to a third person by the disclosing Party
without restrictions on disclosure;
f. is approved for release by written authorization of the
disclosing Party; or
g. is required to be made public by the receiving Party
pursuant to applicable law, regulation, or governmental
order, provided that the receiving Party shall give
sufficient notice of the requirement to the disclosing
Party to enable the disclosing Party to seek protective
orders where possible.
5. USWC grants Reseller the limited, personal, nonexclusive right
and license to access and use information contained in certain
of USWC's databases (Directory Assistance and Operator
Services databases, certain Advanced Intelligent Network
databases and Operation Support System databases) but only to
the extent as specifically required by the then applicable
federal and state rules and regulations relating to access to
and use of such databases, as they may be amended from time to
time, and for no other purpose. Without limiting the
generality of the foregoing, this right and license to
Reseller does not include the license and right to extract or
copy (including by any manual, mechanical or electronic means)
or use any such database information, in whole or in part, to
enhance the quality of any of Reseller's own database services
or offerings, as inputs to Reseller's or other's directory
assistance or directory publishing operations or for the
creation of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and all
information contained in any of such USWC's databases shall be
Proprietary Information subject to the terms and conditions of
this section 0; provided, however, that Sections 4 a, b, and c
shall not apply even though the individual parts or components
of the information contained in any such databases may
otherwise fall within such Sections.
6. Notwithstanding any other provision of this Agreement, the
Proprietary Information provisions of this Agreement shall
apply to all information furnished by either Party to the
other in furtherance of the purpose of this Agreement, even if
furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be considered
Proprietary Information by either or both Parties, and agree
to limit distribution of this Agreement to those individuals
in their respective companies with a need to know the contents
of this Agreement.
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P. Survival.
Any liabilities or obligations of a Party for acts or omissions
prior to the cancellation or termination of this Agreement; any
obligation of a Party under the provisions regarding
indemnification, Confidential Information, limitations on liability,
and any other provisions of this Agreement which, by their terms,
are contemplated to survive (or to be performed after) termination
of this Agreement, shall survive cancellation or termination
thereof.
Q. Dispute Resolution.
Except as provided by the Act, if any claim, controversy or dispute
between the Parties, their agents, employees, officers, directors or
affiliated agents ("Dispute") cannot be settled through negotiation,
it shall be resolved by arbitration conducted by a single arbitrator
engaged in the practice of law, under the then current rules of the
American Arbitration Association ("AAA"). The Federal Arbitration
Act, 9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's award
shall be final and binding and may be entered in any court having
jurisdiction thereof. Each Party shall bear its own costs and
attorneys' fees, and shall share equally in the fees and expenses of
the arbitrator. The laws of the state where the services subject to
this Agreement are provided shall govern the construction and
interpretation of this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain issues
during negotiation, the Parties will identify such issues for
arbitration before an appropriate state regulatory agency. Only
those points identified by the Parties for arbitration will be
submitted. All other terms on which the Parties reach agreement will
be submitted for approval in their final form.
S. Governing Law.
This Agreement shall be deemed to be a contract made under and shall
be construed, interpreted and enforced in accordance with the Act,
where applicable, and the laws of the state where the services
subject to this Agreement are provided and shall be subject to the
exclusive jurisdiction of the courts in that state, unless otherwise
provided by the Act.
USWC shall be responsible for obtaining and keeping in effect all
Federal Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may be
required in connection with the performance of its obligations under
this Agreement. Reseller shall be responsible for obtaining and
keeping in effect all Federal Communications Commission, state
regulatory Commission, franchise authority and other regulatory
approvals that may be required in connection with its offering of
services to Reseller Customers contemplated by this Agreement.
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T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement, whether in
contract, tort, or other theory, may be brought by either party more
than two (2) years after the cause of action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives of the
Parties. For convenience, it has been drafted in final form by one
of the Parties. Accordingly, in the event of ambiguities, no
inferences will be drawn against either Party solely on the basis of
authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to be
given or delivered under this Agreement shall be in hard-copy
writing (unless otherwise specifically provided herein) and shall be
sufficiently given if delivered personally or delivered by prepaid
overnight express service to the following (unless otherwise
specifically required by this Agreement to be delivered to another
representative or point of contact)
Any notices required by or concerning this Agreement shall be sent
to the Parties at the addresses shown below:
USWC Reseller
Brad VanLeur
U S WEST Communications Firstel, Inc.
Director-Interconnection Compliance Sales & Marketing Director
150 South 5th Street, Room 2800 110 South Phillips, Suite 202
Minneapolis, Minnesota 55402 Sioux Falls, South Dakota 57102
612-663-3425 (phone) 605-332-3232 (phone)
612-663-3551 (fax) 605-332-8004 (fax)
Each Party shall inform the other of any changes in the above
addresses.
W. No Third-Party Beneficiaries
Except as may be specifically set forth in this Agreement, this
Agreement does not provide and shall not be construed to provide
third parties with any remedy, claim, liability, reimbursement,
cause of action, or other privilege.
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X. Publicity and Advertising
Neither party shall publish or use any advertising, sales promotions
or other publicity materials that use the other party's name, logo,
trademarks or service marks without the prior written approval of
the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment or
waiver of any provision of this Agreement, and no consent to any
default under this Agreement, shall be effective unless the same is
in writing and signed by an officer of the Party against whom such
amendment, waiver or consent is claimed.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(l) of the Act
shall apply, including state and federal interpretive regulations in
effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original; but such counterparts shall
together constitute one and the same instrument.
BB. Headings, of No Force or Effect
The headings of Articles and Sections of this Agreement are for
convenience of reference only, and shall in no way define, modify or
restrict the meaning or interpretation of the terms or provisions of
this Agreement.
CC. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings, proposals
and undertakings with respect to the subject matter hereof. This
Agreement shall prevail in the event of any conflict between the
"Resale Resource Guide" and the terms and conditions of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
Firstel, Inc. U S WEST Communications, Inc.
/s/ Fred L. Thurman
- ----------------------------- --------------------------------
Signature Signature
Fred L. Thurman Katherine L. Fleming
- ----------------------------- --------------------------------
Name Printed/Typed Name Printed/Typed
President Executive Director-Interconnect
- ----------------------------- --------------------------------
Title Title
10-14-97
- ----------------------------- --------------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform this
Agreement as a result of successful administrative/judicial review and/or future
settlement agreements between the Parties to this Agreement.
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APPENDIX A - IOWA
LOCAL EXCHANGE SERVICES RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a.Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access (Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs, the
product specific nonrecurring charges, without discount, will apply when
additional lines or trunks are added or when the end user adds features or
services to existing lines or trunks.
2. Except as qualified below, all USWC telecommunications services and the
enhanced service of Voice Messaging, subject to appeal1, shall be available for
resale at a 21.68% discount
(a) The following products and services are not available for resale:
o Concession Service o USWC Calling Card Service
o Inside Wire (including installation, sale or maintenance)
o Customer Premises Equipment (separately or in packages)
o Promotions of less than 90 days
o Special or Switched Access
(b) The following products and services are available at the 21.68%
discount only to the same class customers eligible to purchase that
service from USWC:
o Lifeline/Link-up
o Residential
o Grandfathered
IntraLATA toll Charges: Reseller shall have the option of obtaining intraLATA
toll resale at a 21.68% discount or at the below uniform rate. Whichever toll
discount Reseller selects shall apply uniformly to all toll services resold by
the Reseller.
State: Rate Per Minute of Use
Iowa $ .13
- ----------
(1) If USWC is successful in its request for a stay or appeal, the USWC Voice
Messaging service will be grandfathered to those existing Firstel, Inc.
customers subscribing to the service. Also, the discount will cease and the rate
will revert to the then current rate for the Voice Messaging Service.
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APPENDIX B
DIRECTORY LISTINGS
Directory Listings
1. Scope.
a. Reseller Listings Service ("Listings") consists of USWC placing the names,
addresses and telephone numbers of Reseller's end users in USWC's listing
database, based on end user information provided to USWC by Reseller. USWC is
authorized to use Listings in Directory Assistance (DA) and as noted in 1.D.i or
1.D.ii.
b. Reseller will provide in standard, format, and USWC will accept at no charge,
one primary listing for each main telephone number belonging to Reseller's end
user customers. Primary listings are as defined for USWC end users in USWC's
general exchange tariffs. Reseller will be charged for privacy listings and
premium listings, e.g., additional, foreign, cross reference, informational,
etc., at USWC's general exchange listing tariff rates minus the applicable
standard resale discount in each state.
c. USWC will furnish Reseller the Listings format specifications. USWC cannot
accept Listings with advance completion dates.
d. Reseller grants USWC a non-exclusive license to incorporate Listings
information into its directory assistance database. Reseller hereby selects one
of two options for USWC's use of Listings and dissemination of Listings to third
parties.
EITHER:
i. Treat the same as USWC's end user listings -- No prior authorization is
needed for USWC to release Listings to directory publishers or other third
parties. USWC will incorporate Listings information in all existing and future
directory assistance applications developed by USWC. Reseller will authorize
USWC to sell and otherwise make Listings available to directory publishers
including USWC's publisher affiliate for inclusion in white pages published on
USWC's behalf. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
OR:
ii. Restrict to USWC's directory assistance -- Prior authorization required by
Reseller for all other uses. Reseller makes its own, separate agreements with
USWC, third parties and directory publishers for all uses of its listings beyond
DA. USWC will sell Listings to directory publishers (including USWCs publisher
affiliate for inclusion in white pages published on USWC's behalf), other third
parties and USWC products only after third party presents proof of Reseller's
authorization. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
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e. To the extent that state tariffs limit USWC's liability with regard to
Listings, the applicable state tariff(s) is incorporated herein and supersedes
Section VII.G., "Limitation of Liability", of this Agreement with respect to
Listings only.
2. USWC Responsibilities.
USWC is responsible for maintaining Listings, including entering, changing,
correcting, rearranging and removing Listings in accordance with Reseller
orders. USWC will take reasonable steps in accordance with industry practices to
accommodate non-published and non-listed listings provided that Reseller has
supplied USWC the necessary privacy indicators on such Listings.
USWC will include Reseller's Listings in USWC's Directory Assistance service to
ensure that callers to USWC's Directory Assistance service have
non-discriminatory access to Reseller's Listings.
USWC will incorporate Reseller's Listings provided to USWC in the white pages
directory published on USWC's behalf.
3. Reseller Responsibilities.
a. Reseller agrees to provide to USWC its end user names, addresses and
telephone numbers in a standard format, as specified by USWC.
b. Reseller will supply its ACNA/CIC or CLCC/OCN, as appropriate, with each
order to provide USWC the means of identifying Listings ownership.
c. Reseller represents and warrants the end user information provided to USWC is
accurate and correct. Reseller further represents and warrants that it has
reviewed all Listings provided to USWC, including end user requested
restrictions on use such as non-published and non-listed. Reseller shall be
solely responsible for knowing and adhering to state laws or rulings regarding
Listings (e.g., no solicitation requirements in the states of Arizona and
Oregon, privacy requirements in Colorado), and for supplying USWC the applicable
Listing information.
d. Reseller is responsible for all dealings with and on behalf of Reseller's end
users, including:
i. All end user account activity, e.g., end user queries and complaints.
ii. All account maintenance activity, e.g., additions, changes, issuance of
orders for Listings to USWC.
iii. Determining privacy requirements and accurately coding the privacy
indicators for Reseller's end user information. If end user information provided
by Reseller to USWC does not contain a privacy indicator, no privacy
restrictions will apply.
iv. Any additional services requested by Reseller's end users.
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AGREEMENT
FOR SERVICE RESALE
Between
FIRSTEL, Inc.
and
U S WEST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 4
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 6
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (OSS) 13
V. DIRECTORY LISTINGS 14
VI. GENERAL PROVISIONS 14
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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E. Taxes 16
F. Force Majeure 16
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 18
K. Warranties 21
L. Assignment 21
M. Default 21
N. Severability 21
0. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 24
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 25
X. Publicity and Advertising 26
Y. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed In Counterparts 26
BB. Headings of No force or Effect 26
CC. Entire Agreement 26
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AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state(s) of Minnesota, South Dakota, North Dakota, Iowa,
Nebraska, Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Idaho, Oregon
and Washington. Where required, this Agreement or the portions of this Agreement
relative to a particular state, will be submitted to the appropriate Public
Utilities Commission ("Commission") and the Parties will specifically request
that the Commission promptly approve this Agreement and refrain from taking any
action to change, suspend or otherwise delay implementation of this Agreement.
The Parties enter into this Agreement without prejudice to any positions they
have taken previously, or may take in the future in any legislative, regulatory,
or other public forum addressing any matters, including matters related to the
types of arrangements prescribed by this Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8. 1996 ("FCC 1st
Order") and the Second Report and Order and Memorandum Opinion and Order, In the
Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1St Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed
into law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and
grants certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements
for service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell
services for resale, on the terms and subject to the conditions of this
Agreement; and,
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WHEREAS, Reseller is a Telecommunications Carrier and has requested
that USWC negotiate an Agreement with Reseller for the provision of USWC
services for resale pursuant to the Act and in conformance with USWC's duties
under the Act; and
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Reseller and USWC hereby covenant and agree as
follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices
under which USWC agrees to provide services for resale.
Unless otherwise provided in this Agreement, USWC will
perform all of its obligations hereunder to the extent
provided in the Appendices attached hereto. The Agreement
includes all accompanying appendices.
B. In the performance of their obligations under this Agreement,
the Parties shall act in good faith and consistently with the
intent of the Act. Where notice, approval or similar action
by a Party is permitted or required by any provision of this
Agreement, the Act, FCC 1st and 2nd Orders, or a state
Commission, (including, without limitation, the obligation of
the parties to further negotiate the resolution of new or
open issues under this Agreement) such action shall not be
unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties,
and for that reason will, unless otherwise agreed, implement
this Agreement as an integrated package without alteration of
any material term or condition, or the inclusion or deletion
of terms and conditions that would serve to alter a material
term or condition herein unless such term or condition is
altered pursuant to Section IV, E.1 herein or to comply with
a court order or an FCC or state Commission order.
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service
offered to end users which provides the end user with a
telephonic connection to, and a unique local telephone number
address on, the public switched telecommunications network,
and which enables such end user to generally place calls to,
or receive calls from, other stations on the public switched
telecommunications network. Basic residence and business line
services are Basic Exchange Telecommunication Services. As
used solely in the context of this Agreement and unless
otherwise agreed, Basic Exchange Telecommunication Services
includes access to ancillary services such as 911, directory
assistance and operator services.
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B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which
include, but are not necessarily limited to: Automatic Call
Back; Call Trace; Caller ID and Related Blocking Features;
Distinctive Ringing/Call Waiting; Selective Call Forward;
Selective Call Rejection. (See Bellcore documentation for
definition.)
C. "Commission" means the Public Utilities Commission(s) in the
state(s) of Minnesota, South Dakota, North Dakota, Iowa,
Nebraska, Montana, Wyoming, Colorado, New Mexico, Arizona,
Utah, Idaho, Oregon and Washington.
D. Directory Listings are any information: (1) identifying the
listed names of subscribers of a telecommunications carrier
and such subscribers' telephone numbers and addresses and (2)
that the telecommunications carrier or an affiliate has
published, caused to be published, or accepted for
publication in any directory format.
E. "Enhanced Services" means any service offered over common
carrier transmission facilities that employ computer
processing applications that act on format, content, code,
protocol or similar aspects of the subscriber's transmitted
information; that provide the subscriber with additional,
different or restructured information; or involve customer
interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of
information between telecommunications carriers about current
or proposed customer products and services.
G. "Reseller" is a category of Local Exchange service providers
that are certified to obtain dial tone and associated
telecommunications services from another provider through the
purchase of bundled finished services for resale to its end
user customers.
H. "Tariff Services" as used throughout this Agreement refers to
USWC state tariffs, price lists, price schedules and
catalogs.
I. "Technically feasible". Branding of Operator Services and
Directory Assistance shall be deemed technically feasible
absent technical or operational concerns that prevent the
fulfillment of a request by a telecommunications carrier for
such branding. A determination of technical feasibility does
not include consideration of economic, accounting, billing,
space, or site concerns, except that space and site concerns
may be considered in circumstances where there is no
possibility of expanding the space available. The fact that
an incumbent LEC must modify its facilities or equipment to
respond to such request does not determine whether satisfying
such request is technically feasible. An incumbent LEC that
claims that it cannot satisfy such request because of adverse
network reliability impacts must prove to the state
Commission by clear and convincing evidence that such
interconnection, access, or methods would result in specific
and significant adverse network reliability impacts.
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J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to
such class of users as to be effectively available directly
to the public, regardless of the facilities used. As used in
this definition, "telecommunications" means the transmission,
between or among points specified by the user, of information
of the user's choosing, without change in the form or content
of the information sent and received.
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A. and B.)
and intraLATA toll originating from USWC exchanges
(herinafter "intraLATA toll") will be available for
resale by USWC pursuant to the Act and will
reference terms and conditions (except prices) in
USWC tariffs, where applicable. Appendix A lists
services which are available for resale under this
Agreement and the applicable discounts, and is
attached and incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC
services are not available for resale under this
Agreement, including but not limited to promotions
of more than 90 days duration and packages of
services comprised of services available for resale
separately, and certain other USWC services are
available for resale but at no discount, as
identified in Appendix A or in individual state
tariffs. The availability of services and applicable
discounts identified in Appendix A or in individual
tariffs are subject to change pursuant to Section IV
E.1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic
Exchange Switched Features and IntraLATA toll may be
resold only for their intended or disclosed use and
only to the same class of customer to whom USWC
sells such services; e.g., residence service may not
be resold to business customers.
2. USWC shall provide to Reseller services for resale
that are equal in quality, subject to the same
conditions (including the conditions in USWC's
effective tariffs), within the same provisioning
time intervals that USWC provides these services to
others, including end users, and in accordance with
any applicable state Commission service quality
standards, including standards a state Commission
may impose pursuant to Section 252(e)(3) of the
Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single
point of contact for its end users' service needs,
including without limitation, sales, service design,
order taking, provisioning, change orders, training,
maintenance,
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trouble reports, repair, post-sale servicing,
billing, collection and inquiry. Reseller shall make
it clear to its end users that they are customers of
the Reseller for resold services. Reseller's end
users contacting USWC will be instructed to contact
the Reseller; however, nothing in this Agreement,
except as provided in Section IV.C.7(e), shall be
deemed to prohibit USWC from discussing its products
and services with Reseller's customers who call USWC
for any reason.
2. Reseller shall transmit to USWC all information
necessary for the installation (billing, listing and
other information), repair, maintenance and
post-installation servicing according to USWC's
standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end user's new service
provider discontinues the end user's service in
anticipation of moving to another service provider,
USWC will render its closing bill to end user
customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a
bill to Reseller for that portion of the service
provided to the Reseller should Reseller's end user
customer, a new service provider, or Reseller
request service be discontinued to the end user.
USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service
provider. USWC will not provide Reseller with the
name of the other reseller or service provider
selected by the end user.
The Parties agree that they will not transfer their
respective end user customers whose accounts are in
arrears between each other. The Parties further
agree that they work cooperatively together to
develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide
Reseller with points of contact for order entry,
problem resolution and repair of the resold
services.
4. Prior to placing orders on behalf of the end user,
Reseller shall be responsible for obtaining and have
in its possession Proof of Authorization ("POA").
POA shall consist of documentation acceptable to
USWC of the end user's selection of Reseller. Such
selection may be obtained in the following ways:
a. The end user's written Letter of
Authorization or LOA.
b. The end user's electronic authorization by
use of an 800 number.
c. The end user's oral authorization verified
by an independent third party (with third
party verification as POA).
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d. A prepaid returnable postcard supplied by
Reseller which has been signed and returned
by end user. Reseller will wait fourteen
(14) days after mailing the postcard before
placing an order to change.
Reseller shall make POAs available to USWC upon
request. Prior to placing orders that will
disconnect a line from another reseller's account
the Reseller is responsible for obtaining all
information needed to process the disconnect order
and re-establish the service on behalf of the end
user. If a Reseller is displaced by another reseller
or service provider, the Reseller is responsible for
coordination with the other reseller or service
provider. Should an end user dispute or a
discrepancy arise regarding the authority of
Reseller to act on behalf of the end user, the
Reseller is responsible for providing written
evidence of its authority to USWC within three (3)
business days. If there is a conflict between the
end user designation and Reseller's written evidence
of its authority, USWC shall honor the designation
of the end user and change the end user back to the
previous service provider. If the Reseller does not
provide the POA within three (3) business days, or
if the end user disputes the authority of the POA,
then the Reseller must, by the end of the third
business day:
o notify USWC to change the end user back to
the previous reseller or service provider,
and
o provide any end user information and billing
records the Reseller has obtained relating
to the end user to the previous reseller,
and
o notify the end user and USWC that the change
has been made,
o remit to USWC a charge of $100.00 ("slamming
charge") as compensation for the change back
to the previous reseller or service
provider.
If an end user customer is switched from Reseller
back to USWC and there is a dispute or discrepancy
with respect to such change in service provider,
Reseller may request to see a copy of the POA which
USWC has obtained from the end user to effectuate a
return to USWC as the end user's service provider.
If USWC is unable to produce a POA within three (3)
business days, USWC shall change the end user back
to Reseller (or other previous reseller) without
imposition of any Customer Transfer Charge.
5. Reseller shall designate Primary Interexchange
Carrier (PIC) assignments on behalf of its end-users
for interLATA services and intraLATA services when
intraLATA presubscription is implemented.
6. When end user customers switch from USWC to
Reseller, or to Reseller from any other reseller,
such customers shall be permitted to retain their
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current telephone numbers if they so desire and do
not change their service address to an address
served by a different central office. USWC shall
take no action to prevent Reseller customers from
retaining their current telephone numbers.
7. Reseller and USWC will employ the following
procedures for handling misdirected repair calls:
a. Reseller and USWC will provide their
respective customers with the correct
telephone numbers to call for access to
their respective repair bureaus.
b. Customers of Reseller shall be instructed to
report all cases of trouble to Reseller.
Customers of USWC shall be instructed to
report all cases of trouble to USWC.
c. To the extent the correct provider can be
determined, misdirected repair calls will be
referred to the proper provider of Basic
Exchange Telecommunications Service.
d. Reseller and USWC will provide their
respective repair contact numbers to one
another on a reciprocal basis.
e. Notwithstanding the provisions of Section
IV.C.1., USWC will not discuss its
products and services with Reseller's
customers during the course of repair calls
or visits.
D. Reseller Responsibilities.
1. Reseller must send USWC complete and accurate
end-user listing information for Directory
Assistance, Directory, and 911 Emergency Services
using USWC's resale order form and process. Reseller
must provide to USWC accurate end-user information
to ensure appropriate listings in any databases in
which USWC is required to retain and/or maintain
end-user information. USWC assumes no liability for
the accuracy of information provided by Reseller.
2. Reseller may not reserve blocks of USWC telephone
numbers, except as allowed by tariffs.
3. Reseller is liable for all fraud associated with
Service to its end-users and accounts. USWC takes no
responsibility, will not investigate, and will make
no adjustments to Reseller's account in cases of
fraud unless such fraud is the result of any
intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of
potential fraud with respect to Reseller's accounts,
USWC will promptly inform Reseller and, at the
direction of Reseller, take reasonable action to
mitigate the fraud where such action is possible.
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4. Reseller will indicate the date it will offer to
residential and business subscribers telephone
exchange services. The Reseller will provide a two
year forecast within ninety (90) days of signing
this Agreement. During the first year of the term of
this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter,
during the term of this Agreement, Reseller will
provide updated forecasts from time to time, as
requested by USWC. The initial forecast will
provide:
o The date service will be offered (by city
and/or state)
o The type and quantity of service(s) which
will be offered
o Reseller's anticipated order volume
o Resellers key contact personnel
The information provided pursuant to this paragraph
shall be considered Proprietary Information under
Section VII.O. of this Agreement.
5. In the event USWC terminates the provisioning of any
resold services to Reseller for any reason, Reseller
shall be responsible for providing any and all
necessary notice to its end users of the
termination. In no case shall USWC be responsible
for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of
its termination of a resold service on a timely
basis consistent with Commission rules and notice
requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are
available for resale at the applicable discount
percentage or rate per minute set forth in Appendix
A or at the retail tariff rates for services
available for resale but excluded from the wholesale
pricing arrangement in this Agreement.
However, state Commissions may do any of the
following (collectively referred to hereinafter as
"Order") during the term of this Agreement:
o establish wholesale discount rates through
decisions in arbitration, interconnection
and/or resale cost proceedings;
o establish other recurring and nonrecurring
rates related to resale, including but not
limited to Customer Transfer Charges and
Slamming Charges ("Other Resale Charges");
and
o order that certain services be made
available for resale at specified wholesale
discount rates.
If a state Commission orders services to be
available for resale, the Parties agree that they
will, on a state-by-state basis, revise Appendix A
to incorporate the services determined by such Order
into this Agreement, effective on the date ordered
by a Commission. When a state Commission, through a
decision in arbitration, identifies services that
must be available for resale at wholesale discount
rates, such decision shall be deemed to have defined
that such services are
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generally available to resellers in that state. If a
state Commission establishes wholesale discount
rates and Other Resale Charges to be made generally
available to resellers or establishes a resale
tariff, the Parties agree that they will, on a
state-by-state basis, revise Appendix A to
incorporate such wholesale discount rates and/or
Other Resale Charges into this Agreement effective
on the date ordered by a Commission; provided,
however, that USWC shall have a reasonable time to
implement system or other changes necessary to bill
the Commission ordered rates or charges.
The rates for those resold services initially
included in the wholesale pricing arrangement under
this Agreement shall be subject to true-up to the
wholesale discount rates established by a Commission
Order making such rates generally available to
resellers or established by a resale tariff,
retroactively to the effective date of this
Agreement. Any true-up shall be on a
service-by-service basis if wholesale discount rates
are established by a Commission on such a basis.
Services excluded from the wholesale pricing
arrangement under this Agreement as identified in
Appendix A, shall be made available on a going
forward basis from the date a of Commission Order
that orders such services be made generally
available to any reseller in the state where such a
Commission Order is issued. Such services shall be
available at the discount rate applicable to basic
exchange business service identified in Section 2 of
Appendix A; provided, however, that when a
Commission order establishes wholesale discount
rates for such services as generally available to
resellers, Appendix A shall be revised to
incorporate the wholesale discount rates generally
available to resellers.
If a state Commission fails to issue such an Order
or make effective such a tariff by the end of the
first year this Agreement, either USWC or Reseller
may elect to renegotiate this Section of the
Agreement.
2. If the resold services are purchased pursuant to
Tariffs and the Tariff rates change, charges billed
to Reseller for such services will be based upon the
new Tariff rates less the applicable wholesale
discount as agreed to herein or established by
resale Tariff. The new rate will be effective upon
Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in
Appendix A applies when transferring any existing
account or lines to a Reseller. Tariffed
non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be
paid by the Reseller without discount to USWC for
each local exchange line resold under this
Agreement. All federal and state rules and
regulations associated with SLC as found in the
applicable tariffs also apply.
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5. Reseller will pay to USWC the PIC change charge
without discount associated with Reseller end user
changes of inter-exchange or intraLATA carriers.
6. Reseller agrees to pay USWC when its end user
activates any services or features that are billed
on a per use or per activation basis subject to the
applicable discount in Appendix A as such may be
amended pursuant to Section IV.E.1 (e.g., continuous
redial, last call return, call back calling, call
trace, etc.).
7. Resold services are available only where facilities
currently exist and are capable of providing such
services without construction of additional
facilities or enhancement of existing facilities.
However, if Reseller requests that facilities be
constructed or enhanced to provide resold services,
USWC will review such requests on a case-by-case
basis and determine, in its sole discretion, if it
is economically feasible for USWC to build or
enhance facilities. If USWC decides to build or
enhance the requested facilities, USWC will develop
and provide to Reseller a price quote for the
construction. If the quote is accepted, Reseller
will be billed the quoted price and construction
will commence after receipt of payment.
8. Nonrecurring charges will not be discounted and will
be billed at the applicable Tariff rates.
9. As part of the resold line, USWC provides and
Reseller accepts, at this time, operator services,
directory assistance, and IntraLATA long distance
with standard USWC branding. Reseller is not
permitted to alter the branding of these services in
any manner when the services are a part of the
resold line without the prior written approval of
USWC. However, at the request of Reseller and where
technically feasible, USWC will rebrand operator
services and directory assistance in the Reseller's
name, provided the costs associated with such
rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding
Reseller's use of USWC's retail product training materials.
Except for any rights granted by USWC to Reseller for the use
or copying of product training material, product training
provided under this Agreement shall be considered
"Proprietary Information" as described in Section VII.O.,
and shall be subject to the terms and conditions specified
therein.
G. Cooperation
The Parties agree that this Agreement involves the provision
of USWC services in ways such services were not previously
available and the introduction of new processes and
procedures to provide and bill such services. Accordingly,
the
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Parties agree to work jointly and cooperatively in testing
and implementing processes for pre-ordering, ordering,
maintenance, provisioning and billing and in reasonably
resolving issues which result from such implementation on a
timely basis.
V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal
for access to its Operational Support Systems (OSS) to meet
the requirements of the FCC's 1st and 2nd Orders and to
provide Reseller and other telecommunications carriers with
electronic interfaces for pre-ordering, ordering, repair and
billing functions by January 1, 1997 for Plain Old Telephone
services (POTs). Subsequent phases of the plan will
incorporate the capabilities to support designed services for
preordering, ordering and repair, which are estimated to be
available between the second and third quarters of 1997.
Reseller understands that USWC is proposing that these
interfaces will have the necessary mediation to protect the
integrity of the network and protect the privacy of customer
information.
B. The Parties further acknowledge that USWC is, or soon will
be, presenting its OSS proposal to state Commissions for
approval, including approval of fees or cost recovery methods
that USWC may charge or use to charge Reseller in connection
with the design, implementation and on-going maintenance and
support of the OSS ("OSS fees"). The Parties further
acknowledge that, because the OSS is still in the conceptual
stage of development at the time of execution of this
Agreement, USWC is unable to specify or estimate the amount
of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to
USWC's OSS become operational and a state Commission approves
USWC's OSS plan and establishes OSS fees or cost recovery
methods, the Parties will amend this Agreement to incorporate
terms and conditions regarding Reseller's access to USWC's
OSS, including OSS fees, on a state-by-state basis. The
Parties further agree that Reseller may terminate this
Agreement if the amount of OSS fees turns out to be so
excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such
termination, Reseller shall give USWC (sixty) 60 days written
notice.
D. Prior to approval and deployment of USWC's OSS interfaces,
USWC shall continue to provide all pre-ordering, ordering,
repair and billing functions and services through manual
procedures outlined in a separately provided Resale Resource
Guide. Such manual procedures shall be available where USWC's
OSS interfaces are unable to handle pre-ordering, ordering,
repair and billing functions for the services available to
Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in
any manner in any state Commission proceeding that addresses
USWC's OSS interface proposal, including the establishment of
OSS fees to the extent such participation is permitted by a
Commission.
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VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each
main telephone number belonging to Reseller's end user
customer based on end user information provided to USWC by
Reseller. USWC will place Reseller's listings in USWC's
directory listing database for directory assistance purposes
and will make listings available to directory publishers and
other third parties. Additional terms and conditions with
respect to directory listings are described in Appendix B
which by this reference is incorporated and made a part of
this Agreement.
VII. GENERAL PROVISIONS
A. Term.
This Agreement shall be effective upon approval by a
Commission(s) and shall continue for a period of two (2)
years. Thereafter the Agreement shall continue in force and
effect unless and until a new agreement, addressing all of
the terms of this Agreement, becomes effective between the
Parties. The Parties agree to commence negotiations on a new
agreement no later than 1 1/2 years after this Agreement
becomes effective. This Agreement shall be effective pursuant
to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible
for all applicable charges for the resold services
as provided herein. The Reseller shall also be
responsible for all tariffed charges and charges
separately identified in this Agreement associated
with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis,
within 7-10 days of the last day of the most recent
billing period, in an agreed upon standard
electronic billing format, billing information
including (1) a summary bill, and (2) individual end
user customer sub-account information consistent
with the samples provided to Reseller for Reseller
to render end user customer bills indicating all
recurring and nonrecurring charges associated with
each individual customer's account for the most
recent billing period.
C. Payment.
1. Amounts payable under this Agreement are due and
payable within thirty (30) days after the bill date
of USWC's invoice. During the initial three billing
cycles of this Agreement, Reseller and USWC agree
that undisputed amounts shall be paid as provided
herein. Reseller and USWC further agree that, during
said three billing cycle period, they will cooperate
to resolve amounts in dispute or billing process
issues in a timely manner but no later than sixty
(60) days after the bill date of USWC's invoice or
identification and notice of the billing process
issue.
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Disputed amounts will be paid within thirty (30)
days following resolution of the dispute.
2. After the three (3) month period outlined in Section
C.1. above, the Reseller will pay the bill in full
within 30 days after the bill date of the invoice.
Billing disputes will be processed and jointly
resolved. Any disputed amounts that USWC remits to
the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
3. A late payment charge of 1.5% applies to all billed
balances which are not paid by 30 days after the
bill date shown on the invoice. USWC agrees,
however, that the application of this provision will
be suspended for the initial three billing cycles of
this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the
failure by Reseller to make full payment for the
resold services provided under this Agreement within
thirty (30) days of the due date on Reseller's bill.
USWC agrees, however, that the application of this
provision will be suspended for the initial three
billing cycles of this Agreement and will not apply
to amounts billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to
make full payment for the resold services provided
under this Agreement within sixty (60) days of the
due date on Reseller's bill. Reseller will pay the
tariff charge required to reconnect each end user
line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this
provision will be suspended for the first three
billing cycles under this Agreement and will not
apply to amounts billed during those three cycles.
6. Collection procedures and the requirements for
deposit are unaffected by the application of a late
payment charge.
7. The Parties agree that this payment and dispute
resolution process is a new procedure and they
further agree that this Section VII.C. can be
reopened for negotiation at any time within the
first twelve (12) months of this Agreement.
8. USWC shall credit Reseller's account the amount due
for any trouble or out-of-service conditions in the
same manner that USWC credits the accounts of its
own end-user customers and pursuant to any
applicable provisions in USWC's tariffs. USWC shall
reflect the amount of such credits on an individual
customer telephone number basis in the billing
information USWC provides Reseller.
9. In the event billing disputes relate to service
quality issues, the dispute shall be referred to the
USWC account executive assigned to Reseller
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who will evaluate the facts and circumstances of the
service quality issues and will work with Reseller
to resolve the dispute.
D. Deposit.
1. USWC may require Reseller to make a suitable deposit
to be held by USWC as a guarantee of the payment of
charges. Any deposit required of an existing
reseller is due and payable within ten days after
the requirement is imposed. The amount of the
deposit shall be the estimated charges for the
resold Service which will accrue for a two-month
period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the
initial or additional deposit, with any interest due
as set forth in applicable tariffs, will, at
Reseller's option, either be credited to Reseller's
account or refunded. Satisfactory credit for a
reseller is defined as twelve consecutive months
service as a reseller without a termination for
nonpayment and with no more than one notification of
intent to terminate Service for nonpayment. Interest
will be paid on cash deposits at the rate applying
to deposits under applicable Commission rules,
regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or
refunded, as appropriate, upon the earlier of the
termination of this Agreement or one full year of
timely payments in full by Reseller. The fact that a
deposit has been made does not relieve Reseller from
any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise
or gross receipts taxes, fees or surcharges (collectively
"Taxes") imposed on or with respect to its sale of services
or equipment provided under this Agreement, except those
Taxes which are explicitly required by a governmental
authority to be collected by USWC. Reseller shall seek sale
for resale exemptions from any applicable governmental or
taxing body for payment of any and all Taxes related to
Reseller's purchase of services or equipment from USWC under
this Agreement. Until such time as exemptions are obtained or
applicable, Reseller shall pay USWC for the amount of any
such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes
payable by USWC.
F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the
reasonable control of such Party, regardless of whether such
delays or failures in performance were foreseen or
foreseeable as of the date of this Agreement, including,
without limitation: fire, explosion, power failure, acts of
God, war, revolution, civil commotion, or acts of public
enemies; any law, order, regulation, ordinance or
requirement of any
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government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or
delays caused by the other Party or by other service or
equipment vendors; or any other circumstances beyond the
Party's reasonable control. In such event, the Party affected
shall, upon giving prompt notice to the other Party, be
excused from such performance on a day-to-day basis to the
extent of such interference (and the other Party shall
likewise be excused from performance of its obligations on a
day-for-day basis to the extent such Party's obligations
relate to the performance so interfered with). The affected
Party shall use its best efforts to avoid or remove the cause
of non-performance and both parties shall proceed to perform
with dispatch once the causes are removed or cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby
retains the right to exercise full control of and supervision
over its own performance of its obligations under this
Agreement and retains full control over the employment,
direction, compensation and discharge of all employees
assisting in the performance of such obligations. Each Party
will be solely responsible for all matters relating to
payment of such employees, including compliance with social
security taxes, withholding taxes and all other regulations
governing such matters. Each Party will be solely responsible
for proper handling, storage, transport and disposal at its
own expense of all (i) substances or materials that it or its
contractors or agents bring to, create or assume control over
at Work Locations or, (ii) Waste resulting therefrom or
otherwise generated in connection with its or its
contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as
otherwise provided in this Agreement, each Party shall be
responsible for (i) its own acts and performance of all
obligations imposed by Applicable Law in connection with its
activities, legal status and property, real or personal and,
(ii) the acts of its own affiliates, employees, agents and
contractors during the performance of that Party's
obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to
the other for any loss related to or arising out of any
negligent act or omission in its performance of this
Agreement, whether in contract or in tort, shall be limited
to the total amount that is or would have been charged to the
other Party by such negligent or breaching Party for the
service(s) or function(s) not performed or improperly
performed.
In no event shall either Party be liable to the other in
connection with the provision or use of services offered
under this Agreement for indirect, incidental, consequential,
reliance or special damages, including (without limitation)
damages for lost profits, lost revenues, lost savings
suffered by such other Parties regardless of the form of
action, whether in contract, warranty, strict liability, or
tort, including (without limitation) negligence of any kind
and regardless of whether the Parties know the possibility
that such damages could result. Nothing contained in this
Section H shall limit USWC's or Reseller's
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liability to the other for (i) willful or intentional
misconduct (including gross negligence); (ii) bodily injury,
death or damage to tangible real or tangible personal
property proximately caused by USWC's or Reseller's negligent
act or omission or that of their respective agents,
subcontractors or employees, nor shall anything contained in
this section limit the parties indemnification obligations,
as specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify,
defend and hold harmless the other Party and each of
its officers, directors, employees and agents (each
an "Indemnitee") from and against and in respect of
any loss, debt, liability, damage, obligation,
claim, demand, judgment or settlement of any nature
or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs
and attorneys' fees, whether suffered, made,
instituted, or asserted by any other party or
person, for invasion of privacy, personal injury to
or death of any person or persons, or for loss,
damage to, or destruction of property, whether or
not owned by others, resulting from the indemnifying
Party's performance, breach of Applicable Law, or
status of its employees, agents and subcontractors;
or for failure to perform under this Agreement,
regardless of the form of action.
2. The indemnification provided herein shall be
conditioned upon:
a. The indemnified Party shall promptly notify
the indemnifying Party of any action taken
against the indemnified Party relating to
the indemnification. Failure to so notify
the Indemnifying Party shall not relieve the
Indemnifying Party of any liability that the
Indemnifying Party might have, except to the
extent that such failure prejudices the
Indemnifying Party's ability to defend such
Claim.
b. The indemnifying Party shall have sole
authority to defend any such action,
including the selection of legal counsel,
and the indemnified Party may engage
separate legal counsel only at its sole cost
and expense.
c. In no event shall the indemnifying Party
settle or consent to any judgment pertaining
to any such action without the prior written
consent of the indemnified Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend,
indemnify or hold harmless, or acquire any license
or right for the benefit of, or owe any other
obligation or have any liability to, the other based
on or arising from any claim, demand, or proceeding
(hereinafter "claim") by any third party alleging or
asserting that the use of any circuit, apparatus, or
system, or
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the use of any software, or the performance of any
service or method, or the provision of any
facilities by either Party under this Agreement
constitutes direct or contributory infringement, or
misuse or misappropriation of any patent, copyright,
trademark, trade secret, or any other proprietary or
intellectual property right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be
construed as the grant of a license, either
express or implied, with respect to any
patent, copyright, logo, trademark,
tradename, trade secret or any other
intellectual property right now or
hereafter owned, controlled or licensable
by either Party. Reseller may not use any
patent, copyright, logo, trademark,
tradename, trade secret or other
intellectual property right of USWC or its
affiliates without execution of a separate
agreement between the Parties.
b. Reseller shall not, without the express
written permission of USWC, state or imply
that; 1) Reseller is connected, or in any
way affiliated with USWC or its affiliates
or, 2) Reseller is part of a joint business
association or any similar arrangement with
USWC or its affiliates or, 3) USWC and its
affiliates are in any way sponsoring,
endorsing or certifying Reseller and its
goods and services or, 4) the resold goods
and services are in any way associated with
or originated from USWC or any of its
affiliates. Notwithstanding the above,
Reseller may state in response to a
specific customer inquiry concerning the
origin of the resold services that
"Reseller is reselling USWC services." No
other statements may be made.
3. Notwithstanding the above, unless otherwise
prohibited by USWC pursuant to an applicable
provision herein, Reseller may use the phrase "(Name
of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase")
in Reseller's printed materials provided:
a) The Authorized Phrase is not used in
connection with any goods or services other
than USWC services resold by Reseller.
b) Reseller's use of the Authorized Phrase
does not, in USWC's sole discretion, cause
customers to believe that Reseller is USWC.
c) The Authorized Phrase, when displayed,
appears only in text form (Reseller may not
use the U S WEST logo) with all letters
being the same font and point size. The
point size of the Authorized Phrase shall
be no greater than one fourth the point
size of the smallest use of Reseller's name
and in no even shall exceed 8 point size.
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<PAGE>
d) Reseller shall provide all printed
materials to USWC for its prior written
approval.
e) If USWC determines that Reseller's use of
the Authorized Phrase causes customer
confusion, USWC may in it's sole
discretion, immediately terminate
Reseller's right to use the Authorized
Phrase.
f) Upon termination of the Reseller's right to
use the Authorized Phrase or termination of
this Agreement, all permission or right to
use the Authorized Phrase shall immediately
cease to exist and Reseller shall
immediately cease any and all such use of
the Authorized Phrase. Reseller shall
either promptly return to USWC or destroy
all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S
WEST" and "U S WEST Communications" (the "Marks")
and the goodwill associated therewith and
acknowledges that such goodwill is a property right
belonging to U S WEST, Inc. and USWC respectively
(the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an
assignment or grant to Reseller of any right, title
or interest in or to the Marks and that this
Agreement does not confer any right or license to
grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will
do nothing inconsistent with the Owner's ownership
of the Marks, and all rights, if any , that may be
acquired by use of the Marks shall inure to the
benefit of the Owners. Reseller will not adopt, use
(other than as authorized in Section 3 herein,)
register or seek to register any mark anywhere in
the world which is identical or confusingly similar
to the Marks or which is so similar thereto as to
constitute a deceptive colorable imitation thereof
or to suggest or imply some association,
sponsorship, or endorsement by the Owners; The
Owners make no warranties regarding its ownership of
any rights in or the validity of the Marks.
5. As a condition to the access or use of patents,
copyrights, trade secrets and other intellectual
property (including software) owned or controlled
by a third party to the extent necessary to
implement this Agreement or specifically required by
the then applicable federal and state rules and
regulations relating to resale and access to
telecommunications facilities and services, the
party providing access may require the other upon
written notice, from time to time, to obtain
permission for such access or use, make all payments
in connection with obtaining such permission, and
providing evidence of such permission.
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<PAGE>
K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE
PARTIES AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE
DOES NOT EXIST, ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of
negotiations between the Parties. As such, this Agreement can
be assigned only with the prior written consent of the
non-assigning Party, which consent shall not be unreasonably
withheld.
M. Default.
If either Party defaults in the payment of any amount due
hereunder, or if either Party violates any other provision of
this Agreement, and such default or violation shall continue
for thirty (30) days after written notice thereof, the other
Party may terminate this Agreement forthwith by written
instrument. The failure of either Party to enforce any of the
provisions of this Agreement or the waiver thereof in any
instance shall not be construed as a general waiver or
relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and
effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules
addressing issues contained in this Agreement. To the extent
that certain of the rules contained in the FCC 1st Order and
the FCC 2d Order are deemed by the courts to be not
effective, this contract shall be modified to comport with
the final court decisions and subsequent FCC or state
Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision
of this Agreement is held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not
invalidate the entire Agreement. The Agreement shall be
construed as if it did not contain the invalid or
unenforceable provision or provisions, and the rights and
obligations of each Party shall be construed and enforced
accordingly; provided, however, that in the event that such
invalid or unenforceable provision or provisions are
essential elements of this Agreement and, in the opinion of
either party, substantially impair the rights or obligations
of either party, Reseller and USWC shall promptly negotiate a
replacement provision or provisions. If the Parties cannot
negotiate such a replacement provision or provisions, the
Parties may agree to terminate the Agreement, In the event
of termination as described herein, for service arrangements
made available under this Agreement and existing at the time
of termination, those arrangements shall continue without
interruption under either a) a new agreement executed by the
Parties, b) standard resale terms and conditions approved and
made generally effective by the Commission, or c) tariff
terms and
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<PAGE>
conditions generally available to resellers. If a) does not
come about, or b) or c) are not available, the Agreement
shall remain in effect until a replacement provision is
determined through arbitration.
O. Nondisclosure.
1. All information including, but not limited to,
specifications, drawings, sketches, models, tools,
technical information, employee records, maps,
financial reports, and market data, (i) furnished by
one Party to the other Party or to which one Party
provides to the other Party access (such as to a
database) dealing with customer specific, facility
specific, or usage specific information, or (ii) in
written, graphic, electromagnetic, or other tangible
form and marked at the time of delivery as
"Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual
presentation and declared to the receiving Party at
the time of delivery, or by written notice given to
the receiving Party within ten (10) days after
delivery, to be "Confidential" or "Proprietary"
(collectively referred to as "Proprietary
Information"), shall remain the property of the
disclosing Party.
2. Upon request by the disclosing Party, the receiving
Party shall return all tangible copies of
Proprietary Information, whether written, graphic or
otherwise, except that the receiving Party may
retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that
Proprietary Information constitutes trade secrets of
the disclosing Party. The receiving Party shall
maintain in confidence all of the disclosing Party's
Proprietary Information and shall use the
disclosing Party's Proprietary Information only for
performing the covenants contained, or exercising
any rights granted, in this Agreement. Only the
employees and agents with a need to know shall have
access to the Proprietary Information and each such
employee and agent shall be advised of his or her
obligations under this Section O. Neither Party
shall use the other Party's Proprietary Information
for any other purpose except upon such terms and
conditions as may be agreed upon between the parties
in writing.
4. Unless otherwise agreed, the obligations of
confidentiality and non-use set forth in this
Agreement do not apply to the extent that such
Proprietary Information:
a. was at the time of receipt already known to
the receiving Party free of any obligation
to keep it confidential (evidenced by
written records prepared prior to delivery
by the disclosing Party);
b. is or becomes publicly known through no
wrongful act of the receiving Party;
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<PAGE>
c. is rightfully received from a third person
having no direct or indirect secrecy or
confidentiality obligation to the disclosing
Party with respect to such information; or
d. is independently developed by receiving
Party individuals who do not have access to
the Proprietary Information;
e. is disclosed to a third person by the
disclosing Party without restrictions on
disclosure;
f. is approved for release by written
authorization of the disclosing Party; or
g. is required to be made public by the
receiving Party pursuant to applicable law,
regulation, or governmental order, provided
that the receiving Party shall give
sufficient notice of the requirement to the
disclosing Party to enable the disclosing
Party to seek protective orders where
possible.
5. USWC grants Reseller the limited, personal,
nonexclusive right and license to access and use
information contained in certain of USWC's databases
(Directory Assistance and Operator Services
databases, certain Advanced Intelligent Network
databases and Operation Support System databases)
but only to the extent as specifically required by
the then applicable federal and state rules and
regulations relating to access to and use of such
databases, as they may be amended from time to time,
and for no other purpose. Without limiting the
generality of the foregoing, this right and license
to Reseller does not include the license and right
to extract or copy (including by any manual,
mechanical or electronic means) or use any such
database information, in whole or in part, to
enhance the quality of any of Reseller's own
database services or offerings, as inputs to
Reseller's or other's directory assistance or
directory publishing operations or for the creation
of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and
all information contained in any of such USWC's
databases shall be Proprietary Information subject
to the terms and conditions of this section O;
provided, however, that Sections 4 a, b, and c shall
not apply even though the individual parts or
components of the information contained in any such
databases may otherwise fall within such Sections.
6. Notwithstanding any other provision of this
Agreement, the Proprietary Information provisions of
this Agreement shall apply to all information
furnished by either Party to the other in
furtherance of the purpose of this Agreement, even
if furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be
considered Proprietary Information by either or both
Parties, and agree to limit distribution of this
Agreement
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<PAGE>
to those individuals in their respective companies
with a need to know the contents of this Agreement.
P. Survival.
Any liabilities or obligations of a Party for acts or
omissions prior to the cancellation or termination of this
Agreement; any obligation of a Party under the provisions
regarding indemnification, Confidential Information,
limitations on liability, and any other provisions of this
Agreement which, by their terms, are contemplated to survive
(or to be performed after) termination of this Agreement,
shall survive cancellation or termination thereof.
Q. Dispute Resolution.
Except as provided by the Act, If any claim, controversy or
dispute between the Parties, their agents, employees,
officers, directors or affiliated agents ("Dispute") cannot
be settled through negotiation, it shall be resolved by
arbitration conducted by a single arbitrator engaged in the
practice of law, under the then current rules of the American
Arbitration Association ("AAA"). The Federal Arbitration Act,
9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's
award shall be final and binding and may be entered in any
court having jurisdiction thereof. Each Party shall bear its
own costs and attorneys' fees, and shall share equally in the
fees and expenses of the arbitrator. The laws of the state
where the services subject to this Agreement are
provided shall govern the construction and interpretation of
this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain
issues during negotiation, the Parties will identify such
issues for arbitration before an appropriate state regulatory
agency. Only those points identified by the Parties for
arbitration will be submitted. All other terms on which the
Parties reach agreement will be submitted for approval in
their final form.
S. Governing Law.
This Agreement shall be deemed to be a contract made under
and shall be construed, interpreted and enforced in
accordance with the Act, where applicable, and the laws of
the state where the services subject to this Agreement are
provided and shall be subject to the exclusive jurisdiction
of the courts in that state, unless otherwise provided by the
Act.
USWC shall be responsible for obtaining and keeping in effect
all Federal Communications Commission, state regulatory
Commission, franchise authority and other regulatory
approvals that may be required in connection with the
performance of its obligations under this Agreement. Reseller
shall be
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<PAGE>
responsible for obtaining and keeping in effect all Federal
Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may
be required in connection with its offering of services to
Reseller Customers contemplated by this Agreement.
T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement,
whether in contract, tort, or other theory, may be brought by
either party more than two (2) years after the cause of
action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives
of the Parties. For convenience, it has been drafted in final
form by one of the Parties. Accordingly, in the event of
ambiguities, no inferences will be drawn against either Party
solely on the basis of authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to
be given or delivered under this Agreement shall be in
hard-copy writing (unless otherwise specifically provided
herein) and shall be sufficiently given If delivered
personally or delivered by prepaid overnight express service
to the following (unless otherwise specifically required by
this Agreement to be delivered to another representative or
point of contact)
Any notices required by or concerning this Agreement shall be
sent to the Parties at the addresses shown below:
USWC Reseller
Katherine L. Fleming Brad VanLeur
U S WEST Communications Firstel, Inc.
Interconnection Services Sales & Marketing Director
1801 California, Suite 4920 110 South Phillips, Suite 202
Denver, Colorado 80202-9184 Souix Falls, SD 57102
303-896-6100 (phone) 605-332-3232 (phone)
303-896-9641 (fax) 605-332-8004 (fax)
Each Party shall inform the other of any changes in the above
addresses.
W. No Third-Party Beneficiaries
Except as may be specifically set forth in this Agreement,
this Agreement does not provide and shall not be construed to
provide third parties with any remedy, claim, liability,
reimbursement, cause of action, or other privilege.
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<PAGE>
X. Publicity and Advertising
Neither party shall publish or use any advertising, sales
promotions or other publicity materials that use the other
party's name, logo, trademarks or service marks without the
prior written approval of the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment
or waiver of any provision of this Agreement, and no consent
to any default under this Agreement, shall be effective
unless the same is in writing and signed by an officer of the
Party against whom such amendment, waiver or consent is
claimed.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(I) of
the Act shall apply, including state and federal interpretive
regulations in effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original; but such
counterparts shall together constitute one and the same
instrument.
BB. Headings of No Force or Effect
The headings of Articles and Sections of this Agreement are
for convenience of reference only, and shall in no way
define, modify or restrict the meaning or interpretation of
the terms or provisions of this Agreement.
CC. Entire Agreement.
This Agreement constitutes the entire agreement between the
Parties and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings,
proposals and undertakings with respect to the subject matter
hereof. This Agreement shall prevail in the event of any
conflict between the "Resale Resource Guide" and the terms
and conditions of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
FIRSTEL, Inc. U S WEST Communications, Inc.
/s/ Fred L. Thurman /s/ Katherine L. Fleming
- ------------------------ ------------------------
Signature Signature
Fred L. Thurman Katherine L. Fleming
- ------------------------ ------------------------
Name Printed/Typed Name Printed/Typed
President Exec Director-Interconnect
- ------------------------ ------------------------
Title Title
3-14-97 3-19-97
- ------------------------ ------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform
this Agreement as a result of successful administrative/judicial review and/or
future settlement agreements between the Parties to this Agreement.
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<PAGE>
APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access
(Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs,
the product specific nonrecurring charges, without discount, will
apply when additional lines or trunks are added or when the end user
adds features or services to existing lines or trunks.
2. The following USWC services are available for resale at the rates listed
below:
Category: Discount Rate
o Basic Exchange Business, PBX Trunks 12%
o ISDN, Frame Relay 12%
o Listings, CO Features 12%
IntraLATA toll is available for resale at the contract toll rates listed below
without application of a further wholesale discount:
State: Rate Per Minute of Use
------ ----------------------
Arizona $ .125
Colorado .14
Idaho .12
Iowa .13
Minnesota .135
Montana .12
Nebraska .175
New Mexico .155
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<PAGE>
North Dakota .16
Oregon .09
South Dakota .10
Utah .11
Washington .11
Wyoming .16
3. The following services are available for resale under this Agreement but are
not included in the wholesale pricing reflected above unless and until the state
public utilities Commission in a particular state orders that wholesale discount
rates are generally available to resellers with respect to these products in
that state:
Basic Exchange Residence Line
Centrex
Private Line
Special Access
Public Access Lines
Volume Discount and/or Term Arrangement (where contained in customer
contracts or USWC tariffs)
4. The following services are not available for resale:
Lifeline
Concession Service
Technical Trials
Grandfathered Products and Services (except to customers currently served
with such services)
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<PAGE>
APPENDIX B
DIRECTORY LISTINGS
Directory Listings
1. Scope.
a. Reseller Listings Service ("Listings") consists of USWC placing the names,
addresses and telephone numbers of Reseller's end users in USWC's listing
database, based on end user information provided to USWC by Reseller. USWC is
authorized to use Listings in Directory Assistance (DA) and as noted in 1.D.i or
1.D.ii.
b. Reseller will provide in standard, format, and USWC will accept at no charge,
one primary listing for each main telephone number belonging to Reseller's end
user customers. Primary listings are as defined for USWC end users in USWC's
general exchange tariffs. Reseller will be charged for privacy listings and
premium listings, e.g., additional, foreign, cross reference, informational,
etc., at USWC's general exchange listing tariff rates minus the applicable
standard resale discount in each state.
c. USWC will furnish Reseller the Listings format specifications. USWC cannot
accept Listings with advance completion dates.
d. Reseller grants USWC a non-exclusive license to incorporate Listings
information into its directory assistance database. Reseller hereby selects one
of two options for USWC's use of Listings and dissemination of Listings to third
parties.
EITHER:
i. Treat the same as USWC's end user listings -- No prior authorization is
needed for USWC to release Listings to directory publishers or other third
parties. USWC will incorporate Listings information in all existing and future
directory assistance applications developed by USWC. Reseller will authorize
USWC to sell and otherwise make Listings available to directory publishers
including USWC's publisher affiliate for inclusion in white pages published on
USWC's behalf. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
OR:
ii. Restrict to USWC's directory assistance -- Prior authorization required by
Reseller for all other uses. Reseller makes its own, separate agreements with
USWC, third parties and directory publishers for all uses of its listings beyond
DA. USWC will sell Listings to directory publishers (including USWC's publisher
affiliate for inclusion in white pages published on USWC's behalf), other third
parties and USWC products only after third party presents proof of Reseller's
authorization. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
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<PAGE>
e. To the extent that state tariffs limit USWC's liability with regard to
Listings, the applicable state tariff(s) is incorporated herein and supersedes
Section VII.G., "Limitation of Liability", of this Agreement with respect to
Listings only.
2. USWC Responsibilities.
USWC is responsible for maintaining Listings, including entering, changing,
correcting, rearranging and removing Listings in accordance with Reseller
orders. USWC will take reasonable steps in accordance with industry practices to
accommodate non-published and non-listed listings provided that Reseller has
supplied USWC the necessary privacy indicators on such Listings.
USWC will include Reseller's Listings in USWC's Directory Assistance service to
ensure that callers to USWC's Directory Assistance service have
non-discriminatory access to Reseller's Listings.
USWC will incorporate Reseller's Listings provided to USWC in the white pages
directory published on USWC's behalf.
3. Reseller Responsibilities.
a. Reseller agrees to provide to USWC its end user names, addresses and
telephone numbers in a standard format, as specified by USWC.
b. Reseller will supply its ACNA/CIC or CLCC/OCN, as appropriate, with each
order to provide USWC the means of identifying Listings ownership.
c. Reseller represents and warrants the end user information provided to USWC is
accurate and correct. Reseller further represents and warrants that it has
reviewed all Listings provided to USWC, including end user requested
restrictions on use such as non-published and non-listed. Reseller shall be
solely responsible for knowing and adhering to state laws or rulings regarding
Listings (e.g., no solicitation requirements in the states of Arizona and
Oregon, privacy requirements in Colorado), and for supplying USWC the applicable
Listing information.
d. Reseller is responsible for all dealings with and on behalf of Reseller's end
users, including:
i. All end user account activity, e.g., end user queries and complaints.
ii. All account maintenance activity, e.g., additions, changes, issuance of
orders for Listings to USWC.
iii. Determining privacy requirements and accurately coding the privacy
indicators for Reseller's end user information. If end user information
provided by Reseller to USWC does not contain a privacy indicator, no privacy
restrictions will apply.
iv. Any additional services requested by Reseller's end users.
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FIRST AMENDMENT TO AGREEMENT FOR SERVICE RESALE
BETWEEN FIRSTEL, INC. AND
U S WEST COMMUNICATIONS, INC.
This First Amendment ("the Amendment") is made this ____ day of July, 1997 by
U S WEST Communications, Inc. ("USWC") and Firstel, Inc. ("Reseller), to the
AGREEMENT FOR SERVICE RESALE executed by Reseller on March 14, 1997 and by USWC
on March 19, 1997 ("Underlying Agreement").
1. This Agreement is made in order to amend the Agreement between the Parties
with respect to the adoption of AT&T rates in North Dakota, the transfer of
accounts, and the provision regarding the disconnect of the reseller for
nonpayment, for services offered by Reseller in the state of North Dakota.
2. Add the following to Section II.
D. This Agreement is entered into as a result of private negotiations
between the Parties. However, the Parties intend to incorporate the rates
and services of an arbitrated decision by the Commission acting pursuant
to Section 252 (b) of the Act involving an interconnection/resale
agreement of other parties and to include for convenience such rates and
services in this Agreement when the Commission decision is final. Reseller
acknowledges (1) that those rates and services are extended only because
of the arbitrated results in other dockets, (2) that USWC intends to
appeal certain of those decisions and (3) that any negotiations, appeal,
stay, injunction, settlement or similar proceedings impacting the
applicability of those rates and services to the local services providers
who were parties to that arbitration will similarly impact the
applicability of those rates and services to Reseller. The Parties further
recognize that the Agreement is subject to the generic interconnection
cost docket proceedings by the Commission addressing the rates and
services in this Agreement where such dockets are pending.
3. The third paragraph of Section IV.C.2. regarding the transfer of accounts
which are in arrears, is hereby deleted.
4. Section IV.D.5. is hereby replaced by the following:
USWC will not disconnect an end user customer without first obtaining the
approval of the Commission. USWC will notify Reseller of the date of
Reseller's disconnection thirty (30) days prior to the effective date of
the disconnection. Reseller shall notify its end user customers that
service will be disconnected on the date specified in USWC's notice to
Reseller for Reseller's failure to make payment due hereunder ten (10)
days prior to the effective date of Reseller's disconnection. If Reseller
is granted a stay of the disconnection, then Reseller shall notify its end
users that service will be disconnected ten (10) days prior to the
subsequent disconnection date, if any, established by the Commission or by
USWC pursuant to Commission order.
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<PAGE>
5. Replace Section IV.E.1 with the following:
Resold services as listed in Appendix A are available for resale at the
applicable discount percentage or rate per minute set forth in Appendix A
or at the retail tariff rates for services available for resale but
excluded from the wholesale pricing arrangement in this Agreement.
The wholesale discount rates in Appendix A were established as interim
rates in North Dakota Case No. PU-453-96-497, between AT&T Corporation and
U S WEST Communications, Inc. Pursuant to 47 U.S.C. Section 151, (the
"AT&T Rates") and are pending the outcome of a final Commission decision
in an interconnection cost docket. Such rates will be subject to true-up
from the date of this Agreement to the effective date of the final
interconnection cost docket order.
It is the intent of the Parties that, if the AT&T Rate is impacted by a
judicial or administrative order as described below, the AT&T Rate made
available to Reseller shall be impacted in the same way and to the same
extent. If the AT&T Rate or applicability of the wholesale discount
rate(s) to the services set forth in Appendix A is stayed or enjoined; the
Parties agree that the telecommunications services still available for
resale following the stay or injunction will be available to Reseller,
effective as of the date of the stay order or injunction, at a wholesale
discount rate of 12% (the "Standard Rate") until such time as a
nonappealable order establishes as wholesale discount rate(s). If the
Standard Rate becomes effective pursuant to this paragraph, the Standard
Rate will also be subject to true-up to the rate(s) established in the
nonappealable order for the period that the Standard Rate was in effect.
If the AT&T Rate or the applicability of the rate to the services in
Appendix A is changed by a nonappealable administrative or judicial order
following approval of negotiated rates, rates reached in an approved
settlement agreement, a decision on appeal or other similar proceeding,
such changed rate(s) will be available to Reseller, effective as of the
date of the order. The AT&T Rate shall be subject to true-up to the
changed rates for the period of time the AT&T Rate was in effect.
USWC shall have a reasonable time to implement system or other changes
necessary to bill any Commission ordered rates or services.
6. The Underlying Agreement and this First Amendment dated _________ and any
attachments thereto constitute the entire Agreement between the Parties. Any
conflict arising out of this Agreement shall be decided in favor of this
Amendment, its attachments if any, and the Underlying Agreement in that order.
2
<PAGE>
The Parties hereby execute and authorize this Amendment as of the latest date
shown below.
Firstel, Inc. U S WEST Communications, Inc.
- -------------------------------- --------------------------------
Authorized Signature Authorized Signature
Brad VanLeur Katherine L. Fleming
- -------------------------------- --------------------------------
Name Typed or Printed Name Typed or Printed
- -------------------------------- --------------------------------
Title Title
- -------------------------------- --------------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Underlying Agreement or
this Amendment or to reform the Underlying Agreement or this Amendment as a
result of successful administrative/judicial review and/or future settlement
agreements between the Parties to this Amendment or the Underlying Agreement.
3
<PAGE>
APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access (Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs, the
product specific nonrecurring charges, without discount, will apply when
additional lines or trunks are added or when the end user adds features or
services to existing lines or trunks.
2. Except as qualified below, all USWC telecommunications services shall be
available for resale at a 16.5% discount.
(a) The following services are not available for resale:
o Customer Premises Equipment (separately or in a package)
o Enhanced Services
o USWC Calling cards
o Inside Wire Installation and Maintenance
o Dedicated or switched Access Service
(b) The following services are available only to the same class of
customer eligible to purchase that service from USWC:
o Grandfathered
o Residence
o Lifeline/Link-up
(c) Telecommunications services offered by USWC at a volume discount are
available at an 8.15% discount.
4
<PAGE>
AGREEMENT
FOR SERVICE RESALE
Between
FIRSTEL, Inc.
and
U S WEST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 4
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 6
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (OSS) 13
V. DIRECTORY LISTINGS 14
VI. GENERAL PROVISIONS 14
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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E. Taxes 16
F. Force Majeure 16
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 18
K. Warranties 21
L. Assignment 21
M. Default 21
N. Severability 21
0. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 24
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 25
X. Publicity and Advertising 26
Y. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed In Counterparts 26
BB. Headings of No force or Effect 26
CC. Entire Agreement 26
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<PAGE>
AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state(s) of Minnesota, South Dakota, North Dakota, Iowa,
Nebraska, Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Idaho, Oregon
and Washington. Where required, this Agreement or the portions of this Agreement
relative to a particular state, will be submitted to the appropriate Public
Utilities Commission ("Commission") and the Parties will specifically request
that the Commission promptly approve this Agreement and refrain from taking any
action to change, suspend or otherwise delay implementation of this Agreement.
The Parties enter into this Agreement without prejudice to any positions they
have taken previously, or may take in the future in any legislative, regulatory,
or other public forum addressing any matters, including matters related to the
types of arrangements prescribed by this Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8. 1996 ("FCC 1st
Order") and the Second Report and Order and Memorandum Opinion and Order, In the
Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1St Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed
into law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and
grants certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements
for service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell
services for resale, on the terms and subject to the conditions of this
Agreement; and,
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WHEREAS, Reseller is a Telecommunications Carrier and has requested
that USWC negotiate an Agreement with Reseller for the provision of USWC
services for resale pursuant to the Act and in conformance with USWC's duties
under the Act; and
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Reseller and USWC hereby covenant and agree as
follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices
under which USWC agrees to provide services for resale.
Unless otherwise provided in this Agreement, USWC will
perform all of its obligations hereunder to the extent
provided in the Appendices attached hereto. The Agreement
includes all accompanying appendices.
B. In the performance of their obligations under this Agreement,
the Parties shall act in good faith and consistently with the
intent of the Act. Where notice, approval or similar action
by a Party is permitted or required by any provision of this
Agreement, the Act, FCC 1st and 2nd Orders, or a state
Commission, (including, without limitation, the obligation of
the parties to further negotiate the resolution of new or
open issues under this Agreement) such action shall not be
unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties,
and for that reason will, unless otherwise agreed, implement
this Agreement as an integrated package without alteration of
any material term or condition, or the inclusion or deletion
of terms and conditions that would serve to alter a material
term or condition herein unless such term or condition is
altered pursuant to Section IV, E. 1 herein or to comply with
a court order or an FCC or state Commission order.
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service
offered to end users which provides the end user with a
telephonic connection to, and a unique local telephone number
address on, the public switched telecommunications network,
and which enables such end user to generally place calls to,
or receive calls from, other stations on the public switched
telecommunications network. Basic residence and business line
services are Basic Exchange Telecommunication Services. As
used solely in the context of this Agreement and unless
otherwise agreed, Basic Exchange Telecommunication Services
includes access to ancillary services such as 911, directory
assistance and operator services.
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B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which
include, but are not necessarily limited to: Automatic Call
Back; Call Trace; Caller ID and Related Blocking Features;
Distinctive Ringing/Call Waiting; Selective Call Forward;
Selective Call Rejection. (See Bellcore documentation for
definition.)
C. "Commission" means the Public Utilities Commission(s) in the
state(s) of Minnesota, South Dakota, North Dakota, Iowa,
Nebraska, Montana, Wyoming, Colorado, New Mexico, Arizona,
Utah, Idaho, Oregon and Washington.
D. Directory Listings are any information: (1) identifying the
listed names of subscribers of a telecommunications carrier
and such subscribers' telephone numbers and addresses and (2)
that the telecommunications carrier or an affiliate has
published, caused to be published, or accepted for
publication in any directory format.
E. "Enhanced Services" means any service offered over common
carrier transmission facilities that employ computer
processing applications that act on format, content, code,
protocol or similar aspects of the subscriber's transmitted
information; that provide the subscriber with additional,
different or restructured information; or involve customer
interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of
information between telecommunications carriers about current
or proposed customer products and services.
G. "Reseller" is a category of Local Exchange service providers
that are certified to obtain dial tone and associated
telecommunications services from another provider through the
purchase of bundled finished services for resale to its end
user customers.
H. "Tariff Services" as used throughout this Agreement refers to
USWC state tariffs, price lists, price schedules and
catalogs.
I. "Technically feasible". Branding of Operator Services and
Directory Assistance shall be deemed technically feasible
absent technical or operational concerns that prevent the
fulfillment of a request by a telecommunications carrier for
such branding. A determination of technical feasibility does
not include consideration of economic, accounting, billing,
space, or site concerns, except that space and site concerns
may be considered in circumstances where there is no
possibility of expanding the space available. The fact that
an incumbent LEC must modify its facilities or equipment to
respond to such request does not determine whether satisfying
such request is technically feasible. An incumbent LEC that
claims that it cannot satisfy such request because of adverse
network reliability impacts must prove to the state
Commission by clear and convincing evidence that such
interconnection, access, or methods would result in specific
and significant adverse network reliability impacts.
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<PAGE>
J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to
such class of users as to be effectively available directly
to the public, regardless of the facilities used. As used in
this definition, "telecommunications" means the transmission,
between or among points specified by the user, of information
of the user's choosing, without change in the form or content
of the information sent and received.
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A. and B.)
and intraLATA toll originating from USWC exchanges
(hereinafter "intraLATA toll") will be available for
resale by USWC pursuant to the Act and will
reference terms and conditions (except prices) in
USWC tariffs, where applicable. Appendix A lists
services which are available for resale under this
Agreement and the applicable discounts, and is
attached and incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC
services are not available for resale under this
Agreement, including but not limited to promotions
of more than 90 days duration and packages of
services comprised of services available for resale
separately, and certain other USWC services are
available for resale but at no discount, as
identified in Appendix A or in individual state
tariffs. The availability of services and applicable
discounts identified in Appendix A or in individual
tariffs are subject to change pursuant to Section IV
E. 1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic
Exchange Switched Features and IntraLATA toll may be
resold only for their intended or disclosed use and
only to the same class of customer to whom USWC
sells such services; e.g., residence service may not
be resold to business customers.
2. USWC shall provide to Reseller services for resale
that are equal in quality, subject to the same
conditions (including the conditions in USWC's
effective tariffs), within the same provisioning
time intervals that USWC provides these services to
others, including end users, and in accordance with
any applicable state Commission service quality
standards, including standards a state Commission
may impose pursuant to Section 252 (e)(3) of the
Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single
point of contact for its end users' service needs,
including without limitation, sales, service design,
order taking, provisioning, change orders, training,
maintenance,
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<PAGE>
trouble reports, repair, post-sale servicing,
billing, collection and inquiry. Reseller shall make
it clear to its end users that they are customers of
the Reseller for resold services. Reseller's end
users contacting USWC will be instructed to contact
the Reseller; however, nothing in this Agreement,
except as provided in Section IV.C.7(e), shall be
deemed to prohibit USWC from discussing its products
and services with Reseller's customers who call USWC
for any reason.
2. Reseller shall transmit to USWC all information
necessary for the installation (billing, listing and
other information), repair, maintenance and
post-installation servicing according to USWC's
standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end user's new service
provider discontinues the end user's service in
anticipation of moving to another service provider,
USWC will render its closing bill to end user
customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a
bill to Reseller for that portion of the service
provided to the Reseller should Reseller's end user
customer, a new service provider, or Reseller
request service be discontinued to the end user.
USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service
provider. USWC will not provide Reseller with the
name of the other reseller or service provider
selected by the end user.
The Parties agree that they will not transfer their
respective end user customers whose accounts are in
arrears between each other. The Parties further
agree that they work cooperatively together to
develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide
Reseller with points of contact for order entry,
problem resolution and repair of the resold
services.
4. Prior to placing orders on behalf of the end user,
Reseller shall be responsible for obtaining and have
in its possession Proof of Authorization ("POA").
POA shall consist of documentation acceptable to
USWC of the end user's selection of Reseller. Such
selection may be obtained in the following ways:
a. The end user's written Letter of
Authorization or LOA.
b. The end user's electronic authorization by
use of an 800 number.
c. The end user's oral authorization verified
by an independent third party (with third
party verification as POA).
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<PAGE>
d. A prepaid returnable postcard supplied by
Reseller which has been signed and returned
by end user. Reseller will wait fourteen
(14) days after mailing the postcard before
placing an order to change.
Reseller shall make POAs available to USWC upon
request. Prior to placing orders that will
disconnect a line from another reseller's account
the Reseller is responsible for obtaining all
information needed to process the disconnect order
and re-establish the service on behalf of the end
user. If a Reseller is displaced by another reseller
or service provider, the Reseller is responsible for
coordination with the other reseller or service
provider. Should an end user dispute or a
discrepancy arise regarding the authority of
Reseller to act on behalf of the end user, the
Reseller is responsible for providing written
evidence of its authority to USWC within three (3)
business days. If there is a conflict between the
end user designation and Reseller's written evidence
of its authority, USWC shall honor the designation
of the end user and change the end user back to the
previous service provider. If the Reseller does not
provide the POA within three (3) business days, or
if the end user disputes the authority of the POA,
then the Reseller must, by the end of the third
business day:
o notify USWC to change the end user back to
the previous reseller or service provider,
and
o provide any end user information and billing
records the Reseller has obtained relating
to the end user to the previous reseller,
and
o notify the end user and USWC that the change
has been made,
o remit to USWC a charge of $100.00 ("slamming
charge") as compensation for the change back
to the previous reseller or service
provider.
If an end user customer is switched from Reseller
back to USWC and there is a dispute or discrepancy
with respect to such change in service provider,
Reseller may request to see a copy of the POA which
USWC has obtained from the end user to effectuate a
return to USWC as the end user's service provider.
If USWC is unable to produce a POA within three (3)
business days, USWC shall change the end user back
to Reseller (or other previous reseller) without
imposition of any Customer Transfer Charge.
5. Reseller shall designate Primary Interexchange
Carrier (PIC) assignments on behalf of its end-users
for interLATA services and intraLATA services when
intraLATA presubscription is implemented.
6. When end user customers switch from USWC to
Reseller, or to Reseller from any other reseller,
such customers shall be permitted to retain their
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current telephone numbers if they so desire and do
not change their service address to an address
served by a different central office. USWC shall
take no action to prevent Reseller customers from
retaining their current telephone numbers.
7. Reseller and USWC will employ the following
procedures for handling misdirected repair calls:
a. Reseller and USWC will provide their
respective customers with the correct
telephone numbers to call for access to
their respective repair bureaus.
b. Customers of Reseller shall be instructed to
report all cases of trouble to Reseller.
Customers of USWC shall be instructed to
report all cases of trouble to USWC.
c. To the extent the correct provider can be
determined, misdirected repair calls will be
referred to the proper provider of Basic
Exchange Telecommunications Service.
d. Reseller and USWC will provide their
respective repair contact numbers to one
another on a reciprocal basis.
e. Notwithstanding the provisions of Section
IV. C. 1., USWC will not discuss its
products and services with Reseller's
customers during the course of repair calls
or visits.
D. Reseller Responsibilities.
1. Reseller must send USWC complete and accurate
end-user listing information for Directory
Assistance, Directory, and 911 Emergency Services
using USWC's resale order form and process. Reseller
must provide to USWC accurate end-user information
to ensure appropriate listings in any databases in
which USWC is required to retain and/or maintain
end-user information. USWC assumes no liability for
the accuracy of information provided by Reseller.
2. Reseller may not reserve blocks of USWC telephone
numbers, except as allowed by tariffs.
3. Reseller is liable for all fraud associated with
Service to its end-users and accounts. USWC takes no
responsibility, will not investigate, and will make
no adjustments to Reseller's account in cases of
fraud unless such fraud is the result of any
intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of
potential fraud with respect to Reseller's accounts,
USWC will promptly inform Reseller and, at the
direction of Reseller, take reasonable action to
mitigate the fraud where such action is possible.
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4. Reseller will indicate the date it will offer to
residential and business subscribers telephone
exchange services. The Reseller will provide a two
year forecast within ninety (90) days of signing
this Agreement. During the first year of the term of
this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter,
during the term of this Agreement, Reseller will
provide updated forecasts from time to time, as
requested by USWC. The initial forecast will
provide:
o The date service will be offered (by city
and/or state)
o The type and quantity of service(s) which
will be offered
o Reseller's anticipated order volume
o Resellers key contact personnel
The information provided pursuant to this paragraph
shall be considered Proprietary Information under
Section VII. 0. of this Agreement.
5. In the event USWC terminates the provisioning of any
resold services to Reseller for any reason, Reseller
shall be responsible for providing any and all
necessary notice to its end users of the
termination. In no case shall USWC be responsible
for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of
its termination of a resold service on a timely
basis consistent with Commission rules and notice
requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are
available for resale at the applicable discount
percentage or rate per minute set forth in Appendix
A or at the retail tariff rates for services
available for resale but excluded from the wholesale
pricing arrangement in this Agreement.
However, state Commissions may do any of the
following (collectively referred to hereinafter as
"Order") during the term of this Agreement:
o establish wholesale discount rates through
decisions in arbitration, interconnection
and/or resale cost proceedings;
o establish other recurring and nonrecurring
rates related to resale, including but not
limited to Customer Transfer Charges and
Slamming Charges ("Other Resale Charges");
and
o order that certain services be made
available for resale at specified wholesale
discount rates.
If a state Commission orders services to be
available for resale, the Parties agree that they
will, on a state-by-state basis, revise Appendix A
to incorporate the services determined by such Order
into this Agreement, effective on the date ordered
by a Commission. When a state Commission, through a
decision in arbitration, identifies services that
must be available for resale at wholesale discount
rates, such decision shall be deemed to have defined
that such services are
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generally available to resellers in that state. If a
state Commission establishes wholesale discount
rates and Other Resale Charges to be made generally
available to resellers or establishes a resale
tariff, the Parties agree that they will, on a
state-by-state basis, revise Appendix A to
incorporate such wholesale discount rates and/or
Other Resale Charges into this Agreement effective
on the date ordered by a Commission; provided,
however, that USWC shall have a reasonable time to
implement system or other changes necessary to bill
the Commission ordered rates or charges.
The rates for those resold services initially
included in the wholesale pricing arrangement under
this Agreement shall be subject to true-up to the
wholesale discount rates established by a Commission
Order making such rates generally available to
resellers or established by a resale tariff,
retroactively to the effective date of this
Agreement. Any true-up shall be on a
service-by-service basis if wholesale discount rates
are established by a Commission on such a basis.
Services excluded from the wholesale pricing
arrangement under this Agreement as identified in
Appendix A, shall be made available on a going
forward basis from the date a of Commission Order
that orders such services be made generally
available to any reseller in the state where such a
Commission Order is issued. Such services shall be
available at the discount rate applicable to basic
exchange business service identified in Section 2 of
Appendix A; provided, however, that when a
Commission order establishes wholesale discount
rates for such services as generally available to
resellers, Appendix A shall be revised to
incorporate the wholesale discount rates generally
available to resellers.
If a state Commission fails to issue such an Order
or make effective such a tariff by the end of the
first year this Agreement, either USWC or Reseller
may elect to renegotiate this Section of the
Agreement.
2. If the resold services are purchased pursuant to
Tariffs and the Tariff rates change, charges billed
to Reseller for such services will be based upon the
new Tariff rates less the applicable wholesale
discount as agreed to herein or established by
resale Tariff. The new rate will be effective upon
Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in
Appendix A applies when transferring any existing
account or lines to a Reseller. Tariffed
non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be
paid by the Reseller without discount to USWC for
each local exchange line resold under this
Agreement. All federal and state rules and
regulations associated with SLC as found in the
applicable tariffs also apply.
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5. Reseller will pay to USWC the PIC change charge
without discount associated with Reseller end user
changes of inter-exchange or intraLATA carriers.
6. Reseller agrees to pay USWC when its end user
activates any services or features that are billed
on a per use or per activation basis subject to the
applicable discount in Appendix A as such may be
amended pursuant to Section IV.E.1 (e.g., continuous
redial, last call return, call back calling, call
trace, etc.).
7. Resold services are available only where facilities
currently exist and are capable of providing such
services without construction of additional
facilities or enhancement of existing facilities.
However, if Reseller requests that facilities be
constructed or enhanced to provide resold services,
USWC will review such requests on a case-by-case
basis and determine, in its sole discretion, if it
is economically feasible for USWC to build or
enhance facilities. If USWC decides to build or
enhance the requested facilities, USWC will develop
and provide to Reseller a price quote for the
construction. If the quote is accepted, Reseller
will be billed the quoted price and construction
will commence after receipt of payment.
8. Nonrecurring charges will not be discounted and will
be billed at the applicable Tariff rates.
9. As part of the resold line, USWC provides and
Reseller accepts, at this time, operator services,
directory assistance, and IntraLATA long distance
with standard USWC branding. Reseller is not
permitted to alter the branding of these services in
any manner when the services are a part of the
resold line without the prior written approval of
USWC. However, at the request of Reseller and where
technically feasible, USWC will rebrand operator
services and directory assistance in the Reseller's
name, provided the costs associated with such
rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding
Reseller's use of USWC's retail product training materials.
Except for any rights granted by USWC to Reseller for the use
or copying of product training material, product training
provided under this Agreement shall be considered
"Proprietary Information" as described in Section VII. 0.,
and shall be subject to the terms and conditions specified
therein.
G. Cooperation
The Parties agree that this Agreement involves the provision
of USWC services in ways such services were not previously
available and the introduction of new processes and
procedures to provide and bill such services. Accordingly,
the
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Parties agree to work jointly and cooperatively in testing
and implementing processes for pre-ordering, ordering,
maintenance, provisioning and billing and in reasonably
resolving issues which result from such implementation on a
timely basis.
V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal
for access to its Operational Support Systems (OSS) to meet
the requirements of the FCC's 1st and 2nd Orders and to
provide Reseller and other telecommunications carriers with
electronic interfaces for pre-ordering, ordering, repair and
billing functions by January 1, 1997 for Plain Old Telephone
services (POTs). Subsequent phases of the plan will
incorporate the capabilities to support designed services for
preordering, ordering and repair, which are estimated to be
available between the second and third quarters of 1997.
Reseller understands that USWC is proposing that these
interfaces will have the necessary mediation to protect the
integrity of the network and protect the privacy of customer
information.
B. The Parties further acknowledge that USWC is, or soon will
be, presenting its OSS proposal to state Commissions for
approval, including approval of fees or cost recovery methods
that USWC may charge or use to charge Reseller in connection
with the design, implementation and on-going maintenance and
support of the OSS ("OSS fees"). The Parties further
acknowledge that, because the OSS is still in the conceptual
stage of development at the time of execution of this
Agreement, USWC is unable to specify or estimate the amount
of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to
USWC's OSS become operational and a state Commission approves
USWC's OSS plan and establishes OSS fees or cost recovery
methods, the Parties will amend this Agreement to incorporate
terms and conditions regarding Reseller's access to USWC's
OSS, including OSS fees, on a state-by-state basis. The
Parties further agree that Reseller may terminate this
Agreement if the amount of OSS fees turns out to be so
excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such
termination, Reseller shall give USWC (sixty) 60 days written
notice.
D. Prior to approval and deployment of USWC's OSS interfaces,
USWC shall continue to provide all pre-ordering, ordering,
repair and billing functions and services through manual
procedures outlined in a separately provided Resale Resource
Guide. Such manual procedures shall be available where USWC's
OSS interfaces are unable to handle pre-ordering, ordering,
repair and billing functions for the services available to
Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in
any manner in any state Commission proceeding that addresses
USWC's OSS interface proposal, including the establishment of
OSS fees to the extent such participation is permitted by a
Commission.
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VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each
main telephone number belonging to Reseller's end user
customer based on end user information provided to USWC by
Reseller. USWC will place Reseller's listings in USWC's
directory listing database for directory assistance purposes
and will make listings available to directory publishers and
other third parties. Additional terms and conditions with
respect to directory listings are described in Appendix B
which by this reference is incorporated and made a part of
this Agreement.
VII. GENERAL PROVISIONS
A. Term.
This Agreement shall be effective upon approval by a
Commission(s) and shall continue for a period of two (2)
years. Thereafter the Agreement shall continue in force and
effect unless and until a new agreement, addressing all of
the terms of this Agreement, becomes effective between the
Parties. The Parties agree to commence negotiations on a new
agreement no later than 1 1/2 years after this Agreement
becomes effective. This Agreement shall be effective pursuant
to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible
for all applicable charges for the resold services
as provided herein. The Reseller shall also be
responsible for all tariffed charges and charges
separately identified in this Agreement associated
with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis,
within 7-10 days of the last day of the most recent
billing period, in an agreed upon standard
electronic billing format, billing information
including (1) a summary bill, and (2) individual end
user customer sub-account information consistent
with the samples provided to Reseller for Reseller
to render end user customer bills indicating all
recurring and nonrecurring charges associated with
each individual customer's account for the most
recent billing period.
C. Payment.
1. Amounts payable under this Agreement are due and
payable within thirty (30) days after the bill date
of USWC's invoice. During the initial three billing
cycles of this Agreement, Reseller and USWC agree
that undisputed amounts shall be paid as provided
herein. Reseller and USWC further agree that, during
said three billing cycle period, they will cooperate
to resolve amounts in dispute or billing process
issues in a timely manner but no later than sixty
(60) days after the bill date of USWC's invoice or
identification and notice of the billing process
issue.
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Disputed amounts will be paid within thirty (30)
days following resolution of the dispute.
2. After the three (3) month period outlined in Section
C.1. above, the Reseller will pay the bill in full
within 30 days after the bill date of the invoice.
Billing disputes will be processed and jointly
resolved. Any disputed amounts that USWC remits to
the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
3. A late payment charge of 1.5% applies to all billed
balances which are not paid by 30 days after the
bill date shown on the invoice. USWC agrees,
however, that the application of this provision will
be suspended for the initial three billing cycles of
this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the
failure by Reseller to make full payment for the
resold services provided under this Agreement within
thirty (30) days of the due date on Reseller's bill.
USWC agrees, however, that the application of this
provision will be suspended for the initial three
billing cycles of this Agreement and will not apply
to amounts billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to
make full payment for the resold services provided
under this Agreement within sixty (60) days of the
due date on Reseller's bill. Reseller will pay the
tariff charge required to reconnect each end user
line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this
provision will be suspended for the first three
billing cycles under this Agreement and will not
apply to amounts billed during those three cycles.
6. Collection procedures and the requirements for
deposit are unaffected by the application of a late
payment charge.
7. The Parties agree that this payment and dispute
resolution process is a new procedure and they
further agree that this Section VII. C. can be
reopened for negotiation at any time within the
first twelve (12) months of this Agreement.
8. USWC shall credit Reseller's account the amount due
for any trouble or out-of-service conditions in the
same manner that USWC credits the accounts of its
own end-user customers and pursuant to any
applicable provisions in USWC's tariffs. USWC shall
reflect the amount of such credits on an individual
customer telephone number basis in the billing
information USWC provides Reseller.
9. In the event billing disputes relate to service
quality issues, the dispute shall be referred to the
USWC account executive assigned to Reseller
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who will evaluate the facts and circumstances of the
service quality issues and will work with Reseller
to resolve the dispute.
D. Deposit.
1. USWC may require Reseller to make a suitable deposit
to be held by USWC as a guarantee of the payment of
charges. Any deposit required of an existing
reseller is due and payable within ten days after
the requirement is imposed. The amount of the
deposit shall be the estimated charges for the
resold Service which will accrue for a two-month
period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the
initial or additional deposit, with any interest due
as set forth in applicable tariffs, will, at
Reseller's option, either be credited to Reseller's
account or refunded. Satisfactory credit for a
reseller is defined as twelve consecutive months
service as a reseller without a termination for
nonpayment and with no more than one notification of
intent to terminate Service for nonpayment. Interest
will be paid on cash deposits at the rate applying
to deposits under applicable Commission rules,
regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or
refunded, as appropriate, upon the earlier of the
termination of this Agreement or one full year of
timely payments in full by Reseller. The fact that a
deposit has been made does not relieve Reseller from
any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise
or gross receipts taxes, fees or surcharges (collectively
"Taxes") imposed on or with respect to its sale of services
or equipment provided under this Agreement, except those
Taxes which are explicitly required by a governmental
authority to be collected by USWC. Reseller shall seek sale
for resale exemptions from any applicable governmental or
taxing body for payment of any and all Taxes related to
Reseller's purchase of services or equipment from USWC under
this Agreement. Until such time as exemptions are obtained or
applicable, Reseller shall pay USWC for the amount of any
such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes
payable by USWC.
F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the
reasonable control of such Party, regardless of whether such
delays or failures in performance were foreseen or
foreseeable as of the date of this Agreement, including,
without limitation: fire, explosion, power failure, acts of
God, war, revolution, civil commotion, or acts of public
enemies; any law, order, regulation, ordinance or
requirement of any
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government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or
delays caused by the other Party or by other service or
equipment vendors; or any other circumstances beyond the
Party's reasonable control. In such event, the Party affected
shall, upon giving prompt notice to the other Party, be
excused from such performance on a day-to-day basis to the
extent of such interference (and the other Party shall
likewise be excused from performance of its obligations on a
day-for-day basis to the extent such Party's obligations
relate to the performance so interfered with). The affected
Party shall use its best efforts to avoid or remove the cause
of non-performance and both parties shall proceed to perform
with dispatch once the causes are removed or cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby
retains the right to exercise full control of and supervision
over its own performance of its obligations under this
Agreement and retains full control over the employment,
direction, compensation and discharge of all employees
assisting in the performance of such obligations. Each Party
will be solely responsible for all matters relating to
payment of such employees, including compliance with social
security taxes, withholding taxes and all other regulations
governing such matters. Each Party will be solely responsible
for proper handling, storage, transport and disposal at its
own expense of all (i) substances or materials that it or its
contractors or agents bring to, create or assume control over
at Work Locations or, (ii) Waste resulting therefrom or
otherwise generated in connection with its or its
contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as
otherwise provided in this Agreement, each Party shall be
responsible for (i) its own acts and performance of all
obligations imposed by Applicable Law in connection with its
activities, legal status and property, real or personal and,
(ii) the acts of its own affiliates, employees, agents and
contractors during the performance of that Party's
obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to
the other for any loss related to or arising out of any
negligent act or omission in its performance of this
Agreement, whether in contract or in tort, shall be limited
to the total amount that is or would have been charged to the
other Party by such negligent or breaching Party for the
service(s) or function(s) not performed or improperly
performed.
In no event shall either Party be liable to the other in
connection with the provision or use of services offered
under this Agreement for indirect, incidental, consequential,
reliance or special damages, including (without limitation)
damages for lost profits, lost revenues, lost savings
suffered by such other Parties regardless of the form of
action, whether in contract, warranty, strict liability, or
tort, including (without limitation) negligence of any kind
and regardless of whether the Parties know the possibility
that such damages could result. Nothing contained in this
Section H shall limit USWC's or Reseller's
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liability to the other for (i) willful or intentional
misconduct (including gross negligence); (ii) bodily injury,
death or damage to tangible real or tangible personal
property proximately caused by USWC's or Reseller's negligent
act or omission or that of their respective agents,
subcontractors or employees, nor shall anything contained in
this section limit the parties indemnification obligations,
as specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify,
defend and hold harmless the other Party and each of
its officers, directors, employees and agents (each
an "Indemnitee") from and against and in respect of
any loss, debt, liability, damage, obligation,
claim, demand, judgment or settlement of any nature
or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs
and attorneys' fees, whether suffered, made,
instituted, or asserted by any other party or
person, for invasion of privacy, personal injury to
or death of any person or persons, or for loss,
damage to, or destruction of property, whether or
not owned by others, resulting from the indemnifying
Party's performance, breach of Applicable Law, or
status of its employees, agents and subcontractors;
or for failure to perform under this Agreement,
regardless of the form of action.
2. The indemnification provided herein shall be
conditioned upon:
a. The indemnified Party shall promptly notify
the indemnifying Party of any action taken
against the indemnified Party relating to
the indemnification. Failure to so notify
the Indemnifying Party shall not relieve the
Indemnifying Party of any liability that the
Indemnifying Party might have, except to the
extent that such failure prejudices the
Indemnifying Party's ability to defend such
Claim.
b. The indemnifying Party shall have sole
authority to defend any such action,
including the selection of legal counsel,
and the indemnified Party may engage
separate legal counsel only at its sole cost
and expense.
c. In no event shall the indemnifying Party
settle or consent to any judgment pertaining
to any such action without the prior written
consent of the indemnified Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend,
indemnify or hold harmless, or acquire any license
or right for the benefit of, or owe any other
obligation or have any liability to, the other based
on or arising from any claim, demand, or proceeding
(hereinafter "claim") by any third party alleging or
asserting that the use of any circuit, apparatus, or
system, or
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the use of any software, or the performance of any
service or method, or the provision of any
facilities by either Party under this Agreement
constitutes direct or contributory infringement, or
misuse or misappropriation of any patent, copyright,
trademark, trade secret, or any other proprietary or
intellectual property right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be
construed as the grant of a license, either
express or implied, with respect to any
patent, copyright, logo, trademark,
tradename, trade secret or any other
intellectual property right now or
hereafter owned, controlled or licensable
by either Party. Reseller may not use any
patent, copyright, logo, trademark,
tradename, trade secret or other
intellectual property right of USWC or its
affiliates without execution of a separate
agreement between the Parties.
b. Reseller shall not, without the express
written permission of USWC, state or imply
that; 1) Reseller is connected, or in any
way affiliated with USWC or its affiliates
or, 2) Reseller is part of a joint business
association or any similar arrangement with
USWC or its affiliates or, 3) USWC and its
affiliates are in any way sponsoring,
endorsing or certifying Reseller and its
goods and services or, 4) the resold goods
and services are in any way associated with
or originated from USWC or any of its
affiliates. Notwithstanding the above,
Reseller may state in response to a
specific customer inquiry concerning the
origin of the resold services that
"Reseller is reselling USWC services." No
other statements may be made.
3. Notwithstanding the above, unless otherwise
prohibited by USWC pursuant to an applicable
provision herein, Reseller may use the phrase "(Name
of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase")
in Reseller's printed materials provided:
a) The Authorized Phrase is not used in
connection with any goods or services other
than USWC services resold by Reseller.
b) Reseller's use of the Authorized Phrase
does not, in USWC's sole discretion, cause
customers to believe that Reseller is USWC.
c) The Authorized Phrase, when displayed,
appears only in text form (Reseller may not
use the U S WEST logo) with all letters
being the same font and point size. The
point size of the Authorized Phrase shall
be no greater than one fourth the point
size of the smallest use of Reseller's name
and in no even shall exceed 8 point size.
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d) Reseller shall provide all printed
materials to USWC for its prior written
approval.
e) If USWC determines that Reseller's use of
the Authorized Phrase causes customer
confusion, USWC may in it's sole
discretion, immediately terminate
Reseller's right to use the Authorized
Phrase.
f) Upon termination of the Reseller's right to
use the Authorized Phrase or termination of
this Agreement, all permission or right to
use the Authorized Phrase shall immediately
cease to exist and Reseller shall
immediately cease any and all such use of
the Authorized Phrase. Reseller shall
either promptly return to USWC or destroy
all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S
WEST" and "U S WEST Communications" (the "Marks")
and the goodwill associated therewith and
acknowledges that such goodwill is a property right
belonging to U S WEST, Inc. and USWC respectively
(the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an
assignment or grant to Reseller of any right, title
or interest in or to the Marks and that this
Agreement does not confer any right or license to
grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will
do nothing inconsistent with the Owner's ownership
of the Marks, and all rights, if any , that may be
acquired by use of the Marks shall inure to the
benefit of the Owners. Reseller will not adopt, use
(other than as authorized in Section 3 herein,)
register or seek to register any mark anywhere in
the world which is identical or confusingly similar
to the Marks or which is so similar thereto as to
constitute a deceptive colorable imitation thereof
or to suggest or imply some association,
sponsorship, or endorsement by the Owners; The
Owners make no warranties regarding its ownership of
any rights in or the validity of the Marks.
5. As a condition to the access or use of patents,
copyrights, trade secrets and other intellectual
property (including software) owned or controlled
by a third party to the extent necessary to
implement this Agreement or specifically required by
the then applicable federal and state rules and
regulations relating to resale and access to
telecommunications facilities and services, the
party providing access may require the other upon
written notice, from time to time, to obtain
permission for such access or use, make all payments
in connection with obtaining such permission, and
providing evidence of such permission.
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K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE
PARTIES AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE
DOES NOT EXIST, ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of
negotiations between the Parties. As such, this Agreement can
be assigned only with the prior written consent of the
non-assigning Party, which consent shall not be unreasonably
withheld.
M. Default.
If either Party defaults in the payment of any amount due
hereunder, or if either Party violates any other provision of
this Agreement, and such default or violation shall continue
for thirty (30) days after written notice thereof, the other
Party may terminate this Agreement forthwith by written
instrument. The failure of either Party to enforce any of the
provisions of this Agreement or the waiver thereof in any
instance shall not be construed as a general waiver or
relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and
effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules
addressing issues contained in this Agreement. To the extent
that certain of the rules contained in the FCC 1st Order and
the FCC 2d Order are deemed by the courts to be not
effective, this contract shall be modified to comport with
the final court decisions and subsequent FCC or state
Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision
of this Agreement is held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not
invalidate the entire Agreement. The Agreement shall be
construed as if it did not contain the invalid or
unenforceable provision or provisions, and the rights and
obligations of each Party shall be construed and enforced
accordingly; provided, however, that in the event that such
invalid or unenforceable provision or provisions are
essential elements of this Agreement and, in the opinion of
either party, substantially impair the rights or obligations
of either party, Reseller and USWC shall promptly negotiate a
replacement provision or provisions. If the Parties cannot
negotiate such a replacement provision or provisions, the
Parties may agree to terminate the Agreement, In the event
of termination as described herein, for service arrangements
made available under this Agreement and existing at the time
of termination, those arrangements shall continue without
interruption under either a) a new agreement executed by the
Parties, b) standard resale terms and conditions approved and
made generally effective by the Commission, or c) tariff
terms and
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conditions generally available to resellers. If a) does not
come about, or b) or c) are not available, the Agreement
shall remain in effect until a replacement provision is
determined through arbitration.
O. Nondisclosure.
1. All information including, but not limited to,
specifications, drawings, sketches, models, tools,
technical information, employee records, maps,
financial reports, and market data, (i) furnished by
one Party to the other Party or to which one Party
provides to the other Party access (such as to a
database) dealing with customer specific, facility
specific, or usage specific information, or (ii) in
written, graphic, electromagnetic, or other tangible
form and marked at the time of delivery as
"Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual
presentation and declared to the receiving Party at
the time of delivery, or by written notice given to
the receiving Party within ten (10) days after
delivery, to be "Confidential" or "Proprietary"
(collectively referred to as "Proprietary
Information"), shall remain the property of the
disclosing Party.
2. Upon request by the disclosing Party, the receiving
Party shall return all tangible copies of
Proprietary Information, whether written, graphic or
otherwise, except that the receiving Party may
retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that
Proprietary Information constitutes trade secrets of
the disclosing Party. The receiving Party shall
maintain in confidence all of the disclosing Party's
Proprietary Information and shall use the
disclosing Party's Proprietary Information only for
performing the covenants contained, or exercising
any rights granted, in this Agreement. Only the
employees and agents with a need to know shall have
access to the Proprietary Information and each such
employee and agent shall be advised of his or her
obligations under this Section O. Neither Party
shall use the other Party's Proprietary Information
for any other purpose except upon such terms and
conditions as may be agreed upon between the parties
in writing.
4. Unless otherwise agreed, the obligations of
confidentiality and non-use set forth in this
Agreement do not apply to the extent that such
Proprietary Information:
a. was at the time of receipt already known to
the receiving Party free of any obligation
to keep it confidential (evidenced by
written records prepared prior to delivery
by the disclosing Party);
b. is or becomes publicly known through no
wrongful act of the receiving Party;
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c. is rightfully received from a third person
having no direct or indirect secrecy or
confidentiality obligation to the disclosing
Party with respect to such information; or
d. is independently developed by receiving
Party individuals who do not have access to
the Proprietary Information;
e. is disclosed to a third person by the
disclosing Party without restrictions on
disclosure;
f. is approved for release by written
authorization of the disclosing Party; or
g. is required to be made public by the
receiving Party pursuant to applicable law,
regulation, or governmental order, provided
that the receiving Party shall give
sufficient notice of the requirement to the
disclosing Party to enable the disclosing
Party to seek protective orders where
possible.
5. USWC grants Reseller the limited, personal,
nonexclusive right and license to access and use
information contained in certain of USWC's databases
(Directory Assistance and Operator Services
databases, certain Advanced Intelligent Network
databases and Operation Support System databases)
but only to the extent as specifically required by
the then applicable federal and state rules and
regulations relating to access to and use of such
databases, as they may be amended from time to time,
and for no other purpose. Without limiting the
generality of the foregoing, this right and license
to Reseller does not include the license and right
to extract or copy (including by any manual,
mechanical or electronic means) or use any such
database information, in whole or in part, to
enhance the quality of any of Reseller's own
database services or offerings, as inputs to
Reseller's or other's directory assistance or
directory publishing operations or for the creation
of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and
all information contained in any of such USWC's
databases shall be Proprietary Information subject
to the terms and conditions of this section O;
provided, however, that Sections 4 a, b, and c shall
not apply even though the individual parts or
components of the information contained in any such
databases may otherwise fall within such Sections.
6. Notwithstanding any other provision of this
Agreement, the Proprietary Information provisions of
this Agreement shall apply to all information
furnished by either Party to the other in
furtherance of the purpose of this Agreement, even
if furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be
considered Proprietary Information by either or both
Parties, and agree to limit distribution of this
Agreement
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to those individuals in their respective companies
with a need to know the contents of this Agreement.
P. Survival.
Any liabilities or obligations of a Party for acts or
omissions prior to the cancellation or termination of this
Agreement; any obligation of a Party under the provisions
regarding indemnification, Confidential Information,
limitations on liability, and any other provisions of this
Agreement which, by their terms, are contemplated to survive
(or to be performed after) termination of this Agreement,
shall survive cancellation or termination thereof.
Q. Dispute Resolution.
Except as provided by the Act, If any claim, controversy or
dispute between the Parties, their agents, employees,
officers, directors or affiliated agents ("Dispute") cannot
be settled through negotiation, it shall be resolved by
arbitration conducted by a single arbitrator engaged in the
practice of law, under the then current rules of the American
Arbitration Association ("AAA"). The Federal Arbitration Act,
9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's
award shall be final and binding and may be entered in any
court having jurisdiction thereof. Each Party shall bear its
own costs and attorneys' fees, and shall share equally in the
fees and expenses of the arbitrator. The laws of the state
where the services subject to this Agreement are
provided shall govern the construction and interpretation of
this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain
issues during negotiation, the Parties will identify such
issues for arbitration before an appropriate state regulatory
agency. Only those points identified by the Parties for
arbitration will be submitted. All other terms on which the
Parties reach agreement will be submitted for approval in
their final form.
S. Governing Law.
This Agreement shall be deemed to be a contract made under
and shall be construed, interpreted and enforced in
accordance with the Act, where applicable, and the laws of
the state where the services subject to this Agreement are
provided and shall be subject to the exclusive jurisdiction
of the courts in that state, unless otherwise provided by the
Act.
USWC shall be responsible for obtaining and keeping in effect
all Federal Communications Commission, state regulatory
Commission, franchise authority and other regulatory
approvals that may be required in connection with the
performance of its obligations under this Agreement. Reseller
shall be
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responsible for obtaining and keeping in effect all Federal
Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may
be required in connection with its offering of services to
Reseller Customers contemplated by this Agreement.
T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement,
whether in contract, tort, or other theory, may be brought by
either party more than two (2) years after the cause of
action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives
of the Parties. For convenience, it has been drafted in final
form by one of the Parties. Accordingly, in the event of
ambiguities, no inferences will be drawn against either Party
solely on the basis of authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to
be given or delivered under this Agreement shall be in
hard-copy writing (unless otherwise specifically provided
herein) and shall be sufficiently given if delivered
personally or delivered by prepaid overnight express service
to the following (unless otherwise specifically required by
this Agreement to be delivered to another representative or
point of contact).
Any notices required by or concerning this Agreement shall be
sent to the Parties at the addresses shown below:
USWC Reseller
Katherine L. Fleming Brad VanLeur
U S WEST Communications Firstel, Inc.
Interconnection Services Sales & Marketing Director
1801 California, Suite 4920 110 South Phillips, Suite 202
Denver, Colorado 80202-9184 Sioux Falls, SD 57102
303-896-8100 (phone) 605-332-3232 (phone)
303-896-9641 (fax) 605-332-8004 (fax)
Each Party shall inform the other of any changes in the above
addresses.
W. No Third-Party Beneficiaries.
Except as may be specifically set forth in this Agreement,
this Agreement does not provide and shall not be construed to
provide third parties with any remedy, claim, liability,
reimbursement, cause of action, or other privilege.
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X. Publicity and Advertising
Neither party shall publish or use any advertising, sales
promotions or other publicity materials that use the other
party's name, logo, trademarks or service marks without the
prior written approval of the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment
or waiver of any provision of this Agreement, and no consent
to any default under this Agreement, shall be effective
unless the same is in writing and signed by an officer of the
Party against whom such amendment, waiver or consent is
claimed.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(I) of
the Act shall apply, including state and federal interpretive
regulations in effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original; but such
counterparts shall together constitute one and the same
instrument.
BB. Headings of No Force or Effect
The headings of Articles and Sections of this Agreement are
for convenience of reference only, and shall in no way
define, modify or restrict the meaning or interpretation of
the terms or provisions of this Agreement.
CC. Entire Agreement.
This Agreement constitutes the entire agreement between the
Parties and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings,
proposals and undertakings with respect to the subject matter
hereof. This Agreement shall prevail in the event of any
conflict between the "Resale Resource Guide" and the terms
and conditions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
FIRSTEL, Inc. U S WEST Communications, Inc.
/s/ [Illegible] /s/ [Illegible]
- ------------------------ ------------------------
Signature Signature
/s/ Fred L. Thurman /s/ Katherine L. Fleming
- ------------------------ ------------------------
Name Printed/Typed Name Printed/Typed
President Exec Director-Interconnect
- ------------------------ ------------------------
Title Title
3-14-97 3-19-97
- ------------------------ ------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform
this Agreement as a result of successful administrative/judicial review and/or
future settlement agreements between the Parties to this Agreement.
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APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access
(Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs,
the product specific nonrecurring charges, without discount, will
apply when additional lines or trunks are added or when the end user
adds features or services to existing lines or trunks.
2. The following USWC services are available for resale at the rates listed
below:
Category: Discount Rate
o Basic Exchange Business, PBX Trunks 12%
o ISDN, Frame Relay 12%
o Listings, CO Features 12%
IntraLATA toll is available for resale at the contract toll rates listed below
without application of a further wholesale discount:
State: Rate Per Minute of Use
------ ----------------------
Arizona $ .125
Colorado .14
Idaho .12
Iowa .13
Minnesota .135
Montana .12
Nebraska .175
New Mexico .155
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North Dakota .16
Oregon .09
South Dakota .10
Utah .11
Washington .11
Wyoming .16
3. The following services are available for resale under this Agreement but are
not included in the wholesale pricing reflected above unless and until the state
public utilities Commission in a particular state orders that wholesale discount
rates are generally available to resellers with respect to these products in
that state:
Basic Exchange Residence Line
Centrex
Private Line
Special Access
Public Access Lines
Volume Discount and/or Term Arrangement (where contained in customer
contracts or USWC tariffs)
4. The following services are not available for resale:
Lifeline
Concession Service
Technical Trials
Grandfathered Products and Services (except to customers currently served
with such services)
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APPENDIX B
DIRECTORY LISTINGS
Directory Listings
1. Scope.
a. Reseller Listings Service ("Listings") consists of USWC placing the names,
addresses and telephone numbers of Reseller's end users in USWC's listing
database, based on end user information provided to USWC by Reseller. USWC is
authorized to use Listings in Directory Assistance (DA) and as noted in 1.D.i or
1.D.ii.
b. Reseller will provide in standard, format, and USWC will accept at no charge,
one primary listing for each main telephone number belonging to Reseller's end
user customers. Primary listings are as defined for USWC end users in USWC's
general exchange tariffs. Reseller will be charged for privacy listings and
premium listings, e.g., additional, foreign, cross reference, informational,
etc., at USWC's general exchange listing tariff rates minus the applicable
standard resale discount in each state.
c. USWC will furnish Reseller the Listings format specifications. USWC cannot
accept Listings with advance completion dates.
d. Reseller grants USWC a non-exclusive license to incorporate Listings
information into its directory assistance database. Reseller hereby selects one
of two options for USWC's use of Listings and dissemination of Listings to third
parties.
EITHER:
i. Treat the same as USWC's end user listings -- No prior authorization is
needed for USWC to release Listings to directory publishers or other third
parties. USWC will incorporate Listings information in all existing and future
directory assistance applications developed by USWC. Reseller will authorize
USWC to sell and otherwise make Listings available to directory publishers
including USWC's publisher affiliate for inclusion in white pages published on
USWC's behalf. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
OR:
ii. Restrict to USWC's directory assistance -- Prior authorization required by
Reseller for all other uses. Reseller makes its own, separate agreements with
USWC, third parties and directory publishers for all uses of its listings beyond
DA. USWC will sell Listings to directory publishers (including USWC's publisher
affiliate for inclusion in white pages published on USWC's behalf), other third
parties and USWC products only after third party presents proof of Reseller's
authorization. USWC shall be entitled to retain all revenue associated with any
such sales. Listings shall not be provided or sold in such a manner as to
segregate end users by carrier.
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e. To the extent that state tariffs limit USWC's liability with regard to
Listings, the applicable state tariff(s) is incorporated herein and supersedes
Section VII.G., "Limitation of Liability", of this Agreement with respect to
Listings only.
2. USWC Responsibilities.
USWC is responsible for maintaining Listings, including entering, changing,
correcting, rearranging and removing Listings in accordance with Reseller
orders. USWC will take reasonable steps in accordance with industry practices to
accommodate non-published and non-listed listings provided that Reseller has
supplied USWC the necessary privacy indicators on such Listings.
USWC will include Reseller's Listings in USWC's Directory Assistance service to
ensure that callers to USWC's Directory Assistance service have
non-discriminatory access to Reseller's Listings.
USWC will incorporate Reseller's Listings provided to USWC in the white pages
directory published on USWC's behalf.
3. Reseller Responsibilities.
a. Reseller agrees to provide to USWC its end user names, addresses and
telephone numbers in a standard format, as specified by USWC.
b. Reseller will supply its ACNA/CIC or CLCC/OCN, as appropriate, with each
order to provide USWC the means of identifying Listings ownership.
c. Reseller represents and warrants the end user information provided to USWC is
accurate and correct. Reseller further represents and warrants that it has
reviewed all Listings provided to USWC, including end user requested
restrictions on use such as non-published and non-listed. Reseller shall be
solely responsible for knowing and adhering to state laws or rulings regarding
Listings (e.g., no solicitation requirements in the states of Arizona and
Oregon, privacy requirements in Colorado), and for supplying USWC the applicable
Listing information.
d. Reseller is responsible for all dealings with and on behalf of Reseller's end
users, including:
i. All end user account activity, e.g., end user queries and complaints.
ii. All account maintenance activity, e.g., additions, changes, issuance of
orders for Listings to USWC.
iii. Determining privacy requirements and accurately coding the privacy
indicators for Reseller's end user information. If end user information
provided by Reseller to USWC does not contain a privacy indicator, no privacy
restrictions will apply.
iv. Any additional services requested by Reseller's end users.
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SECOND AMENDMENT TO AGREEMENT FOR SERVICE RESALE (NEBRASKA)
BETWEEN FIRSTEL, INC. AND U S WEST COMMUNICATIONS, INC.
This Second Amendment ("Second Amendment") is made and entered into by and
between U S WEST Communications, Inc. ("USWC") and Firstel. Inc. ("Reseller").
RECITALS
USWC and Reseller entered into that certain Agreement for Service Resale
executed by Reseller on March 14, 1997 and by USWC on March 19, 1997 (the
"Agreement"); and
USWC and Reseller wish to amend the Agreement for the state of Nebraska under
the terms and conditions contained herein.
AGREEMENT
In consideration of the mutual promises and advantages to the parties, the
parties incorporate by reference and agree to the accuracy of the above recitals
and further agree as follows:
1. DESCRIPTION OF AMENDMENT AND MODIFICATIONS:
1.1 A new paragraph D shall be added to Section II (Scope) of the
Agreement as follows:
"D. This Agreement is entered into as a result of both private
negotiations between the Parties and the incorporation of some of
the results of arbitrated decisions by the Commission, acting
pursuant to Section 252 (b) of the Act, and involving
interconnection/resale agreements of other parties. The Parties have
included for convenience certain rates, terms, or conditions in this
Agreement which reflect rates, terms, or conditions established in
some or all of those other arbitrations. Reseller acknowledges: (1)
that those rates, terms, or conditions are extended only because of
the arbitrated results in other dockets, (2) that USWC intends to
appeal certain of those decisions, and (3) that any negotiations,
appeal, stay, injunction, or similar proceeding impacting the
applicability of those rates, terms, or conditions to the local
service providers who were parties to those arbitrations will
similarly impact the applicability of those rates, terms or
conditions to Reseller. The Parties further recognize that this
Agreement is subject to the generic proceedings by the Commission
addressing the services in this Agreement."
1.2 Section IV.E.1. (Resale Services/Rates and Charges) of the Agreement
shall be deleted in its entirety and replaced with the following:
"1. Resold services as listed in Appendix A are available for
resale at the applicable discount percentage or rate per
minute set forth in Appendix A or at the retail tariff rates
for services available for resale but excluded
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from the wholesale pricing arrangement in this Agreement.
"The wholesale discounts rates in Appendix A were established
as interim rates in Nebraska Docket No. C-1385 between AT&T
Communications of the Midwest. Inc. and U S WEST
Communications, Inc. Pursuant to 47 US.C., Section 252 (the
AT&T Arbitration), Agreement for Local Wireline Network
Interconnection and Service Resale, (the "AT&T Rate") and are
pending the outcome of a final Commission decision in an
interconnection cost docket Such rates will be subject to
true-up from the date of this Agreement to the effective date
of the final interconnection cost docket order.
"It is the intent of the Parties that, if the AT&T rate is
impacted by a judicial or administrative order as described
below, the AT&T Rate made available to Reseller shall be
impacted in the same way and to the same extent. If the AT&T
Rate or applicability of the wholesale discount rate(s) to the
services set forth in Appendix A is stayed or enjoined, the
Parties agree that the telecommunications services still
available for resale following the stay or injunction will be
available to Reseller, effective as of the date of the stay
order or injunction, at a wholesale discount rate of 12% (the
"Standard Rate") until such time as a nonappealable order
establishes a wholesale discount rate(s). If the Standard Rate
becomes effective pursuant to this paragraph, the Standard
Rate will also be subject to true-up to the rate(s)
established in the nonappealable order for the period that the
Standard Rate was in effect. If the AT&T Rate or the
applicability of the rate to the services in Appendix A is
changed by a nonappealable administrative or judicial order
following approval of negotiated rates, rates reached in an
approved settlement agreement, a decision on appeal or other
similar proceeding, such changed rate(s) will be available to
Reseller, effective as of the date of the order. The AT&T Rate
shall be subject to true-up to the changed rates for the
period of time the AT&T Rate was in effect.
"USWC shall have a reasonable time to implement system or
other changes necessary to bill any Commission ordered rates
or services."
1.3 Section VII.V (General Provisions/Notices) shall be amended by
deleting the address listed for USWC and replacing it with the following:
"Director-Interconnection Compliance
150 South 5th Street, room 2800
Minneapolis, Minnesota 55402
612-663-3425 (phone)
612-663-3751 (fax)"
1.4 Appendix A to the Agreement shall be deleted in its entirety and
replaced with
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Attachment 1 to this Second Amendment which is attached hereto and incorporated
herein and in the Agreement by this reference.
2. Effective Date.
This Second Amendment shall be deemed effective upon approval by the
Nebraska Public Service Commission.
3. Further Amendments.
Except as modified herein, the provisions of the Agreement shall remain in
full force and effect. Neither the Agreement nor this Second Amendment may be
further amended or altered except by written instrument executed by an
authorized representative of both parties.
The parties intending to be legally bound have executed this Second
Amendment as of the dates set forth below, in multiple counterparts, each of
which is deemed an original, but all of which shall constitute one and the same
instrument.
Firstel, Inc. U S WEST Communications, Inc.
/s/ Fred L. Thurman
- ---------------------------------- ---------------------------------
Signature Signature
Fred L. Thurman Katherine L. Fleming
- ---------------------------------- ---------------------------------
Name Printed/Typed Name Printed/Typed
President Executive Director-Interconnect
- ---------------------------------- ---------------------------------
Title Title
11-6-97
- ---------------------------------- ---------------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform this
Agreement as a result of successful administrative/judicial review and/or future
settlement agreements between the Parties to this Agreement.
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<PAGE>
Attachment 1 to Second Amendment
APPENDIX A - NEBRASKA
LOCAL EXCHANGE SERVICES RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Mediated Access (Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs,
the product specific nonrecurring charges, without discount, will apply
when additional lines or trunks are added or when the end user adds
features or services to existing lines or trunks.
2. USWC telecommunications services shall be available for resale at the
following discount levels:
o Basic Business/PBX/Centrex 18.3% discount.
o Basic Residence 22.5% discount
o Business or Residence Features 19.2% discount
o IntraLATA Toll 8.5% discount
o Private Line Service 38.5% discount
o Listings 19.2% discount
o ISDN/ACS 70.9% discount
o Busy Line Verification (BLV) and Interrupt (BLVI) 15.0% discount
(a) The following services are not available for resale:
o Customer Premises Equipment (separately or in a package)
o Enhanced Services
o Promotions equal to or less than 90 days
o USWC Calling Cards
o Inside Wire (including installation, sale or maintenance)
o Dedicated or Switched Access Service
(b) The following services are available only to the same class of
customer eligible to purchase that service from USWC:
o Grandfathered
o Residence
o Lifeline/Link-up
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<PAGE>
AGREEMENT
FOR SERVICE RESALE
Between
FIRSTEL, Inc.
and
U S WEST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
I. RECITALS & PRINCIPLES 3
II. SCOPE OF AGREEMENT 4
III. DEFINITIONS 4
IV. RESALE SERVICES 6
A. Description 6
B. Scope 6
C. Ordering and Maintenance 6
D. Reseller Responsibilities 9
E. Rates and Charges 10
F. Collateral and Training 12
G. Cooperation 12
V. ACCESS TO OPERATIONAL SUPPORT (OSS) 12
V. DIRECTORY LISTINGS 13
VI. GENERAL PROVISIONS 13
A. Term 14
B. Billing 14
C. Payment 14
D. Deposit 16
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<PAGE>
E. Taxes 16
F. Force Majeure 16
G. Responsibility of Each Party 17
H. Limitation of Liability 17
I. Indemnification 18
J. Patents, Trademarks and Branding 18
K. Warranties 20
L. Assignment 21
M. Default 21
N. Severability 21
O. Nondisclosure 22
P. Survival 24
Q. Dispute Resolution 24
R. State Commission Arbitration Issues 24
S. Governing Law 24
T. Limitation of Action 25
U. Joint Work Product 25
V. Notices 25
W. No Third Party Beneficiaries 26
X. Publicity and Advertising 26
Y. Amendments or Waivers 26
Z. Most Favored Nation 26
AA. Executed in Counterparts 26
BB. Headings of No force or Effect 26
CC. Entire Agreement 26
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<PAGE>
AGREEMENT
FOR SERVICE RESALE
This is an Agreement for Service Resale ("Agreement"), between Firstel, Inc.
("Reseller"), a Certified Reseller and U S WEST Communications, Inc. ("USWC")
(collectively, "the Parties") in which USWC will provide certain services to
Reseller within the state of Minnesota and replaces the April 18, 1997 and March
19, 1997 Agreements between the Parties only as it applies to services provided
within Minnesota. Where required, this Agreement or the portions of this
Agreement relative to a particular state, will be submitted to the appropriate
Public Utilities Commission ("Commission") and the Parties will specifically
request that the Commission promptly approve this Agreement and refrain from
taking any action to change, suspend or otherwise delay implementation of this
Agreement. The Parties enter into this Agreement without prejudice to any
positions they have taken previously, or may take in the future in any
legislative, regulatory, or other public forum addressing any matters, including
matters related to the types of arrangements prescribed by this Agreement.
The Parties agree and understand that USWC is proposing certain provisions in
this contract based, in large part, on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8, 1996 ("FCC 1st
Order") and the Second Report and Order and Memorandum Opinion and Order, In the
Matter of Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, rel. Aug. 8,1996 ("FCC 2d
Order"). To the extent that certain of the rules contained in the FCC 1st Order
and the FCC 2d Order are deemed by the courts to be not effective, this contract
shall be modified to comport with the final court decisions and subsequent FCC
or state Commission decisions or rules issued to comply with the courts'
decisions.
I. RECITALS & PRINCIPLES
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed into
law on February 8, 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, USWC is an Incumbent Local Exchange Carrier or has a majority
ownership interest in local exchange companies which are Incumbent Local
Exchange Carriers; and
WHEREAS, the Telecommunications Act of 1996 has specific requirements for
service resale, commonly referred to as a part of the "checklist" and USWC
desires that this Agreement meet those checklist requirements; and
WHEREAS, USWC, for itself and its Affiliates, is willing to sell services
for resale, on the terms and subject to the conditions of this Agreement; and,
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<PAGE>
WHEREAS, Reseller is a Telecommunications Carrier and has requested that
USWC negotiate an Agreement with Reseller for the provision of USWC services for
resale pursuant to the Act and in conformance with USWC's duties under the Act;
and
WHEREAS, the parties have arrived at this Agreement through voluntary
negotiations undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Reseller and USWC hereby covenant and agree as follows:
II. SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under
which USWC agrees to provide services for resale. Unless otherwise
provided in this Agreement, USWC will perform all of its obligations
hereunder to the extent provided in the Appendices attached hereto.
The Agreement includes all accompanying appendices.
B. In the performance of their obligations under this Agreement, the
Parties shall act in good faith and consistently with the intent of
the Act. Where notice, approval or similar action by a Party is
permitted or required by any provision of this Agreement, the Act,
FCC 1st and 2nd Orders, or a state Commission, (including, without
limitation, the obligation of the parties to further negotiate the
resolution of new or open issues under this Agreement) such action
shall not be unreasonably delayed, withheld or conditioned.
C. The Parties acknowledge that the terms and conditions herein
represent a balancing of interests important to the parties, and for
that reason will, unless otherwise agreed, implement this Agreement
as an integrated package without alteration of any material term or
condition, or the inclusion or deletion of terms and conditions that
would serve to alter a material term or condition herein unless such
term or condition is altered pursuant to Section IV, E. 1 herein or
to comply with a court order or an FCC or state Commission order.
III. DEFINITIONS
A. "Basic Exchange Telecommunications Service" means a service offered
to end users which provides the end user with a telephonic
connection to, and a unique local telephone number address on, the
public switched telecommunications network, and which enables such
end user to generally place calls to, or receive calls from, other
stations on the public switched telecommunications network. Basic
residence and business line services are Basic Exchange
Telecommunication Services. As used solely in the context of this
Agreement and unless otherwise agreed, Basic Exchange
Telecommunication Services includes access to ancillary services
such as 911, directory assistance and operator services.
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B. "Basic Exchange Switched features" are optional CLASS, Custom
Calling, and AIN end user switched service features which include,
but are not necessarily limited to: Automatic Call Back; Call Trace;
Caller ID and Related Blocking Features; Distinctive Ringing/Call
Waiting; Selective Call Forward; Selective Call Rejection. (See
Bellcore documentation for definition.)
C. "Commission" means the Public Utilities Commission(s) in the state
of Minnesota.
D. Directory Listings are any information: (1) identifying the listed
names of subscribers of a telecommunications carrier and such
subscribers' telephone numbers and addresses and (2) that the
telecommunications carrier or an affiliate has published, caused to
be published, or accepted for publication in any directory format.
E. "Enhanced Services" means any service offered over common carrier
transmission facilities that employ computer processing applications
that act on format, content, code, protocol or similar aspects of
the subscriber's transmitted information; that provide the
subscriber with additional, different or restructured information;
or involve customer interaction with stored information.
F. "Pre-ordering and Ordering" includes the exchange of information
between telecommunications carriers about current or proposed
customer products and services.
G. "Reseller" is a category of Local Exchange service providers that
are certified to obtain dial tone and associated telecommunications
services from another provider through the purchase of bundled
finished services for resale to its end user customers.
H. "Tariff Services" as used throughout this Agreement refers to USWC
state tariffs, price lists, price schedules and catalogs.
I. "Technically feasible". Branding of Operator Services and Directory
Assistance shall be deemed technically feasible absent technical or
operational concerns that prevent the fulfillment of a request by a
telecommunications carrier for such branding. A determination of
technical feasibility does not include consideration of economic,
accounting, billing, space, or site concerns, except that space and
site concerns may be considered in circumstances where there is no
possibility of expanding the space available. The fact that an
incumbent LEC must modify its facilities or equipment to respond to
such request does not determine whether satisfying such request is
technically feasible. An incumbent LEC that claims that it cannot
satisfy such request because of adverse network reliability impacts
must prove to the state Commission by clear and convincing evidence
that such interconnection, access, or methods would result in
specific and significant adverse network reliability impacts.
J. "Telecommunications Service(s)" means the offering of
telecommunications for a fee directly to the public, or to such
class of users as to be effectively available
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directly to the public, regardless of the facilities used. As used
in this definition, "telecommunications" means the transmission,
between or among points specified by the user, of information of the
user's choosing, without change in the form or content of the
information sent and received.
IV. RESALE SERVICES
A. Description.
1. USWC services (as defined in Section III.A. and B.) and
intraLATA toll originating from USWC exchanges (herinafter
"intraLATA toll") will be available for resale by USWC
pursuant to the Act and will reference terms and conditions
(except prices) in USWC tariffs, where applicable. Appendix A
lists services which are available for resale under this
Agreement and the applicable discounts, and is attached and
incorporated herein by this reference.
2. The Parties agree that, at this time, certain USWC services
are not available for resale under this Agreement, including
but not limited to promotions of more than 90 days duration
and packages of services comprised of services available for
resale separately, and certain other USWC services are
available for resale but at no discount, as identified in
Appendix A or in individual state tariffs. The availability of
services and applicable discounts identified in Appendix A or
in individual tariffs are subject to change pursuant to
Section IV E.1.
B. Scope.
1. Basic Exchange Telecommunications Service, Basic Exchange
Switched Features and intraLATA toll may be resold only for
their intended or disclosed use and only to the same class of
customer to whom USWC sells such services; e.g., residence
service may not be resold to business customers.
2. USWC shall provide to Reseller services for resale that are
equal in quality, subject to the same conditions (including
the conditions in USWC's effective tariffs), within the same
provisioning time intervals that USWC provides these services
to others, including end users, and in accordance with any
applicable state Commission service quality standards,
including standards a state Commission may impose pursuant to
Section 252 (e)(3) of the Act.
C. Ordering and Maintenance.
1. Reseller or Reseller's agent shall act as the single point of
contact for its end users' service needs, including without
limitation, sales, service design, order taking, provisioning,
change orders, training, maintenance, trouble reports, repair,
post-sale servicing, billing, collection and inquiry. Reseller
shall make it clear to its end users that they are customers
of the
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Reseller for resold services. Reseller's end users contacting
USWC will be instructed to contact the Reseller; however,
nothing in this Agreement, except as provided in Section
IV.C.7(e), shall be deemed to prohibit USWC from discussing
its products and services with Reseller's customers who call
USWC for any reason.
2. Reseller shall transmit to USWC all information necessary for
the installation (billing, listing and other information),
repair, maintenance and post-installation servicing according
to USWC's standard procedures, as described in the USWC resale
operations guide that will be provided to Reseller.
When USWC's end user or the end user's new service provider
discontinues the end user's service in anticipation of moving
to another service provider, USWC will render its closing bill
to end user customer effective with the disconnection. If USWC
is not the local service provider, USWC will issue a bill to
Reseller for that portion of the service provided to the
Reseller should Reseller's end user customer, a new service
provider, or Reseller request service be discontinued to the
end user. USWC will notify Reseller by FAX, OSS, or other
processes when end user moves to another service provider.
USWC will not provide Reseller with the name of the other
reseller or service provider selected by the end user.
The Parties agree that they will not transfer their respective
end user customers whose accounts are in arrears between each
other. The Parties further agree that they work cooperatively
together to develop the standards and processes applicable to
the transfer of such accounts.
3. Reseller shall provide USWC and USWC shall provide Reseller
with points of contact for order entry, problem resolution and
repair of the resold services.
4. Prior to placing orders on behalf of the end user, Reseller
shall be responsible for obtaining and have in its possession
Proof of Authorization ("POA"). POA shall consist of
documentation acceptable to USWC of the end user's selection
of Reseller. Such selection may be obtained in any manner
consistent with Minn. Stat. ss. 237.66, subd. 1(a)(f).
Reseller shall make POAs available to USWC upon request.
Prior to placing orders that will disconnect a line from
another reseller's account the Reseller is responsible for
obtaining all information needed to process the disconnect
order and re-establish the service on behalf of the end user.
If a Reseller is displaced by another reseller or service
provider, the Reseller is responsible for coordination with
the other reseller or service provider. Should an end user
dispute or a discrepancy arise regarding the authority of
Reseller to act on behalf of the end user, the Reseller is
responsible for providing written evidence of its authority to
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USWC within three (3) business days. If there is a conflict
between the end user designation and Reseller's written
evidence of its authority, USWC shall honor the designation of
the end user and change the end user back to the previous
service provider. If the Reseller does not provide the POA
within three (3) business days, or if the end user disputes
the authority of the POA, then the Reseller must, by the end
of the third business day:
o notify USWC to change the end user back to the previous
reseller or service provider, and
o provide any end user information and billing records the
Reseller has obtained relating to the end user to the
previous reseller, and
o notify the end user and USWC that the change has been
made,
o remit to USWC a charge of $100.00 ("slamming charge") as
compensation for the change back to the previous
reseller or service provider.
If an end user customer is switched from Reseller back to USWC
and there is a dispute or discrepancy with respect to such
change in service provider, Reseller may request to see a copy
of the POA which USWC has obtained from the end user to
effectuate a return to USWC as the end user's service
provider. If USWC is unable to produce a POA within three (3)
business days, USWC shall change the end user back to Reseller
(or other previous reseller) without imposition of any
Customer Transfer Charge.
5. Reseller shall designate Primary Interexchange Carrier (PIC)
assignments on behalf of its end-users for interLATA services
and intraLATA services when intraLATA presubscription is
implemented.
6. When end user customers switch from USWC to Reseller, or to
Reseller from any other reseller, such customers shall be
permitted to retain their current telephone numbers if they so
desire and do not change their service address to an address
served by a different central office. USWC shall take no
action to prevent Reseller customers from retaining their
current telephone numbers.
7. Reseller and USWC will employ the following procedures for
handling misdirected repair calls:
a. Reseller and USWC will provide their respective
customers with the correct telephone numbers to call for
access to their respective repair bureaus.
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b. Customers of Reseller shall be instructed to report all
cases of trouble to Reseller. Customers of USWC shall be
instructed to report all cases of trouble to USWC.
c. To the extent the correct provider can be determined,
misdirected repair calls will be referred to the proper
provider of Basic Exchange Telecommunications Service.
d. Reseller and USWC will provide their respective repair
contact numbers to one another on a reciprocal basis.
e. Notwithstanding the provisions of Section IV. C. 1.,
USWC will not discuss its products and services with
Reseller's customers during the course of repair calls
or visits.
D. Reseller Responsibilities.
1. Reseller must send USWC complete and accurate end-user listing
information for Directory Assistance, Directory, and 911
Emergency Services using USWC's resale order form and process.
Reseller must provide to USWC accurate end-user information to
ensure appropriate listings in any databases in which USWC is
required to retain and/or maintain end-user information. USWC
assumes no liability for the accuracy of information provided
by Reseller.
2. Reseller may not reserve blocks of USWC telephone numbers,
except as allowed by tariffs.
3. Reseller is liable for all fraud associated with Service to
its end-users and accounts. USWC takes no responsibility, will
not investigate, and will make no adjustments to Reseller's
account in cases of fraud unless such fraud is the result of
any intentional act or gross negligence of USWC.
Notwithstanding the above, if USWC becomes aware of potential
fraud with respect to Reseller's accounts, USWC will promptly
inform Reseller and, at the direction of Reseller, take
reasonable action to mitigate the fraud where such action is
possible.
4. Reseller will indicate the date it will offer to residential
and business subscribers telephone exchange services. The
Reseller will provide a two year forecast within ninety (90)
days of signing this Agreement. During the first year of the
term of this Agreement, the forecast shall be updated and
provided to USWC on a quarterly basis. Thereafter, during the
term of this Agreement, Reseller will provide updated
forecasts from time to time, as requested by USWC. The initial
forecast will provide:
o The date service will be offered (by city and/or state)
o The type and quantity of service(s) which will be
offered
o Reseller's anticipated order volume
o Reseller's key contact personnel
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The information provided pursuant to this paragraph shall be
considered Proprietary Information under Section VII. O. of
this Agreement.
5. In the event USWC terminates the provisioning of any resold
services to Reseller for any reason, Reseller shall be
responsible for providing any and all necessary notice to its
end users of the termination. In no case shall USWC be
responsible for providing notice to Reseller's end user
customers. USWC will provide notice to Reseller of its
termination of a resold service on a timely basis consistent
with Commission rules and notice requirements.
E. Rates and Charges
1. Resold services as listed in Appendix A are available for
resale at the applicable discount percentage or rate per
minute set forth in Appendix A or at the retail tariff rates
for services available for resale but excluded from the
wholesale pricing arrangement in this Agreement.
However, state Commissions may do any of the following
(collectively referred to hereinafter as "Order") during the
term of this Agreement:
o establish wholesale discount rates through decisions in
arbitration, interconnection and/or resale cost
proceedings;
o establish other recurring and nonrecurring rates related
to resale, including but not limited to Customer
Transfer Charges and Slamming Charges ("Other Resale
Charges"); and
o order that certain services be made available for resale
at specified wholesale discount rates.
If a state Commission orders services to be available for
resale, the Parties agree that they will, on a state-by-state
basis, revise Appendix A to incorporate the services
determined by such Order into this Agreement, effective on the
date ordered by a Commission. When a state Commission, through
a decision in arbitration, identifies services that must be
available for resale at wholesale discount rates, such
decision shall be deemed to have defined that such services
are generally available to resellers in that state. If a state
Commission establishes wholesale discount rates and Other
Resale Charges to be made generally available to resellers or
establishes a resale tariff, the Parties agree that they will,
on a state-by-state basis, revise Appendix A to incorporate
such wholesale discount rates and/or Other Resale Charges into
this Agreement effective on the date ordered by a Commission;
provided, however, that USWC shall have a reasonable time to
implement system or other changes necessary to bill the
Commission ordered rates or charges.
The rates for those resold services initially included in the
wholesale pricing arrangement under this Agreement shall be
subject to true-up to
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the wholesale discount rates established by a Commission Order
making such rates generally available to resellers or
established by a resale tariff, retroactively to the effective
date of this Agreement. Any true-up shall be on a
service-by-service basis if wholesale discount rates are
established by a Commission on such a basis.
Services excluded from the wholesale pricing arrangement under
this Agreement as identified in Appendix A, shall be made
available on a going forward basis from the date a of
Commission Order that orders such services be made generally
available to any reseller in the state where such a Commission
Order is issued. Such services shall be available at the
discount rate applicable to basic exchange business service
identified in Section 2 of Appendix A; provided, however, that
when a Commission order establishes wholesale discount rates
for such services as generally available to resellers,
Appendix A shall be revised to incorporate the wholesale
discount rates generally available to resellers.
If a state Commission fails to issue such an Order or make
effective such a tariff by the end of the first year this
Agreement, either USWC or Reseller may elect to renegotiate
this Section of the Agreement.
2. If the resold services are purchased pursuant to Tariffs and
the Tariff rates change, charges billed to Reseller for such
services will be based upon the new Tariff rates less the
applicable wholesale discount as agreed to herein or
established by resale Tariff. The new rate will be effective
upon Tariff effective date.
3. A Customer Transfer Charge (CTC) as specified in Appendix A
applies when transferring any existing account or lines to a
Reseller. Tariffed non-recurring charges will apply to new
installations.
4. A Subscriber Line Charge (SLC) will continue to be paid by the
Reseller without discount to USWC for each local exchange line
resold under this Agreement. All federal and state rules and
regulations associated with SLC as found in the applicable
tariffs also apply.
5. Reseller will pay to USWC the PIC change charge without
discount associated with Reseller end user changes of
inter-exchange or intraLATA carriers.
6. Reseller agrees to pay USWC when its end user activates any
services or features that are billed on a per use or per
activation basis subject to the applicable discount in
Appendix A as such may be amended pursuant to Section IV.E.1
(e.g., continuous redial, last call return, call back calling,
call trace, etc.).
7. Resold services are available only where facilities currently
exist and
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are capable of providing such services without construction of
additional facilities or enhancement of existing facilities.
However, if Reseller requests that facilities be constructed
or enhanced to provide resold services, USWC will review such
requests on a case-by-case basis and determine, in its sole
discretion, if it is economically feasible for USWC to build
or enhance facilities. If USWC decides to build or enhance the
requested facilities, USWC will develop and provide to
Reseller a price quote for the construction. If the quote is
accepted, Reseller will be billed the quoted price and
construction will commence after receipt of payment.
8. Nonrecurring charges will not be discounted and will be billed
at the applicable Tariff rates.
9. As part of the resold line, USWC provides and Reseller
accepts, at this time, operator services, directory
assistance, and IntraLATA long distance with standard USWC
branding. Reseller is not permitted to alter the branding of
these services in any manner when the services are a part of
the resold line without the prior written approval of USWC.
However, at the request of Reseller and where technically
feasible, USWC will rebrand operator services and directory
assistance in the Reseller's name, provided the costs
associated with such rebranding are paid by Reseller.
F. Collateral and Training.
The Parties will jointly develop procedures regarding Reseller's use
of USWC's retail product training materials. Except for any rights
granted by USWC to Reseller for the use or copying of product
training material, product training provided under this Agreement
shall be considered "Proprietary Information" as described in
Section VII. O., and shall be subject to the terms and conditions
specified therein.
G. Cooperation
The Parties agree that this Agreement involves the provision of USWC
services in ways such services were not previously available and the
introduction of new processes and procedures to provide and bill
such services. Accordingly, the Parties agree to work jointly and
cooperatively in testing and implementing processes for
pre-ordering, ordering, maintenance, provisioning and billing and in
reasonably resolving issues which result from such implementation on
a timely basis.
V. ACCESS TO OPERATIONAL SUPPORT SYSTEMS (OSS)
A. The Parties acknowledge that USWC is developing a proposal for
access to its Operational Support Systems (OSS) to meet the
requirements of the FCC's 1st and 2nd Orders and to provide Reseller
and other telecommunications carriers with electronic interfaces for
pre-ordering, ordering, repair and billing functions by
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January 1, 1997 for Plain Old Telephone services (POTs). Subsequent
phases of the plan will incorporate the capabilities to support
designed services for preordering, ordering and repair, which are
estimated to be available between the second and third quarters of
1997. Reseller understands that USWC is proposing that these
interfaces will have the necessary mediation to protect the
integrity of the network and protect the privacy of customer
information.
B. The Parties further acknowledge that USWC is, or soon will be,
presenting its OSS proposal to state Commissions for approval,
including approval of fees or cost recovery methods that USWC may
charge or use to charge Reseller in connection with the design,
implementation and on-going maintenance and support of the OSS ("OSS
fees"). The Parties further acknowledge that, because the OSS is
still in the conceptual stage of development at the time of
execution of this Agreement, USWC is unable to specify or estimate
the amount of OSS fees to be charged Reseller at this time.
C. The Parties agree that, at such time as the interfaces to USWC's OSS
become operational and a state Commission approves USWC's OSS plan
and establishes OSS fees or cost recovery methods, the Parties will
amend this Agreement to incorporate terms and conditions regarding
Reseller's access to USWC's OSS, including OSS fees, on a
state-by-state basis. The Parties further agree that Reseller may
terminate this Agreement if the amount of OSS fees turns out to be
so excessive as to make the overall terms and conditions of this
Agreement uneconomic for Reseller. In the event of such termination,
Reseller shall give USWC (sixty) 60 days written notice.
D. Prior to approval and deployment of USWC's OSS interfaces, USWC
shall continue to provide all pre-ordering, ordering, repair and
billing functions and services through manual procedures outlined in
a separately provided Resale Resource Guide. Such manual procedures
shall be available where USWC's OSS interfaces are unable to handle
pre-ordering, ordering, repair and billing functions for the
services available to Reseller under this Agreement.
E. Reseller reserves the right to intervene and participate in any
manner in any state Commission proceeding that addresses USWC's OSS
interface proposal, including the establishment of OSS fees to the
extent such participation is permitted by a Commission.
VI. DIRECTORY LISTING.
USWC will accept at no charge one primary listing for each main
telephone number belonging to Reseller's end user customer based on
end user information provided to USWC by Reseller. USWC will place
Reseller's listings in USWC's directory listing database for
directory assistance purposes and will make listings available to
directory publishers and other third parties. Additional terms and
conditions with respect to directory listings are described in
Appendix B which by this reference is incorporated and made a part
of this Agreement.
VII. GENERAL PROVISIONS
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A. Term.
This Agreement shall be effective upon approval by the Commission
and shall continue for a period of two (2) years. Thereafter the
Agreement shall continue in force and effect unless and until a new
agreement, addressing all of the terms of this Agreement, becomes
effective between the Parties. The Parties agree to commence
negotiations on a new agreement no later than 1 1/2 years after this
Agreement becomes effective. This Agreement shall be effective
pursuant to Sections 251 and 252 of the Act.
B. Billing.
1. USWC shall bill Reseller and Reseller is responsible for all
applicable charges for the resold services as provided herein.
The Reseller shall also be responsible for all tariffed
charges and charges separately identified in this Agreement
associated with services that the Reseller resells to an end
user under this Agreement.
2. USWC shall provide Reseller, on a monthly basis, within 7-10
days of the last day of the most recent billing period, in an
agreed upon standard electronic billing format, billing
information including (1) a summary bill, and (2) individual
end user customer sub-account information consistent with the
samples provided to Reseller for Reseller to render end user
customer bills indicating all recurring and nonrecurring
charges associated with each individual customer's account for
the most recent billing period.
C. Payment.
1. Amounts payable under this Agreement are due and payable
within thirty (30) days after the bill date of USWC's invoice.
During the initial three billing cycles of this Agreement,
Reseller and USWC agree that undisputed amounts shall be paid
as provided herein. Reseller and USWC further agree that,
during said three billing cycle period, they will cooperate to
resolve amounts in dispute or billing process issues in a
timely manner but no later than sixty (60) days after the bill
date of USWC's invoice or identification and notice of the
billing process issue. Disputed amounts will be paid within
thirty (30) days following resolution of the dispute.
2. After the three (3) month period outlined in Section C.1.
above, the Reseller will pay the bill in full within 30 days
after the bill date of the invoice. Billing disputes will be
processed and jointly resolved. Any disputed amounts that USWC
remits to the Reseller will be credited on the next billing
cycle including an interest credit of 1.5% per month
compounded.
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3. A late payment charge of 1.5% applies to all billed balances
which are not paid by 30 days after the bill date shown on the
invoice. USWC agrees, however, that the application of this
provision will be suspended for the initial three billing
cycles of this Agreement and will not apply to amounts billed
during those three cycles.
4. USWC may discontinue processing orders for the failure by
Reseller to make full payment for the resold services provided
under this Agreement within thirty (30) days of the due date
on Reseller's bill. USWC agrees, however, that the application
of this provision will be suspended for the initial three
billing cycles of this Agreement and will not apply to amounts
billed during those three cycles.
5. USWC may disconnect for the failure by Reseller to make full
payment for the resold services provided under this Agreement
within sixty (60) days of the due date on Reseller's bill.
Reseller will pay the tariff charge required to reconnect each
end user line disconnected pursuant to this paragraph. USWC
agrees, however, that the application of this provision will
be suspended for the first three billing cycles under this
Agreement and will not apply to amounts billed during those
three cycles.
If USWC elects to disconnect Reseller pursuant to this
paragraph, USWC will notify Reseller of such disconnection ten
(10) days prior to the effective date of the disconnection.
Immediately upon receipt of such notice, Reseller shall notify
its end user customers that service will be disconnected on
the date specified in USWC's notice to Reseller for Reseller's
failure to make payments due hereunder. Reseller shall not
disparage USWC or make otherwise false or misleading
statements about USWC or the disconnection in Reseller's
notice to its end user customers. USWC will not disconnect an
end user customer without first obtaining the approval of the
Commission.
6. Collection procedures and the requirements for deposit are
unaffected by the application of a late payment charge.
7. The Parties agree that this payment and dispute resolution
process is a new procedure and they further agree that this
Section VII. C. can be reopened for negotiation at any time
within the first twelve (12) months of this Agreement.
8. USWC shall credit Reseller's account the amount due for any
trouble or out-of-service conditions in the same manner that
USWC credits the accounts of its own end-user customers and
pursuant to any applicable provisions in USWC's tariffs. USWC
shall reflect the amount of such credits on an individual
customer telephone number basis in the billing information
USWC provides Reseller.
9. In the event billing disputes relate to service quality
issues, the dispute shall be referred to the USWC account
executive assigned to Reseller
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who will evaluate the facts and circumstances of the service
quality issues and will work with Reseller to resolve the
dispute.
D. Deposit.
1. USWC may require Reseller to make a suitable deposit to be
held by USWC as a guarantee of the payment of charges. Any
deposit required of an existing reseller is due and payable
within ten days after the requirement is imposed. The amount
of the deposit shall be the estimated charges for the resold
Service which will accrue for a two-month period.
2. When the service is terminated, or when Reseller has
established satisfactory credit, the amount of the initial or
additional deposit, with any interest due as set forth in
applicable tariffs, will, at Reseller's option, either be
credited to Reseller's account or refunded. Satisfactory
credit for a reseller is defined as twelve consecutive months
service as a reseller without a termination for nonpayment and
with no more than one notification of intent to terminate
Service for nonpayment. Interest will be paid on cash deposits
at the rate applying to deposits under applicable Commission
rules, regulations, or tariffs. Cash deposits and accrued
interest will be credited to Resellers' account or refunded,
as appropriate, upon the earlier of the termination of this
Agreement or one full year of timely payments in full by
Reseller. The fact that a deposit has been made does not
relieve Reseller from any requirements of this Agreement.
E. Taxes.
Reseller shall be responsible for the collection, payment and
remittance of all federal, state or local sales, use, excise or
gross receipts taxes, fees or surcharges (collectively "Taxes")
imposed on or with respect to its sale of services or equipment
provided under this Agreement, except those Taxes which are
explicitly required by a governmental authority to be collected by
USWC. Reseller shall seek sale for resale exemptions from any
applicable governmental or taxing body for payment of any and all
Taxes related to Reseller's purchase of services or equipment from
USWC under this Agreement. Until such time as exemptions are
obtained or applicable, Reseller shall pay USWC for the amount of
any such Taxes that USWC is required to pay or collect. Reseller
shall in no event be liable for payment of any income taxes payable
by USWC.
F. Force Majeure.
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures
in performance were foreseen or foreseeable as of the date of this
Agreement, including, without limitation: fire, explosion, power
failure, acts of God, war, revolution, civil commotion, or acts of
public enemies; any law, order, regulation, ordinance or requirement
of any government or legal body; or labor unrest, including, without
limitation, strikes,
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slowdowns, picketing or boycotts; or delays caused by the other
Party or by other service or equipment vendors; or any other
circumstances beyond the Party's reasonable control. In such event,
the Party affected shall, upon giving prompt notice to the other
Party, be excused from such performance on a day-to-day basis to the
extent of such interference (and the other Party shall likewise be
excused from performance of its obligations on a day-for-day basis
to the extent such Party's obligations relate to the performance so
interfered with). The affected Party shall use its best efforts to
avoid or remove the cause of non-performance and both parties shall
proceed to perform with dispatch once the causes are removed or
cease.
G. Responsibility of Each Party.
Each Party is an independent contractor, and has and hereby retains
the right to exercise full control of and supervision over its own
performance of its obligations under this Agreement and retains full
control over the employment, direction, compensation and discharge
of all employees assisting in the performance of such obligations.
Each Party will be solely responsible for all matters relating to
payment of such employees, including compliance with social security
taxes, withholding taxes and all other regulations governing such
matters. Each Party will be solely responsible for proper handling,
storage, transport and disposal at its own expense of all (i)
substances or materials that it or its contractors or agents bring
to, create or assume control over at Work Locations or, (ii) Waste
resulting therefrom or otherwise generated in connection with its or
its contractors' or agents' activities at the Work Locations.
Subject to the limitations on liability and except as otherwise
provided in this Agreement, each Party shall be responsible for (i)
its own acts and performance of all obligations imposed by
Applicable Law in connection with its activities, legal status and
property, real or personal and, (ii) the acts of its own affiliates,
employees, agents and contractors during the performance of that
Party's obligations hereunder.
H. Limitation of Liability.
Except for indemnity obligations, each Party's liability to the
other for any loss related to or arising out of any negligent act or
omission in its performance of this Agreement, whether in contract
or in tort, shall be limited to the total amount that is or would
have been charged to the other Party by such negligent or breaching
Party for the service(s) or function(s) not performed or improperly
performed.
In no event shall either Party be liable to the other in connection
with the provision or use of services offered under this Agreement
for indirect, incidental, consequential, reliance or special
damages, including (without limitation) damages for lost profits,
lost revenues, lost savings suffered by such other Parties
regardless of the form of action, whether in contract, warranty,
strict liability, or tort, including (without limitation) negligence
of any kind and regardless of whether the Parties know the
possibility that such damages could result. Nothing contained in
this Section H shall limit USWC's or Reseller's liability to the
other for (i) willful or intentional misconduct (including gross
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negligence); (ii) bodily injury, death or damage to tangible real or
tangible personal property proximately caused by USWC's or
Reseller's negligent act or omission or that of their respective
agents, subcontractors or employees, nor shall anything contained in
this section limit the parties indemnification obligations, as
specified below.
I. Indemnification.
1. Each of the Parties agrees to release, indemnify, defend and
hold harmless the other Party and each of its officers,
directors, employees and agents (each an "Indemnitee") from
and against and in respect of any loss, debt, liability,
damage, obligation, claim, demand, judgment or settlement of
any nature or kind, known or unknown, liquidated or
unliquidated including, but not limited to, costs and
attorneys' fees, whether suffered, made, instituted, or
asserted by any other party or person, for invasion of
privacy, personal injury to or death of any person or persons,
or for loss, damage to, or destruction of property, whether or
not owned by others, resulting from the indemnifying Party's
performance, breach of Applicable Law, or status of its
employees, agents and subcontractors; or for failure to
perform under this Agreement, regardless of the form of
action.
2. The indemnification provided herein shall be conditioned upon:
a. The indemnified Party shall promptly notify the
indemnifying Party of any action taken against the
indemnified Party relating to the indemnification.
Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that the
Indemnifying Party might have, except to the extent that
such failure prejudices the Indemnifying Party's ability
to defend such Claim.
b. The indemnifying Party shall have sole authority to
defend any such action, including the selection of legal
counsel, and the indemnified Party may engage separate
legal counsel only at its sole cost and expense.
c. In no event shall the indemnifying Party settle or
consent to any judgment pertaining to any such action
without the prior written consent of the indemnified
Party.
J. Patents and Trademarks.
1. Neither Party shall have any obligation to defend, indemnify
or hold harmless, or acquire any license or right for the
benefit of, or owe any other obligation or have any liability
to, the other based on or arising from any claim, demand, or
proceeding (hereinafter "claim") by any third party
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alleging or asserting that the use of any circuit, apparatus,
or system, or the use of any software, or the performance of
any service or method, or the provision of any facilities by
either Party under this Agreement constitutes direct or
contributory infringement, or misuse or misappropriation of
any patent, copyright, trademark, trade secret, or any other
proprietary or intellectual property right of any third party.
2. No license or affiliation.
a. Nothing in this Agreement shall be construed as the
grant of a license, either express or implied, with
respect to any patent, copyright, logo, trademark,
tradename, trade secret or any other intellectual
property right now or hereafter owned, controlled or
licensable by either Party. Reseller may not use any
patent, copyright, logo, trademark, tradename, trade
secret or other intellectual property right of USWC or
its affiliates without execution of a separate agreement
between the Parties.
b. Reseller shall not, without the express written
permission of USWC, state or imply that; 1) Reseller is
connected, or in any way affiliated with USWC or its
affiliates or, 2) Reseller is part of a joint business
association or any similar arrangement with USWC or its
affiliates or, 3) USWC and its affiliates are in any way
sponsoring, endorsing or certifying Reseller and its
goods and services or, 4) the resold goods and services
are in any way associated with or originated from USWC
or any of its affiliates. Notwithstanding the above,
Reseller may state in response to a specific customer
inquiry concerning the origin of the resold services
that "Reseller is reselling USWC services." No other
statements may be made.
3. Notwithstanding the above, unless otherwise prohibited by USWC
pursuant to an applicable provision herein, Reseller may use
the phrase "(Name of Reseller) is a reseller of U S WEST
Communications services" (the "Authorized Phrase") in
Reseller's printed materials provided:
a) The Authorized Phrase is not used in connection with any
goods or services other than USWC services resold by
Reseller.
b) Reseller's use of the Authorized Phrase does not, in
USWC's sole discretion, cause customers to believe that
Reseller is USWC.
c) The Authorized Phrase, when displayed, appears only in
text form (Reseller may not use the U S WEST logo) with
all letters being the same font and point size. The
point size of the Authorized Phrase shall be no greater
than one fourth the point size of the smallest use of
Reseller's name and in no even shall exceed 8 point
size.
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d) Reseller shall provide all printed materials to USWC for
its prior written approval.
e) If USWC determines that Reseller's use of the Authorized
Phrase causes customer confusion, USWC may in it's sole
discretion, immediately terminate Reseller's right to
use the Authorized Phrase.
f) Upon termination of the Reseller's right to use the
Authorized Phrase or termination of this Agreement, all
permission or right to use the Authorized Phrase shall
immediately cease to exist and Reseller shall
immediately cease any and all such use of the Authorized
Phrase. Reseller shall either promptly return to USWC or
destroy all materials in its possession or control
displaying the Authorized Phrase.
4. Reseller acknowledges the value of the marks "U S WEST" and "U
S WEST Communications" (the "Marks") and the goodwill
associated therewith and acknowledges that such goodwill is a
property right belonging to U S WEST, Inc. and USWC
respectively (the "Owners"). Reseller recognizes that nothing
contained in this Agreement is intended as an assignment or
grant to Reseller of any right, title or interest in or to the
Marks and that this Agreement does not confer any right or
license to grant sublicenses or permission to third parties to
use the Marks and is not assignable. Reseller will do nothing
inconsistent with the Owner's ownership of the Marks, and all
rights, if any, that may be acquired by use of the Marks shall
inure to the benefit of the Owners. Reseller will not adopt,
use (other than as authorized in Section 3 herein,) register
or seek to register any mark anywhere in the world which is
identical or confusingly similar to the Marks or which is so
similar thereto as to constitute a deceptive colorable
imitation thereof or to suggest or imply some association,
sponsorship, or endorsement by the Owners; The Owners make no
warranties regarding its ownership of any rights in or the
validity of the Marks.
5. As a condition to the access or use of patents, copyrights,
trade secrets and other intellectual property (including
software) owned or controlled by a third party to the extent
necessary to implement this Agreement or specifically required
by the then applicable federal and state rules and regulations
relating to resale and access to telecommunications facilities
and services, the party providing access may require the other
upon written notice, from time to time, to obtain permission
for such access or use, make all payments in connection with
obtaining such permission, and providing evidence of such
permission.
K. Warranties.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTIES
AGREE THAT NEITHER PARTY HAS MADE, AND THAT THERE
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DOES NOT EXIST, ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
L. Assignment.
This Agreement is unique in nature and the result of negotiations
between the Parties. As such, this Agreement can be assigned only
with the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld. The Party making the
assignment shall notify the Commission 60 days in advance of the
effective date of the assignment.
M. Default.
If either Party defaults in the payment of any amount due hereunder,
or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for thirty (30) days
after written notice thereof, the other Party may terminate this
Agreement forthwith by written instrument. The failure of either
Party to enforce any of the provisions of this Agreement or the
waiver thereof in any instance shall not be construed as a general
waiver or relinquishment on its part of any such provision, but the
same shall, nevertheless, be and remain in full force and effect.
N. Severability.
The Parties recognize that the FCC has promulgated rules addressing
issues contained in this Agreement. To the extent that certain of
the rules contained in the FCC 1st Order and the FCC 2d Order are
deemed by the courts to be not effective, this contract shall be
modified to comport with the final court decisions and subsequent
FCC or state Commission decisions or rules issued to comply with the
courts' decisions. If any other term, condition or provision of this
Agreement is held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not invalidate the entire
Agreement. The Agreement shall be construed as if it did not contain
the invalid or unenforceable provision or provisions, and the rights
and obligations of each Party shall be construed and enforced
accordingly; provided, however, that in the event that such invalid
or unenforceable provision or provisions are essential elements of
this Agreement and, in the opinion of either party, substantially
impair the rights or obligations of either party, Reseller and USWC
shall promptly negotiate a replacement provision or provisions. If
the Parties cannot negotiate such a replacement provision or
provisions, the Parties may agree to terminate the Agreement, in the
event of termination as described herein, for service arrangements
made available under this Agreement and existing at the time of
termination, those arrangements shall continue without interruption
under either a) a new agreement executed by the Parties, b) standard
resale terms and conditions approved and made generally effective by
the Commission, or c) tariff terms and conditions generally
available to resellers. If a) does not come about, or b) or c) are
not available, the Agreement shall remain in effect until a
replacement provision is determined through arbitration.
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<PAGE>
O. Nondisclosure.
1. All information including, but not limited to, specifications,
drawings, sketches, models, tools, technical information,
employee records, maps, financial reports, and market data,
(i) furnished by one Party to the other Party or to which one
Party provides to the other Party access (such as to a
database) dealing with customer specific, facility specific,
or usage specific information, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time
of delivery as "Confidential", "Proprietary", or other similar
legend, or (iii) communicated orally or by visual presentation
and declared to the receiving Party at the time of delivery,
or by written notice given to the receiving Party within ten
(10) days after delivery, to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary
Information"), shall remain the property of the disclosing
Party.
2. Upon request by the disclosing Party, the receiving Party
shall return all tangible copies of Proprietary Information,
whether written, graphic or otherwise, except that the
receiving Party may retain one copy for archival purposes.
3. The receiving Party acknowledges and agrees that Proprietary
Information constitutes trade secrets of the disclosing Party.
The receiving Party shall maintain in confidence all of the
disclosing Party's Proprietary Information and shall use the
disclosing Party's Proprietary Information only for performing
the covenants contained, or exercising any rights granted, in
this Agreement. Only the employees and agents with a need to
know shall have access to the Proprietary Information and each
such employee and agent shall be advised of his or her
obligations under this Section O. Neither Party shall use the
other Party's Proprietary Information for any other purpose
except upon such terms and conditions as may be agreed upon
between the parties in writing.
4. Unless otherwise agreed, the obligations of confidentiality
and non-use set forth in this Agreement do not apply to the
extent that such Proprietary Information:
a. was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential (evidenced by written records prepared
prior to delivery by the disclosing Party);
b. is or becomes publicly known through no wrongful act of
the receiving Party;
c. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligation
to the disclosing Party with respect to such
information; or
Page 22
<PAGE>
d. is independently developed by receiving Party
individuals who do not have access to the Proprietary
Information;
e. is disclosed to a third person by the disclosing Party
without restrictions on disclosure;
f. is approved for release by written authorization of the
disclosing Party; or
g. is required to be made public by the receiving Party
pursuant to applicable law, regulation, or governmental
order, provided that the receiving Party shall give
sufficient notice of the requirement to the disclosing
Party to enable the disclosing Party to seek protective
orders where possible.
5. USWC grants Reseller the limited, personal, nonexclusive right
and license to access and use information contained in certain
of USWC's databases (Directory Assistance and Operator
Services databases, certain Advanced Intelligent Network
databases and Operation Support System databases) but only to
the extent as specifically required by the then applicable
federal and state rules and regulations relating to access to
and use of such databases, as they may be amended from time to
time, and for no other purpose. Without limiting the
generality of the foregoing, this right and license to
Reseller does not include the license and right to extract or
copy (including by any manual, mechanical or electronic means)
or use any such database information, in whole or in part, to
enhance the quality of any of Reseller's own database services
or offerings, as inputs to Reseller's or other's directory
assistance or directory publishing operations or for the
creation of marketing databases, in the absence of USWC's
prior written consent. Reseller agrees that any and all
information contained in any of such USWC's databases shall be
Proprietary Information subject to the terms and conditions of
this section O; provided, however, that Sections 4 a, b, and c
shall not apply even though the individual parts or components
of the information contained in any such databases may
otherwise fall within such Sections.
6. Notwithstanding any other provision of this Agreement, the
Proprietary Information provisions of this Agreement shall
apply to all information furnished by either Party to the
other in furtherance of the purpose of this Agreement, even if
furnished before the date of this Agreement.
7. The Parties acknowledge that this Agreement contains
commercially confidential information that may be considered
Proprietary Information by either or both Parties, and agree
to limit distribution of this Agreement to those individuals
in their respective companies with a need to know the contents
of this Agreement.
Page 23
<PAGE>
P. Survival.
Any liabilities or obligations of a Party for acts or omissions
prior to the cancellation or termination of this Agreement; any
obligation of a Party under the provisions regarding
indemnification, Confidential Information, limitations on liability,
and any other provisions of this Agreement which, by their terms,
are contemplated to survive (or to be performed after) termination
of this Agreement, shall survive cancellation or termination
thereof.
Q. Dispute Resolution.
Except as provided by the Act, if any claim, controversy or dispute
between the Parties, their agents, employees, officers, directors or
affiliated agents ("Dispute") cannot be settled through negotiation,
it shall be resolved by arbitration conducted by a single arbitrator
engaged in the practice of law, under the then current rules of the
American Arbitration Association ("AAA"). The Federal Arbitration
Act, 9 U.S.C. Secs. 1-16, not state law, shall govern the
arbitrability of all Disputes. The arbitrator shall not have
authority to award punitive damages. All expedited procedures
prescribed by the AAA rules shall apply. The arbitrator's award
shall be final and binding and may be entered in any court having
jurisdiction thereof. Each Party shall bear its own costs and
attorneys' fees, and shall share equally in the fees and expenses of
the arbitrator. The laws of the state where the services subject to
this Agreement are provided shall govern the construction and
interpretation of this Agreement.
R. State Commission Arbitration Issues.
In the event Reseller and USWC are unable to agree on certain issues
during negotiation, the Parties will identify such issues for
arbitration before an appropriate state regulatory agency. Only
those points identified by the Parties for arbitration will be
submitted. All other terms on which the Parties reach agreement will
be submitted for approval in their final form.
S. Governing Law.
This Agreement shall be deemed to be a contract made under and shall
be construed, interpreted and enforced in accordance with the Act,
where applicable, and the laws of the state where the services
subject to this Agreement are provided and shall be subject to the
exclusive jurisdiction of the courts in that state, unless otherwise
provided by the Act.
USWC shall be responsible for obtaining and keeping in effect all
Federal Communications Commission, state regulatory Commission,
franchise authority and other regulatory approvals that may be
required in connection with the performance of its obligations under
this Agreement. Reseller shall be responsible for obtaining and
keeping in effect all Federal Communications Commission, state
regulatory Commission, franchise authority and other regulatory
approvals that may be required in connection with its offering of
services to Reseller Customers contemplated by this Agreement.
Page 24
<PAGE>
T. Limitation of Action.
No arbitration demand or judicial action, regardless of form,
arising out of the transaction(s) under this Agreement, whether in
contract, tort, or other theory, may be brought by either party more
than two (2) years after the cause of action accrues.
U. Joint Work Product.
This Agreement is the joint work product of representatives of the
Parties. For convenience, it has been drafted in final form by one
of the Parties. Accordingly, in the event of ambiguities, no
inferences will be drawn against either Party solely on the basis of
authorship of this Agreement.
V. Notices.
Any notices or other communications required or permitted to be
given or delivered under this Agreement shall be in hard-copy
writing (unless otherwise specifically provided herein) and shall be
sufficiently given if delivered personally or delivered by prepaid
overnight express service to the following (unless otherwise
specifically required by this Agreement to be delivered to another
representative or point of contact)
Any notices required by or concerning this Agreement shall be sent
to the Parties and to the Commission at the addresses shown below:
USWC Reseller
Katherine L. Fleming Brad VanLeur
U S WEST Communications Firstel, Inc.
Interconnection Services Sales & Marketing Director
1801 California, Suite 2340 110 South Phillips, Suite 202
Denver, Colorado 80202-9184 Souix Falls, SD 57102
303-896-6100 (phone) 605-332-3232 (phone)
303-896-9028 (fax) 605-332-8004 (fax)
Commission
Executive Secretary
Minnesota Public Utilities Commission
Metro Square Building, Suite 350
121 Seventh Place E
St. Paul, MN 55101-2147
Each Party and the Commission shall inform the other of any changes
in the above addresses.
Page 25
<PAGE>
W. No Third-Party Beneficiaries
Except as may be specifically set forth in this Agreement, this
Agreement does not provide and shall not be construed to provide
third parties with any remedy, claim, liability, reimbursement,
cause of action, or other privilege. The Commission is a third party
beneficiary of this contract on behalf of the public. Accordingly,
the Commission is entitled to notice and may intervene to protect
the public interest in any lawsuit involving this agreement.
X. Publicity and Advertising
Neither party shall publish or use any advertising, sales promotions
or other publicity materials that use the other party's name, logo,
trademarks or service marks without the prior written approval of
the other party.
Y. Amendments or Waivers
Except as otherwise provided in this Agreement, no amendment or
waiver of any provision of this Agreement, and no consent to any
default under this Agreement, shall be effective unless the same is
in writing and signed by an officer of the Party against whom such
amendment, waiver or consent is claimed. The Parties acknowledge
that they may not consent to default of any requirement of federal
or state law which affects the rights of end use customers. Any
amendment to this Agreement shall be approved by the Commission.
Z. Most Favored Nation
The Parties agree that the provisions of Section 252(I) of the Act
shall apply, including state and federal interpretive regulations in
effect from time to time.
AA. Executed in Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original; but such counterparts shall
together constitute one and the same instrument.
BB. Headings of No Force or Effect
The headings of Articles and Sections of this Agreement are for
convenience of reference only, and shall in no way define, modify or
restrict the meaning or interpretation of the terms or provisions of
this Agreement.
CC. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings, proposals
and undertakings with respect to the
Page 26
<PAGE>
subject matter hereof. This Agreement shall prevail in the event of
any conflict between the "Resale Resource Guide" and the terms and
conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
FIRSTEL, Inc. U S WEST Communications, Inc.
/s/ Fred L. Thurman
- -------------------------------- --------------------------------
Signature Signature
Fred L. Thurman
- -------------------------------- --------------------------------
Name Printed/Typed Name Printed/Typed
President
- -------------------------------- --------------------------------
Title Title
8-12-97
- -------------------------------- --------------------------------
Date Date
Signature does not waive any rights of either Party to seek
administrative/judicial review of all or part of the Agreement or to reform this
Agreement as a result of successful administrative/judicial review and/or future
settlement agreements between the Parties to this Agreement.
Page 27
<PAGE>
APPENDIX A
LOCAL EXCHANGE SERVICES
RESALE OF SERVICES
The Parties agree the following charges apply to the Resale of Local Services:
1. Nonrecurring Charges.
a. Customer Transfer Charge (CTC): The following nonrecurring charges
apply when converting a USWC account to a Reseller account or when
changing an end user from one reseller to another.
Mediated access (OSS) USOC Nonrecurring Charge
o Residence
First Line $12.64
Each Additional Line $11.16
o Business
First Line $16.80
Each Additional Line $13.93
Non-Medicated Access
(Manual)
o Residence and Business
First Line $22.20
Each Additional Line $16.38
b. Product Specific Nonrecurring Charge: As set forth in USWC tariffs, the
product specific nonrecurring charges, without discount, will apply when
additional lines or trunks are added or when the end user adds features or
services to existing lines or trunks.
c. IntraLATA Toll Charges: Reseller shall have the choice of obtaining
intraLATA toll resale at a 12% discount or at the below uniform rate.
Whichever toll discount Reseller selects shall apply uniformly to all toll
services resold by the Reseller.
State: Rate Per Minute of Use
Minnesota .135
2. The Parties agree the following charges apply to the Resale of Local Services
in Minnesota:
Page 28
<PAGE>
a. Except as expressly listed in Paragraphs 2b. and 2c. of this Appendix,
all USWC telecommunications tariffed services and rate elements offered
now or in the future to retail customers shall be available for resale at
a 12% discount.
APPENDIX A - CONTINUED
b. Promotions of less than 90 days and enhanced services are not available
for resale. Grandparented services are only available for resale to
customers currently receiving such services.
c. The following services are available only to the same class of
customers eligible to purchase that service from USWC:
o Residential Service
o Contract Services
o Special Arrangements
o Packaged and Discount Services
o Promotional offerings of greater than 90 days
o Grandfathered services
d. USWC provides Lifeline-type services to resellers as residential basic
exchange lines. Reseller is responsible for obtaining certification for
Reseller's end users from the qualifying and funding organizations for
these programs.
Page 29
<PAGE>
EXECUTION COPY
================================================================================
INTERCONNECTION AGREEMENT
UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS ACT OF 1996
by and between
SOUTHWESTERN BELL TELEPHONE COMPANY
and
VALU-LINE OF LONGVIEW, INC.
================================================================================
<PAGE>
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND VALU-LINE OF LONGVIEW, INC.
TABLE OF CONTENTS
I. DESCRIPTION AND CHARGES FOR SERVICES ............................. 1
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES ...................... 3
A. Permitted Use of Resold Services by LSP and Its End Users .. 3
B. Use of SWBT Trademarks ..................................... 5
C. Network and Service Order Conditions ....................... 5
III. ADDITIONAL SERVICES .............................................. 6
A. 911/E911 ................................................... 6
B. Dialing Parity ............................................. 6
C. White Page Directories: Listings, Distribution and
Information Page .......................................... 7
D. Directory Assistance (DA) .................................. 9
E. Operator Services (OS) ..................................... 9
IV. RESPONSIBILITIES OF SWBT ......................................... 9
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES ....................... 10
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS ......................... 11
VII. ADDITIONAL RESPONSIBILITIES OF LSP ............................... 12
A. Payment of Rates and Charges ............................... 12
B. Interfaces with SWBT ....................................... 13
C. Repair Contact Arrangements ................................ 13
D. LSP Operating Company Number (OCN) ......................... 13
E. Special Service Arrangements ............................... 13
F. Development of Branding and Customized Routing ............. 14
VIII. NONEXCLUSIVITY ................................................... 15
IX. SUPPORT SYSTEMS SERVICES ......................................... 15
A. Support Systems Services ................................... 15
B. Network Management Controls ................................ 17
C. Law Enforcement and Civil Process .......................... 17
X. CALL TRACE ....................................................... 18
XI. TAXES ............................................................ 18
<PAGE>
XII. TERMINATION OF SERVICE TO LSP .................................... 19
XIII. FORCE MAJEURE .................................................... 20
XIV. LIMITATION OF LIABILITY .......................................... 21
XV. NONDISCLOSURE .................................................... 22
XVI. PUBLICITY ........................................................ 22
XVII. ASSIGNMENT ....................................................... 23
XVIII. DISPUTE RESOLUTION ............................................... 23
A. Finality of Disputes ....................................... 23
B. Alternative to Litigation .................................. 23
XIX. VERIFICATION REVIEWS ............................................. 25
XX. COMPLIANCE WITH LAWS ............................................. 26
XXI. CERTIFICATION REQUIREMENTS ....................................... 27
XXII. EFFECT OF OTHER AGREEMENTS ....................................... 27
XXIII. NOTIFICATION
XXIV. NOTICES .......................................................... 28
XXV. BENEFICIARIES .................................................... 28
XXVI. TERM ............................................................. 28
XXVII. EFFECTIVE DATE ................................................... 28
XXVIII. WAIVER ........................................................... 28
XXIX. DISCLAIMER OF WARRANTIES ......................................... 29
XXX. RELATIONSHIP OF THE PARTIES ...................................... 29
XXXI. INTERVENING LAW AND PRESERVATION OF RIGHTS ....................... 29
XXXII. COMPLETE TERMS ................................................... 30
<PAGE>
1
RESALE AGREEMENT BETWEEN
SOUTHWESTERN BELL TELEPHONE COMPANY
AND VALU-LINE OF LONGVIEW, INC.
This Agreement is between Southwestern Bell Telephone Company
("SWBT"), a Missouri corporation, and Valu-Line of Longview, Inc., a Texas
corporation, ("LSP") (collectively, "the Parties") entered into this 15th day of
April, 1997.
WHEREAS, pursuant to the Telecommunications Act of 1996 (the "Act"),
the Parties wish to establish terms for the purchase by LSP of certain SWBT
retail telecommunications services and certain other services for resale by LSP
to its local exchange end users in the State of Texas. Therefore, the Parties
hereby agree as follows:
I. DESCRIPTION AND CHARGES FOR SERVICES
A. Attached hereto as Exhibit A is a list of Telecommunications
Services currently available for resale at the wholesale
discount rate set by the Commission through arbitration, i.e.,
21.6% off the retail rate for each service. Except as
otherwise expressed herein and consistent with SWBT's
obligation under ss. 251(c)(4)(A) of the Act, LSP may resell
other Telecommunications Services offered by SWBT and not
listed in Exhibit A. Exhibit B contains a list of other
services available for resale at the discount included in the
exhibit.
B. SWBT shall make available for resale by LSP SWBT's Bill Plus
or Consolidated Billing service at a discount of five percent
(5%) off SWBT's tariffed rate for each service (or in the
event these services are not tariffed, at the rate SWBT
charges its subscribers).
C. SWBT shall make available for resale by LSP the following SWBT
services at SWBT's tariffed rate for each service (or in the
event a service is not tariffed, at the rate SWBT charges its
subscribers, except as otherwise provided herein):
- Construction Charges
- Connections with Terminal Equipment and Communication System
- Distance Learning
- Maintenance of Service Charges
- Suspension Services
- Telecommunications Service Priority Systems
- Access Services
- Cellular Mobile Telephone Interconnection Services
<PAGE>
2
- Exchange Connection Services
- Shared Tenant Service
- 976 Information Delivery Service
D. The Distance Learning discount is in addition to the discounts
for the underlying services provided. Suspension of Service
discounts apply to the discounted rate for the underlying
service. When LSP resells Shared Tenant Service, LSP will
receive the discount associated with the underlying service
used in the shared tenant arrangement.
E. SWBT shall be under no obligation to offer the following for
resale:
- BDS/LAN
- Customer Provided Equipment
- Customized Billing Reports
- InLine(R) Products
- Inside Wiring
- Semi-Public Telephone Booths and Enclosures
- 911 Universal Emergency Number Equipment
F. Grandfathered services are also available for resale at the
applicable wholesale discount to the same customers to which
SWBT offers the service.
G. Telecommunications Services will be resold to LSP on terms and
conditions that are reasonable and nondiscriminatory.
H. LSP may offer to resell Customer Initiated Suspension and
Restoral Service to their end users. SWBT will offer to LSP
Company Initiated Suspension service for their own purposes at
the SWBT retail tariffed rate. Should LSP choose to suspend
their end user through Company Initiated Suspension Service,
this suspension period shall not exceed fifteen (15) calendar
days. If LSP issues a disconnect on their end user account
within the fifteen (15) day period, appropriate services will
not be billed for the suspension period. However, should LSP
issue a disconnect after the fifteen (15) day suspension
period, LSP will be responsible for all appropriate charges on
the account back to the suspension date. Should LSP restore
their end user, restoral charges at the SWBT retail tariffed
rate will apply and LSP will be billed for the appropriate
service from the time of suspension.
<PAGE>
3
II. TERMS AND CONDITIONS FOR RESALE OF SERVICES
The following terms and conditions are applicable to all services
purchased under this Agreement.
A. Permitted Use of Resold Services by LSP and Its End Users
1. For services included in this Agreement which are
offered through tariffs by SWBT to its end users, the
rules and regulations associated with the applicable
State General Exchange Tariff, Local Exchange Service
Tariff, and the other tariffs for the resold service
(such tariffs collectively referred to herein as
"corresponding tariffs"), apply except for applicable
resale restrictions and except as otherwise provided
herein.
2. LSP shall only sell Plexar (R) services to a single end
user or multiple end users on continuous properties.
3. Except where otherwise explicitly provided in the
corresponding tariffs, or except where SWBT permits such
sharing by its own end users, LSP shall not permit the
sharing of a service by multiple end users or the
aggregation of traffic from multiple end users onto a
single service; however, based upon the Commission's
Arbitration Order, SWBT will not retain its limitation
on aggregation for purposes of the resale of volume
discount offers.
4. LSP shall only resell services purchased under this
Agreement to the same class of end users to whom SWBT
sells such services (e.g. residence service shall not be
resold to business end users). LSP may only resell
Lifeline Assistance, Link-Up, and other like services to
similarly situated customers who are eligible for such
services. Further, to the extent LSP resells services
that require certification on the part of the buyer, LSP
will ensure that the buyer has received proper
certification and complies with all rules and
regulations as established by the Commission.
5. For purposes of this section, "short term promotions" of
Telecommunications Services are limited in length to no
more than ninety (90) days for the length of the period
during which the promotion may be offered to the public,
and to no more than ninety (90) days for the period
during which any and all benefits from the promotion
must be realized or captured by the subscriber, and that
the subscriber must begin receiving the benefit during
the offering period.
<PAGE>
4
a. Based upon the Arbitration Order of the
Commission, LSP may obtain the short term
promotional service from SWBT for resale but LSP
is not entitled to receive a discount from SWBT
off of the promotional rate.
b. Retail rates that do not qualify as a short term
promotion, i.e., those in excess of 90 days, are
the rates to which the respective wholesale
discounts in Section 1 apply while they are in
effect.
c. Nothing in this Agreement shall require SWBT to
provide to LSP promotional service elements that
are not Telecommunications Services such as CPE
and Inside Wire Maintenance Plans.
6. LSP shall not use a resold service to avoid the rates,
terms and conditions of SWBT's corresponding tariffs.
7. LSP shall not use resold local exchange telephone
service to provide access or interconnection services to
itself, interexchange carriers (IXCs), wireless
carriers, competitive access providers (CAPs), or other
telecommunications providers. Provided however, that LSP
may permit its end users to use resold local exchange
telephone service to access IXCs, wireless carriers,
CAPs, or other retail telecommunications providers.
8. If LSP is found to be in violation of a provision of
this Agreement, SWBT shall notify LSP of the violation
in writing of the specific provision being violated. At
such time, LSP shall have thirty (30) days to correct
the violation and notify SWBT in writing that the
violation has been corrected. SWBT shall then bill LSP
for the charges which should have been collected by SWBT
or the actual revenues collected by LSP from its end
users for the stated violation, whichever is greater. If
LSP disputes the violation, it shall notify SWBT in
writing within fourteen (14) days of receipt of notice
from SWBT. Disputes shall be resolved as outlined in the
Dispute Resolution section of the Agreement.
9 An End User Common Line (EUCL) charge will continue to
apply for each local exchange line resold under this
agreement. All federal rules and regulations associated
with EUCL charges, as found in Tariff FCC 73, also
apply. To the extent ordered by the Texas Public Utility
Commission, the wholesale discount will apply to the
EUCL.
<PAGE>
5
10. To the extent allowable by law, LSP shall be responsible
for Primary Interexchange Carrier (PIC) change charges
associated with such local exchange line. LSP shall pay
for PIC changes at the tariffed rate.
11. SWBT is not required to make services available for
resale at wholesale rates to LSP for its own use. SWBT,
however, shall at its option agree to allow LSP to
purchase SWBT's Telecommunications Services and other
services available for resale as outlined in the
exhibits to this Agreement, as long as said services are
not resold exclusively or predominately to LSP, its
subsidiaries, or affiliates.
B. Use of SWBT Trademarks
Except where otherwise required by law, LSP shall not, without
SWBT's written authorization, offer the services covered by
this Agreement using the trademarks, service marks, trade
names, brand names, logos, insignia, symbols or decorative
designs of SWBT or its affiliates. Nor shall LSP state or
imply that there is any joint business association or similar
arrangement with SWBT in the provision of telecommunications
services to LSP's own end users. LSP may brand services
included in this Agreement with its own brand name, but SWBT
shall not be responsible for providing such branding.
C. Network and Service Order Conditions
1. SWBT shall provide the services covered by this
Agreement subject to availability of existing facilities
and on a nondiscriminatory basis with its other
customers. LSP shall resell the services provided herein
only in those service areas in which such resale
services or any feature or capability thereof are
offered at retail by SWBT as the incumbent local
exchange carrier to its end users.
2. When LSP converts an end user currently receiving
noncomplex service from the SWBT network, without any
changes to SWBT's network, and such order requires
manual processing by SWBT personnel, LSP will be charged
an interim per order (i.e., per billable telephone
number) conversion charge of $16.65 in Texas. Conversion
orders processed and completed electronically will be
charged $5 per order on an interim basis. Complex orders
will be charged at an interim rate of $52.55 per order.
Custom Services conversions (e.g. Plexar Custom) will be
handled on a Customer Specific Proposal basis.
<PAGE>
6
When LSP converts an end user's service and adds or
changes are made to the network, the respective
conversion charge will apply, as well as any normal
service order charges associated with said changes. All
non-recurring service connection charges, excluding the
conversion charge mentioned above, will be charged at a
discount for those services listed in Exhibits A and B.
3. For the purposes of ordering new service under this
Agreement, each request for new service shall be handled
as a separate and initial request for service per
billable telephone number. The additional line rate for
Service Order Charges shall apply only to those requests
for additional residential service at the end user's
same location where a residential line is currently
provided on SWBT's network, regardless of the
non-facilities based local service provider of record.
4. For purposes of this section, service orders for LSPs
shall be handled in the same fashion as SWBT requires
for its end users.
III. ADDITIONAL SERVICES
A. 911/E911
1. Access to the 911 or E911 service, available to SWBT end
users in the area(s) served by LSP, shall be made
available to LSP's end users.
2. LSP shall be responsible for collecting and remitting
all applicable 911 surcharges on a per line basis to the
Public Safety Answering Point (PSAP).
3. When requested by SWBT, LSP shall provide timely,
accurate and complete information on each of LSP's end
users as needed for the provisioning of 911 service to
LSPs end users. Such information shall be in a format
and a time frame pre-subscribed by SWBT for purposes of
911 administration.
B. Dialing Parity
1. Local Dialing Parity
SWBT agrees that local dialing parity shall be available
to LSP. That is, end users of SWBT and end users of LSP
shall have the same exchange boundaries, such end users
shall be able to dial the same number of digits when
making a "local" call.
<PAGE>
7
2. IntraLATA Toll Dialing Parity.
SWBT agrees to make IntraLATA toll dialing parity
available in accordance with Section 251(b)(3) of the
Telecommunications Act of 1996.
C. White Page Directories: Listings, Distribution and Information
Page
1. LSP's subscribers to basic residential and business
service will receive a basic listing in SWBT's White
Pages directories in the same form and under the same
conditions as SWBT provides to its subscribers.
a. Subscriber listing information on resold lines
shall remain the property of SWBT. Upon receipt of
a request from a third party directory publisher,
including Southwestern Bell Yellow Pages, for
subscriber listing information, SWBT will provide
to that third party directory publisher LSP
subscriber's listing information on an interfiled
basis and indistinguishable from SWBT's subscriber
listing information.
b. Each LSP subscriber will receive one copy of
SWBT's White Pages directory, and a Yellow Pages
directory when cobound with the White Pages, in
the same manner and at the same time that they are
provided to SWBT's subscribers. It is the Parties'
expectation that separately bound Southwestern
Bell Yellow Pages directories will be delivered in
the same manner and at the same time to LSP's
subscribers as to SWBT's subscribers.
c. If an LSP end user already has a current SWBT
directory, SWBT shall not be required to deliver a
directory to that end user until new directories
are published for that end user's location.
d. The listings and directories described above are
included in the wholesale price LSP owes SWBT for
resold lines and will be provided by SWBT at no
additional charges.
e. Additional Listing Services (e.g., foreign
listings and signature listing) can be purchased
by LSP for its end users on a per listing basis.
LSP shall pay SWBT for all such
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8
listings provided to LSP's end users. The
discounts applicable to listing services are
contained in Exhibit B.
f. LSP hereby releases SWBT from any and all
liability for damages due to errors or omissions
in LSP's subscriber listing information as it
appears in the White Pages directory, including,
but not limited to, special, indirect,
consequential, punitive or incidental damages. To
the extent LSP reimburses its end user subscriber
any listing charge due to errors or omissions
caused directly by SWBT, SWBT shall reimburse LSP
any associated wholesale rate.
g. LSP shall indemnify, protect, save harmless and
defend SWBT (or SWBT's officers, employees,
agents, assigns, and representatives) from and
against any and all losses, liability, damages and
expense arising out of any demand, claim, suit, or
judgment by a third party in any way related to
any error or omission in LSP's subscriber listing
information as it appears in the White Pages
directory, including any error or omission related
to nonpublished or nonlisted subscriber listing
information; provided, however, LSP shall not be
required to indemnify SWBT for gross negligence or
willful misconduct. LSP shall so indemnify
regardless of whether the demand, claim, or suit
by the third party is brought jointly against LSP
and SWBT, and/or against SWBT alone.
2. Information Page
a. At LSP's request, SWBT shall include in the
"Informational Page" section of SWBT's White Pages
directory, for those geographical areas in which
LSP provides local exchange services, LSP's
customer contact information regarding emergency
services, billing and service information, repair
services and other pertinent information similar
to that provided by SWBT in its "Informational
Pages." Such information shall be included on the
same page with other LSP information.
b. At LSP's option, LSP shall be provided a single
"Informational Page" (one side of one page) in the
informational section of the White Pages directory
covering a geographic area where an LSP provides
local exchange service. This page shall be no
different in style, size, color and format than
SWBT "Informational Pages." Sixty (60)
<PAGE>
9
days prior to the directory close date, LSP shall
provide to SWBT the "Informational Page" in the
form of camera-ready copy. The charges associated
with this service vary from geographic market to
market, and are charged outside this Agreement.
D. Directory Assistance (DA)
SWBT shall provide access to DA to LSP's end users. LSP shall
pay the charges associated with the use of such services by
LSP's end users. The discounts applicable to such services are
contained in Exhibits A and B, which is attached hereto and
made a part hereof.
E. Operator Services (OS)
1. SWBT shall provide access to Operator Services to LSP's
end users. LSP shall pay the charges associated with the
use of such services by LSP's end users. The discounts
applicable to such services are contained in Exhibits A
and B, which are attached hereto and incorporated by
reference.
2. SWBT shall provide Line Status Verification and Busy
Line Interrupt on calls made on SWBT's network to LSP
end users. LSP shall pay SWBT associated charges when
its end users request such services, with discounts to
apply as listed in Exhibits A and B.
IV. RESPONSIBILITIES OF SWBT
A. SWBT shall allow LSP to place service orders and receive phone
number assignments (for, new lines). These service order
activities shall be accomplished by facsimile or electronic
interface when established. SWBT, with input from LSP, shall
provide interface specifications for electronic access for
these functions to LSP once such electronic interfaces become
technically feasible and are in place. However, LSP shall be
responsible for modifying and connecting any of its systems
with SWBT provided interfaces when such interfaces become
available, as outlined in Appendix OSS.
B. SWBT shall implement LSP service orders within the same time
intervals SWBT uses to implement service orders for similar
services for its own end users.
C. LSP will have the ability to report trouble for its end users
to appropriate SWBT trouble reporting centers 24 hours a day,
7 days a week. LSP will be assigned a customer contact center
when initial service agreements are
<PAGE>
10
made. To the extent the current provider can be determined,
LSP end users calling SWBT will be referred to LSP at the
number provided by LSP.
Methods and procedures for ordering and trouble reporting are
outlined in the Handbook for Non-Switched Based Providers
dated 11/15/95, as amended by SWBT from time to time. Both
parties agree to abide by the procedures contained therein.
D. On no less than sixty (60) days advance written notice, LSP
may request SWBT to make certain usage information available
to LSP on a daily basis in a standard electronic format. The
information will consist of usage sensitive charges SWBT will
bill to LSP arising out of the use of resold lines. LSP agrees
to pay SWBT three tenths of a cent ($.003) per message for
this service, plus other charges outlined in Appendix OSS.
V. ADDITIONAL RESPONSIBILITIES OF THE PARTIES
Cooperation on Fraud
SWBT shall not be liable to LSP for any fraudulent usage on LSP's
end users accounts.
The Parties agree to cooperate with one another to investigate,
minimize and take corrective action in cases of fraud. The Parties'
fraud minimization procedures are to be cost effective and
implemented so as not to unduly burden or harm one Party as compared
to the other.
At a minimum, such cooperation shall include providing to the other
Party, upon request, information concerning end users who terminate
services to that Party without paying all outstanding charges, when
such end user seeks service from the other Party. The Party seeking
such information is responsible for securing the end user's
permission to obtain such information.
VI. CHANGES IN SUBSCRIBER CARRIER SELECTIONS
A. Prior to submitting an order under this Agreement, LSP shall
obtain end user authorization as required by applicable state
or federal laws and regulations, and assumes responsibility
for applicable charges as specified in Section 258 (b) of the
Telecommunications Act of 1996. SWBT shall abide by the same
applicable laws and regulations.
B. Only an end user can initiate a challenge to a change in its
local exchange service provider. If an end user notifies SWBT
or LSP that the end user requests local exchange service, the
Party receiving such request shall be
<PAGE>
11
free to immediately provide service to such end user. SWBT
shall be free to connect the end user to any local service
provider based upon the local service provider's request and
local service provider's assurance that proper end user
authorization has been obtained. Both parties shall make
authorization available to the other party upon request and at
no charge.
C. When an end user changes or withdraws authorization, each
Party shall release customer-specific facilities in accordance
with the end user customer's direction or the direction of the
end user's authorized agent. Further, when an end user
abandons the premise, SWBT is free to reclaim the facilities
for use by another customer and is free to issue service
orders required to reclaim such facilities.
D. Neither Party shall be obligated by this Agreement to
investigate any allegations of unauthorized changes in local
exchange service (slamming) on behalf of the other Party or a
third party. If SWBT, on behalf of LSP, agrees to investigate
an alleged incidence of slamming, SWBT shall charge LSP a
fifty dollar ($50) investigation fee.
E. When SWBT receives an order from LSP for services under this
Agreement and SWBT is currently providing the same services to
another local service provider for the same end user, SWBT
shall notify the end user's local service provider of record
of such order coincident with processing the order should LSP
subscribe to the Local Disconnect Report (LDR) as outlined
below. It shall then be the responsibility of the local
service provider of record and LSP to resolve any issues
related to the end user. This paragraph shall not apply to new
additional lines and services purchased by an end user from
multiple LSPs or from SWBT.
F. On no less than sixty (60) days notice, LSP may request the
Local Disconnect Report. SWBT agrees to furnish to LSP the
Billing Telephone Number (BTN), Working Telephone Number
(WTN), and terminal number of all end users who have
disconnected LSP's service. LSP understands and agrees that
the CARE interface will be used to provide such information
and such information will only be available via the CARE
electronic data transmission. Information will be provided on
a per-WTN basis to be priced on a per-WTN basis. SWBT will
provide LSP no less than thirty (30) days notice prior to any
change of the per-WTN charge. SWBT grants to LSP a
non-exclusive right to use the information provided by SWBT.
LSP will not permit anyone but its duly authorized employees
or agents to inspect or use this information. LSP agrees to
pay SWBT ten cents ($0.10) per WTN and any applicable charges
for the LDR as outlined in Appendix OSS.
<PAGE>
12
G. The LSP agrees to hold harmless and indemnify SWBT against any
and all liability and claims, including reasonable attorney's
fees, that may result from SWBT acting under this Article.
H. Nothing herein shall be interpreted to apply to conversion of
LSP end users pursuant to Article XII. (Termination of Service
to LSP).
VII. ADDITIONAL RESPONSIBILITIES OF LSP
A. Payment of Rates and Charges
1. LSP is solely responsible for the payment of charges for
all services furnished under this Agreement including,
but not limited to, calls originated or accepted at
LSP's location and its end users' service locations,
with the exception of any retail services provided
directly by SWBT to the end user which SWBT shall be
responsible for billing.
Interexchange carried traffic (e.g., sent-paid,
information services and alternate operator services
messages) received by SWBT for billing to resold
end-user accounts will be returned as unbillable and
will not be passed on to LSP for billing. An unbillable
code returned with those messages to the carrier will
indicate that the messages originated from a resold
account and will not be billed by SWBT.
In accordance with industry standards, IXC PIC
selections for lines resold to LSP will not be processed
from IXCs or end users, but will only be processed if
received from LSP.
2. SWBT shall not be responsible for the manner in which
the use of resold service, or the associated charges are
allocated to others by LSP. All applicable rates and
charges for such services will be billed to and shall be
the responsibility of LSP, with the exception of other
retail services provided directly to the end user by
SWBT as described in paragraph 1 above.
3. Compensation for all services shall be paid by LSP
regardless of LSP's ability or inability to collect
charges from its end user for such service.
4. If LSP does not wish to be responsible for collect,
third number billed, toll and information services
(e.g., 900) calls, it must order the appropriate
blocking for resold lines under this Appendix and
<PAGE>
13
pay any applicable charges. LSP acknowledges that
blocking is not available for certain types of calls,
including 800 numbers.
B. Interfaces with SWBT
LSP shall be responsible for modifying and connecting any of
its systems with SWBT-provided interfaces as described in this
Agreement.
C. Repair Contact Arrangements
LSP shall be responsible for providing to its end users and to
SWBT a telephone number or numbers that LSP's end users can
use to contact LSP in the event of service or repair requests.
In the event that LSP's end users contact SWBT with regard to
such requests, SWBT shall inform the end user that they should
call LSP and may provide LSP contact number.
D. LSP Operating Company Number (OCN)
For the purposes of establishing service and providing
efficient and consolidated billing to the LSP, the LSP is
required to provide SWBT its authorized and nationally
recognized OCN.
E. Special Service Arrangements
For special service arrangements for LSP not covered under
this Agreement, special charges shall apply as provided in the
applicable corresponding tariffs.
F. Development of Branding and Customized Routing for Directory
Assistance and Operator Services
1. Requirements - Pursuant to ss. 226 (b) of The
Telecommunications Act of 1996, each provider of
Operator Services is required to:
a) provide its brand at the beginning of each
telephone call and before the consumer incurs any
charge for the call; and
b) disclose immediately to the consumer, upon request
a quote of its rates or charges for the call.
c) Where SWBT provides LSPs OS and DA services via
the same trunk, both the OS and DA calls will be
branded with the same brand. Since SWBT's DA and
OS utilize the same trunk group, LSP will receive
the same brand for both DA/OS. Such branding will
be provided pursuant Section 2. below.
<PAGE>
14
2. Call Branding - In compliance with F. 1. above, SWBT
will brand DA/OS in LSP's name based upon the criteria
outlined below:
a) LSP will provide SWBT with written specification
of its company name to be used in creating LSP
specific branding messages for its DA/OS calls.
b) An initial non-recurring charge applies per load
for the establishment of Call Branding as well as
a charge per subsequent load to change the brand.
In addition, a per call charge applies for every
DA/OS call handled by SWBT on behalf of LSP when
such services are provided in conjunction with
resale services. Prices for Call Branding are as
outlined in Exhibit C, attached hereto and
incorporated herein.
3. Rate/Reference Information - SWBT will provide LSP DA/OS
Rate/Reference Information based upon the criteria
outlined below:
a) LSP will furnish DA/OS Rate and Reference
Information in a mutually agreed to format or
media thirty (30) days in advance of the date when
the DA/OS Services are to be undertaken.
b) LSP will inform SWBT, in writing, of any changes
to be made to such Rate/Reference Information ten
(10) working days prior to the effective
Rate/Reference change date. LSP acknowledges that
it is responsible to provide SWBT updated
Rate/Reference Information in advance of when the
Rates/Reference Information are to become
effective.
c) In all cases when a SWBT Operator receives a rate
request from a LSP end user, SWBT will quote the
applicable DA/OS rates as provided by LSP.
d) An initial non-recurring charge will apply for
loading of LSP's DA/OS Rate/Reference Information
as well as a charge for each subsequent change to
either the LSP's DA/OS Services Rate or Reference
Information as outlined in Exhibit C, attached
hereto and incorporated herein.
4. Customized Routing - SWBT shall also offer LSP the
opportunity to customize route DA/OS where technically
feasible. LSP agrees to pay SWBT appropriate charges
associated with customized routing on an ICB basis.
<PAGE>
15
VIII. NONEXCLUSIVITY
This Agreement is nonexclusive. LSP acknowledges that SWBT will be
providing the same or similar services to other local services
providers in accordance with negotiated agreements which will be
filed with the appropriate state commission(s). LSP also
acknowledges that SWBT may, upon end user request, provide any and
all of the services provided to LSP under this Agreement directly to
the end users. SWBT acknowledges that LSP may obtain the same or
similar services from other local exchange companies.
IX. SUPPORT SYSTEMS SERVICES
A. Support Systems Services
1. Transfer of Service Announcements (Intercept)
The Party formerly providing service to an end user
shall provide a Basic Referral announcement,
reciprocally and free of charge on the abandoned
telephone number. The announcement states that the
called number has been disconnected or changed and
provides the end user's new telephone number to the
extent that it is listed. SWBT shall provide an
intercept referral on behalf of LSP to their end user as
indicated on the appropriate service order.
Basic Intercept Referral Announcements are to be
provided on residential numbers for a minimum of thirty
(30) days where facilities exist and the threat of
telephone number exhaustion is not imminent.
Basic Intercept Referral Announcements for a single line
business end user and the primary listed telephone
number for Direct Inward Dial (DID) and "Centrex-type"
end users, shall be available for a minimum of thirty
(30) days or for the life of the white pages directory,
whichever is greater. If the threat of telephone number
exhaustion becomes imminent for a particular central
office, the service provider may reissue a disconnected
number prior to the expiration of the directory, but no
earlier than thirty (30) days after the disconnection of
the business telephone number.
2. Coordinated Repair Calls
SWBT shall be responsible for repairing its own network.
However, LSP shall maintain telephone numbers where its
end user may call to report instances of trouble.
<PAGE>
16
The Parties shall employ the following procedures for
handling misdirected repair calls:
a. The Parties shall inform their respective end
users of the correct telephone numbers to call to
access their respective repair bureaus.
b. To the extent the correct provider can be
determined, each Party shall refer misdirected
repair calls to the proper provider of local
exchange service, at no charge, and shall provide
the end user the contact telephone number provided
by the other party.
In responding to repair calls, neither Party shall
make disparaging remarks about each other, nor
shall they use these repair calls as the basis for
internal referrals or to solicit customers or to
market services. Either Party may respond with
accurate information in answering customer
questions.
c. The Parties shall provide each other their
respective repair contact numbers.
d. Notwithstanding anything contained herein to the
contrary, SWBT and LSP agree that SWBT shall have
no obligation to unbrand or rebrand the uniforms
or training of its customer-contact employees,
trucks, vehicles, any customer premises equipment
or other customer-owned facilities or SWBT's
outside plant or network components.
e. Where LSP requires SWBT personnel to interface
directly with LSP end user customers in any form
of communication (including, but not limited to,
written, face-to-face, by telephone or electronic
transmission of any kind), such SWBT personnel
shall be identified as SWBT employees representing
the customer's provider.
B. Network Management Controls
Each Party shall provide a 24-hour contact number for Network
Traffic Management issues to the other. A FAX number must also
be provided to facilitate event notifications for planned mass
calling events. Additionally, both Parties agree that they
shall work cooperatively that all such events
<PAGE>
17
shall attempt to be conducted in such a manner as to avoid
deregulation or loss of service to other end users.
C. Law Enforcement and Civil Process
SWBT and LSP shall handle law enforcement requests as follows:
1. Intercept Devices
Local and federal law enforcement agencies periodically
request information or assistance from local telephone
service providers. When either Party receives a request
associated with an end user of the other Party, it shall
refer such request to the appropriate Party, unless the
request directs the receiving Party to attach a pen
register, trap and trace or form of intercept on that
Party's own facilities, in which case that Party shall
comply with any valid request.
2. Subpoenas
If a Party receives a subpoena for information
concerning an end user the Party knows to be an end user
of the other Party, it shall refer the subpoena to the
requesting entity with an indication that the other
Party is the responsible company. Provided, however, if
the subpoena requests records for a period of time
during which the receiving Party was the end user's
service provider, the receiving Party will respond to
any valid request.
3. Emergencies
If a Party receives a request from a law enforcement
agency to implement a temporary number change, temporary
disconnect or one way denial of outbound calls for an
end user of the other party, the receiving Party will
comply so long as it is a valid emergency request. In
the case of the LSP, the LSP shall refer such request to
SWBT and SWBT shall honor such request in accordance
with this paragraph. Neither Party shall be held liable
for any claims or damages arising from compliance with
such requests, and the Party serving the end user agrees
to indemnify and hold the other Party harmless against
any and all such claims.
X. CALL TRACE
An LSP end user's activation of Call Trace for a line purchased
under this Appendix, shall be handled by the SWBT Call Trace Center
(CTC). SWBT shall
<PAGE>
18
notify LSP of requests by LSP's end users to provide the call
records to the proper authorities. Subsequent communication and
resolution of the case with LSP's end user (whether that end user is
the victim or the suspect) will be coordinated through LSP.
LSP understands that for services where reports are provided to law
enforcement agencies (e.g., Call Trace) SWBT shall only provide
billing number and address information. LSP shall provide additional
information necessary for any police investigation. LSP shall
indemnify SWBT against any claims that insufficient information led
to inadequate prosecution, except to the extent caused by SWBT's
gross negligence or willful misconduct.
XI. TAXES
LSP shall be responsible for all federal, state or local, sales,
use, excise or gross receipts taxes or fees imposed on or with
respect to the services provided under this Agreement including
those taxes and fees, imposed on SWBT. LSP shall reimburse SWBT for
the amount of any such taxes or fees which SWBT is required to pay
or collect for services provided to LSP hereunder.
XII. TERMINATION OF SERVICE TO LSP
A. If LSP fails to pay when due (within 30 days of the bill
date), any and all charges billed to them under this
Agreement, including any late payment charges (Unpaid
Charges), and any portion of such charges remain unpaid more
than fifteen (15) days after the due date of such Unpaid
Charges, SWBT shall notify LSP in writing that in order to
avoid having service disconnected, LSP must remit all Unpaid
Charges to SWBT within fourteen (14) business days.
B If LSP disputes the billed charges, it shall, within the
fourteen (14) day period provided for above, inform SWBT in
writing which portion of the charges it disputes, including
the specific details and reasons for its dispute; immediately
pay to SWBT all undisputed charges; and pay all disputed
charges into an interest bearing escrow account.
C Disputes hereunder shall be resolved in accordance with the
procedures identified in Article XVIII (Dispute Resolution).
Failure of LSP to pay charges deemed owed to SWBT after
conclusion of the Arbitration shall be grounds for termination
under this Article.
<PAGE>
19
D. If any LSP charges remain unpaid or undisputed twenty-nine
(29) days past the due date, SWBT shall notify LSP, the
Commission and the end user's IXC(s) of Record in writing,
that unless all charges are paid within sixteen (16) days,
LSP's service shall be disconnected and its end users shall be
switched to SWBT local service. SWBT will also suspend order
acceptance at this time.
E. If any LSP charges remain unpaid or undisputed forty (40) days
past the due date, LSP shall, at its sole expense, notify its
end users, the Commission and the end user's of Record that
their service may be disconnected for LSP failure to pay
Unpaid Charges, and that its end users must select a new local
service provider within five (5) days. The notice shall also
advise the end user that SWBT will assume the end user's
account at the end of the five (5) day period should the end
user fail to select a new local service provider.
F. If any LSP charges remain unpaid or undisputed forty-five (45)
days past the due date, SWBT shall disconnect LSP and transfer
all LSP's end users who have not selected another local
service provider directly to SWBT's service. These end users
shall receive the same services provided through LSP at the
time of transfer. SWBT shall inform the Commission and the end
user's IXC(s) of Record of the names of all end users
transferred through this process. Applicable service
establishment charges for switching end users from LSP to SWBT
shall be assessed to LSP.
G. Within five (5) days of the transfer (50 days past LSP's due
date), SWBT shall notify all affected end users that because
of an LSP's failure to pay, their service is now being
provided by SWBT. SWBT shall also notify the end user that
they have thirty (30) days to select a local service provider,
after which time should the end user not select an LSP, the
end user's service shall be terminated.
H. SWBT may discontinue service to LSP upon failure to pay
undisputed charges as provided in this section, and shall have
no liability to LSP or LSP end users in the event of such
disconnection.
I. If any end user fails to select a local service provider
within thirty (30) days of the change of providers (80 days
past LSP's due date), SWBT shall terminate the end user's
service. SWBT shall notify the Commission and the end user's
IXC of Record of the names of all end users whose service has
been terminated. The end user shall be responsible for any and
all charges incurred during the selection period.
J. Nothing herein shall be interpreted to obligate SWBT to
continue to provide service to any such end users. Nothing
herein shall be interpreted
<PAGE>
20
to limit any and all disconnection rights SWBT may have with
regard to such end users.
K. After disconnect procedures have begun, SWBT shall not accept
service orders from LSP until all unpaid charges are paid.
SWBT shall have the right to require a deposit equal to one
month's charges (based on the highest previous month of
service from SWBT) prior to resuming service to LSP after
disconnect for nonpayment.
XIII. FORCE MAJEURE
Neither party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures
in performance were foreseen or foreseeable as of the date of this
Agreement, including, without limitation: fire, explosion, power
failure, cable cuts, acts of God, war, revolution, civil commotion,
or acts of public enemies; any law, order, regulation, ordinance or
requirement of any government or legal body; or labor unrest,
including, without limitation, strikes, slowdowns, picketing or
boycotts; or delays caused by the other party or by other service or
equipment vendors; or any other circumstances beyond the Party's
reasonable control. In such event, the Party affected shall, upon
giving prompt notice to the other Party, be excused from such
performance on a day-to-day basis to the extent of such interference
(and the other Party shall likewise be excused from performance of
its obligations on a day-for-day basis to the extent such Party's
obligations relate to the performance so interfered with). The
affected party shall use its best efforts to avoid or remove the
cause of nonperformance and both parties shall proceed to perform
with dispatch once the causes are removed or cease.
XIV. LIMITATION OF LIABILITY
SWBT's liability, if any, for its gross negligence or willful
misconduct is not limited by its corresponding tariffs. With respect
to any other claim or suit, by a LSP or any others, for damages
arising out of mistakes, omissions, interruptions, delays or
efforts, or defects in transmission occurring in the course of
furnishing service hereunder, SWBT's liability, if any, shall not
exceed an amount equivalent to the proportionate charge to the LSP
for the period of service during which such mistake, omission,
interruption, delay, error, or defect in transmission or service
occurs and continues. In no event shall SWBT be responsible for any
special, indirect, consequential or exemplary damages. This
liability shall be in addition to any amounts that may otherwise be
due to the LSP under corresponding tariffs as an allowance for
interruptions. However, any such mistakes, omissions, interruptions,
delays, errors, or defects in transmission or service which are
caused or contributed to by the negligence or willful act of the LSP
or which arise from
<PAGE>
21
the use of LSP-provided facilities or equipment shall not result in
the imposition of any liability whatsoever upon SWBT.
SWBT shall be indemnified and held harmless by the LSP against
claims and damages arising from provision of the LSP's services or
equipment except those directly associated with the provision of
local service to the LSP which is governed by corresponding tariffs.
SWBT shall be indemnified and held harmless from all claims and
damages arising from the discontinuance of service for nonpayment to
SWBT by the LSP. Notice of discontinuance shall be as specified in
the Substantive Rules of the State Commission.
SWBT shall have no liability to the end users of the LSP for claims
arising from the provision of the LSP's service to its end users
including, but not limited to, claims for interruption of service,
quality of service or billing disputes.
When the lines or services of other companies and carriers are used
in establishing connections to and/or from points not reached by
SWBT's lines, SWBT is not liable for any act or omission of the
other companies or carriers.
XV. NONDISCLOSURE
The Parties to this Agreement anticipate and recognize that they
will exchange or come into possession of, data about each other's
end users and each other's business as a result of this Agreement
which will be designated as confidential by that Party. Each Party
agrees (1) to treat all such data as strictly confidential and (2)
to use such data only for purposes of performance under this
Agreement. Each Party agrees not to disclose data on the other
Party's end users or business which has been designated as
confidential to any person without first securing the written
consent of the other Party. The foregoing shall not apply to
information which is in the public domain.
If a court or governmental agency orders, or a third party requests,
a Party to disclose or to provide any data or information covered by
this Section, that Party will immediately inform the other Party of
the order or request both by telephone and overnighted mail before
disclosing the data or information. Notification and consent
requirements described above are not applicable in cases where a
court order requires the production of toll billing records of an
individual residence or business end user customer.
This section will not preclude the disclosure by the Parties of
information or material described in this Section to consultants,
agents, or attorneys representing the respective Parties or the
Office of the Public Counsel for the state of Texas, and state
Public Utility Commission or staffs, or FCC Staff, provided that
these
<PAGE>
22
third parties are bound by the same or comparable confidentiality
requirements as the Parties to this Agreement. The provisions of
this Section will remain in effect notwithstanding the termination
of this Agreement, unless agreed to in writing by both Parties.
Pursuant to Section 222 of the Act, both Parties agree to limit
their use of proprietary information received from the other to the
permitted purposes identified in the Act.
XVI. PUBLICITY
The Parties agree not to use in any advertising or sales promotion,
press releases or other publicity matters any endorsements, direct
or indirect quotes, or pictures implying endorsement by the other
Party or any of its employees without such Party's prior written
approval. The Parties will submit to each other for written
approval, prior to publication, all publicity matters that mention
or display one another's name and/or marks or contain language from
which a connection to said name and/or marks may be inferred or
implied.
XVII. ASSIGNMENT
Neither Party may assign, subcontract, or otherwise transfer its
rights or obligations under this Agreement except under such terms
and conditions as are mutually acceptable to the other Party (e.g.,
a conversion charge will apply per billable telephone number) and
with such Party's prior written consent, which consent shall not be
unreasonably withheld. Assignment without consent shall be grounds
for immediate termination of this Agreement.
XVIII. DISPUTE RESOLUTION
A. Finality of Disputes
No claims shall be brought for disputes arising from this
Agreement more than 24 months from the date of occurrence
which gives rise to the dispute. If any portion of an amount
due to SWBT under such agreement is subject to a bona fide
dispute between the Parties, LSP shall within fourteen (14)
days of its receipt of the invoice containing such disputed
amount give notice to SWBT of the amounts it disputes and
include in such notice the specific details and reasons for
disputing each item. LSP shall pay when due (i) all undisputed
amounts to SWBT and (ii) all Disputed Amounts into an interest
bearing escrow account with a third party escrow agent
mutually agreed upon by the Parties.
B. Alternative to Litigation
<PAGE>
23
The Parties desire to resolve disputes arising out of this
Agreement without litigation. Accordingly, except for action
seeking a temporary restraining order or an injunction related
to the purposes of this Agreement, or suit to compel
compliance with this dispute resolution process, the Parties
agree to use the following alternative dispute resolution
procedure as their sole remedy with respect to any controversy
or claim of $25,000 or less, arising out of or relating to
this Agreement or its breach. The procedures hereunder may be
used with disputes for $25,000 or more, if mutually agreeable
to the Parties.
1. Resolution of Disputes Between Parties to the Agreement
At the written request of a Party, each Party will
appoint a knowledgeable, responsible representative to
meet and negotiate in good faith to resolve any dispute
arising under this Agreement. The location, form,
frequency, duration and conclusion of these discussions
shall be left to the discretion of the representatives.
Upon agreement, the representatives may utilize other
alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and
correspondence among the representatives for purposes of
settlement are exempt from discovery and production and
shall not be admissible in the arbitration described
below or in any lawsuit without the concurrence of all
Parties. Documents identified in or provided with such
communications, which are not prepared for purposes of
the negotiations, are not so exempted and, if otherwise
admissible, may be admitted in evidence in the
arbitration or lawsuit.
2. Arbitration
If the negotiations do not resolve the dispute within
thirty (30) days of the initial written request, the
dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. A Party
may demand such arbitration in accordance with the
procedures set out in those rules. Discovery shall be
controlled by the arbitrator and shall be permitted to
the extent set out in this section. Each Party may
submit in writing to a Party, and that Party shall so
respond, to a maximum of any combination of thirty-five
(35) (none of which may have subparts) of the following:
(a) Interrogatories
(b) Demands to produce documents
<PAGE>
24
(c) Requests for admission
Additional discovery may be permitted upon mutual
agreement of the Parties. The arbitration hearing shall
be commenced within thirty (30) days of the demand for
arbitration. If the dispute arises in Texas, the
arbitration shall be held in Dallas, Texas. The
arbitrator shall control the scheduling so as to process
the matter expeditiously. The Parties shall submit
written briefs five days before the hearing. The
arbitrator shall rule on the dispute by issuing a
written opinion within twenty (20) days after the close
of hearings. The arbitrator has no authority to order
punitive or consequential damages. The times specified
in this section may be extended upon mutual agreement of
the Parties or by the arbitrator upon a showing of good
cause. Judgment upon the award rendered by the
arbitrator may be entered in any court having
jurisdiction.
3. Costs
Each Party shall bear its own costs of these procedures.
A Party seeking discovery shall reimburse the responding
Party the costs of production of documents (including
search time and reproduction costs). The Parties shall
equally split the fees of the arbitration and the
arbitrator.
XIX. VERIFICATION REVIEWS
Each Party to this Agreement will be responsible for the accuracy
and quality of its data as submitted to the respective Parties
involved. Upon reasonable written notice, each Party or its
authorized representative (providing such authorized representative
does not have a conflict of interest related to other matters before
one of the Parties) shall have the right to conduct a review and
verification of the other Party to give assurances of compliance
with the provisions of this Agreement. This includes on-site
verification reviews at the other Party's or the Party's vendor
locations.
After the initial year of this Agreement verification reviews will
normally be conducted on an annual basis with provision for staged
reviews, as mutually agreed, so that all subject matters are not
required to be reviewed at the same time. Follow up reviews will be
permitted between annual reviews where significant deviations are
found. During the initial year of the Agreement more frequent
reviews may occur.
The review will consist of an examination and verification of data
involving records, systems, procedures and other information related
to the services performed by either Party as related to settlement
charges or payments made in
<PAGE>
25
connection with this Agreement as determined by either Party to be
reasonably required. Each Party, whether or not in connection with
an on-site verification review, shall maintain reasonable records
for a period of time no less than twenty-four (24) months from the
date such records are created and provide the other Party with
reasonable access to such information as is necessary to determine
amounts receivable or payable under this Agreement.
Each Party's right to access information for verification review
purposes is limited to data not in excess of 24 months in age. Once
specific data has been reviewed and verified, it is unavailable for
future reviews. Any items not reconciled at the end of a review
will, however, be subject to a follow-up review effort. Any
retroactive adjustments required subsequent to previously reviewed
and verified data will also be subject to follow-up review.
Information of either Party involved with a verification review
shall be subject to the nondisclosure terms of this Agreement.
The Party requesting a verification review shall fully bear its
costs associated with conducting the review. The Party being
reviewed will provide access to required information, as outlined in
this Section, at no charge to the reviewing Party. Should the
reviewing Party request information or assistance beyond that
reasonably required to conduct such a review, the Party being
reviewed may, as its option, decline to comply with such request or
may bill actual costs incurred in complying subsequent to the
concurrence of reviewing Party.
XX. COMPLIANCE WITH LAWS
The Parties believe in good faith that the Services to be provided
under this Agreement satisfy the requirements of the Act. In the
event a court or regulatory agency of competent jurisdiction should
determine that modifications of this Agreement are required to bring
the Services being provided hereunder into compliance with the Act,
the affected Party shall promptly give the other Party written
notice of the modifications deemed required. Upon delivery of such
notice, the Parties shall expend diligent efforts to arrive at an
agreement respecting such modifications required, and if the Parties
are unable to arrive at such agreement, either Party may terminate
this Agreement, without penalty, effective the day the affected
Party is ordered to implement the modifications deemed required, or
effective on the day either Party concludes and gives notice that
the Parties will not be able to arrive at any agreement respecting
such modifications, whichever date shall occur earlier.
This Agreement is an integrated package that reflects a balancing of
interests critical to the Parties. It will be submitted to the
applicable state regulatory Commission and the FCC as a compliance
filing, and the Parties will specifically request that the
applicable state regulatory Commission and the FCC refrain from
taking any action to change, suspend or otherwise delay
implementation of the
<PAGE>
26
Agreement. In the event the Commission or the FCC rejects any
portion or provision of this Agreement or subsequently issues a
ruling or order that results in a provision being contrary to law,
or is invalid for any reason, the parties shall continue to be bound
by the terms of this Agreement, insofar as possible, except for the
portion rejected or subsequently determined to be unlawful, invalid,
or unenforceable. In such event, the Parties shall negotiate in good
faith to replace the rejected, unlawful, invalid, or unenforceable
provision and shall not discontinue service to the other Party
during such period if to do so would disrupt existing service being
provided to an end user. So long as the Agreement remains in effect,
the Parties shall not advocate before any legislative, regulatory,
or other public forum that any terms of this specific Agreement be
modified or eliminated. Notwithstanding this mutual commitment,
however, the Parties enter into this Agreement without prejudice to
any positions they have taken previously, or may take in the future
in any legislative, regulatory, or other public forum addressing any
matters, including matters related to the types of arrangements
prescribed by this Agreement.
XXI. CERTIFICATION REQUIREMENTS
LSP warrants that it has obtained all certifications required in
those jurisdictions in which LSP has ordered services pursuant to
this Agreement. Subject to restrictions in Article II.A. (Permitted
Use of Resold Service by LSP and Its End Users), LSP covenants that
any originating service provider utilizing the resold services under
this Agreement has obtained all required certification.
Upon request by any governmental entity, the LSP is required to
provide proof of certification.
XXII. EFFECT OF OTHER AGREEMENTS
The Parties agree that pursuant to the requirements of the
Telecommunications Act of 1996, a Party shall treat the other Party
no less favorably than it treats similarly situated local service
providers with whom such Party has an operational interconnection or
resale agreement which has been approved by the State PUC. If either
Party enters into an agreement (the "Other Agreement") approved by
the Commission pursuant to Section 252 of the Act which provides for
the provision of arrangements covered in this Agreement to another
requesting Telecommunications Carrier, such Party shall make
available to the other Party such arrangements upon the same rates,
terms and conditions as those provided in the Other Agreement.
XXIII. NOTIFICATION
SWBT will notify LSP of any changes in the prices, terms and
conditions under which SWBT offers telecommunications services at
retail to subscribers who are
<PAGE>
27
not telecommunications service providers or carriers, including, but
not limited to, the introduction of any new features, functions,
services, promotions, grandfathering or the discontinuance of
current features or services at the time a tariff filing is
transmitted to the State Commission, or, in situations where a
tariff filing is not so transmitted, within ninety (90) days
(forty-five (45) days for price changes) of the expected effective
date of such change.
With regard to new services, the notification shall advise LSP of
the category in which such new service shall be placed and the
discount applicable to the new service.
SWBT currently uses the Accessible Letter process to notify LSP of
such changes to the services available for resale. Any change to the
process of notification to the LSP will provide no less notice than
the current Accessible Letter process.
XXIV. NOTICES
In the event any notices are required to be sent under the terms of
this Agreement, they shall be sent by registered mail, return
receipt requested to:
To LSP: To SWBT:
Mr. William Rhodes Ezekiel Vaughn
Valu-Line of Longview One Bell Plaza
3301 W. Marshall Room 522
Longview, Texas 75604 Dallas, TX 75202
XXV. BENEFICIARIES
This Agreement shall not provide any nonparty with any remedy,
claim, cause of action or other right.
XXVI. TERM
SWBT and LSP agree that the initial term of this Agreement shall be
for 90 days, and thereafter the Agreement shall continue in force
and effect unless and until terminated as provided herein. Either
Party may terminate this Agreement by providing written notice of
termination to the other Party, at least 60 days in advance of the
date of termination. At the conclusion of the first term, this
Agreement shall continue without interruption unless terminated by
either Party or superseded by a new Agreement between the parties.
By mutual agreement, SWBT and LSP may amend this Agreement to modify
the term of this Agreement. Where LSP has not made arrangements to
provide service over its own facilities to its end users, the
notification and transfer of end user procedures outlined in Article
XII.D.-F. (Termination of service to LSP) shall apply.
<PAGE>
28
XXVII. EFFECTIVE DATE
The effective date of this Agreement shall be ten (10) days after
the date that the appropriate state regulatory Commission approves
this Agreement.
XXVIII. WAIVER
The failure of either Party to enforce or insist that the other
party comply with any of the terms or conditions of this Agreement,
or the waiver by either Party in a particular instance of any of the
terms and conditions of this Agreement, shall not be construed as a
general waiver or relinquishment of the terms and conditions, but
the Agreement shall be and remain at all times in full force and
effect.
XXIX. DISCLAIMER OF WARRANTIES
SWBT MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR INTENDED OR PARTICULAR PURPOSE WITH RESPECT TO SERVICES
PROVIDED HEREUNDER. ADDITIONALLY, SWBT ASSUMES NO RESPONSIBILITY
WITH REGARD TO THE CORRECTNESS OF DATA OR INFORMATION SUPPLIED BY
LSP WHEN THIS DATA OR INFORMATION IS ACCESSED AND USED BY A THIRD
PARTY.
XXX. RELATIONSHIP OF THE PARTIES
This Agreement shall not establish, be interpreted as establishing,
or be used by either Party to establish or to represent their
relationship as any form of agency, partnership or joint venture.
Neither Party shall have any authority to bind the other or to act
as an agent for the other unless written authority, separate from
this Agreement, is provided. Nothing in the Agreement shall be
construed as providing for the sharing of profits or losses arising
out of the efforts of either or both of the Parties. Nothing herein
shall be construed as making either Party responsible or liable for
the obligations and undertakings of the other Party.
XXXI. INTERVENING LAW AND PRESERVATION OF RIGHTS
At the time of execution of this Agreement, SWBT had participated in
Docket Nos. 16189, 16196, 16226, 16285 and 16290 (the "Consolidated
Arbitration") before the Commission. The Parties have included
certain rates, terms and/or conditions in this Agreement which
reflect rates, terms and/or conditions established in the
Consolidated Arbitration and contained in one or more agreements
approved by the Commission. LSP acknowledges that any negotiations,
appeal, stay, injunction or similar proceeding impacting the
<PAGE>
29
applicability of those rates, terms or conditions to other Local
Service Provider(s) will similarly impact the applicability of those
rates, terms or conditions to LSP (Collectively "Appeals"). If LSP
is not eligible to receive one or more rates, terms or conditions at
any time due to such Appeals, the Parties agree that SWBT shall
substitute the most favorable rate(s), terms and conditions
applicable to LSP's activities then in place from an interconnection
agreement which has been approved by the Commission.
Moreover, if the actions of the Texas or federal legislative bodies,
courts or regulatory agencies of competent jurisdiction invalidate,
modify or stay the enforcement of laws or regulations that were the
basis for a provision of the contract which is reflective of the
Consolidated Award, the affected provision shall be invalidated,
modified or stayed. In such event, the Parties shall expend diligent
efforts to arrive at an agreement respecting the modifications to
the Agreement required. If negotiations fail, disputes between the
Parties concerning the interpretation of the actions required or the
provisions affected by such governmental actions shall be resolved
pursuant to the dispute resolution process provided for in this
Agreement. SWBT expressly reserves all of its appellate rights
concerning the above Appeals and does not waive any legal arguments
by executing this Agreement.
XXXII. COMPLETE TERMS
This Agreement, together with its exhibits constitutes the entire
agreement between the Parties and supersedes all prior discussions,
representations or oral understandings reached between the Parties.
The corresponding tariffs and this Agreement (including the
exhibits) contain all of the applicable rates and charges to be paid
by the LSP to SWBT in connection with SWBT's provision of
telecommunications service to LSP for Resale to its end user
customers.
Neither Party shall be bound by any amendment, modification or
additional terms unless it is reduced to writing signed by an
authorized representative of the Party sought to be bound.
By their signatures in the space provided below, LSP and SWBT
indicate their acceptance of this Agreement. This agreement shall
not bind LSP and SWBT until executed by both Parties. This Agreement
will be governed by and interpreted in accordance with the laws of
the State of Texas.
<PAGE>
30
THIS AGREEMENT CONTAINS A BINDING ARBITRATION AGREEMENT.
VALU-LINE OF LONGVIEW, INC. SOUTHWESTERN BELL TELEPHONE
AECN/OCN: ______ COMPANY
/s/ William D. Rhodes, Jr. /s/ Dennis B. Eidson
- ------------------------------ ------------------------------------
Signature Signature
William D. Rhodes, Jr. Dennis B. Eidson
- ------------------------------ ------------------------------------
Printed Name Printed Name
President General Manager - Local [illegilble]
- ------------------------------ ------------------------------------
Position/Title Position/Title
April 15, 1997 April 30, 1997
- ------------------------------ ------------------------------------
Date Date
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT C
PAGE 1 OF 1
SWBT/LSP
M307
APPENDIX RESALE
(STATE)
OS/DA PRICING - BRANDING, RATE & REFERENCE
The following rates will apply for each service element:
- --------------------------------------------------------------------------------
A. CALL BRANDING
An initial non-recurring charge applies per
trunk group for the establishment of LSP
specific Call Branding. A Per Call charge also
applies. When there are subsequent changes to
the branding announcement, an additional
non-recurring charge will also apply per change.
Rate per initial load group $2975.00
Rate per load for Brand change $2975.00
Per Call $ .02
- --------------------------------------------------------------------------------
B. DIRECTORY ASSISTANCE RATE/REFERENCE
INFORMATION
An initial non-recurring charge applies for the
initial load of LSP's DA Services Rate/Reference
Information. An additional non-recurring charge
applies for each subsequent change to
Rate/Reference Information.
Rate per initial load $5100.00
Rate per subsequent rate change $4100.00
Rate per subsequent reference change $4100.00
- --------------------------------------------------------------------------------
C. OPERATOR SERVICES RATE/REFERENCE
INFORMATION
An initial non-recurring charge applies for the
initial load of LSP's Operator Services
Rate/Reference Information. An additional
non-recurring charge applies for each subsequent
change to Rate/Reference Information.
Rate per initial load $5100.00
Rate per subsequent rate change $4100.00
Rate per subsequent reference change $4100.00
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX OSS-RESALE
<PAGE>
2
APPENDIX OSS
ACCESS TO OPERATIONS SUPPORT SYSTEMS FUNCTIONS
1. General Conditions
1.1 This Appendix sets forth the terms and conditions under which SWBT
provides nondiscriminatory access to SWBT's operations support systems
"functions" to LSP for pre-ordering, ordering, provisioning, maintenance /
repair, and billing. Such functions will be made available as described herein
for Resold Services, as provided in this Interconnection Agreement.
1.2 The functions, for Resale, will be accessible via electronic
interface, as described herein, where such functions are available. Manual
access will be available to all pre-ordering, ordering, provisioning, and
billing functions via the Local Service Provider Service Center (LSPSC). Repair
and maintenance functions are available via manual handling by the Local Service
Provider Center (LSPC).
1.3 LSP agrees to utilize SWBT electronic interfaces, as SWBT defines in
its requirements, only for the functions described herein for the purposes of
establishing and maintaining Resale services. LSP agrees that such use will
comply with the summary of SWBT's Operating Practice No. 113, Protection of
Electronic Information, titled Local Service Provider Security Policies and
Guidelines.
1.4 LSP acknowledges and agrees that access to OSS functions will only be
utilized to view an end-user's Customer Proprietary Network Information (CPNI)
under the conditions set forth and agreed to in Exhibit A of this Appendix.
1.5 By utilizing electronic interfaces to access OSS functions, LSP
acknowledges and agrees to perform accurate and correct billing functions that
occur during ordering per the terms of this Agreement. Further, LSP recognizes
that such billing functions for conversion orders require viewing CPNI as
described in 1.4 above. All exception handling must be requested manually from
LSPSC.
1.6 In areas where Resale service order transactions cannot be provided
via an electronic interface for the pre-order, ordering and provisioning
processes, SWBT and LSP will utilize manual processes until such time as the
transactions can be electronically transmitted.
1.7 SWBT will provide a help desk function for electronic system
interfaces.
1.8 SWBT and LSP will jointly establish interface contingency and disaster
recovery plans for the pre-order, ordering and provisioning of Resale services.
1.9 SWBT reserves the right to modify or discontinue the use of any system
or interface as it deems appropriate.
<PAGE>
3
1.10 if LSP elects to utilize industry standardized electronic interfaces
for Resale, SWBT and LSP agree to work together in the Order and Billing Forum
(OBF) and the Telecommunications Industry Forum (TCIF) to establish and conform
to uniform industry standards for electronic interfaces for pre-order, ordering,
and provisioning. Neither Party waives its rights as participants in such forums
in the implementation of the standards. To achieve industry standard system
functionality as quickly as possible, the Parties acknowledge that SWBT may
deploy these interfaces with requirements developed in advance of industry
standards. Thus, subsequent modifications may be necessary to comply with
emerging standards. LSP and SWBT are individually responsible for evaluating the
risk of developing their respective systems in advance of standards and agree to
support their own system modifications to comply with new requirements.
2. Pre-Order
2.1 SWBT will provide access to pre-order functions to support LSP
ordering of Resale services via several electronic interfaces. The Parties
acknowledge that ordering requirements necessitate the use of current, real time
pre-order information to accurately build service orders. The following lists
represent pre-order information that will be available to LSP so that LSP order
requests may be created to comply with SWBT ordering requirements.
2.2 Pre-ordering functions for Resale services will include:
2.2.1 customer name, billing address and residence or business
address, billed telephone numbers and features and services available in the end
office where the customer is provisioned;
2.2.2 features and services to which the customer subscribes (LSP
agrees that LSP's representatives will not access the information specified in
this Subsection until after the customer requests that the customer's local
exchange service provider be changed to LSP and such request complies with
conditions of Exhibit A of this Appendix.)
2.2.3 a telephone number (if the customer does not have one
assigned) with the customer on-line.
2.2.4 if a service call is needed to install the line or service;
2.2.5 information regarding the dispatch / installation schedule, if
applicable;
2.2.6 PIC options for intraLATA toll (when available) and interLATA
toll;
2.2.7 address verification.
2.3. Electronic Access to Pre-Order Functions: Upon request by LSP for
electronic access to pre-ordering functions, SWBT will provide LSP access to one
or more of the following systems:
<PAGE>
4
2.3.1 Residential Easy Access Sales Environment (R-EASE): R-EASE is
an ordering entry system through which SWBT will provide LSP access for the
functions of pre-ordering SWBT's Resale services so long as EASE is utilized to
order SWBT Residential Resale Services.
2.3.2 Business Easy Access Sales Environment (EASE): B-EASE is an
ordering entry system through which SWBT will provide LSP access for the
functions of pre-ordering SWBT's Resale services so long as such access is
utilized to order SWBT's Business Resale Services.
2.3.3 DataGate: DataGate is transaction-based data query system
through which SWBT will provide LSP access for the functions of gathering
pre-ordering information to support industry standardized ordering processes for
Residential and Business Resale services. When ordering Resale services, LSP's
representatives will have access to a pre-order electronic gateway provided by
SWBT for both consumer and business customers that provides real-time access to
SWBT's operations systems. This gateway shall be a Transmission Control
Protocol/Internet Protocol (TCP/IP) gateway and will allow the LSP
representatives to perform the pre-order functions for Resale services, as
described above. SWBT and LSP agree to work together to develop and implement an
electronic communication interface that will replace this initial pre-order
electronic interface consistent with industry standards developed by the OBF and
the TCIF.
2.3.4 VERIGATE is an Access Service Pre-order system that will also
provide access to the pre-ordering functions for Resale Services. VERIGATE may
be used in connection with electronic or manual ordering.
2.4 Other Pre-order Function Availability:
2.4.1 Where due dates are not available electronically, SWBT will
provide LSP with due date interval for inclusion in the service order request.
2.4.2 In addition to electronic interface access to pre-order
information, upon request, SWBT will provide LSP pre-order information in batch
transmission for the purposes of back-up data for periods of system
unavailability. The parties recognize such information must be used to construct
order requests only in exception handling.
3. Ordering/Provisioning
3.1 SWBT will provide access to ordering functions to support LSP
provisioning of Resale services via one or more electronic interfaces. Upon
request for electronic access to ordering functions, SWBT will provide LSP
access to one or more of the following systems or interfaces:
3.1.1 R-EASE is available is available for the generation of
Residential Resale services orders. Ordering Flows will be available via these
systems for the following ordering functions:
<PAGE>
5
Conversion ("as is" or "with changes"); Change (Features, Listings, Long
Distance); New Connect; Disconnect; From and To (change of premises with same
service).
3.1.2 B-EASE is available for the generation of Business Resale
services orders. Ordering Flows will be available via these systems for the
following ordering functions: Conversion ("as is" or "with changes"); Change
(Features, Listings, Long Distance); New Connect; Disconnect; From and To
(change of premises with same service).
3.1.3 SWBT will provide LSP with an Electronic Data Interexchange
(EDI) Interface for transmission of industry-standardized Resale service order
requests in formats as defined by the Ordering and Billing Forum (OBF) and EDI
mapping as defined by TCIF. EDI ordering functionality will be made available as
negotiated and implemented in timeframes mutually acceptable to SWBT and LSP.
3.2 SWBT will provision Resale Services as prescribed in LSP order
requests. Access to status on such orders of Resale services will be provided
via the following electronic interfaces:
3.2.1 Customer Network Administration (CNA) will allow LSP to check
service order status via CNA.
3.2.2 In cases of industry-standardized EDI ordering, SWBT will provide to
LSP an EDI electronic interface for transferring and receiving orders, Firm
Order Confirmation (FOC), service completion, and, as available, other
provisioning data and information. SWBT will provide LSP with a FOC for each
Resale order. The FOC includes but is not necessarily limited to: purchase order
number, telephone number, Local Service Request number, due date, Service Order
number, and completion date. Upon work completion, SWBT will provide LSP with an
855 EDI transaction based Order Completion that states when that order was
completed. When available, SWBT will provide LSP an 865 EDI transaction-based
Order Completion.
3.2.3 A file transmission may be provided to confirm order completions for
R-EASE or B-EASE order processing. This file will provide service order
information of all distributed and completed orders for LSP, regardless of order
entry mechanism.
4. Maintenance/Repair
4.1 Two electronic interfaces are accessible to place, and check the
status of, trouble reports for Resale. Upon request, LSP may access these
functions via the following methods:
4.1.1 CNA system access provides LSP with SWBT software that allows
LSP to submit trouble reports and subsequently check status on trouble reports
for LSP end-users. CNA will provide ability to review the maintenance history of
a converted Resale LSP account.
4.1.2 Electronic Bonding Interface (EBI) is an industry-standardized
interface that is available for trouble report submission and status updates.
This EBI will conform to ANSI standards T1:227:1995 and T1.228:1995, Electronic
Communications Implementation
<PAGE>
6
Committee (ECIC) Trouble Report Format Definition (TFRD) Number 1 as defined in
ECIC document ECIC/TRA/95-003, and all standards referenced within those
documents, as mutually agreed upon by LSP and SWBT. Functions currently
implemented will include Enter Trouble, Request Trouble Report Status, Add
Trouble Information, Modify Trouble Report Attributes, Trouble Report Attribute
Value Change Notification, and Cancel Trouble Report, as explained in 6 and 9 of
ANSI T1.228:l995. LSP. SWBT will exchange requests over a mutually agreeable
X.25-based network.
5. Billing
5.1 SWBT shall bill LSP for resold services. SWBT shall send associated
billing information to LSP as necessary to allow LSP to perform billing
functions. At minimum SWBT will provide LSP billing information in a paper
format or via magnetic tape, as agreed to between LSP and SWBT.
5.2 Upon request, electronic access to billing information for Resale
Services will also be available via the following interfaces:
5.2.1 LSP may receive Bill Plus(TM), an electronic version of their
electronic bill as described in and in accordance with SWBT's Local Exchange
Tariff.
5.2.2 LSP may receive a mechanized bill format via the industry
standards EDI.
5.2.3 LSP may also view billing information through the CNA system.
5.2.4 SWBT shall provide the Usage Billable Records for Resale
Services via EMR industry standard format with a daily feed.
5.2.5 LSP may receive Local Disconnect Report records (via CARE
records) electronically that indicate when LSP's customers change their local
service provider.
6. Remote Access Facility
6.1 LSP must access the following of SWBT's OSS functions via a LSP Remote
Access Facility (LRAF) located in Dallas, Texas: R-EASE, B-EASE, CNA, DATAGATE
and VERIGATE.
6.2 LSP may use three types of access: Switched, Private Line, and Frame
Relay. For Private Line and Frame Relay connections, LSP shall provide its own
router, circuit, and two Channel Service Units/Data Service Units (CSU/DSU). The
demarcation point shall be the router interface at the LRAF. Switched Access
connections require LSP to provide its own modems and connection to the SWBT
LRAF. LSP shall pay the cost of the call if Switched Access is used.
6.3 LSP must use TCP/IP to access SWBT OSS via the LRAF. In addition, each
LSP shall have a valid Internet Protocol (IP) network address. A user-id
/password unique to each
<PAGE>
7
individual accessing an OSS shall be maintained to access any SWBT OSS. Prior to
establishing connectivity and as needed thereafter, LSP must provide estimates
regarding its volume of transactions, number of concurrent users, desired number
of private line or dial-up (switched) connections, and length of a typical
session.
6.4 LSP shall attend and participate in implementation meetings to discuss
LSP LRAF access plans in detail and schedule testing of such connections. SWBT
shall make a Help Desk function available to assist LSP on an ongoing basis in
accessing SWBT OSS's over the LRAF.
7. Operational Readiness Test (ORT) for Ordering/Provisioning
7.1 LSP must participate with SWBT in Operational Readiness Testing (ORT),
which will allow for the testing of the systems, interfaces, and processes for
the ordering and provisioning of Resale services. ORT will be completed in
conformance with agreed upon implementation dates.
8. Rates
8.1 LSP requesting access to one or more of the SWBT OSS functions (i.e.,
preordering, ordering / provisioning, maintenance / repair, billing) agrees to
pay the following rate:
System Access $3,200.00/month
8.2 LSP requesting functions via interfaces that require connection to
the Remote Access Facility, as described in section 6, agrees to pay the
following rate(s) depending upon on method of access utilized:
Remote Access Facility Access Methods
Direct Connection Per Port $1,505.00/month
Dial Up Per Port $ 301.00/month
8.4 LPS requesting the Bill PlusTM, as desribed in 5.2.1, agrees to pay
applicable tariffed rate, less Resale discount.
8.3 LSP requesting the billing function for Usage Billable Records, as
described in 5.2.4, agrees to pay $.003 per message transmitted.
8.4 LSP requesting the Local Disconnect Report, as described in 5.2.5,
agrees to pay $0.10 per record transmitted.
8.4 Should unforeseen modifications and costs to provision OSS functions
become required by SWBT or industry standards, SWBT reserves the right to modify
its rate structure. In addition, should LSP request custom development of an
exclusive interface to support OSS functions, such development will be
considered by SWBT on an Individual Case Basis (ICB) and priced as such.
<PAGE>
8
9. Effective Date, Term
9.1 The Appendix OSS will be effective upon approval by the state
commission when it approves it as a part of the Interconnection Agreement.
9.2 The Term of Appendix OSS will be the shorter of the Term of this
Interconnection Agreement or December 31, 1998. Continuation of Appendix OSS
follows the continuation rules of the Agreement. Should the Interconnection
Agreement establish a new term, the Term of Appendix OSS will be the shorter of
one year, or the new Term of the Interconnection Agreement. Should the term of
the Interconnection Agreement expire without provision for continuance, the Term
of Appendix OSS expires as well.
<PAGE>
Southwestern Bell Telephone Company LSP, Inc.
By: Dennis B. Eidson By: William D. Rhodes, Jr.
-------------------------------------- -------------------------------
(name printed or typed)
Signature: /s/ Dennis B. Eidson Signature: /s/ William D. Rhodes, Jr.
------------------------------- ------------------------
Title: General Manager - Local[illegilble] Title: President
----------------------------------- ----------------------------
(printed or typed) printed or typed)
Date: April 30, 1997 Date: April 15, 1997
------------------------------------ -----------------------------
<PAGE>
Blanket Certification for End-User Authorization for Release of
Customer Proprietary Network Information (CPNI)
The undersigned hereby agrees:
Before it may obtain CPNI of an end-user, whether via an independent request or
in the course of ordering SWBT's Resale services via manual and/or mechanized
interfaces, the undersigned must, at least, certify that "yes" (Y) it has
obtained Authorization for Release of CPNI and provide the name of the
individual authorizing the release of CPNI. By these indications, the
undersigned affirms that a current Authorization for the Release of CPNI has
been obtained from an end-user and that it includes the expressed content of the
language, "Minimum Scope." SWBT may then provide the CPNI referenced herein.
Minimum Scope: Authorization for the release of CPNI
1) An affirmative written request that substantially reflects the
following: "This document serves as instruction to all holders of my
local exchange telecommunications Customer Proprietary Network
Information (CPNI) to provide such information to the undersigned. I
understand that this CPNI includes the following information:
billing name, service address, billing address, service and feature
subscription, directory listing information long distance carrier
identity, and all pending service order acitivity. This
Authorization remains in effect until such time that I revoke it
directly or appoint another individual/company with such capacity or
undersigned receives notice to disconnect my local exchange service
or notice that a service disconnect has been performed. At and from
such time, this Authorization is null and void."
or
2) Authorization for change in local exchange service and release of
CPNI with documentation that adheres to all requirements of state
and federal law, as applicable.
/s/ William D. Rhodes, Jr.
--------------------------
Signed
William D. Rhodes, Jr.
--------------------------
Name (Typed/Printed)
President
--------------------------
Title
Valu-Line of Longview
--------------------------
Company
April 15, 1997
--------------------------
Date
<PAGE>
Exhibit A
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
1
Southwestern Belll's Resale Telecommunications Services * List - Business
Texas
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Business 1 Party 21.6% 21.6%
Business - Multi-Line Hunting 21.6% 21.6%
Business - Measured 21.6% 21.6%
Business - Measured (HTG Class of Service) 21.6% 21.6%
Customer Operated Pay Telephone (COPT) 21.6% 21.6%
EXPANDED LOCAL CALLING
EMS - Optional 21.6% 21.6%
Expanded Local Calling (Mandatory) 21.6% 21.6%
Extended Area Calling Service - Optional 21.6% 21.6%
Mandatory EACS - Hotel/Motel Measured Trunk 21.6% 21.6%
Mandatory EACS - Multi-Line Hunting 21.6% 21.6%
Mandatory EACS - One element measured, 1 -party 21.6% 21.6%
Mandatory EACS - PBX Trunk 21.6% 21.6%
Mandatory Extended Area Calling Service (EACS)- 1 21.6% 21.6%
Party
VERTICAL SERVICES
Anonymous Call Rejection 21.6% 21.6%
Auto Redial 21.6% 21.6%
Auto Redial - Usage Sensitive 21.6% 21.6%
Call Blocker 21.6% 21.6%
Call Forwarding 21.6% 21.6%
Call Forwarding - Busy Line 21.6% 21.6%
Call Forwarding - Busy Line/ Don't Answer 21.6% 21.6%
Call Forwarding - Don't Answer 21.6% 21.6%
Call Return 21.6% 21.6%
Call Return - Usage Sensitive 21.6% 21.6%
Call Trace 21.6% 21.6%
Call Waiting 21.6% 21.6%
Calling Name 21.6% 21.6%
Calling Number 21.6% 21.6%
* Some Services not available in all Areas.
Resale products available subject to state and federal rules, regulations and
tariffs.
3
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
2
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
VERTICAL SERVICES (cont.)
ComCall* 21.6% 21.6%
Personalized Ring (1 dependent number) 21.6% 21.6%
Personalized Ring (2 dependent numbers -1st 21.6% 21.6%
number)
Personalized Ring (2 dependent numbers - 2nd 21.6% 21.6%
number)
Priority Call 21.6% 21.6%
Remote Access to Call Forwarding 21.6% 21.6%
Selective Call Forwarding 21.6% 21.6%
Simultaneous Call Forwarding 21.6% 21.6%
Speed Calling 8 21.6% 21.6%
Speed Calling 30 21.6% 21.6%
Three Way Calling 21.6% 21.6%
DID
DID (First Block of 100- Category 1) 21.6% 21.6%
DID (First Block of 10- Category 1) 21.6% 21.6%
DID (Ea. adl. block of 10 after first 10- Category 1) 21.6% 21.6%
DID (Ea. adl. block of 100 after first 100- Category 2) 21.6% 21.6%
DID (Ea. adl. block of 10 assigned over 1st 100- 21.6% 21.6%
Category 2)
DID (with dial pulse) 21.6% 21.6%
DID (with Multifrequency) 21.6% 21.6%
DID (with Dual-Tone Multifrequency) 21.6% 21.6%
DID (1st 10 Trunks or access lines) 21.6% 21.6%
DID (11th thru 50th trunk or network access line) 21.6% 21.6%
DID (51st trunk or network access line) 21.6% 21.6%
TRUNKS
Trunk 21.6% 21.6%
AIN
Area Wide Networking 21.6% 21.6%
Caller Intellidata (R) 21.6% 21.6%
Disaster Routing Service 21.6% 21.6%
Intelligent Redirect TM 21.6% 21.6%
IntelliNumber 21.6% 21.6%
Positive ID 21.6% 21.6%
4
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
3
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
OTHER
Customer Alerting Enablement 21.6% 21.6%
Grandfathered Services 21.6% 21.6%
Hot Line 21.6% 21.6%
Hunting 21.6% 21.6%
Local Operator Assistance Service 21.6% 21.6%
Night Number associated with Telephone Number 21.6% 21.6%
Night Number associated with a Terminal 21.6% 21.6%
Bundled Telecommunications Services (e.g., the 21.6% 21.6%
Works)
Promotions (Greater than 90 days) 21.6% 21.6%
Telebranch (R) 21.6% 21.6%
Touch Tone (Business) 21.6% 21.6%
Touch Tone (Trunk) 21.6% 21.6%
Voice Dial 21.6% 21.6%
Warm Line 21.6% 21.6%
ISDN
Digiline (SM) 21.6% 21.6%
Select Video Plus (R) 21.6% 21.6%
Smart Trunk (SM) 21.6% 21.6%
DIRECTORY ASSISTANCE SERVICES 21.6% 21.6%
TOLL
900/976 Call Restriction 21.6% 21.6%
IntraLATA MTS 21.6% 21.6%
MaxiMizer 800 (R) 21.6% 21.6%
OutWATS 21.6% 21.6%
PLEXAR (R)
Plexar I (R) 21.6% 21.6%
Plexar II (R) 21.6% 21.6%
* Some Services not available in all Areas.
5
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
4
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
PRIVATE LINE
Analog Private Lines 21.6% 21.6%
Business Video Service 21.6% 21.6%
DOVLink 21.6% 21.6%
Frame Relay 21.6% 21.6%
MegaLink I (R) 21.6% 21.6%
MegaLink II (R) 21.6% 21.6%
MegaLink III (R) 21.6% 21.6%
MicroLink I (R) 21.6% 21.6%
Network Reconfiguration Service 21.6% 21.6%
* Some Services not available in all Areas.
6
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
5
Southwestern Bell's Resale Telecommunications Services * List - Residence
Texas
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
LOCAL EXCHANGE SERVICE
Life Line and Link Up America Services 21.6% 21.6%
Residence 1 Party 21.6% 21.6%
Residence Measured 21.6% 21.6%
EXPANDED LOCAL CALLING
Expanded Local Calling (Mandatory) 21.6% 21.6%
Mandatory Extended Area Calling Service (EACS)- 21.6% 21.6%
1 Party
Mandatory EACS - One element measured, 1 Party 21.6% 21.6%
EMS - Optional 21.6% 21.6%
Extended Area Calling Service - Optional 21.6% 21.6%
VERTICAL SERVICES
Anonymous Call Rejection 21.6% 21.6%
Auto Redial 21.6% 21.6%
Auto Redial - Usage Sensitive 21.6% 21.6%
Call Blocker 21.6% 21.6%
Call Forwarding 21.6% 21.6%
Call Forwarding - Busy Line 21.6% 21.6%
Call Forwarding - Busy Line/Don't Answer 21.6% 21.6%
Call Forwarding - Don't Answer 21.6% 21.6%
Call Return 21.6% 21.6%
Call Return - Usage Sensitive 21.6% 21.6%
Call Trace 21.6% 21.6%
Call Waiting 21.6% 21.6%
Calling Name 21.6% 21.6%
Calling Number 21.6% 21.6%
ComCall (R) 21.6% 21.6%
Personalized Ring (1 dependent number) 21.6% 21.6%
Personalized Ring (2 dependent numbers - 1st 21.6% 21.6%
number)
Personalized Ring (2 dependent numbers - 2nd 21.6% 21.6%
number)
Priority Call 21.6% 21.6%
Remote Access to Call Forwarding 21.6% 21.6%
Selective Call Forwarding 21.6% 21.6%
Simultaneous Call Forwarding 21.6% 21.6%
* Some Services not available in all Areas
7
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT A
6
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
VERTICAL SERVICES (cont.)
Speed Calling 8 21.6% 21.6%
Three Way Calling 21.6% 21.6%
DIRECTORY ASSISTANCE SERVICES 21.6% 21.6%
ISDN
Digiline (SM) 21.6% 21.6%
OTHER
Customer Alerting Enablement 21.6% 21.6%
Grandfathered Services 21.6% 21.6%
Hot Line 21.6% 21.6%
Local Operator Assistance Service 21.6% 21.6%
Bundled Telecommunications Services (e.g., the 21.6% 21.6%
Works)
Promotions (Greater than 90 days) 21.6% 21.6%
Preferred Number Service 21.6% 21.6%
TouchTone 21.6% 21.6%
Voice Dial 21.6% 21.6%
Warm Line 21.6% 21.6%
TOLL
900/976 Call Restriction 21.6% 21.6%
Home 800 (SM) 21.6% 21.6%
IntraLATA MTS 21.6% 21.6%
* Some Services not available in all Areas.
8
<PAGE>
Exhibit B
9
<PAGE>
RESALE AGREEMENT (TEXAS) - EXHIBIT B
1
Southwestern Belll's Resale Other Services * List
Texas
RESALE DISCOUNTS
RECURRING NON-RECURRING
--------- -------------
Additional Directory Listings 21.6% 21.6%
Distance Learning 21.6% 21.6%
Toll Restriction 21.6% 21.6%
Bill Plus 5% 5%
Consolidated Billing 5% 5%
Access Services 0% 0%
Cellular Mobile Telephone interconnection Services 0% 0%
Company Initiated Suspension Service 0% 0%
Construction Charges 0% 0%
Customer Initiated Suspension Service 0% 0%
Exchange Connection Service 0% 0%
Connections with Terminal Equipment and 0% 0%
Communications Equipment
Maintenance of Service Charges 0% 0%
Telecommunications Service Priority Systems 0% 0%
Shared Tenant Service 0% 0%
976 Information Delivery Service 0% 0%
10
<PAGE>
RESALE AGREEMENT
BETWEEN
GTE SOUTHWEST INCORPORATED
AND
VALU-LINE LONG DISTANCE
<PAGE>
TABLE OF CONTENTS
ARTICLE I
SCOPE AND INTENT OF AGREEMENT ...................................... I-1
ARTICLE II
DEFINITIONS ........................................................ II-1
1. General Definitions ................................................ II-1
1.1 "Act" ........................................................ II-1
1.2 "Applicable Law" ............................................. II-1
1.3 "Bona Fide Request (BFR)" .................................... II-1
1.4 "Business Day" ............................................... II-1
1.5 "Centralized Message Distribution System" (CMDS) ............. II-1
1.6 "Commission" ................................................. II-1
1.7 "Competitive Local Exchange Carrier" (CLEC) .................. II-1
1.8 "compliance" ................................................. II-1
1.9 "Customer" ................................................... II-1
1.10 "Customer Usage Data" ........................................ II-1
1.11 "EMR" ........................................................ II-1
1.12 "E-911 Service" .............................................. II-2
1.13 "Exchange Service" ........................................... II-2
1.14 "FCC" ........................................................ II-2
1.15 generator .................................................... II-2
1.16 "GTOC" ....................................................... II-2
1.17 "Guide" ...................................................... II-2
1.18 hazardous chemical ........................................... II-2
1.19 hazardous waste .............................................. II-2
1.20 imminent danger .............................................. II-2
1.21 "Incumbent Local Exchange Carrier" (ILEC) .................... II-2
1.22 "Interim Number Portability (INP)" ........................... II-2
1.23 "IXC" or "Interexchange Carrier" ............................. II-2
1.24 "Line Information Data Base (LIBD)"........................... II-3
1.25 "Local Exchange Carrier" or "LEC" ............................ II-3
1.26 "Local Number Portability (LNP)" ............................. II-3
1.27 "Local Traffic" .............................................. II-3
1.28 "NANP" ....................................................... II-3
1.29 "Numbering Plan Area" or "NPA" ............................... II-3
1.30 "NXX", "NXX Code", "Central Office Code" or "CO Code" ........ II-3
1.31 "911 Service" ................................................ II-3
1.32 owner and operator ........................................... II-3
1.33 "Provider" ................................................... II-3
1.34 spill or release ............................................. II-3
1.35 "Subsidiary" ................................................. II-4
1.36 "Telecommunications Services" ................................ II-4
1.37 third party contamination .................................... II-4
1.38 Undefined Terms .............................................. II-4
1.39 "Vertical Features" (Including "CLASS Features") ............. II-4
ARTICLE III
GENERAL PROVISIONS ................................................. III-1
-i-
<PAGE>
1. Scope of General Provisions ....................................... III-1
2. Term and Termination
2.1 Term ........................................................ III-1
2.2 Post-Termination Arrangements ............................... III-1
2.3 Termination Upon Default .................................... III-1
2.4 Termination Upon Sale ....................................... III-I
2.5 Liability Upon Termination .................................. III-1
3. Amendments ........................................................ III-2
4. Assignment ........................................................ III-2
5. Authority ......................................................... III-2
6. Responsibility for Payment ........................................ III-2
7. Billing and Payment ............................................... III-2
7.1 Dispute ..................................................... III-2
7.2 Late Payment Charge ......................................... III-2
7.3 Due Date .................................................... III-2
7.4 Audits ...................................................... III-2
8. Binding Effect .................................................... III-2
9. Compliance with Laws and Regulations .............................. III-3
10. Confidential Information .......................................... III-3
10.1 Identification .............................................. III-3
10.2 Handling .................................................... III-3
10.3 Exceptions .................................................. III-3
10.4 Survival .................................................... III-4
11. Consent ........................................................... III-4
12. Cooperation on Fraud Minimization ................................. III-4
13. Dispute Resolution ................................................ III-4
13.1 Alternative to Litigation ................................... III-4
13.2 Negotiations ............................................... III-4
13.3 Arbitration ................................................. III-4
13.4 Expedited Arbitration Procedures ............................ III-5
13.5 Costs ....................................................... III-5
13.6 Continuous Service .......................................... III-5
14. Entire Agreement .................................................. III-5
15. Expenses .......................................................... III-5
16. Force Majeure ..................................................... III-5
17. Good Faith Performance ............................................ III-5
-ii-
<PAGE>
18. Governing Law ..................................................... III-6
19. GTE Standard Practices ............................................ III-6
20. Headings .......................................................... III-6
21. Independent Contractor Relationship ............................... III-6
22. Law Enforcement Interface ......................................... III-6
23. Liability and Indemnity ........................................... III-6
23.1 Indemnification ............................................. III-6
23.2 End User and Content-Related Claims ......................... III-6
23.3 DISCLAIMER .................................................. III-7
23.4 Limitation of Liability ..................................... III-7
23.5 Intellectual Property ....................................... III-7
24. Multiple Counterparts ............................................. III-7
25. No Offer .......................................................... III-7
26. No Third Party Beneficiaries ...................................... III-7
27. Notices ........................................................... III-7
28. Protection ........................................................ III-8
28.1 Impairment of Service ....................................... III-8
28.2 Resolution .................................................. III-8
29. Publicity ......................................................... III-8
30. Regulatory Agency Control ......................................... III-8
31. Changes in Legal Requirements ..................................... III-8
32. Effective Date .................................................... III-9
33. Regulatory Matters ................................................ III-9
34. Rule of Construction .............................................. III-9
35. Section References ................................................ III-9
36. Service Standards ................................................. III-9
36.1 .............................................................. III-9
36.2 .............................................................. III-9
36.3 .............................................................. III-9
36.4 .............................................................. III-9
37. Severability ...................................................... III-9
38. Subcontractors .................................................... III-9
-iii-
<PAGE>
39. Subsequent Law ..................................................... III-9
40. Taxes .............................................................. III-10
41. Trademarks and Trade Names ......................................... III-10
42. Waiver ............................................................. III-10
43. Amendment of Certain Rates ......................................... III-10
ARTICLE IV
GENERAL RULES GOVERNING RESOLD SERVICES ........................... IV-1
1. General ........................................................... IV-1
2. Liability of GTE .................................................. IV-1
2.1 Inapplicability of Tariff Liability ......................... IV-1
2.2 Valu-Line Tariffs or Contracts .............................. IV-1
2.3 No Liability for Errors ..................................... IV-1
3. Unauthorized Changes .............................................. IV-1
3.1 Procedures .................................................. IV-1
3.2 Option to Restrict Changes Without Evidence of
Authorization ............................................... IV-2
4. Impact of Payment of Charges on Service ........................... IV-2
5. Unlawful Use of Service ........................................... IV-2
6. Timing of Messages ................................................ IV-3
7. Procedures For Preordering, Ordering, Provisioning, Etc. .......... IV-3
8. Customer Contacts ................................................. IV-3
ARTICLE V
RESALE OF SERVICES ................................................ V-I
1. General ........................................................... V-I
2. Terms and Conditions .............................................. V-I
2.1 Quality and Performance ..................................... V-I
2.2 Restrictions on Resale ...................................... V-I
2.3 Restrictions on Discount of Retail Services ................. V-I
2.4 Resale to Other Carriers .................................... V-2
3. Ordering and Billing .............................................. V-2
3.1 Local Service Request ....................................... V-2
3.2 Certificate of Operating Authority .......................... V-2
3.3 Letter of Authorization ..................................... V-2
3.4 Directory Assistance Listings ............................... V-2
3.5 Nonrecurring Charges ........................................ V-2
3.6 Transfers Between Valu-Line and Another Reseller of
GTE Services ................................................ V-2
3.7 Local Calling Detail ........................................ V-2
-iv-
<PAGE>
3.8 Procedures .................................................... V-2
3.9 LIDB .......................................................... V-2
3.10 "OLN" ......................................................... V-2
4. Maintenance ......................................................... V-3
4.1 Maintenance, Testing and Repair ............................... V-3
4.2 Specifics and Procedures for Maintenance ...................... V-3
5. Services Available for Resale ....................................... V-3
5.1 Description of Local Exchange Services Available for Resale ... V-3
5.2 List of Services Available for Resale ......................... V-3
5.3 Rates ......................................................... V-3
5.4 Grandfathered Services ........................................ V-4
5.5 Access ........................................................ V-4
5.6 Operator Services (OS) and Directory Assistance (DA) .......... V-4
ARTICLE VI
ADDITIONAL SERVICES AND COORDINATED SERVICE ARRANGEMENTS ............ VI-1
1. Bona Fide Request Process ........................................... VI-1
1.1 Intent ........................................................ VI-1
1.2 Process ....................................................... VI-1
2. Transfer of Service Announcements ................................... VI-1
3. Misdirected Calls ................................................... VI-1
3.1 ............................................................... VI-2
3.2 ............................................................... VI-2
4. 911/E911 Arrangements ............................................... VI-2
4.1 Description of Service ........................................ VI-2
4.2 Cooperation and Level of Performance .......................... VI-2
4.3 Updates to MSAG ............................................... VI-2
4.4 Updates to Database ........................................... VI-2
4.5 Compensation .................................................. VI-2
4.6 Liability ..................................................... VI-2
5. Information Services Traffic ........................................ VI-2
5.1 Blocking ...................................................... VI-2
6. Directory Assistance Listings Information ........................... VI-3
6.1 ............................................................... VI-3
6.2 ............................................................... VI-3
6.3 ............................................................... VI-3
7. Directory Listings and Directory Distribution ....................... VI-3
8. Busy Line Verification and Busy Line Verification Interrupt ......... VI-3
9. SAG ............................................................... VI-4
10. Dialing Format Changes .............................................. VI-4
-v-
<PAGE>
11. Operational Support Systems (OSS) ................................... VI-4
APPENDIX A
SERVICES AVAILABLE FOR RESALE ....................................... A-I
APPENDIX B
SERVICE ORDERING, PROVISIONING, BILLING AND MAINTENANCE ............. B-I
APPENDIX 43A ............................................................. C-I
APPENDIX 43B ............................................................. D-l
-vi-
<PAGE>
This Resale Agreement (the "Agreement"), is made effective as of _______, 199__,
by and between GTE Southwest Incorporated, with its address for purposes of this
Agreement at 600 Hidden Ridge Drive, Irving, Texas 75038 ("GTE"), and Valu-Line
Long Distance, in its capacity as a certified provider of local dial-tone
service ("Valu-Line"), with its address for this Agreement at Attention: William
D. Rhodes, Jr., 3301 W. Marshall Avenue, P.O. Box 3707, Longview, Texas 75606
(GTE and Valu-Line being referred to collectively as the "Parties" and
individually as a "Party"). This Agreement covers services in the state of Texas
only (the "State").
WHEREAS, Section 251 of the Telecommunications Act of 1996 (the "Act") imposes
specific obligations on LECs with respect to the interconnection of their
networks, resale of their telecommunications services, access to their poles,
ducts, conduits and rights-of-way and, in certain cases, the offering of certain
unbundled network elements and physical collocation of equipment in LEC
premises;
WHEREAS, GTE is entering, under protest, into certain aspects of this Agreement
that incorporate adverse results from the arbitrated agreements approved or
which may be approved by the Commission in this state and is doing so in order
to avoid the expense of arbitration while at the same time preserving its legal
positions, rights and remedies.
NOW, THEREFORE, in consideration of the mutual provisions contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, GTE and Value-Line hereby covenant and agree as follows:
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ARTICLE I
SCOPE AND INTENT OF AGREEMENT
This Agreement governs the purchase by Valu-Line of certain telecommunications
services provided by GTE in its franchise areas for resale by Valu-Line. This
Agreement is an integrated package that reflects a balancing of interests
critical to the Parties. This Agreement will be submitted to the Texas Public
Utility Commission (the "Commission") for approval. The Parties agree that their
entrance into this Agreement is without prejudice to and does not waive any
positions they may have taken previously, or may take in the future, in any
legislative, regulatory, judicial or other public forum addressing any matters,
including matters related to the same types of arrangements covered in this
Agreement.
The services and facilities to be provided to Valu-Line by GTE in satisfaction
of this Agreement may be provided pursuant to GTE tariffs and then current
practices. Should such services and facilities be modified by tariff or by
Order, including any modifications resulting from other Commission proceedings,
federal court review or other judicial action, such modifications will be deemed
to automatically supersede any rates and terms and conditions of this Agreement.
GTE will provide notification to Valu-Line before such a tariff becomes
effective, and Valu-Line may provide input on such proposed tariff. The Parties
shall cooperate with one another for the purpose of incorporating required
modifications into this agreement.
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ARTICLE II
DEFINITIONS
1. General Definitions. Except as otherwise specified herein, the following
definitions shall apply to all Articles and Appendices contained in this
Agreement. Additional definitions that are specific to the matters
covered in a particular Article may appear in that Article. To the
extent that there may be any conflict between a definition set forth in
this Article II and any definition in a specific Article or Appendix,
the definition set forth in the specific Article or Appendix shall
control with respect to that Article or Appendix.
1.1 "Act" means the Telecommunications Act of 1996, Public Law 104-104 of
the 104th United States Congress effective February 8,1996.
1.2 "Applicable Law" shall mean all laws, statutes, common law, regulations,
ordinances, codes, rules, guidelines, orders, permits, and approvals of
any Governmental Authority, which apply or relate to the subject matter
of this Agreement.
1.3 "Bona Fide Request (BFR)" process is intended to be used when requesting
customized Service Orders for certain services, features, capabilities
or functionality defined and agreed upon by the Parties as services to
be ordered as Bona Fide Requests.
1.4 "Business Day" shall mean Monday through Friday, except for holidays on
which the U.S. mail is not delivered.
1.5 "Centralized Message Distribution System" (CMDS) means the billing
record and clearing house transport system that the Regional Bell
Operating Companies ("RBOCs") and other incumbent LECs use to
efficiently exchange out collects and in collects as well as Carrier
Access Billing System ("CABS") records.
1.6 "Commission" means the Texas Public Utility Commission.
1.7 "Competitive Local Exchange Carrier" (CLEC) means any company or person
authorized to provide local exchange services in competition with an
Incumbent Local Exchange Carrier ("ILEC").
1.8 "compliance" means environmental and safety laws and regulations are
based upon a federal regulatory framework, with certain responsibilities
delegated to the States. An environmental/safety compliance program may
include review of applicable laws/regulations, development of written
procedures, training of employees and auditing.
1.9 "Customer" may mean GTE or Valu-Line depending on the context and which
Party is receiving the service from the other Party.
1.10 "Customer Usage Data" means that the local telecommunications services
usage data of a Valu-Line customer, measured in minutes, sub-minute
increments, message units, or otherwise, that is recorded and exchanged
by the Parties.
1.11 "EMR" means the Exchange Message Record which is an industry standard
record used to exchange telecommunications message information among
CLECs for billable, non-billable, sample, settlement and study data. EMR
format is defined in BR-010-200-010 CRIS Exchange Message Record,
published by Bellcore and which defines the industry standard for
exchange message records.
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1.12 "E-911 Service" is a method of routing 911 calls to a Public Service
Answering Point that uses a customer location database to determine the
location to which a call should be routed. E-9-1-1 service includes the
forwarding of the caller's Automatic Number Identification (ANI) to the
PSAP where the ANI is used to retrieve and display the Automatic
Location Identification (ALI) on a terminal screen at the answering
Attendant's position. It usually includes selective routing.
1.13 "Exchange Service" refers to all basic access line services, or any
other services offered to end users which provide end users with a
telephonic connection to, and a unique telephone number address on, the
public switched telecommunications network ("PSTN"), and which enable
such end users to place or receive calls to all other stations on the
PSTN.
1.14 "FCC" means the Federal Communications Commission.
1.15 generator means under Resource Conservation Recovery Act (RCRA), the
person whose act produces a hazardous waste (40 CFR 261) or whose act
first causes a hazardous waste to become subject to regulation. The
generator is legally responsible for the proper management and disposal
of hazardous wastes in accordance with regulations.
1.16 "GTOC" means GTE Telephone Operating Company.
1.17 "Guide" means the GTE Open Market Transition Order/Processing Guide/ALEC
Customer Guide, which contains GTE's operating procedures for ordering,
provisioning, trouble reporting and repair for resold services and
unbundled elements. Except as specifically provided otherwise in this
Agreement, service ordering, provisioning, billing and maintenance shall
be governed by the "Guide" which may be amended from time to time by GTE
as needed. A copy has been provided to Valu-Line and is incorporated by
reference into this Agreement.
1.18 hazardous chemical means as defined in the U.S. Occupational Safety and
Health (OSHA) hazard communication standard (29 CFR 1910.1200), any
chemical which is a health hazard or physical hazard.
1.19 hazardous waste means as described in RCRA, a solid waste(s) which may
cause, or significantly contribute to an increase in mortality or
illness or pose a substantial hazard to human health or the environment
when improperly treated, stored, transported or disposed of or otherwise
managed because of its quantity, concentration or physical or chemical
characteristics.
1.20 imminent danger means as described in the Occupational Safety and Health
Act and expanded for environmental matters, any conditions or practices
at a facility which are such that a danger exists which could reasonably
be expected to cause death or serious harm or significant damage to the
environment or natural resources.
1.21 "Incumbent Local Exchange Carrier" (ILEC) means any local exchange
carrier that was as of February 8, 1996, deemed to be a member of the
Exchange Carrier Association as set forth in 47 C.F.R. ss.69.601(b) of
the FCC's regulations.
1.22 "Interim Number Portability (INP)" means the delivery of LNP
capabilities, from a customer standpoint in terms of call completion,
with as little impairment of functioning, quality, reliability, and
convenience as possible and from a carrier standpoint in terms of
compensation, through the use of existing and available call routing,
forwarding, and addressing capabilities.
1.23 "IXC" or "Interexchange Carrier" means a telecommunications service
provider authorized by the FCC to provide interstate long distance
communications services between LATAs and are authorized by the State to
provide inter- and/or intraLATA long distance communications services
within the State.
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1.24 "Line Information Data Base (LIDB)" means one or all, as the context may
require, of the Line Information databases owned individually by GTE and
other entities which provide, among other things, calling card
validation functionality for telephone line number cards issued by GTE
and other entities. A LIDB also contains validation data for collect and
third number-billed calls; i.e., Billed Number Screening.
1.25 "Local Exchange Carrier" or "LEC" means any company certified by the
Commission to provide local exchange telecommunications service. This
includes the Parties to this Agreement.
1.26 "Local Number Portability (LNP)" means the ability of users of
telecommunications services to retain, at the same location, existing
telecommunications numbers without impairment of quality, reliability,
or convenience when switching from one telecommunications carrier to
another.
1.27 "Local Traffic" means traffic that is originated by an end user of one
Party and terminates to the end user of the other Party within GTE's
then current local serving area, including mandatory local calling scope
arrangements. A mandatory local calling scope arrangement is an
arrangement that provides end users a local calling scope, Extended Area
Service ("EAS"), beyond their basic exchange serving area. Local Traffic
does not include optional local calling scopes (i.e., optional rate
packages that permit the end user to choose a local calling scope beyond
their basic exchange serving area for an additional fee), referred to
hereafter as "optional EAS".
1.28 "NANP" means the "North American Numbering Plan", the system of
telephone numbering employed in the United States, Canada, and the
Caribbean countries that employ NPA 809.
1.29 "Numbering Plan Area" or "NPA" is also sometimes referred to as an area
code. This is the three digit indicator which is defined by the "A",
"B", and "C" digits of each 10-digit telephone number within the NANP.
Each NPA contains 800 possible NXX Codes. There are two general
categories of NPA, "Geographic NPAs" and "Non-Geographic NPAs". A
Geographic NPA is associated with a defined geographic area, and all
telephone numbers bearing such NPA are associated with services provided
within that geographic area. A Non-Geographic NPA, also known as a
"Service Access Code" or "SAC Code" is typically associated with a
specialized telecommunications service which may be provided across
multiple geographic NPA areas. 800, 900, 700, and 888 are examples of
Non-Geographic NPAs.
1.30 "NXX", "NXX Code", "Central Office Code" or "CO Code" is the three digit
switch entity indicator which is defined by the "D", "E", and "F" digits
of a 10-digit telephone number within the NANP. Each NXX Code contains
10,000 station numbers. Historically, entire NXX code blocks have been
assigned to specific individual local exchange end office switches.
1.31 "911 Service" means a universal telephone number which gives the public
direct access to the PSAP. Basic 911 service collects 911 calls from one
or more local exchange switches that serve a geographic area. The calls
are then sent to the correct authority designated to receive such calls.
1.32 owner and operator means as used in OSHA regulations, owner is the legal
entity, including a lessee, which exercises control over management and
record keeping functions relating to a building or facility. As used in
the Resource Conservation and Recovery Act (RCRA), operator means the
person responsible for the overall (or part of the) operations of a
facility.
1.33 "Provider" may mean GTE or Valu-Line depending on the context and which
Party is providing the service to the other Party.
1.34 spill or release means as described under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), it
includes, but is not limited to: spilling, leaking,
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dumping or disposing into the environment of any hazardous chemical,
extremely hazardous substance or CERCLA hazardous substance.
1.35 "Subsidiary" of a Party means a corporation or other legal entity that
is majority owned by such Party.
1.36 "Telecommunications Services" means the offering of telecommunications
for a fee directly to the public, or to such classes of users as to be
effectively available directly to the public, regardless of the
facilities used.
1.37 third party contamination means environmental pollution that is not
generated by the LEC or Valu-Line but results from off-site activities
impacting a facility.
1.38 Undefined Terms means the Parties acknowledge that terms may appear in
this Agreement which are not defined and agree that any such terms shall
be construed in accordance with their customary usage in the
telecommunications industry as of the effective date of this Agreement.
1.39 "Vertical Features" (including "CLASS Features") means vertical services
and switch functionalities provided by GTE, including: Automatic Call
Back; Automatic Recall; Call Forwarding Busy Line/Don't Answer; Call
Forwarding Don't Answer; Call Forwarding Variable; Call Forwarding -
Busy Line; Call Trace; Call Waiting; Call Number Delivery Blocking Per
Call; Calling Number Blocking Per Line; Cancel Call Waiting; Distinctive
Ringing/Call Waiting; Incoming Call Line Identification Delivery;
Selective Call Forward; Selective Call Rejection; Speed Calling; and
Three Way Calling/Call Transfer.
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<PAGE>
ARTICLE III
GENERAL PROVISIONS
1. Scope of General Provisions. Except as may otherwise be set forth in a
particular Article or Appendix of this Agreement, in which case the
provisions of such Article or Appendix shall control, these General
Provisions apply to all Articles and Appendices of this Agreement.
2. Term and Termination.
2.1 Term. Subject to the termination provisions contained in this Agreement,
the term of this Agreement shall be two (2) years from the effective
date referenced in the first paragraph of this Agreement and shall
continue in effect for consecutive one (1) year terms until either Party
gives the other Party at least ninety (90) calendar days written notice
of termination, which termination shall be effective at the end of the
then-current term. In the event notice is given less than 90 calendar
days prior to the end of the current term, this Agreement shall remain
in effect for 90 calendar days after such notice is received, provided,
that in no case shall the term be extended beyond 90 calendar days after
the end of the current term.
2.2 Post-Termination Arrangements. Except in the case of termination as a
result of either Party's default or a termination upon sale, for service
arrangements made available under this Agreement and existing at the
time of termination, those arrangements may continue without
interruption (a) under a new agreement voluntarily executed by the
Parties; (b) standard terms and conditions approved and made generally
effective by the Commission, if any; (c) tariff terms and conditions
made generally available to all CLECs; or (d) any rights under Section
252(i) of the Act.
2.3 Termination Upon Default. Either Party may terminate this Agreement in
whole or in part in the event of a default by the other Party; provided
however, that the non-defaulting Party notifies the defaulting party in
writing of the alleged default and that the defaulting Party does not
cure the alleged default within sixty (60) calendar days of receipt of
written notice thereof. Default is defined to include:
(a) A Party's insolvency or the initiation of bankruptcy or
receivership proceedings by or against the Party; or
(b) A Party's refusal or failure in any material respect properly to
perform its obligations under this Agreement, or the violation
of any of the material terms or conditions of this Agreement.
2.4 Termination Upon Sale. Notwithstanding anything to the contrary
contained herein, a Party may terminate this Agreement as to a specific
operating area or portion thereof of such Party if such Party sells or
otherwise transfers the area or portion thereof. The Party shall provide
the other Party with at least ninety (90) calendar days' prior written
notice of such termination, which shall be effective on the date
specified in the notice. Notwithstanding termination of this Agreement
as to a specific operating area, this Agreement shall remain in full
force and effect in the remaining operating areas.
2.5 Liability upon Termination. Termination of this Agreement, or any part
hereof, for any cause shall not release either Party from any liability
which at the time of termination had already accrued to the other Party
or which thereafter accrues in any respect to any act or omission
occurring prior to the termination or from an obligation which is
expressly stated in this Agreement to survive termination.
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3. Amendments. Any amendment, modification, or supplement to this Agreement
must be in writing and signed by an authorized representative of each
Party. The term "this Agreement" shall include future amendments,
modifications, and supplements.
4. Assignment. Any assignment by either Party of any right, obligation, or
duty, in whole or in part, or of any interest, without the written
consent of the other Party shall be void, except that either Party may
assign all of its rights, and delegate its obligations, liabilities and
duties under this Agreement, either in whole or in part, to any entity
that is, or that was immediately preceding such assignment, a Subsidiary
or Affiliate of that Party without consent, but with written
notification. The effectiveness of an assignment shall be conditioned
upon the assignee's written assumption of the rights, obligations, and
duties of the assigning Party.
5. Authority. Each person whose signature appears on this Agreement
represents and warrants that he or she has authority to bind the Party
on whose behalf he or she has executed this Agreement.
6. Responsibility for Payment. All charges for Services provided under this
Agreement will be billed to Valu-Line, including all applicable taxes
and surcharges. In addition, the End User Common Line (EUCL) Charge from
GTOC Tariff FCC No. 1 is applicable to Resold Services. Valu-Line is
responsible for payment of charges billed regardless of any billing
arrangements or situation between Valu-Line and its end user customer.
7. Billing and Payment. Except as provided elsewhere in this Agreement,
Valu-Line and GTE agree to exchange all information to accurately,
reliably, and properly bill for features, functions and services
rendered under this Agreement.
7.1 Dispute. If one Party disputes a billing statement issued by the other
Party, the billed Party shall notify Provider in writing regarding the
nature and the basis of the dispute within sixty (60) calendar days of
the statement date or the dispute shall be waived. The Parties shall
diligently work toward resolution of all billing issues.
7.2 Late Payment Charge. If any undisputed amount due on the billing
statement is not received by Provider on the payment due date, Provider
may charge, and Customer agrees to pay, at Provider's option, interest
on the past due balance at a rate equal to the lesser of the interest
rates set forth in the applicable GTE/Contel state access tariffs or the
GTOC/GSTC FCC No. 1 tariff, one and one-half percent (1 1/2%) per month
or the maximum nonusurious rate of interest under applicable law. Late
payment charges shall be included on the next statement.
7.3 Due Date. Payment is due 30 calendar days from the bill date or 20
calendar days from receipt of bill whichever is later.
7.4 Audits. Either Party may conduct an audit of the other Party's books and
records pertaining to the Services provided under this Agreement, no
more frequently than once per twelve (12) month period, to evaluate the
other Party's accuracy of billing, data and invoicing in accordance with
this Agreement. Any audit shall be performed as follows: (i) following
at least thirty (30) Business Days' prior written notice to the audited
Party; (ii) subject to the reasonable scheduling requirements and
limitations of the audited Party; (iii) at the auditing Party's sole
cost and expense; (iv) of a reasonable scope and duration; (v) in a
manner so as not to interfere with the audited Party's business
operations; and (vi) in compliance with the audited Party's security
rules.
8. Binding Effect. This Agreement shall be binding on and inure to the
benefit of the respective successors and permitted assigns of the
Parties.
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9. Compliance with Laws and Regulations. Each Party shall comply with all
federal, state, and local statutes, regulations, rules, ordinances,
judicial decisions, and administrative rulings applicable to its
performance under this Agreement.
10. Confidential Information.
10.1 Identification. Either Party may disclose to the other proprietary or
confidential customer, technical, or business information in written,
graphic, oral or other tangible or intangible forms ("Confidential
Information"). In order for information to be considered Confidential
Information under this Agreement, it must be marked "Confidential" or
"Proprietary," or bear a marking of similar import. Orally or visually
disclosed information shall be deemed Confidential Information only if
contemporaneously identified as such and reduced to writing and
delivered to the other Party with a statement or marking of
confidentiality within thirty (30) calendar days after oral or visual
disclosure.
Notwithstanding the foregoing, all orders for Services placed by
Valu-Line pursuant to this Agreement, and information that would
constitute customer proprietary network information of Valu-Line end
user customers pursuant to the Act and the rules and regulations of the
FCC, as well as recorded usage information with respect to Valu-Line end
users, whether disclosed by Valu-Line to GTE or otherwise acquired by
GTE in the course of its performance under this Agreement, and where GTE
is the NANP Number Plan Administrator, Valu-Line information submitted
to GTE in connection with such responsibilities shall be deemed
Confidential Information of Valu-Line for all purposes under this
Agreement whether or not specifically marked or designated as
confidential or proprietary.
10.2 Handling. In order to protect such Confidential Information from
improper disclosure, each Party agrees:
(a) That all Confidential Information shall be and shall remain the
exclusive property of the source;
(b) To limit access to such Confidential Information to authorized
employees who have a need to know the Confidential Information
for performance of this Agreement;
(c) To keep such Confidential Information confidential and to use
the same level of care to prevent disclosure or unauthorized use
of the received Confidential Information as it exercises in
protecting its own Confidential Information of a similar nature;
(d) Not to copy, publish, or disclose such Confidential Information
to others or authorize anyone else to copy, publish, or disclose
such Confidential Information to others without the prior
written approval of the source;
(e) To return promptly any copies of such Confidential Information
to the source at its request; and
(f) To use such Confidential Information only for purposes of
fulfilling work or services performed hereunder and for other
purposes only upon such terms as may be agreed upon between the
Parties in writing.
10.3 Exceptions. These obligations shall not apply to any Confidential
Information that was legally in the recipient's possession prior to
receipt from the source, was received in good faith from a third party
not subject to a confidential obligation to the source, now is or later
becomes publicly known through no breach of confidential obligation by
the recipient, was developed by the recipient without the developing
persons having access to any of the Confidential Information received in
confidence from the source, or that is required to be disclosed pursuant
to subpoena
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or other process issued by a court or administrative agency having
appropriate jurisdiction, provided, however, that the recipient shall
give prior notice to the source and shall reasonably cooperate if the
source deems it necessary to seek protective arrangements.
10.4 Survival. The obligation of confidentiality and use with respect to
Confidential Information disclosed by one Party to the other shall
survive any termination of this Agreement for a period of three (3)
years from the date of the initial disclosure of the Confidential
Information.
11. Consent. Where consent, approval, or mutual agreement is required of a
Party, it shall not be unreasonably withheld or delayed.
12. Cooperation on Fraud Minimization. Valu-Line assumes responsibility for
all fraud associated with its end user customers and accounts. GTE shall
have no responsibility for, nor is it required to investigate or make
adjustments to Valu-Line's account in cases of fraud. The Parties agree
that they shall cooperate with one another to resolve cases of fraud.
The Parties' fraud minimization procedures are to be cost effective and
implemented so as not to unduly burden or harm one Party as compared to
the other.
13. Dispute Resolution.
13.1 Alternative to Litigation. Except as provided under Section 252 of the
Act with respect to the approval of this Agreement by the Commission,
the Parties desire to resolve disputes arising out of or relating to
this Agreement without litigation. Accordingly, except for action
seeking a temporary restraining order or an injunction related to the
purposes of this Agreement, or suit to compel compliance with this
dispute resolution process, the Parties agree to use the following
alternative dispute resolution procedures as their sole remedy with
respect to any controversy or claim arising out of or relating to this
Agreement or its breach.
13.2 Negotiations. At the written request of a Party, each Party will appoint
a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any dispute arising out of or relating to this
Agreement. The Parties intend that these negotiations be conducted by
non-lawyer, business representatives. The location, format, frequency,
duration, and conclusion of these discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives
may utilize other alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and correspondence
among the representatives for purposes of these negotiations shall be
treated as confidential information developed for purposes of
settlement, exempt from discovery, and shall not be admissible in the
arbitration described below or in any lawsuit without the concurrence of
all Parties. Documents identified in or provided with such
communications, which are not prepared for purposes of the negotiations,
are not so exempted and may, if otherwise discoverable, be discovered or
otherwise admissible, be admitted in evidence, in the arbitration or
lawsuit.
13.3 Arbitration. If the negotiations do not resolve the dispute within sixty
(60) Business Days of the initial written request, the dispute shall be
submitted to binding arbitration by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association
except that the Parties may select an arbitrator outside American
Arbitration Association rules upon mutual agreement. A Party may demand
such arbitration in accordance with the procedures set out in those
rules. Discovery shall be controlled by the arbitrator and shall be
permitted to the extent set out in this section. Each Party may submit
in writing to a Party, and that Party shall so respond to, a maximum of
any combination of thirty-five (35) (none of which may have subparts) of
the following: interrogatories, demands to produce documents, or
requests for admission. Each Party is also entitled to take the oral
deposition of one individual of another Party. Additional discovery may
be permitted upon mutual agreement of the Parties. The arbitration
hearing shall be commenced within sixty (60) Business Days of the demand
for arbitration. The arbitration shall be held in a mutually agreeable
city. The arbitrator shall control the scheduling
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so as to process the matter expeditiously. The Parties may submit
written briefs. The arbitrator shall rule on the dispute by issuing a
written opinion within thirty (30) Business Days after the close of
hearings. The times specified in this section may be extended upon
mutual agreement of the Parties or by the arbitrator upon a showing of
good cause. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.
13.4 Expedited Arbitration Procedures. If the issue to be resolved through
the negotiations referenced in Section 13.2 directly and materially
affects service to either Party's end user customers, then the period of
resolution of the dispute through negotiations before the dispute is to
be submitted to binding arbitration shall be five (5) Business Days.
Once such a service affecting dispute is submitted to arbitration, the
arbitration shall be conducted pursuant to the expedited procedures
rules of the Commercial Arbitration Rules of the American Arbitration
Association (i.e., rules 53 through 57).
13.5 Costs. Each Party shall bear its own costs of these procedures. A Party
seeking discovery shall reimburse the responding Party the costs of
production of documents (including search time and reproduction costs).
The Parties shall equally split the fees of the arbitration and the
arbitrator.
13.6 Continuous Service. The Parties shall continue providing services to
each other during the pendency of any dispute resolution procedure, and
the Parties shall continue to perform their obligations (including
making payments in accordance with Article IV, Section 4) in accordance
with this Agreement.
14. Entire Agreement. This Agreement constitutes the entire agreement of the
Parties pertaining to the subject matter of this Agreement and
supersedes all prior agreements, negotiations, proposals, and
representations, whether written or oral, and all contemporaneous oral
agreements, negotiations, proposals, and representations concerning such
subject matter. No representations, understandings, agreements, or
warranties, expressed or implied, have been made or relied upon in the
making of this Agreement other than those specifically set forth herein.
15. Expenses. Except as specifically set out in this Agreement, each Party
shall be solely responsible for its own expenses involved in all
activities related to the subject of this Agreement.
16. Force Majeure. In the event performance of this Agreement, or any
obligation hereunder, is either directly or indirectly prevented,
restricted, or interfered with by reason of fire, flood, earthquake or
likes acts of God, wars, revolution, civil commotion, explosion, acts of
public enemy, embargo, acts of the government in its sovereign capacity,
labor difficulties, including without limitation, strikes, slowdowns,
picketing, or boycotts, unavailability of equipment from vendor, changes
requested by Customer, or any other circumstances beyond the reasonable
control and without the fault or negligence of the Party affected, the
Party affected, upon giving prompt notice to the other party, shall be
excused from such performance on a day-to-day basis to the extent of
such prevention, restriction, or interference (and the other Party shall
likewise be excused from performance of its obligations on a day-to-day
basis until the delay, restriction or interference has ceased); provided
however, that the Party so affected shall use diligent efforts to avoid
or remove such causes of nonperformance and both Parties shall proceed
whenever such causes are removed or cease.
17. Good Faith Performance. In the performance of their obligations under
this Agreement, the Parties shall act in good faith. In situations in
which notice, consent, approval or similar action by a Party is
permitted or required by any provision of this Agreement, such action
shall not be unreasonably delayed, withheld or conditioned.
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18. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the state where the Services are
provided or the facilities reside and shall be subject to the exclusive
jurisdiction of the courts therein.
19. GTE Standard Practices. The Parties acknowledge that GTE shall be
establishing industry standard approaches to various requirements
hereunder applicable to Valu-Line industry which will be added in the
Guide. Valu-Line agrees that GTE may implement such industry standard
practices to satisfy any GTE obligations under this Agreement to which
such GTE standard practices apply.
20. Headings. The headings in this Agreement are inserted for convenience
and identification only and shall not be considered in the
interpretation of this Agreement.
21. Independent Contractor Relationship. The persons provided by each Party
shall be solely that Party's employees and shall be under the sole and
exclusive direction and control of that Party. They shall not be
considered employees of the other Party for any purpose. Each Party
shall remain an independent contractor with respect to the other and
shall be responsible for compliance with all laws, rules and regulations
involving, but not limited to, employment of labor, hours of labor,
health and safety, working conditions and payment of wages. Each Party
shall also be responsible for payment of taxes, including federal, state
and municipal taxes, chargeable or assessed with respect to its
employees, such as Social Security, unemployment, workers' compensation,
disability insurance, and federal and state withholding. Each Party
shall indemnify the other for any loss, damage, liability, claim,
demand, or penalty that may be sustained by reason of its failure to
comply with this provision.
22. Law Enforcement Interface.
22.1 Except to the extent not available in connection with GTE's operation of
its own business, GTE shall provide seven day a week/twenty-four hour a
day assistance to law enforcement persons for emergency traps,
assistance involving emergency traces and emergency information
retrieval on customer invoked CLASS services, including, without
limitation, call traces requested by Valu-Line.
22.2 GTE agrees to work jointly with Valu-Line in security matters to support
law enforcement agency requirements for taps, traces, court orders, etc.
Charges for providing such services for Valu-Line Customers will be
billed to Valu-Line.
22.3 GTE will, in non emergency situations, inform the requesting law
enforcement agencies that the end-user to be wire tapped, traced, etc.
is a Valu-Line Customer and shall refer them to Valu-Line.
23. Liability and Indemnity.
23.1 Indemnification. Value-Line agrees to release, indemnify, defend, and
hold harmless GTE from all losses, claims, demands, damages, expenses,
suits, or other actions, or any liability whatsoever, including, but not
limited to, costs and attorney's fees, whether suffered, made,
instituted, or asserted by any other party or person, for invasion of
privacy, personal injury to or death of any person or persons, or for
losses, damages, or destruction of property, whether or not owned by
others, regardless of form of action.
23.2 End User and Content-Related Claims. Valu-Line agrees to release,
indemnify, defend, and hold harmless GTE, its affiliates, and any
third-party provider or operator of facilities involved in the provision
of Services (collectively, the "Indemnified Party") from all losses,
claims, demands, damages, expenses, suits, or other actions, or any
liability whatsoever, including, but not limited to, costs and
attorney's fees, suffered, made, instituted, or asserted by Valu-Line's
end users
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against an Indemnified Party arising from Services. Valu-Line further
agrees to release, indemnify, defend, and hold harmless the Indemnified
Party from all losses, claims, demands, damages, expenses, suits, or
other actions, or any liability whatsoever, including, but not limited
to, costs and attorney's fees, suffered, made, instituted, or asserted
by any third party against an Indemnified Party arising from or in any
way related to actual or alleged defamation, libel, slander,
interference with or misappropriation of proprietary or creative right,
or any other injury to any person or property arising out of content
transmitted by the Indemnified Party or such Party's end users, or any
other act or omission of the Indemnified Party or such Party's end
users.
23.3 DISCLAIMER. EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY IN THIS
AGREEMENT, GTE MAKES NO REPRESENTATIONS OR WARRANTIES TO CUSTOMER
CONCERNING THE SPECIFIC QUALITY OF ANY SERVICES PROVIDED UNDER THIS
AGREEMENT. PROVIDER DISCLAIMS, WITHOUT LIMITATION, ANY WARRANTY OR
GUARANTEE OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR FROM USAGES OF
TRADE.
23.4 Limitation of Liability. GTE's liability, whether in contract, tort or
otherwise, shall be limited to direct damages, which shall not exceed
the pro rata portion of the monthly charges for the Services for the
time period during which the Services provided pursuant to this
Agreement are inoperative, not to exceed in total GTE's monthly charge
to Customer. Under no circumstance shall GTE be responsible or liable
for indirect, incidental, or consequential damages, including, but not
limited to, economic loss or lost business or profits, damages arising
from the use or performance of equipment or software, or the loss of use
of software or equipment, or accessories attached thereto, delay, error,
or loss of data. In connection with this limitation of liability, the
Parties recognize that GTE may, from time to time, provide advice, make
recommendations, or supply other analysis related to the Services
described in this Agreement, and, while GTE shall use diligent efforts
in this regard, Customer acknowledges and agrees that this limitation of
liability shall apply to provision of such advice, recommendations, and
analysis.
23.5 Intellectual Property. GTE shall have no obligation to defend, indemnify
or hold harmless, or acquire any license or right for the benefit of, or
owe any other obligation or have any liability to, Valu-Line based on or
arising from any claim, demand, or proceeding by any third party
alleging or asserting that the use of any circuit, apparatus, or system,
or the use of any software, or the performance of any service or method,
or the provision or use of any facilities by either Party under this
Agreement constitutes direct or contributory infringement, or misuse or
misappropriation of any patent, copyright, trademark, trade secret, or
any other proprietary or intellectual property right of any third party.
24. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of
which shall together constitute but one and the same document
25. No Offer. This Agreement will be effective only upon execution and
delivery by both Parties and approval by the Commission in accordance
with Section 252 of the Act.
26. No Third Party Beneficiaries. Except as may be specifically set forth in
this Agreement, this Agreement does not provide and shall not be
construed to provide third parties with any remedy, claim, liability,
reimbursement, cause of action, or other right or privilege.
27. Notices. Any notice to a Party required or permitted under this
Agreement shall be in writing and shall be deemed to have been received
on the date of service if served personally, on the date receipt is
acknowledged in writing by the recipient if delivered by regular U.S.
mail, or on the date stated on the receipt if delivered by certified or
registered mail or by a courier service that obtains a written receipt.
Upon prior immediate oral agreement of the parties' designated
recipients
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identified below, notice may also be provided by facsimile, internet or
electronic messaging system, which shall be effective if sent before
5:00 p.m. on that day, or if sent after 5:00 p.m. it will be effective
on the next Business Day following the date sent. Any notice shall be
delivered using one of the alternatives mentioned in this section and
shall be directed to the applicable address indicated below or such
address as the Party to be notified has designated by giving notice in
compliance with this section:
If to GTE: GTE Central Incorporated
Attention: Regulatory Director
Address:816 Congress
Suite 1500
Austin, Texas 78701
Facsimile number: (512) 370-4275
If to Valu-Line: Valu-Line Long Distance
Attention: William D. Rhodes, Jr.
3301 W. Marshall Avenue
P.O. Box 3707
Longview, Texas 75606
Facsimile number: (903) 295-6314
Internet Address:_____________
28. Protection.
28.1 Impairment of Service. The characteristics and methods of operation of
any circuits, facilities or equipment of either Party connected with the
services, facilities or equipment of the other Party pursuant to this
Agreement shall not interfere with or impair service over any facilities
of the other Party, its affiliated companies, or its connecting and
concurring carriers involved in its services, cause damage to their
plant, violate any applicable law or regulation regarding the invasion
of privacy of any communications carried over the Party's facilities or
create hazards to the employees of either Party or to the public (each
hereinafter referred to as an "Impairment of Service").
28.2 Resolution. If either Party causes an Impairment in Service, the Party
whose network or service is being impaired (the "Impaired Party") shall
promptly notify the Party causing the Impairment of Service (the
"Impairing Party") of the nature and location of the problem and that,
unless promptly rectified, a temporary discontinuance of the use of any
circuit, facility or equipment may be required. The Impairing Party and
the Impaired Party agree to work together to attempt to promptly resolve
the Impairment of Service. If the Impairing Party is unable to promptly
remedy the Impairment of Service, then the Impaired Party may at its
option temporarily discontinue the use of the affected circuit, facility
or equipment.
29. Publicity. Any news release, public announcement, advertising, or any
form of publicity pertaining to this Agreement, provision of Services
pursuant to it, or association of the Parties with respect to provision
of the services described in this Agreement shall be subject to prior
written approval of both GTE and Valu-Line.
30. Regulatory Agency Control. This Agreement shall at all times be subject
to changes, modifications, orders, and rulings by the Federal
Communications Commission and/or applicable state utility regulatory
commission to the extent the substance of this Agreement is or becomes
subject to the jurisdiction of such agency.
31. Changes in Legal Requirements. GTE and Valu-Line further agree that the
terms and conditions of this Agreement were composed in order to
effectuate the legal requirements in effect at the
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time the Agreement was produced. Any modifications to those requirements
will be deemed to automatically supersede any terms and conditions of
this Agreement.
32. Effective Date. If this Agreement or changes or modifications thereto
are subject to approval of a regulatory agency, the "effective date" of
this Agreement for such purposes will be ten (10) Business Days after
such approval. Such date shall become the "effective date" of this
Agreement for all purposes.
33. Regulatory Matters. Each Party shall be responsible for obtaining and
keeping in effect all their own FCC, state regulatory commission,
franchise authority and other regulatory approvals that may be required
in connection with the performance of its obligations under this
Agreement. Valu-Line shall reasonably cooperate with GTE in obtaining
and maintaining any required approvals for which GTE is responsible, and
GTE shall reasonably cooperate with Valu-Line in obtaining and
maintaining any required approvals for which Valu-Line is responsible.
34. Rule of Construction. No rule of construction requiring interpretation
against the drafting party hereof shall apply in the interpretation of
this Agreement.
35. Section References. Except as otherwise specified, references within an
Article of this Agreement to a Section refer to Sections within that
same Article.
36. Service Standards.
36.1 The Parties shall meet applicable quality of local service standards
imposed by the Commission and will provide a level of services to each
other under this Agreement in compliance with the nondiscrimination
requirements of the Act.
36.2 The Parties agree to implement mutually agreed upon standards to measure
the quality of Local Service supplied by GTE with respect to
pre-ordering, order/provisioning, maintenance and billing.
36.3 GTE shall provide Valu-Line with notice of any new or changed feature,
functionality or price pertaining to pre-ordering,
ordering/provisioning, maintenance and billing for "Services" necessary
to ensure that Valu-Line can provide retail local exchange services
which are at least equal in quality to comparable GTE retail local
exchange services.
36.4 The Parties will alert each other to any network events that can result
or have resulted in service interruption, blocked calls, and/or changes
in network performance. GTE will treat Valu-Line in a nondiscriminatory
manner equal to GTE's established business practice, e.g., GTE will
advise Valu-Line of any such network event resulting in blocked calls or
lost features.
37. Severability. If any provision of this Agreement is held by a court or
regulatory agency of competent jurisdiction to be unenforceable, the
rest of the Agreement shall remain in full force and effect and shall
not be affected unless removal of that provision results, in the opinion
of either Party, in a material change to this Agreement. If a material
change as described in this paragraph occurs as a result of action by a
court or regulatory agency, the Parties shall negotiate in good faith
for replacement language. If replacement language cannot be agreed upon
within a reasonable period, either Party may terminate this Agreement
without penalty or liability for such termination upon written notice to
the other Party.
38. Subcontractors. Provider may enter into subcontracts with third parties
or affiliates for the performance of any of Providers duties or
obligations under this Agreement.
39. Subsequent Law. The terms and conditions of this Agreement shall be
subject to any and all applicable laws, rules, or regulations that
subsequently may be prescribed by any federal, state
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or local governmental authority. To the extent required by any such
subsequently prescribed law, rule, or regulation, the Parties agree to
modify, in writing, the affected term(s) and condition(s) of this
Agreement to bring them into compliance with such law, rule, or
regulation.
40. Taxes. Any state or local excise, sales, or use taxes (excluding any
taxes levied on income) resulting from the performance of this Agreement
shall be borne by the Party upon which the obligation for payment is
imposed under applicable law, even if the obligation to collect and
remit such taxes is placed upon the other Party. The collecting Party
shall charge and collect from the obligated Party, and the obligated
Party agrees to pay to the collecting Party, all applicable taxes,
except to the extent that the obligated Party notifies the collecting
Party and provides to the collecting Party appropriate documentation
that qualifies the obligated Party for a full or partial exemption. Any
such taxes shall be shown as separate items on applicable billing
documents between the Parties. The obligated Party may contest the same
in good faith, at its own expense, and shall be entitled to the benefit
of any refund or recovery, provided that such Party shall not permit any
lien to exist on any asset of the other Party by reason of the contest.
The collecting Party shall cooperate in any such contest by the other
Party.
40.1 Tax - A charge which is statutorily imposed by the state or local
jurisdiction and is either (a) imposed on the seller with the seller
having the right or responsibility to pass the charge(s) on to the
purchaser and the seller is responsible for remitting the charge(s) to
the state or local jurisdiction or (b) imposed on the purchaser with the
seller having an obligation to collect the charge(s) from the purchaser
and remit the charge(s) to the state or local jurisdiction.
Taxes shall include but not be limited to: federal excise tax,
state/local sales and use tax, state/local utility user tax, state/local
telecommunication excise tax, state/local gross receipts tax, and local
school taxes. Taxes shall not include income, income-like, gross
receipts on the revenue of a provider, or property taxes. Taxes shall
not include payroll withholding taxes unless specifically required by
statute or ordinance.
40.2 Fees/Regulatory Surcharges - A charge imposed by a regulatory authority,
other agency, or resulting from a contractual obligation, in which the
seller is responsible or required to collect the fee/surcharge from the
purchaser and the seller is responsible for remitting the charge to the
regulatory authority, other agency, or contracting party.
Fees/Regulatory Surcharges shall include but not be limited to E911/911,
E311/311, franchise fees, Lifeline, hearing impaired, and Commission
surcharges.
41. Trademarks and Trade Names. Except as specifically set out in this
Agreement, nothing in this Agreement shall grant, suggest, or imply any
authority for one Party to use the name, trademarks, service marks, or
trade names of the other for any purpose whatsoever.
42. Waiver. The failure of either Party to insist upon the performance of
any provision of this Agreement, or to exercise any right or privilege
granted to it under this Agreement, shall not be construed as a waiver
of such provision or any provisions of this Agreement, and the same
shall continue in full force and effect.
43. Amendment of Certain Rates. The Parties agree as follows with respect to
modification of the rates initially provided for herein:
The rates, terms and conditions in this Agreement that are specified in
Attachment 43A (the "MCI Terms") were taken from the GTE/MCI
Interconnection, Resale and Unbundling Agreement (the "MCI Agreement")
that has been approved by the Commission in Docket No. 16355. The rates,
terms and conditions not included in this Agreement but referenced in
Attachment 43B (the "GTE Terms") were excluded from the MCI Agreement by
the Commission in Docket No. 16355. GTE
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and Valu-Line agree that if the MCI Terms are deemed to be unlawful, or
are stayed, enjoined or otherwise modified, in whole or in part, by a
court or commission of competent jurisdiction, then this Agreement shall
be deemed to have been amended accordingly, by modification of the MCI
Terms or, as appropriate, the substitution of GTE Terms for all stayed
and enjoined MCI Terms, and such amendments shall be effective
retroactive to the Effective Date of this Agreement.
GTE and Valu-Line further agree that the terms and conditions of this
Agreement reflect certain requirements of the FCC's First Report and
Order in CC Docket No. 96-98. The terms and conditions of this Agreement
shall be subject to any and all actions by any court or other
governmental authority that invalidate, stay, vacate or otherwise modify
the FCC's First Report and Order, in whole or in part ("subsequent
action"). To the extent warranted by any such subsequent action, the
Parties agree that this Agreement shall be deemed to have been modified
accordingly as in the first paragraph of this Section 43. The Parties
agree to immediately apply any affected terms and conditions, including
any in other sections and articles of this Agreement, consistent with
such subsequent action, and within a reasonable time incorporate such
modified terms and conditions in writing into this Agreement. If the MCI
terms are affected by such subsequent action and GTE determines they
cannot be consistently applied therewith, the GTE terms shall apply.
Valu-Line acknowledges that GTE may seek to enforce such subsequent
action before a commission or court of competent jurisdiction. GTE does
not waive any position regarding the illegality or inappropriateness of
the FCC's First Report and Order.
The rates, terms and conditions (including rates which may be applicable
under true-up) specified in both the GTE Terms and the MCI Terms are
further subject to amendment, retroactive to the Effective Date of the
Agreement, to provide for charges or rate adjustments resulting from
future Commission or other proceedings, including but not limited to any
generic proceeding to determine GTE's unrecovered costs (e.g., historic
costs, contribution, undepreciated reserve deficiency, or similar
unrecovered GTE costs (including GTE's end user surcharge)), the
establishment of a competitively neutral universal service system, or
any appeal or other litigation.
If the Commission (or any other commission or federal or state court) in
reviewing this Agreement pursuant to applicable state or federal laws,
including Section 252(e) of the Telecommunications Act of 1996, deletes
or modifies in any way this Section 43, then the Parties agree that they
will reopen negotiations within ten (10) days after receipt of the final
decision making such deletion or modification in order to attempt to
craft the new provision that will provide substantially the same
protections to GTE and Valu-Line as this Section 43. If the Parties
cannot reach agreement on such a provision within twenty (20) calendar
days thereafter, the Parties agree that the entire Agreement is void and
will not become effective, and Valu-Line agrees to withdraw this
Agreement from consideration by the Commission (or any other commission
or federal or state court). In such event, each Party shall have 25 days
following the close of the 20-day negotiation period within which to
file a petition for arbitration before the Commission under Section
252(e) of the Telecommunications Act of 1996 of the issues that remain
in dispute under this paragraph.
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ARTICLE IV
GENERAL RULES GOVERNING RESOLD SERVICES
1. General. General regulations, terms and conditions governing rate
applications, technical parameters, service availability, definitions
and feature interactions, as described in the appropriate GTE intrastate
local, toll and access tariffs, as referenced in the third column of
Appendix A (the "GTE Retail Tariff"), apply to retail services made
available by GTE to Valu-Line for resale provided by GTE to Valu-Line,
when appropriate, unless otherwise specified in this Agreement. As
applied to services under this Agreement, the term "Customer" contained
in the GTE Retail Tariff shall be deemed to mean "Valu-Line" as defined
in this Agreement.
2. Liability of GTE.
2.1 Inapplicability of Tariff Liability. GTE's general liability, as
described in the GTE Retail Tariff, does not extend to Valu-Line's
customers or any other third party. Liability of GTE to Valu-Line
resulting from any and all causes arising out of services, or any other
items relating to this Agreement shall be governed by the liability
provisions contained in this Agreement and no other liability whatsoever
shall attach to GTE. GTE shall be liable for the individual services,
facilities or elements that it separately provides to Valu-Line and
shall not be liable for the integration of components combined by
Valu-Line.
2.2 Valu-Line Tariffs or Contracts. Valu-Line shall, in its tariffs or other
contracts for services provided to its end users using services obtained
from GTE, provide that in no case shall GTE be liable to Valu-Line's end
users or any third parties for any indirect, special or consequential
damages, including, but not limited to, economic loss or lost business
or profits, whether foreseeable or not, and regardless of notification
by Valu-Line of the possibility of such damages and Valu-Line shall
indemnify and hold GTE harmless from any and all claims, demands,
causes of action and liabilities based on any reason whatsoever from its
customers as provided in this Agreement. Nothing in this Agreement shall
be deemed to create a third party beneficiary relationship with
Valu-Line's end users.
2.3 No Liability for Errors. GTE is not liable for mistakes that appear in
GTE's listings, 911 and other information databases, or for incorrect
referrals of end users to Valu-Line for any ongoing Valu-Line service,
sales or repair inquiries, and with respect to such mistakes or
incorrect referrals, Valu-Line shall indemnify and hold GTE harmless
from any and all claims, demands, causes of action and liabilities
whatsoever, including costs, expenses and reasonable attorney's fees
incurred on account thereof, by third parties, including Valu-Line's end
users or employees. For purposes of this Section 2.3, mistakes and
incorrect referrals shall not include matters arising out of the willful
misconduct of GTE or its employees or agents.
3. Unauthorized Changes.
3.1 Procedures. If Valu-Line submits an order for resold services under this
Agreement in order to provide service to an end user that at the time
the order is submitted is obtaining its local services from GTE or
another LEC using GTE resold services, and the end user notifies GTE
that the end user did not authorize Valu-Line to provide local exchange
services to the end user, Valu-Line must provide GTE with written
documentation of authorization from that end user within three (3)
Business Days of notification by GTE. If Valu-Line cannot provide
written documentation of authorization within such time frame, Valu-Line
must within three (3) Business Days thereafter:
(a) notify GTE to change the end user back to the LEC providing
service to the end user before the change to Valu-Line was made;
and
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(b) provide any end user information and billing records Valu-Line
has obtained relating to the end user to the LEC previously
serving the end user; and
(c) notify the end user and GTE that the change back to the previous
LEC has been made; and
(d) pay GTE fifty dollars ($50.00) per affected line to compensate
GTE for switching the end user back to the original LEC.
3.2 Option to Restrict Changes Without Evidence of Authorization.
Valu-Line's or GTE's end users may request GTE to permit changes of
their provider of local exchange services only upon end user written
notification to GTE that the end user wishes to change the end user's
provider of local exchange services. In such a situation, GTE will not
change an end user's provider of local exchange services without such
written notification.
4. Impact of Payment of Charges on Service. Valu-Line is solely responsible
for the payment of all charges for all services, facilities and elements
furnished under this Agreement, including, but not limited to, calls
originated or accepted at its or its end users' service locations. If
Valu-Line fails to pay when due any and all charges billed to Valu-Line
under this Agreement, including any late payment charges (collectively,
"Unpaid Charges"), and any or all such charges remain unpaid more than
forty-five (45) Business Days after the due date of such Unpaid Charges
excepting previously disputed charges for which Valu-Line may withhold
payment, GTE shall notify Valu-Line in writing that it must pay all
Unpaid Charges to GTE within seven (7) Business Days. If Valu-Line
disputes the billed charges, it shall, within said seven (7) day period,
inform GTE in writing of which portion of the Unpaid Charges it
disputes, including the specific details and reasons for the dispute,
unless such reasons have been previously provided, and shall immediately
pay to GTE all undisputed charges. If Valu-Line and GTE are unable,
within thirty (30) Business Days thereafter, to resolve issues related
to the disputed charges, then either Valu-Line or GTE may file a request
for arbitration under Article III of this Agreement to resolve those
issues. Upon resolution of any dispute hereunder, if Valu-Line owes
payment it shall make such payment to GTE with any late payment charge
under Article III, Section 7.2, from the original payment due date. If
Valu-Line owes no payment, but has previously paid GTE such disputed
payment, then GTE shall credit such payment including any late payment
charges. If Valu-Line fails to pay any undisputed Unpaid Charges,
Valu-Line shall, at its sole expense, within five (5) Business Days
notify its end users that their service may be disconnected for
Valu-Line's failure to pay Unpaid Charges, and that its end users must
select a new provider of local exchange services. If Valu-Line fails to
provide such notification or any of Valu-Line's end users fail to select
a new provider of services within the applicable time period, GTE will
provide local exchange services to Valu-Line's end users under GTE's
applicable end user tariff at the then current charges for the services
being provided. In this circumstance, otherwise applicable service
establishment charges will not apply to Valu-Line's end user, but will
be assessed to Valu-Line. GTE may discontinue service to Valu-Line upon
failure to pay undisputed charges as provided in this Section 4, and
shall have no liability to Valu-Line or Valu-Line's end users in the
event of such disconnection.
5. Unlawful Use of Service. Services provided by GTE pursuant to this
Agreement shall not be used by Valu-Line or its end users for any
purpose in violation of law. Valu-Line, and not GTE, shall be
responsible to ensure that Valu-Line and its end users use of services
provided hereunder comply at all times with all applicable laws. GTE may
refuse to furnish service to Valu-Line or disconnect particular services
provided under this Agreement to Valu-Line or, as appropriate,
Valu-Line's end user when (i) an order is issued by a court of competent
jurisdiction finding that probable cause exists to believe that the use
made or to be made of the service is prohibited by law or (ii) GTE is
notified in writing by a law enforcement agency acting within its
jurisdiction that any facility furnished by GTE is being used or will be
used for the purpose of transmitting or receiving gambling information
in interstate or foreign commerce in violation of
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law. Termination of service shall take place after reasonable notice is
provided to Valu-Line, or as ordered by the court. If facilities have
been physically disconnected by law enforcement officials at the
premises where located, and if there is not presented to GTE the written
finding of a court, then upon request of Valu-Line and agreement to pay
restoral of service charges and other applicable service charges, GTE
shall promptly restore such service.
6. Timing of Messages. With respect to GTE resold measured rate local
service(s), chargeable time begins when a connection is established
between the calling station and the called station. Chargeable time ends
when the calling station "hangs up," thereby releasing the network
connection. If the called station "hangs up" but the calling station
does not, chargeable time ends when the network connection is released
by automatic timing equipment in the network.
7. Procedures For Preordering, Ordering, Provisioning, Etc. Certain
procedures for preordering, ordering, provisioning, maintenance and
billing and electronic interfaces for many of these functions are
described in Appendix B. All costs and expenses for any new or modified
electronic interfaces Valu-Line requires that GTE determines are
technically feasible and GTE agrees to develop will be paid by Valu-Line
pursuant to Appendix B. The schedule for implementation of any new or
modified electronic interfaces will be developed by GTE according to
industry standards and will be based upon the amount of work needed to
design, test and implement the new or modified interface.
8. Customer Contacts. Except as otherwise provided in this Agreement or as
agreed to in a separate writing by Valu-Line, Valu-Line shall provide
the exclusive interface with Valu-Line's end user customers in
connection with the marketing or offering of Valu-Line services. Except
as otherwise provided in this Agreement, in those instances in which GTE
personnel are required pursuant to this Agreement to interface directly
with Valu-Line's end users, such personnel shall not identify themselves
as representing GTE. All forms, business cards or other business
materials furnished by GTE to Valu-Line end users shall bear no
corporate name, logo, trademark or trade name other than Valu-Line's. In
no event shall GTE personnel acting on behalf of Valu-Line pursuant to
this Agreement provide information to Valu-Line end users about GTE
products or services.
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ARTICLE V
RESALE OF SERVICES
1. General. The purpose of this Article V is to define the Exchange
Services and related Vertical Features and other Services (collectively
referred to for purposes of this Article V as the "Services") that may
be purchased from GTE and resold by Valu-Line and the terms and
conditions applicable to such resold Services. Except as specifically
provided otherwise in this Agreement, provisioning of Exchange Services
for resale will be governed by the GTE Guide. GTE will make available to
Valu-Line for resale any Telecommunications Service that GTE currently
offers, or may offer hereafter, on a retail basis to subscribers that
are not telecommunications carriers, except as qualified by Section 2.2
below.
2. Terms and Conditions.
2.1 Quality and Performance. GTE shall provide Services to Valu-Line that
are equal in quality and performance standards to the same Services
provided by GTE to its own end user customers.
2.2 Restrictions on Resale. The following restrictions shall apply to the
resale of retail services by Valu-Line.
2.2.1 Valu-Line shall not resell Basic Exchange Residential Service.
2.2.2 Valu-Line shall not resell to one class of customers a service
that is offered by GTE only to another class of customers in
accordance with State requirements (e.g., R-1 to B-1, disabled
services or Lifeline services to non-qualifying customers).
2.2.3 Valu-Line shall not resell public pay telephone lines.
2.2.4 Valu-Line shall not resell semi-public pay telephone lines.
2.2.5 Valu-Line shall not resell promotional offerings.
2.3 Restrictions on Discount of Retail Services. The discount specified
in Section 5.3 herein shall apply to all retail services except for
the following:
2.3.1 Valu-Line shall resell services that are provided at a volume
discount in accordance with terms and conditions of applicable
tariff. Valu-Line shall not aggregate end user traffic in order
to qualify for volume discount.
2.3.2 Valu-Line shall resell ICB/Contract services without a discount
and only to end user customers that already have such services.
2.3.3 Valu-Line shall resell COCOT coin or coinless line but no
discount applies.
2.3.4 Valu-Line shall resell Lifeline services and services for the
disabled but no discount shall apply and they shall only be
resold to end user customers who qualify under GTE's tariffs and
state/Commission rules, orders and regulations.
2.3.5 Valu-Line shall resell special access but no discount applies.
2.3.6 Valu-Line shall resell Operator Services and Directory
Assistance as specified in Section 5.6 herein however no
discount applies.
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2.4 Resale to Other Carriers. Services available for resale may not be used
by Valu-Line to provide access to the local network as an alternative to
tariffed switched and special access by other carriers, including, but
not limited to; interexchange carriers, wireless carriers, competitive
access providers, or other retail telecommunications providers.
3. Ordering and Billing.
3.1 Local Service Request. Orders for resale of Services will be placed
utilizing a standard Local Service Request ("LSR") form. GTE will
continue to participate in industry forums for developing service
order/disconnect order formats and will incorporate appropriate industry
standards. A complete and accurate LSR (containing the requisite end
user information as described in the Guide) must be provided by
Valu-Line before a request can be processed.
3.2 Certificate of Operating Authority. When ordering, Valu-Line must
represent and warrant to GTE that it is a certified provider of local
dial-tone service. Valu-Line will provide a copy of its Certificate of
Operating Authority or other evidence of its status to GTE upon request.
3.3 Letter of Authorization. A Letter of Authorization ("LOA") will be
required before resold Services will be provided in cases in which the
subscriber currently receives Exchange Service from GTE or from a local
service provider other than Valu-Line. Such LOA may be a blanket LOA or
such other form as agreed upon between GTE and Valu-Line. GTE will not
release information to Valu-Line on GTE end user customer accounts
unless Valu-Line first provides to GTE a written LOA, signed by the end
user customer, authorizing the release of such information to Valu-Line
or if state or federal law provides otherwise, in accordance with such
law.
3.4 Directory Assistance Listings. GTE shall include a Valu-Line customer
listing in its Directory Assistance database as part of the Local
Service Request ("LSR") process. GTE will honor Valu-Line Customers
preferences for listing status, including non-published and unlisted, as
noted on the LSR and will enter the listing in the GTE database which is
used to perform Directory Assistance functions as it appears on the LSR.
3.5 Nonrecurring Charges. Valu-Line shall be responsible for the payment of
all nonrecurring charges ("NRCs") applicable to resold Services (e.g.,
installation, changes, ordering charges) in accordance with the
appropriate tariff referenced on Appendix A. No discount applies to
nonrecurring charges.
3.6 Transfers Between Valu-Line and Another Reseller of GTE Services. When
Valu-Line has obtained an end user customer from another reseller of GTE
services, Valu-Line will inform GTE of the transfer by submitting a
standard LSR to GTE.
3.7 Local Calling Detail. Except for those Services and in those areas where
measured rate local service is available to end users, monthly billing
to Valu-Line does not include local calling detail. However, Valu-Line
may request and GTE shall consider developing the capabilities to
provide local calling detail in those areas where measured local service
is not available for a mutually agreeable charge.
3.8 Procedures. An overview of the procedures for preordering, ordering,
provisioning and billing for resold services are outlined in Appendix B,
attached hereto and made a part hereof.
3.9 LIDB. For resale services, GTE's service order will generate updates to
the LIDB for validation of calling card, collect, and third number
billed calls.
3.10 "OLN". Upon request, GTE will update the database to provide Originating
Line Number ("OLN") Screening which indicates to an operator the
acceptable billing methods for calls originating from the calling number
(e.g., penal institutions, COCOTS).
V-2
<PAGE>
4. Maintenance.
4.1 Maintenance, Testing and Repair. GTE will provide repair and maintenance
services to Valu-Line and its end user customers for resold Services in
accordance with the same standards and charges used for such services
provided to GTE end user customers. GTE will not initiate a maintenance
call or take action in response to a trouble report from a Valu-Line end
user until such time as trouble is reported to GTE by Valu-Line.
Valu-Line must provide to GTE all end user information necessary for the
installation, repair and servicing of any facilities used for resold
Services according to the procedures described in the Guide.
4.2 Specifics and Procedures for Maintenance. An overview of the procedures
for maintenance of resold services and additional matters agreed to by
the Parties concerning maintenance are set forth in Appendix B.
5. Services Available for Resale.
5.1 Description of Local Exchange Services Available for Resale. Resold
basic Exchange Service includes, but is not limited to, the following
elements:
(a) Voice Grade Local Exchange Access Line - includes a telephone
number and dial tone.
(b) Local Calling - at local usage measured rates if applicable to
the end user customer.
(c) Access to long distance carriers
(d) E-911 Emergency Dialing
(e) Access to Special Access Codes - e.g., 800, 888, 900
(f) Use of AIN Services (those currently available to end users)
(g) End User Private Line Services
(h) Listing of telephone number in appropriate "white pages"
directory; and
(i) Copy of "White Pages" and "Yellow Pages" directories for the
appropriate GTE service area
5.2 List of Services Available for Resale. The type of Services listed on
Appendix A, attached hereto and made a part of this Agreement, are
available for resale by Valu-Line. Subject to the limitations on resale
enumerated in this Article, any new services that GTE offers in the
future at retail to customers who are not telecommunications carriers
shall also be available to Valu-Line for resale under the same terms and
conditions contained in this Agreement. Additional regulations, terms
and conditions relating to the type of Services listed on Appendix A can
be found in the appropriate intrastate local, toll and access tariffs
referenced on Appendix A and in Article IV of this Agreement. Terms,
conditions and other matters concerning rate applications, technical
parameters, provisioning capability, definitions and feature
interactions contained in such tariffs are applicable to the type of
Services offered under this Agreement and are incorporated herein by
reference. Modifications to Services listed on Appendix E shall be
provided to Valu-Line in accordance with GTE's practices and procedures.
5.3 Rates. The prices charged to Valu-Line for Local Services shall be
calculated as follows:
(1) Avoided Cost Discount of 13.63% shall apply to all retail
services except those services listed in Section 2.2 and Section
2.3 herein.
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<PAGE>
(2) The discount dollar amount calculated under Step 1 above will be
deducted from the retail rate.
(3) The resulting rate is the Wholesale Rate.
(4) This discount dollar amount in Step 2 above shall not change
during the Term of this Agreement, even though GTE may change
its retail rates.
5.4 Grandfathered Services. Services identified in GTE Tariffs as
grandfathered in any manner are available for resale only to end user
customers that already have such grandfathered service. An existing end
user customer may not move a grandfathered service to a new service
location.
5.5 Access. GTE retains all revenue due from other carriers for access to
GTE facilities, including both switched and special access charges.
5.6 Operator Services (OS) and Directory Assistance (DA). Where GTE provides
access to GTE Operator Services for local and toll assistance (for
example, call completion, busy line verification and emergency
interruption) and Directory Assistance (e.g., 411 calls routed to GTE's
DA operator centers) as an element of Exchange Services offered for
resale, Valu-Line will be billed in accordance with Appendix A. GTE will
provide its existing OS and DA to a Valu-Line at the same quality and in
a nondiscriminatory manner as the service GTE's end users receive.
5.6.1 Where Customized Routing is available and Valu-Line so requests,
GTE will offer unbranded OS and DA or rebranded OS and DA with
the Valu-Line brand. GTE will provide such unbranding or
rebranding on a switch-by-switch basis, subject to capability
and capacity limitations. Upon receipt of an order for
unbranding or rebranding, GTE will implement within 90 Business
Days when technically capable.
5.6.2 Valu-Line will be billed for unbranding or rebranding and
Customized Routing. Upon written request from the Valu-Line, GTE
will provide Valu-Line with terms and conditions for providing
customized routing and branding, plus the applicable charges.
5.6.3 For those offices that Valu-Line has requested GTE to rebrand
and/or unbrand OS and DA, Valu-Line shall continue exclusively
to use GTE rebranded and/or unbranded OS and DA for the duration
of the Agreement. Live operators handling OS and DA calls from
Valu-Line local service customers will identify themselves as
Valu-Line operators; where such rebranding is not technically
feasible, live operator response will be provided on an
unbranded basis. Valu-Line agrees to withdraw its request for
branding of OS and DA for calls that are handled by automated
systems until these systems are capable of rebranding.
V-4
<PAGE>
ARTICLE VI
ADDITIONAL SERVICES AND COORDINATED SERVICE ARRANGEMENTS
1. Bona Fide Request Process.
1.1 Intent. The Bona Fide Request process is intended to be used when
Valu-Line requests customized Service Orders for certain services,
features, capabilities or functionality defined and agreed upon by the
Parties as services to be ordered as Bona Fide Requests.
1.2 Process.
1.2.1 A Bona Fide Request shall be submitted in writing by Valu-Line
and shall specifically identify the need to include technical
requirements, space requirements and/or other such
specifications that clearly define the request such that GTE has
sufficient information to analyze and prepare a response.
1.2.2 Although not expected to do so, Valu-Line may cancel a Bona Fide
Request in writing at any time prior to Valu-Line and GTE
agreeing to price and availability. GTE will then cease analysis
of the request.
1.2.3 Within two (2) Business Days of its receipt, GTE shall
acknowledge in writing the receipt of the Bona Fide Request and
identify a single point of contact and any additional
information needed to process the request.
1.2.4 Except under extraordinary circumstances, within ten (10)
Business Days of its receipt of a Bona Fide Request, GTE shall
provide a proposed price and availability date, or it will
provide a detailed explanation as to why GTE is not able to meet
Valu-Line's request. If extraordinary circumstances prevail, GTE
will inform Valu-Line as soon as it realizes that it cannot meet
the ten (10) Business Day response due date. Valu-Line and GTE
will then determine a mutually agreeable date for receipt of the
request.
1.2.5 Unless Valu-Line agrees otherwise, all proposed prices shall be
consistent with the pricing principles of the Act, FCC and/or
the Commission. Payments for services purchased under a Bona
Fide Request will be made upon delivery, unless otherwise agreed
to by Valu-Line, in accordance with the applicable provisions of
the Agreement.
1.2.6 Upon affirmative response from GTE, Valu-Line will submit in
writing its acceptance or rejection of GTE's proposal. If at any
time an agreement cannot be reached as to the terms and
conditions or price of the request, the Dispute resolution
procedures described above in this Article may be used by a
Party to reach a resolution.
1.2.7 If GTE responds that it cannot or will not offer the requested
item in the Bona Fide Request and Valu-Line deems the item
essential to its business operations, and deems GTE's position
to be inconsistent with the Act, FCC or Commission regulations
and/or the requirements of this Agreement, the Dispute
resolution procedures described above in this Article may be
used by a Party to reach a resolution.
2. Transfer of Service Announcements. For GTE resold services, GTE shall
provide an intercept referral on behalf of Valu-Line. This announcement
will provide the new number of the customer and will remain in effect
for the same time period this service is provided to GTE's own end
users.
3. Misdirected Calls. The Parties will employ the following procedures for
handling any misdirected calls (e.g., Business office, repair bureau,
etc.).
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3.1 To the extent the correct provider can be determined, each Party will
refer misdirected calls to the proper provider of local exchange
service. When referring such calls, both Parties agree to provide the
end user the correct contact telephone number, at no charge and in a
courteous manner.
3.2 In responding to misdirected calls, neither Party shall make disparaging
remarks about each other, nor shall they use these calls as a basis for
internal referrals or to solicit end users or to market services.
4. 911/E911 Arrangements.
4.1 Description of Service. Where GTE is the 911 service provider, GTE shall
provide 911 Service as described in this Section as an element of local
exchange services available for resale.
4.2 Cooperation and Level of Performance. The Parties agree to provide
access to 911/E911 in a manner that is transparent to the end user.
The Parties will work together to facilitate the prompt, reliable and
efficient level of performance that will provide the same grade of
service as that which GTE provides to its own end users.
4.3 Updates to MSAG. It shall be the responsibility of Valu-Line to ensure
that the address of each of its end users is included in the Master
Street Address Guide (MSAG). Where GTE is the lead telco, GTE will
accept address records provided on Valu-Line's Local Service Request
("LSR"). GTE and Valu-Line will work together to develop the process by
which LSR errors out of the MSAG will be handled, with appropriate cost
recovery to GTE. Where GTE is not the lead telco, GTE has no action and
Valu-Line must establish a separate relationship with the lead telco to
submit records for MSAG validation. Where GTE is the lead telco, it will
have a copy of the MSAG and will provide a copy to Valu-Line upon
request at a reasonable charge.
4.4 Updates to Database. The 911/E91I database will be updated with
Valu-Line's end user 911/E911 information. If Valu-Line provides its
update data to GTE as frequently as does GTE's internal systems, the
update process will be as timely. In any case, GTE will not update the
ALI database any later than one working day subsequent to receipt of
data from Valu-Line.
4.5 Compensation.
(a) In situations in which GTE is responsible for maintenance of the
911/E911 database and can be compensated for maintaining
Valu-Line's information by the 911 district, GTE will seek such
compensation from the 911 district. GTE will seek compensation
from Valu-Line only if and to the extent that GTE is unable to
obtain such compensation from the 911 district.
(b) Compensation to GTE for provision of services it provides
Valu-Line hereunder shall be according to reasonable rates
developed by GTE and agreed upon by Valu-Line.
4.6 Liability. GTE will not be liable for errors with respect to 911/E911
services except for its gross negligence as addressed in applicable
tariffs.
5. Information Services Traffic.
5.1 Blocking. Nothing in this Agreement shall restrict either Party from
offering to its end user customers the ability to block the completion
of information service traffic. If Valu-Line does not wish to be
responsible for collect, third number billed, toll, 900 and 976 calls,
it must order blocking for resold lines and pay any applicable charges.
Should GTE block its end users from making 976 calls, GTE shall also
block Valu-Line resale end users from making such calls.
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<PAGE>
6. Directory Assistance Listings Information. GTE will include listings in
its directory assistance database for Valu-Line end users in the same
geographic area as GTE provides directory assistance for GTE end users
as specified in Article V, Section 3.4.
6.1 GTE shall provide to Valu-Line, at Valu-Line's request, for purposes of
Valu-Line providing Valu-Line-branded directory assistance services to
its local customers, within sixty (60) Business Days after an order for
such tape is received, all published DA listings for that specific state
via magnetic tape. Changes to the DA Listing Information shall be
updated on a daily basis through the same means used to transmit the
initial list. DA Listing Information provided shall indicate whether the
customer is a residence or business customer. The rate to be paid by the
Valu-Line to GTE will be reasonable and mutually agreed.
6.2 The Parties will not release DA Listing Information that includes the
other Party's end user information to Third Parties without the other
Party's approval. The other Party will inform the Releasing Party if it
desires to have the Releasing Party provide the other Party's DA Listing
Information to the Third Party, in which case, the Releasing Party shall
provide the other Party's DA Listing Information at the same time as the
Releasing Party provides the Releasing Party's DA Listing Information to
the Third Party. The rate to be paid by the Releasing Party to the other
Party shall be no more than the direct costs of compiling such
information. The other Party shall be responsible for billing the Third
Party.
6.3 The Parties will work together to identify and develop procedures for
database error corrections.
7. Directory Listings and Directory Distribution. Valu-Line will be
required to negotiate a separate agreement for directory listings and
directory distribution, except as set forth below, with GTE's directory
publication company.
Listings. Valu-Line agrees to supply GTE on a regularly
scheduled basis, at no charge, and in a mutually agreed upon
format (e.g. Ordering and Billing Forum developed), all listing
information for Valu-Line's subscribers who wish to be listed in
any GTE published directory for the relevant operating area.
Listing information will consist of names, addresses (including
city, state and zip code) and telephone numbers. Nothing in this
Agreement shall require GTE to publish a directory where it
would not otherwise do so.
Listing inclusion in a given directory will be in accordance
with GTE's solely determined directory configuration, scope, and
schedules, and listings will be treated in the same manner as
GTE's listings.
Distribution. Upon directory publication, GTE will arrange for
the initial distribution of the directory to service subscribers
in the directory coverage area at no charge.
Valu-Line will supply GTE in a timely manner with all required
subscriber mailing information including non-listed and
non-published subscriber mailing information, to enable GTE to
perform its distribution responsibilities.
8. Busy Line Verification and Busy Line Verification Interrupt. Each Party
shall establish procedures whereby its operator assistance bureau will
coordinate with the operator assistance bureau of the other Party to
provide Busy Line Verification ("BLV") and Busy Line Verification and
Interrupt ("BLVI") services on calls between their respective end users.
Each Party shall route BLV and BLVI inquires over separate inward
operator services trunks. Each Party's operator assistance bureau will
only verify and/or interrupt the call and will not complete the call of
the end user initiating the BLV or BLVI. Each Party shall charge the
other for the BLV and BLVI services at the rates contained in Appendix
A, or if there is no applicable rate listed in Appendix A, at the rates
in their respective tariffs.
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<PAGE>
9. SAG. GTE will provide to Valu-Line upon request the Street Address Guide
at a reasonable charge. Two companion files will be provided with the
SAG which lists all services and features at all LSOs, and lists
services and features that are available in a specific LSO.
10. Dialing Format Changes. GTE will provide reasonable notification to
Valu-Line of changes to local dialing format, i.e., 7 to 10 digit, by
end office.
11. Operational Support Systems (OSS). GTE shall provide OSS functions to
Valu-Line for ordering, provisioning and billing that are generally
available as described in Appendix B attached to this Agreement.
Valu-Line shall pay GTE for access to GTE's OSS functions consistent
with processes defined in Appendix B.
GTE's execution of this Agreement is not a concession or waiver in any
manner concerning its position that certain of the rates, terms and
conditions contained herein are unlawful, illegal and improper.
IN WITNESS WHEREOF, each Party has executed this Agreement to be
effective as of the date first above written.
GTE SOUTHWEST INCORPORATED VALU-LINE LONG DISTANCE
By /s/ Steven J. Pitterle By /s/ William J. Rhodes
---------------------------------- -----------------------------
Name Steven J. Pitterle Name William J. Rhodes, Jr.
Title Director of Negotiations Title President
Date 9/12/97 Date 7/29/97
APPROVED AS TO FORM BY
LEGAL DEPARTMENT
/s/ [Illegible]
- ---------------------
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<PAGE>
APPENDIX A
SERVICES AVAILABLE FOR RESALE
General. The rates contained in this Appendix A are based upon an avoided cost
discount from GTE's retail rates as provided in Article V, Section 5.3 of the
Agreement to which this Appendix A is attached and are subject to change
resulting from future Commission or other proceedings, including but not limited
to any generic proceeding to determine GTE's unrecovered costs (e.g., historic
costs, contribution, undepreciated reserve deficiency, or similar unrecovered
GTE costs (including GTE's end user surcharge)), the establishment of a
competitively neutral universal service system, or any appeal or other
litigation. In addition, GTE shall assess Valu-Line a charge for lost
contribution associated with intraLATA toll service from a resold business line
if GTE does not provide the intraLATA toll associated with the line.
Non-Recurring Charges for Resale Services
Initial Service Order, per order $41.50
Subsequent Service Order, per order $24.00
Installation, per line $27.00
Outside Facility Connection Charge, per order* $Tariffed
* This charge will apply when field work is required for establishment of new
resale service. The terms, conditions and rates that apply for this work are
described in GTE's retail local service tariffs.
A-1
<PAGE>
[Texas]
[Logo] Sprint
MASTER RESALE AGREEMENT
WITH
VALU-LINE LONG DISTANCE
<PAGE>
MASTER RESALE AGREEMENT
Page
----
I. DEFINITIONS ......................................................... 1
II. SCOPE, TERM AND TERMINATION ......................................... 3
A. Scope ............................................................ 3
B. Term ............................................................. 5
C. Termination ...................................................... 5
III. RESALE OF LOCAL SERVICES ............................................ 6
A. Scope ............................................................ 6
B. Charges and Billing .............................................. 7
C. Pricing .......................................................... 8
D. Provisioning and Installation .................................... 8
IV. NETWORK MAINTENANCE AND MANAGEMENT .................................. 9
A. General Requirements ............................................. 9
B. Transfer of Service Announcements ................................ 10
C. Repair Calls ..................................................... 10
D. Restoration of Service in the Event of Outages ................... 10
E. Service Projections .............................................. 11
F. Quality Service .................................................. 11
G. Information ...................................................... 11
V. ADDITIONAL SERVICES ................................................. 11
A 911/E911 ......................................................... 11
B. Directory Listings and Distribution .............................. 12
C. Directory Assistance ............................................. 14
D. Operator Services ................................................ 16
VI. ADDITIONAL RESPONSIBILITIES OF THE PARTIES .......................... 17
A. Cooperation on Fraud ............................................. 17
B. Proprietary Information .......................................... 17
C. Law Enforcement and Civil Process ................................ 18
VII. FORCE MAJEURE ....................................................... 18
VIII. LIMITATION OF LIABILITY ............................................. 19
IX. INDEMNIFICATION ..................................................... 19
X. ASSIGNMENT .......................................................... 20
XI. DISPUTE RESOLUTION .................................................. 20
A. Other Than Billing ............................................... 20
B. Billing .......................................................... 21
XII. MISCELLANEOUS ....................................................... 21
A. Governing Law .................................................... 21
B. Compliance with Laws ............................................. 21
C. Notices .......................................................... 22
D. Good Faith ....................................................... 22
E. Headings ......................................................... 22
F. Execution ........................................................ 22
<PAGE>
G. Benefit ......................................................... 22
H. Survivorship .................................................... 22
I. Entire Agreement ................................................ 22
EXHIBIT 1 - Rates and Pricing
EXHIBIT 2 - Electronic Interfaces
<PAGE>
MASTER RESALE AGREEMENT
This Agreement is between Valu-Line Long Distance ("Carrier") and United
Telephone Company of Texas, Inc. dba Sprint and Central Telephone Company of
Texas dba Sprint ("Sprint") hereinafter collectively, "the Parties", entered
into this 9th day of May,1997, for the State of Texas.
WHEREAS, the Parties wish to establish terms and conditions for the
purposes of fulfilling Sprint's obligations established by 251(b) and (c) of
the Act, as defined herein;
THEREFORE, the Parties hereby agree as follows:
I. DEFINITIONS
Definitions of the terms used in this Agreement shall have the meanings
set forth below.
1. Act - means the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, Public Law 104-104 of the 104th United
States Congress effective February 8, 1996.
2. Affiliate - means any person that (directly or indirectly) owns or
controls, is owned or controlled by, or is under common ownership or
control with, another entity. For purposes of this Agreement, the term
"own" or control means to own an equity interest (or the equivalent
thereof) of at least ten percent (10%) with respect to either party, or
the right, under common ownership, to control the business decisions,
management and policy of another entity.
3. Central Office Switch, End Office or Tandem (hereinafter "Central
Office" or "CO") - means a switching facility within the public switched
telecommunications network, including but not limited to:
End Office Switches which are switches from which end-user Telephone
Exchange Services are directly connected and offered.
Tandem Switches are switches which are used to connect and switch trunk
circuits between and among Central Office Switches.
4. Commercial Mobile Radio Services ("CMRS") means a radio communications
service between mobile stations or receivers and land stations, or by
mobile stations communicating among themselves that is provided for
profit and that makes interconnected service available to the public or
the such classes of eligible users as to be effectively available to a
substantial portion of the public as set fort in 47 code of Federal
Regulations Section 20.3.
<PAGE>
5. Commission - means the commission, board, or official (by whatever name
designated) which under the laws of any State has regulatory
jurisdiction with respect to intrastate operations of Carriers. As
referenced in this part, this term may include the Federal
Communications Commission if it assumes the responsibility of the state
commission, pursuant to section 252(e)(5) of the Act. This term shall
also include any person or persons to whom the state commission has
delegated its authority under section 251 and 252 of the Act.
6. Competitive Local Exchange Carrier ("CLEC") or Alternative Local
Exchange Carrier ("ALEC") - means any entity or person authorized to
provide local exchange services in competition with an ILEC.
7. Electronic Interfaces - means access to operations support systems
consisting of preordering, ordering, provisioning, maintenance and
repair and billing functions. For the purposes of this Agreement, unless
otherwise specifically agreed to in writing, Sprint shall provide such
Electronic Interfaces in accordance with Exhibit 2.
8. FCC - means Federal Communications Commission.
9. Incumbent Local Exchange Carrier ("ILEC") - is any local exchange
Carrier that was as of February 8, 1996, deemed to be a member of the
Exchange Carrier Association as set forth in 47 C.F.R. ss.69.601(b) of
the FCC's regulations
10. Interconnection - means the connection of separate pieces of equipment,
transmission facilities, etc., within, between or among networks for the
transmission and routing of exchange service and exchange access. The
architecture of interconnection may include collocation and/or mid-span
meet arrangements
11. Interexchange Carrier ("IXC") - means a telecommunications service
provider offering interexchange telecommunications services (e.g. inter-
and/or intraLATA toll)
12. Local Service Request ("LSR") - means an industry standard form used by
the Parties to add, establish, change or disconnect local services.
13. Local Traffic - means traffic that is originated by an end user of one
Party and terminates to the end user of the other Party within the
service territory of Sprint as defined in its then current Local
Exchange Tariff. Local Traffic shall also include mandatory and optional
Extended Area Calling, as that term is commonly used in the
telecommunications industry, and any other traffic for which there is no
additional charge for termination. Local traffic does not include CMRS
traffic.
14. Parties means, jointly, Caprock Communications and Sprint, and no other
entity, affiliate, subsidiary or assign.
2
<PAGE>
15. Parity means, subject to the availability, development and
implementation of necessary industry standard Electronic Interfaces, the
provision by Sprint of services, Network Elements, functionality or
telephone numbering resources under this Agreement to CARRIER on terms
and conditions, including provisioning and repair intervals, no less
favorable that those offered to Sprint, its Affiliates or any other
entity that obtains such services, Network Elements, functionality or
telephone numbering resources. Until the implementation of necessary
Electronic Interfaces, Sprint shall provide such services, Network
Elements, functionality or telephone numbering resources on a
nondiscriminatory basis to CARRIER as it provides to its Affiliates or
any other entity that obtains such services, Network Elements,
functionality or telephone numbering resources.
16. Rebranding - occurs when Carrier purchases a wholesale service from
Sprint when the Carrier brand is substituted for the Sprint brand.
17. Telecommunications Services - shall have the meaning set forth in 47
USC ss.153(6).
18. Undefined Terms - The Parties acknowledge that terms may appear in this
Agreement which are not defined and agree that any such terms shall be
construed in accordance with their customary usage in the
telecommunications industry as of the effective date of this Agreement
or, as applicable, as such term is defined in the Act.
19. Wholesale Service - means Telecommunication Services that Sprint
provides at retail to subscribers who are not telecommunications
Carriers as set forth in 47 USC ss.251(c)(4).
II. SCOPE, TERM AND TERMINATION
A. Scope
I. The Telecommunications Services and facilities to be provided to Carrier
by Sprint in satisfaction of this Agreement may be provided pursuant to
Sprint tariffs and then current practices. Should there be a conflict
between the terms of this Agreement and any such tariffs or practices,
the terms of the tariff shall control to the extent allowed by law or
Commission Order.
2. If, at any time while this Agreement is in effect, Sprint provides
resale of Telecommunications Services to a Telecommunications Carrier,
as defined in 47 Code of Federal Regulations Part 51.5, on terms
different from those available under this Agreement, then Carrier may
opt to adopt such resale of Telecommunications Services upon the same
rates, terms, and conditions as those provided to said
Telecommunications Carrier in lieu of the resale of Telecommunications
Services applicable under this Agreement for its own arrangements with
Sprint (hereinafter "MFN Obligations"). Upon expiration of the term of
such other agreement for resale of Telecommunications Services the
provision thus adopted shall cease to apply and shall revert to the
corresponding provision of this Agreement.
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2.1 Notwithstanding the above, the MFN Obligations shall not apply:
(i) where Sprint proves to the Commission that the costs of
providing resale of Telecommunications Services to Carrier are
greater than the costs of providing same to the
Telecommunications Carrier that originally negotiated such
agreement;
(ii) where the provision of resale of Telecommunications
Services to Carrier is not technically feasible;
(iii) where pricing is provided to a third party for a cost
based term or cost based volume discount offering and Carrier
seeks to adopt the cost based term or cost based volume discount
price without agreeing to all or substantially all of the terms
and conditions of the cost based term or cost based volume
discount offering;
(iv) where pricing is provided to a third party on a dissimilar
(e.g., deaveraged vs. - averaged price) basis, Carrier may only
elect to amend this Agreement to reflect all such differing
pricing (but not less than all) by resale of Telecommunications
Services in its entirety, contained in such third party
agreement; or
(v) where resale of Telecommunications Services is provided to a
third party in conjunction with material terms or conditions
that directly impact the provisioning of said service and
Carrier seeks to adopt such resale of Telecommunications
Services without inclusion of all or substantially all said
material terms or conditions.
3. Notwithstanding the above provisions, or any other provision in this
Agreement, this Agreement and any Attachments hereto are subject to such
changes or modifications with respect to the rates, terms or conditions
contained herein as may be ordered, directed, or approved by the
Commission or the FCC, or as may be required to implement the result of
an order or direction of a court of competent jurisdiction with respect
to its review of any appeal of the decision of a Commission or the FCC,
in the exercise of their respective jurisdictions whether said changes
or modifications result from an order issued on an appeal of the
decision of a Commission or the FCC, a rulemaking proceeding, a generic
investigation, a tariff proceeding, or an arbitration proceeding
conducted by a Commission or FCC which applies to Sprint or in which the
Commission or FCC makes a generic determination) and in which Carrier
had the right or the opportunity to participate, regardless of whether
Carrier participated. Any rates, terms or conditions thus developed or
modified shall be substituted in place of those previously in effect and
shall be deemed effective under this Agreement as of the effective date
of the order by the court, Commission or the FCC, whether such action
was commenced before or after the effective date of this Agreement. If
any such modification renders the Agreement inoperable or creates any
ambiguity or requirement for further amendment to the Agreement, the
Parties will negotiate in good faith to agree upon any necessary
amendments to the Agreement. Should the Parties be unable to reach
agreement with respect to the applicability of such order or the
resulting appropriate modifications to this Agreement, the Parties agree
to
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petition such Commission to establish appropriate interconnection
arrangements under sections 251 and 252 of the Act in light of said
order or decision.
B. Term
I. This Agreement shall be deemed effective upon approval by a Commission
of appropriate jurisdiction or upon such other date as the parties shall
mutually agree ("Approval Date"), provided Carrier has been certified by
the Commission. No order or request for services under this Agreement
shall be processed before the Approval Date.
2. Except as provided herein, Sprint and Carrier agree to provide service
to each other on the terms defined in this Agreement until May 1998, and
thereafter the Agreement shall continue in force and effect unless and
until terminated as provided herein.
C. Termination
I. Either party may terminate this Agreement by providing written notice of
termination to the other party, such written notice to be provided at
least 90 days in advance of the date of termination. In the event of
such termination for service arrangements made available under this
Agreement and existing at the time of termination, those arrangements
shall continue without interruption until either (a) a new agreement is
executed by the Parties, or (b) standard terms and conditions contained
in Sprint's tariff or other substitute document that are approved and
made generally effective by the Commission or the FCC.
2. In the event of default, either Party may terminate this Agreement in
whole or in part provided that the non-defaulting Party so advises the
defaulting Party in writing of the event of the alleged default and the
defaulting Party does not remedy the alleged default within 60 days
after written notice thereof. Default is defined to include:
a. Either Party's insolvency or initiation of bankruptcy or
receivership proceedings by or against the Party; or
b. Either Party's material breach of any of the terms or conditions
hereof, including the failure to make any undisputed payment
when due.
3. Notwithstanding anything herein to the contrary, should Sprint sell or
trade substantially all the assets in an exchange or group of exchanges
that Sprint uses to provide Telecommunications Services this Agreement
shall terminate as of the closing date of such sale or trade.
4. Termination of this Agreement for any cause shall not release either
Party from any liability which at the time of termination has already
accrued to the other Party or which thereafter may accrue in respect to
any act or omission prior to termination or from any obligation which is
expressly stated herein to survive termination.
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111. RESALE OF LOCAL SERVICES
A. Scope
I. Sprint retail Telecommunications Services shall be available for resale
at wholesale prices pursuant to 47 USC ss.251(c)(4). Services that are
not retail Telecommunications Services and, thus, not covered by this
Agreement and not available for resale at wholesale prices include, but
are not limited to, Voice Mail/MessageLine, Paging, Inside Wire
Installers and Maintenance, CMRS services, Lifeline services and similar
government programs (underlying Telecommunications Service will be
resold but Carrier must qualify its offering for these programs),
promotions of less than ninety (90) days and Employee Concessions.
2. Until such time as additional clarification of Sprint's obligations with
respect to the resale of COCOT lines has been provided by the FCC or
Commission, COCOT lines will not be resold at wholesale prices under
this Agreement.
3. Except as set forth above and as may be allowed by the FCC or
Commission, Sprint shall not place conditions or restrictions on
Carrier's resale of wholesale regulated Telecommunications Services,
except for restrictions on the resale of residential service to other
classifications (e.g., residential service to business customers) and
for promotions of 90-days or less in length. Every regulated retail
service rate, including promotions over 90-days in length, discounts,
and option plans will have a corresponding wholesale rate. Sprint will
make wholesale telecommunications service offerings available for all
new regulated services at the same time the retail service becomes
available
4. Sprint will continue to provide existing databases and signaling support
for wholesale services at no additional cost.
S. Sprint will make any service grandfathered to an end-user or any
Individual Case Basis ("ICB") service available to Carrier for resale to
that same end-user at the same location(s) and will provide any legally
required notice or a 30-days notice, whichever is less, to Carrier prior
to the effective date of changes in or discontinuation of any product or
service that is available for resale hereunder.
6. Sprint will continue to provide Primary Interexchange Carrier ("PIC")
processing for those end-users obtaining resold service from Carrier.
Sprint will bill and Carrier will pay any PlC change charges. Sprint
will only accept said requests for PIC changes from Carrier and not from
Carrier's end users.
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7. Sprint shall allow Carrier customers to retain their current telephone
number when technically feasible within the same Sprint Wire Center and
shall install Carrier customers at Parity.
B. Charges and Billing
1. Access services, including revenues associated therewith, provided in
connection with the resale of services hereunder shall be the
responsibility of Sprint and Sprint shall directly bill and receive
payment on its own behalf from an IXC for access related to
interexchange calls generated by resold or rebranded customers.
2. Sprint will be responsible for returning EM1/EMR records to IXCs with
the proper EMR Return Code along with the Operating Company Number
("OCN") of the associated Automatic Number Identification ("ANI"),
(i.e., Billing Number).
3. Sprint will deliver a monthly statement for wholesale services as
follows:
a. Invoices will be provided in a standard Carrier access billing
format or other such format as Sprint may determine;
b. Where local usage charges apply and message detail is created to
support available services, the originating local usage at the
call detail level in standard EMIR industry format will be
exchanged daily or at other mutually agreed upon intervals;
c. The Parties will work cooperatively to exchange information to
facilitate the billing of in and out collect and
inter/intra-region alternately billed messages;
d. Sprint agrees to provide information on the end-user's selection
of special features where Sprint maintains such information
(e.g., billing method, special language) when Carrier places the
order for service;
e. Monthly recurring charges for Telecommunications Services sold
pursuant to this Agreement shall be billed monthly in advance.
f. For billing purposes, and except as otherwise specifically
agreed to in writing, the Telecommunications Services provided
hereunder are furnished for a minimum term of one month. Each
month is presumed to have thirty (30) days.
4. The monthly invoice shall be due and payable in full by CARRIER within
thirty days of the Bill Date. If the charges are not paid on the due
date, CARRIER shall be liable for and shall pay late payment charges
equal to the lesser of one and one-half percent (1-1/2%) per month of
the balance due or the maximum amount allowed by law, until the amount
due including late payment charges is paid in full.
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5. Sprint shall not accept orders for Primary Local Carrier ("PLC") record
changes or other orders for Telecommunications Services or Additional
Services under this Agreement from Carrier while any past due,
undisputed charges remain unpaid.
C. Pricing
Pricing shall be developed based on 47 USC ss.252(d)(3), as now enacted or as
hereafter amended, where wholesale prices are retail prices less avoided costs,
net of any additional costs imposed by wholesale operations. The wholesale rate
shall be, until such time as avoided cost studies in compliance with applicable
Commission requirements have been approved or ordered as referenced in Section
II.3 above, as set forth on Exhibit 1. Additional rates for new or additional
services shall be added at the time said new or additional services are offered.
D. Provisioning and Installation
1. Electronic Interfaces for the exchange of ordering information will be
adopted and made available in accordance with the provisions of Exhibit
2.
2. Carrier and Sprint may order PLC and Primary Interexchange Carrier
("PIC") record changes using the same order process and on a unified
order (the "LSR").
3. A general Letter of Agency ("LOA") initiated by Carrier or Sprint will
be required to process a PLC or PIC change order. No LOA signed by the
end-user will be required to process a PLC or PIC change ordered by
Carrier or Sprint. Carrier and Sprint agree that PLC and PIC change
orders will be supported with appropriate documentation and verification
as required by FCC and Commission rules. In the event of a subscriber
complaint of an unauthorized PLC record change where the Party that
ordered such change is unable to produce appropriate documentation and
verification as required by FCC and Commission rules (or, if there are
no rules applicable to PLC record changes, then such rules as are
applicable to changes in long distance carriers of record), such Party
shall be liable to pay and shall pay all nonrecurring charges associated
with reestablishing the subscriber's local service with the original
local carrier
4. Each Party will provide the other, if requested, as agent of the
end-user customer, at the time of the PLC order, current "As Is"
pre-ordering/ordering information relative to the end-user consisting of
local features, products, services, elements, combinations, and any
customer status qualifying the customer for a special service (e.g., DA
exempt, lifeline, etc.) provided by the Party to that end-user. Each
Party is responsible for ordering the Telecommunications Services
desired by the end-user customer.
5. Until such time as numbering is administered by a third party, Sprint
shall provide Carrier the ability to obtain telephone numbers from
Sprint, and to assign these numbers with the Carrier customer. This
includes vanity numbers. Reservation and aging of numbers remain the
responsibility of Sprint. Carrier shall pay Sprint the reasonable
administrative costs of this function.
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8. A non-branded, or at Carrier's cost, a branded (sticker on a non-branded
form"), customer-not-at-home card shall be left by Sprint at the
customer's premises when a Carrier customer is not at home for an
appointment and Sprint performs repair or installation services on
behalf of Carrier.
9. Sprint will ensure that all applicable alarm systems that support
Carrier customers are operational and the support databases are
accurate. Sprint will respond to Carrier customer alarms consistent with
how and when they respond to alarms for their own customers.
10. Carrier shall receive prior notification of any scheduled maintenance
activity performed by Sprint that may be service affecting to Carrier
local customers (e.g., cable throws, power tests, etc.).
B. Transfer of Service Announcements - When an end-user who continues to be
located within the local calling area changes from Sprint to Carrier and
does not retain its original telephone number which was provided by
Sprint. Sprint will provide a new number announcement on the inactive
telephone number upon request, for a minimum period of 90 days (or some
shorter reasonable period when numbers are in short supply), at no
charge to the end-user or the Carrier unless Sprint has a tariff on file
to charge end-users. This announcement will provide details on the new
number to be dialed to reach this customer.
C. Repair Calls - Carrier and Sprint will employ the following procedures
for handling misdirected repair calls:
1. Carrier and Sprint will educate their respective customers as to the
correct telephone numbers to call in order to access their respective
repair bureaus.
2. To the extent the correct provider can be determined, misdirected repair
calls will be referred to the proper provider of local exchange service
in a courteous manner, at no charge, and the end-user will be provided
the correct contact telephone number. In responding to repair calls,
neither Party shall make disparaging remarks about the other, nor shall
they use these repair calls as the basis for internal referrals or to
solicit customers or to market services. Either Party may respond with
accurate information in answering customer questions.
3. Carrier and Sprint will provide their respective repair contact numbers
to one another on a reciprocal basis.
D. Restoration of Service in the Event of Outages - Sprint restoration of
service in the event of outages due to equipment failures, human error,
fire, natural disaster, acts of God, or similar occurrences shall be
performed in accordance with the following priorities. First,
restoration priority shall be afforded to those services affecting its
own end-users
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and identified Carrier end-users relative to national security or
emergency preparedness capabilities and those affecting public safety,
health, and welfare, as those elements and services are identified by
the appropriate government agencies. Second, restoration priority shall
be afforded between Sprint and Carrier in general. Third, should Sprint
be providing or performing Tandem Switching functionality for Carrier,
third level priority restoration should be afforded to any trunk.
Lastly, all service shall be restored as expeditiously as practicable
and in a non-discriminatory manner.
E. Service Projections - Carrier shall make available to Sprint periodic
service projections, as reasonably requested.
F. Quality of Service
1. Upon deployment of Electronic Interfaces, Sprint shall provide Carrier
with at least the same intervals and level of service provided by Sprint
to its end-users or other Carriers at any given time.
2. Upon deployment of Electronic Interfaces, Sprint shall provide Carrier
maintenance and repair services in a manner that is timely, consistent
with service provided to Sprint endusers and/or other Carriers.
3. Carrier and Sprint shall negotiate a process to expedite network
augmentations and other orders when requested by Carrier.
4. Carrier and Sprint will mutually develop operating statistical process
measurements that will be monitored monthly to ensure that a negotiated
service quality level is maintained.
G. Information
1. Order confirmation must be provided within 24 hours of completion to
ensure that all necessary translation work is completed on newly
installed facilities or augments.
2. Sprint and Carrier shall agree upon and monitor operational statistical
process measurements. Such statistics will be exchanged under an agreed
upon schedule.
V. ADDITIONAL SERVICES
A. 911/E911
1. Description
a. Where Sprint is the owner or operator of the 911/E911 database,
Sprint will maintain daily updating of 911/E911 database
information related to Carrier endusers.
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b. Sprint will provide Carrier a default arrangement/disaster
recovery plan including an emergency back-up number in case of
massive trunk failures.
B. Directory Listings and Distribution
1. White Page Directories; Distribution; Use of Listing Information
a. Sprint agrees to include one basic White Pages listing for each
Carrier customer located with the geographic scope of its White
Pages directories, at no additional charge to Carrier. A basic
White Pages listing is defined as a customer name, address and
either the Carrier assigned number for a customer or the number
for which number portability is provided, but not both numbers.
Basic White Pages listing of Carrier customers will be
interfiled with listings of Sprint and other CLEC's customers.
b. Carrier agrees to provide Carrier customer listing information,
including without limitation directory distribution information,
to Sprint at no charge. Sprint will provide Carrier with the
appropriate format and service order updates for provision of
Carrier customer listing information to Sprint. The Parties
agree to adopt a mutually acceptable electronic format for the
provision of such information as soon as practicable. In the
event OBF adopts an industry-standard format for the provision
of such information, the parties agree to adopt such format.
c. Sprint agrees to provide White Pages database maintenance
services to Carrier. Carrier will be charged a Service Order
entry fee upon submission of Service Orders into Sprint's
Service Order Entry System, which will include compensation for
such database maintenance services. Service Order entry fees
apply when Service Orders containing directory records are
entered in Sprint's Service Order Entry System initially, and
when Service Orders are entered in order to process a requested
change to directory records.
d. Carrier customer listing information will be used solely for the
provision of directory services, including the sale of directory
advertising to Carrier customers.
e. In addition to a basic White Pages listing, Sprint will provide,
at the rates set forth in the appropriate Sprint tariff,
tariffed White Pages listings (e.g., additional, alternate,
foreign and non-published listings) for Carrier to offer for
resale to Carrier's customers.
f. Sprint agrees to provide White Pages distribution services to
Carrier customers within Sprint's service territory at no
additional charge to Carrier. Sprint represents that the
quality, timeliness, and manner of such distribution services
will be comparable to those provided to Sprint and to other CLEC
customers.
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g. Sprint agrees to include critical contact information pertaining
to Carrier in the "Information Pages" of those of its White
Pages directories covering markets in which Carrier is providing
or plans to commence providing local exchange service during the
publication cycle of such directories. Critical contact
information includes Carrier's business office number, repair
number, billing information number, and any other information
required to comply with applicable regulations, but not
advertising or purely promotional material. Carrier will not be
charged for inclusion of its critical contact information. The
format, content and appearance of Carrier's critical contact
information will conform to applicable Sprint and/or directory
publisher guidelines and will be consistent with the format,
content and appearance of critical contact information
pertaining to all CLECs in a directory.
h. Sprint will accord Carrier customer listing information the same
level of confidentiality that Sprint accords it own proprietary
customer listing information. Sprint shall ensure that access to
Carrier customer proprietary listing information will be limited
solely to those of Sprint and Sprint's directory publisher's
employees, agents and contractors that are directly involved in
the preparation of listings, the production and distribution of
directories, and the sale of directory advertising. Sprint will
advise its own employees, agents and contractors and its
directory publisher of the existence of this confidentiality
obligation and will take appropriate measures to ensure their
compliance with this obligation. Notwithstanding any provision
herein to the contrary, the furnishing of White Pages proofs to
a CLEC that contains customer listings of both Sprint and
Carrier will not be deemed a violation of this confidentiality
provision.
i. Sprint will include Carrier's customer listing information upon
request of any third parties to purchase Sprint's customer
listing information. Upon receipt of such requests, Sprint and
Carrier will work cooperatively to address any payments for the
sale or license of Carrier customer listing information to third
parties. Any payments due to Carrier for its customer listing
information will be net of administrative expenses incurred by
Sprint in providing such information to third parties. Sprint
will compensate Carrier on an annual basis.
2. Other Directory Services. Sprint will exercise reasonable efforts to
cause its directory publisher to enter into a separate agreement with
Carrier which will address other directory services desired by Carrier
as described in this Section 2. Both parties acknowledge that Sprint's
directory publisher is not a party to this Agreement and that the
provisions contained in this Section 2 are not binding upon Sprint's
directory publisher.
a. Sprint's directory publisher will negotiate with Carrier
concerning the provision of a basic Yellow Pages listing to
Carrier customers located within the geographic scope of
publisher's Yellow Pages directories and distribution of Yellow
Pages directories to Carrier customers.
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b. Directory advertising will be offered to Carrier customers on a
nondiscriminatory basis and subject to the same terms and
conditions that such advertising is offered to Sprint and other
CLEC customers. Directory advertising will be billed to Carrier
customers by directory publisher.
c. Directory publisher will use commercially reasonable efforts to
ensure that directory advertising purchased by customers who
switch their service to Carrier is maintained without
interruption.
d. Information pages, in addition to any information page or
portion of an information page containing critical contact
information as described above in Section 1(f), may be purchased
from Sprint's directory publisher, subject to applicable
directory publisher guidelines and regulatory requirements.
e. Directory publisher maintains full authority as publisher over
its publishing policies, standards and practices, including
decisions regarding directory coverage area, directory issue
period, compilation, headings, covers, design, content or format
of directories, and directory advertising sales
C. Directory Assistance
1. General Requirements
a. Where Sprint is a directory assistance service provider, at
Carrier's request, subject to any existing system capacity
restraints which Sprint shall work to overcome, Sprint will
provide to Carrier for resale, Carrier branded directory
assistance service which is comparable in every other way to the
directory assistance service Sprint makes available to its own
end-users.
b. Sprint will make Carrier's data available to anyone calling
Sprint's DA and will update its database with Carrier's data in
Parity with updates from its own data.
c. Sprint may store proprietary customer information provided by
Carrier in its Directory Assistance database; such information
should be able to be identified by source provider in order to
provide the necessary protection of Carrier's or Carrier
customer's proprietary or protected information.
d. Carrier may limit Sprint's use of Carrier's data to directory
assistance or, pursuant to written agreement, grant greater
flexibility in the use of the data subject to proper
compensation.
e. If Directory Assistance is a separate retail service provided by
Sprint, Sprint must allow wholesale resale of Sprint DA
service.
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f. To the extent Sprint provides directory assistance service,
Carrier will provide its listings to Sprint via data and
processed directory assistance feeds in accordance with an
agreed upon industry format. Sprint shall include Carrier
listings in its directory assistance database.
g. Carrier has the right to license Sprint unbundled directory
databases and sub databases and utilize them in the provision of
its own DA service. To the extent that Carrier includes Sprint
listings in its own directory assistance database, Carrier shall
make Sprint's data available to anyone calling Carrier's DA.
h. Sprint will make available to Carrier all DA service
enhancements on a nondiscriminatory basis.
i. When technically feasible and requested by Carrier, Sprint will
route Carrier customer DA calls to Carrier DA centers.
2. Business Processes
a. Sprint will, consistent with Section 222 of the Act, update and
maintain the DA database with Carrier data, utilizing the same
procedures it uses for its own customers, for those Carrier
customers who:
Disconnect Change Carrier
Install "Change" orders
Are Non-Published Are Non-Listed
Are Non-Published/Non-Listed
b. Carrier shall bill its own end-users.
c. Carrier will be billed in an agreed upon standard format.
d. Sprint and Carrier will develop interSprint procedures to
correct errors when they are identified in the database.
3. Compensation
a. When Carrier is rebranding the local service of Sprint,
directory assistance that is provided without separate charge to
end-users will be provided to Carrier end-users as part of the
basic wholesale local service, subject to any additional actual
expense to brand the service with Carrier's brand. Where DA is
separately charged as a retail service by Sprint, Carrier shall
pay for DA service at retail less avoided cost.
b. Sprint shall place Carrier end-users listings in its directory
assistance database for no charge.
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c. Sprint shall, subject to Section 222 of the Act, as enacted or
hereafter amended, make its unbundled directory assistance
database available to Carrier. Prices shall be set at TELRIC
plus a reasonable allocation of joint and common costs.
d. Any additional actual trunking costs necessary to provide a
Carrier branded resold directory assistance service or routing
to Carrier's own directory assistance service location shall be
paid by Carrier.
D. Operator Services
I. General Requirements
a. Where Sprint (or a Sprint Affiliate on behalf of Sprint)
provides operator services, at Carrier's request (subject to any
existing system capacity restraints which Sprint shall work to
overcome) Sprint will provide to Carrier, Carrier branded
operator service which is comparable in every other way to
operator services Sprint makes available to its own end-users.
b. At Carrier's request, subject to any existing system capacity
restraints which Sprint shall work to overcome, Sprint will
route Operator Service traffic of Carrier's customers to the
Carrier's Operator Service Center.
c. Sprint shall provide operator service features to include the
following: (i) local call completion 0- and 0+, billed to
calling cards, billed collect, and billed to third party, and
(ii) billable time and charges, etc.
2. Compensation
a. Sprint shall provide operator services for resale at wholesale
prices.
b. When Carrier requests Carrier branded Sprint operator services
for resale any actual additional trunking costs associated with
Carrier branding shall be paid by Carrier.
c. The Parties shall jointly establish a procedure whereby they
will coordinate Busy Line Verification ("BLV") and Busy Line
Verification and Interrupt ("BLVI") services on calls between
their respective end-users. BLV and BLV1 inquiries between
operator bureaus shall be routed over the appropriate trunk
groups. Carrier and Sprint will reciprocally provide adequate
connectivity to facilitate this capability. In addition, upon
request of Carrier, Sprint will make available to Carrier for
purchase under contract BLV and BLVJ services at wholesale
rates.
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VI. ADDITIONAL RESPONSIBILITIES OF THE PARTIES
A. Cooperation on Fraud
1. The Parties agree that they shall cooperate with one another to
investigate, minimize and take corrective action in cases of
fraud. The Parties' fraud minimization procedures are to be cost
effective and implemented so as not to unduly burden or harm one
Party as compared to the other.
2. At a minimum, such cooperation shall include, when allowed by
law or regulation, providing to the other Party, upon request,
information concerning any end-user who terminate services to
that Party without paying all outstanding charges, when such
end-user seeks service from the other Party. Where required, it
shall be the responsibility of the Party seeking such
information to secure the end-user's permission to obtain such
information.
B. Proprietary Information
I. During the term of this Agreement, it may be necessary for the Parties
to provide each other with certain information ("Information")
considered to be private or proprietary. The recipient shall protect
such Information from distribution, disclosure or dissemination to
anyone except its employees or contractors with a need to know such
Information in conjunction herewith, except as otherwise authorized in
writing. All such Information shall be in writing or other tangible form
and clearly marked with a confidential or proprietary legend.
Information conveyed orally shall be designated as proprietary or
confidential at the time of such oral conveyance and shall be reduced to
writing within 30 days.
2. The Parties will not have an obligation to protect any portion of
Information which: (a) is made publicly available lawfully by a
non-Party to this Agreement; (b) is lawfully obtained from any source
other than the providing Party; (c) is previously known without an
obligation to keep it confidential; (d) is released by the providing
Party in writing, or (e) is required to be disclosed pursuant to a
subpoena or other process or order issued by a court or administrative
agency having appropriate jurisdiction, provided however, that the
recipient shall give prior notice to the providing Party and shall
reasonably cooperate if the providing Party deems it necessary to seek
protective arrangements.
3. Each Party will make copies of the Information only as necessary for its
use under the terms hereof, and each such copy will be marked with the
same proprietary notices as appearing on the originals. Each Party
agrees to use the Information solely in support of this Agreement and
for no other purpose.
4. All records and data received from Carrier or generated by Sprint as
part of its requirements hereunder, including but not limited to data or
records which are received or generated and stored by Sprint pursuant to
this Agreement, shall be proprietary to Carrier and subject to the
obligations specified in this Section.
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5. The Parties acknowledge that Information is unique and valuable, and
that disclosure in breach of this Agreement will result in irreparable
injury to owner for which monetary damages alone would not be an
adequate remedy. Therefore, the Parties agree that in the event of a
breach or threatened breach of confidentiality the owner shall be
entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach or anticipated breach without the
necessity of posting a bond. Any such relief shall be in addition to and
not in lieu of any appropriate relief in the way of monetary damages.
C. Law Enforcement And Civil Process
1. Intercept Devices
Local and federal law enforcement agencies periodically request
information or assistance from local telephone service providers. When
either Party receives a request associated with a customer of the other
Party, it shall refer such request to the Party that serves such
customer, unless the request directs the receiving Party to attach a pen
register, trap-and-trace or form of intercept on the Party's facilities,
in which case that Party shall comply with any valid request. Charges
for the intercept shall be at Sprint's applicable charges.
2. Subpoenas
If a Party receives a subpoena for information concerning an end-user
the Party knows to be an end-user of the other Party, it shall refer the
subpoena back to the requesting Party with an indication that the other
Party is the responsible Company, unless the subpoena requests records
for a period of time during which the Party was the end-user's service
provider, in which case the Party will respond to any valid request.
3. Hostage or Barricaded Persons Emergencies
If a Party receives a request from a law enforcement agency for
temporary number change, temporary disconnect or one-way denial of
outbound calls for an end-user of the other Party by the receiving
Party's switch, that Party will comply with any valid emergency request.
However, neither Party shall be held liable for any claims or damages
arising from compliance with such requests on behalf of the other
Party's end-user and the Party serving such end-user agrees to indemnify
and hold the other Party harmless against any and all such claims.
VII. FORCE MAJEURE
Neither Party will be liable or deemed to be in default for any delay or
failure in performance under this Agreement for an interruption in
service for which it had no control resulting directly or indirectly by
reason of fire, flood, earthquake, or like acts of God, explosion, war,
or other violence, strikes or work stoppages, or any requirement of a
governmental agency, or cable cut by a third party, provided the Party
so affected takes all reasonable steps to avoid or remove such cause of
non-performance, provides immediate
18
<PAGE>
notice to the other Party setting forth the nature of such claimed event
and the expected duration thereof, and resumes provision of service
promptly whenever such causes are removed.
VIII. LIMITATION OF LIABILITY
Except as otherwise set forth in this Agreement, neither Party shall be
responsible to the other for any indirect, special, consequential or
punitive damages, including (without limitation) damages for loss of
anticipated profits or revenue, loss of good will, loss of customers, or
other economic loss in connection with or arising from anything said,
omitted, or done hereunder (collectively "Consequential Damages"),
whether arising in contract or tort, provided that the foregoing shall
not limit a party's obligation under IX to indemnify, defend, and hold
the other party harmless against amounts payable to third parties.
Notwithstanding the foregoing, in no event shall Sprint's liability to
Carrier for a service outage exceed an amount equal to the proportionate
charge for the service(s) or unbundled element(s) provided for the
period during which the service was affected.
IX. INDEMNIFICATION
A. Each Party agrees to indemnify and hold harmless the other Party from
and against claims for damage to tangible personal or real property
and/or personal injuries arising out of the negligence or willful act or
omission of the indemnifying Party or its agents, servants, employees,
contractors or representatives. To the extent not prohibited by law,
each Party shall defend, indemnify, and hold the other Party harmless
against any loss to a third party arising out of the negligence or
willful misconduct by such indemnifying Party, its agents, or
contractors in connection with its provision of service or functions
under this Agreement. In the case of any loss alleged or made by a
Customer of either Party, the Party whose customer alleged such loss
shall indemnify the other Party and hold it harmless against any or all
of such loss alleged by each and every Customer. The indemnifying Party
under this Section agrees to defend any suit brought against the other
Party-either individually or jointly with the indemnifying Party-for any
such loss, injury, liability, claim or demand. The indemnified Party
agrees to notify the other Party promptly, in writing, of any written
claims, lawsuits, or demands for which it is claimed that the
indemnifying Party is responsible under this Section and to cooperate in
every reasonable way to facilitate defense or settlement of claims. The
indemnifying Party shall have complete control over defense of the case
and over the terms of any proposed settlement or compromise thereof. The
indemnifying Party shall not be liable under this Section for settlement
by the indemnified Party of any claim, lawsuit, or demand, if the
indemnifying Party has not approved the settlement in advance, unless
the indemnifying Party has had the defense of the claim, lawsuit, or
demand tendered to it in writing and has failed to assume such defense.
In the event of such failure to assume defense, the indemnifying Party
shall be liable for any reasonable settlement made by the indemnified
Party without approval of the indemnifying Party.
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<PAGE>
B. Each Party agrees to indemnify and hold harmless the other Party from
all claims and damages arising from the Indemnifying Party's
discontinuance of service to one of its end-users for nonpayment.
C. When the lines or services of other companies and Carriers are used in
establishing connections to and/or from points not reached by a Party's
lines, neither Party shall be liable for any act or omission of the
other companies or Carriers.
D. In addition to its indemnity obligations hereunder, each Party shall
provide, in its tariffs and contracts with its customers that relate to
any Telecommunications Service or Network Element provided or
contemplated under this Agreement, that in no case shall such Party or
any of its agents, contractors or others retained by such parties be
liable to any Customer or third party for (i) any loss relating to or
arising out of this Agreement, whether in contract or tort, that exceeds
the amount such Party would have charged the applicable Customer for the
service(s) or function(s) that gave rise to such loss, and (ii)
consequential damages (as defined in VlII. above)
X. ASSIGNMENT
A. If any Affiliate of either Party succeeds to that portion of the
business of such Party that is responsible for, or entitled to, any
rights, obligations, duties, or other interests under this Agreement,
such Affiliate may succeed to those rights, obligations, duties, and
interest of such Party under this Agreement. In the event of any such
succession hereunder, the successor shall expressly undertake in writing
to the other Party the performance and liability for those obligations
and duties as to which it is succeeding a Party to this Agreement.
Thereafter, the successor Party shall be deemed Carrier or Sprint and
the original Party shall be relieved of such obligations and duties.
except for matters arising out of events occurring prior to the date of
such undertaking.
B. Except as herein before provided, and except to an assignment confined
solely to moneys due or to become due, any assignment of this Agreement
or of the work to be performed, in whole or in part, or of any other
interest of a Party hereunder, without the other Party's written
consent, which consent shall not be unreasonably withheld or delayed,
shall be void. It is expressly agreed that any assignment of moneys
shall be void to the extent that it attempts to impose additional
obligations other than the payment of such moneys on the other Party or
the assignee additional to the payment of such moneys.
XI. DISPUTE RESOLUTION
A. Other Than Billing - The Parties recognize and agree that the Commission
has continuing jurisdiction to implement and enforce all terms and
conditions of this Agreement. Accordingly, the Parties agree that any
dispute arising out of or relating to this Agreement that the Parties
themselves cannot resolve may be submitted to the Commission for
resolution. The Parties agree to seek expedited resolution by the
Commission, and shall request that resolution occur in no event later
than sixty (60) days
20
<PAGE>
from the date of submission of such dispute. If the Commission appoints
an expert(s) or other facilitator(s) to assist in its decision making,
each party shall pay half of the fees and expenses so incurred. During
the Commission proceeding each Party shall continue to perform its
obligations under this Agreement provided, however, that neither Party
shall be required to act in any unlawful fashion. This provision shall
not preclude the Parties from seeking relief available in any other
forum.
B. Billing
I. If any portion of an amount due to a Party ("the Billing Party") under
this Agreement is subject to a bona fide dispute between the Parties,
the Party billed (the "Non-Paying Party") shall within thirty (30) days
of its receipt of the invoice containing such disputed amount give
notice to the Billing Party of the amounts it disputes ("Disputed
Amounts") and include in such notice the specific details and reasons
for disputing each item. The Non-Paying Party shall pay when due (i) all
undisputed amounts to the Billing Party and (ii) fifty (50) percent of
the Dispute Amount. The remaining balance of the Disputed Amount not
paid shall thereafter be paid with appropriate late charges, if
appropriate, upon final determination of such dispute.
2. If the Parties are unable to resolve the issues related to the Disputed
Amounts in the normal course of business within thirty (30) days after
delivery to the Billing Party of notice of the Disputed Amounts, each of
the Parties shall appoint a designated representative that has authority
to settle the dispute and that is at a higher level of management than
the persons with direct responsibility for administration of this
Agreement. The designated representatives shall meet as often as they
reasonably deem necessary in order to discuss the dispute and negotiate
in good faith in an effort to resolve such dispute. The specific format
for such discussions will be left to the discretion of the designated
representatives, however all reasonable requests for relevant
information made by one Party to the other Party shall be honored.
3. If the Parties are unable to resolve issues related to the Dispute
Amounts within thirty (30) days after the Parties' appointment of
designated representatives pursuant to subsection 2, then either Party
may file a complaint with the Commission to resolve such issues or
proceed with any other remedy pursuant to law or equity. The Commission
may direct payment of any or all funds plus applicable late charges to
be paid to either Party.
XII. MISCELLANEOUS
A. Governing Law - The Parties agree that this Agreement shall be construed
in accordance with and governed by the laws of the State where the
resale service is provided.
B. Compliance With Laws - Both Parties agree to comply with all applicable
federal, state, and local laws, including, but not limited to the
Communications Act of 1934 as amended.
21
<PAGE>
C. Notices . All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be effective as follows: (i) by
hand on the date delivered; (ii) by certified mail, postage prepaid,
return receipt requested, on the date the mail is delivered or its
delivery attempted; (iii) by facsimile transmission, on the date
received in legible form (it being agreed that the burden of proof of
receipt is on the sender and will not be met by a transmission report
generated by the senders facsimile machine), or (iv) if sent by
electronic messaging system, on the date that electronic message is
received. Notices shall be given as follows:
If to Sprint: If to Carrier:
Ms. Kathy Fulton Ms. Stacy Gordon
Field Service Manager Local Services Manager
5454 West 110 Street 3301 West Marshall
Overland Park, KS 66211 Longview, TX 75604
Either Party may change its address or the person to receive notices by
a notice given to the other Party in the manner set forth above.
D. Good Faith - The Parties agree to use their respective diligent and good
faith efforts to fulfill all of their obligations under this agreement.
The Parties recognize, however, that to effectuate all the purposes of
the Agreement, it may be necessary either to enter into future
agreements or to modify the Agreement, or both. In such event, the
Parties agree to cooperate with each other in good faith. This Agreement
may be modified by a written instrument only, executed by each Party
hereto.
E. Headings - The headings in this Agreement are inserted for convenience
and identification only and are not intended to interpret, define, or
limit the scope, extent or intent of this Agreement.
F. Execution - This Agreement may be executed in one or more counterparts,
all of which taken together will constitute one and the same instrument.
G. Benefit - The Parties agree that this Agreement is for the sole benefit
of the Parties hereto /and is not intended to confer any rights or
benefits on any third party, including any customer of either Party, and
there are no third party beneficiaries to this Agreement or any part or
specific provision of this Agreement.
H. Survivorship - Sections VI, VIII, and IX shall survive termination or
expiration of this Agreement.
I. Entire Agreement - This Agreement constitutes the entire agreement
between the Parties and supersedes all prior oral or written agreements,
representations, statements, negotiations, understandings, and proposals
with respect to the subject matter hereof.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives.
SPRINT CARRIER
By: /s/ John L. Roe By: /s/ [Illegible]
Name: John L. Roe Name: [Illegible]
Title: Vice President-Carrier and Regulatory Title: President
Date: 5/7/97 Date: 4/18/97
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<PAGE>
EXHIBIT 1
- --------------------------------------------------------------------------------
SPRINT - UNITED & CENTEL
RESALE DISCOUNTS
- --------------------------------------------------------------------------------
Sprint/United and Sprint/Centel of Texas are discounting as listed below from
the current tariffed rates until such time as appropriate tariffs are filed.
These discounts axe band upon Sprint/United and Sprint/Centel Telephone's
Avoided Cost Studies.
UNITED CENTEL
SERVICES DISCOUNTS DISCOUNTS
- -------- --------- ---------
Residential Local Service 16.96% l7.40%
Simple Business Local Service 16.96% 17.40%
Local Measured Service 16.96% 17.40%
Extended Area Service 16.96% 17.40%
Centrex Line 16.96% 17.40%
Key System 16.96% 17.40%
PBX 16.96% 17.40%
Custom Calling Features 16.96% 17.40%
CLASS 16.96% 17.40%
Centrex Features 16.96% 17.40%
Directory Assistance 43.94% 35.63%
Operator Assistance 43.94% 35.63%
Private Line Assistance 16.96% 17.40%
Intralata Toll 16.96% 17:40%
<PAGE>
EXHIBIT 2
INTERIM STANDARDS FOR ACCESS TO SYSTEMS
Ordering
Company will follow the industry standards defined by the Ordering and Billing
Forum (OBF) for the ordering of Local Service using an Electronic Data
Interchange (EDI) electronic interface for the Local Service Request Form (LSR).
The Company will use its best efforts to implement the components of the LSR
that went to final closure in the October 1996 OBF session by July 1, 1997. Any
issues that go to initial or final closure in the February 1997 session will be
reviewed to determine which, if any, can be included in the July 1, 1997
deliverable. Company will jointly develop with the Carrier an implementation
agreement which will include defining a method of transport, using
Connect:Direct (CDN) technology. Any open issues after the February 1997 OBF
session will be reviewed on a case-by-case basis to develop interim solutions
until system changes can be made.
Pre-Ordering
Company will follow industry standards defined by the OBF or other standard
setting body for the pre-ordering validation requested by Carrier as they are
defined. Company is actively working towards implementing changes to the
operational support systems that will facilitate the implementation of
electronic interfaces once standards are defined. These changes include the
following infrastructure projects:
Consolidation and standardization of telephone number assignment systems
Consolidation and standardization of addresses
Mechanization of services and features availability
Company will share the projected implementation dates of these infrastructure
projects as they become available and is willing to provide monthly status
reports and project reviews as necessary. Company will commit to a project
completion date and a specific technology for implementation of electronic
interfaces for pre-ordering validation at the time industry standards go to
initial closure. The electronic interface will be implemented within twelve
months of the industry standards being defined.
Company currently does not provide exact appointment times to our end users and
is not in a position to offer it to Carrier. System and process modifications
are being reviewed to determine the scope of implementing this functionality. A
timeline, including the electronic interface, will be provided when the system
analysis is complete.
Company will work with Carrier in the interim to develop work arounds so that
Carrier can get the pre-ordering validation information as quickly as possible.
<PAGE>
ATTACHMENT B
Affidavit of Michael D. Smith
<PAGE>
AFFIDAVIT OF MICHAEL D. SMITH
STATE OF KANSAS, COUNTY OF JOHNSON) ss:
Before me, the undersigned authority, on this 9th day of June, 1997,
personally appeared Michael D. Smith who, upon being by me duly sworn on oath,
deposed and said the following:
1. My name is Michael D. Smith. I am over the age of twenty-one, of sound
mind and competent to testify to the matters stated herein. I am
Director-Texas Revenues for Sprint-Western Operations of which United
Telephone Company of Texas, Inc. d/b/a Sprint and Central Telephone
Company of Texas d/b/a Sprint (hereinafter jointly referred to as
"Sprint") is a part.
2. On May 9, 1997, Valu-Line Long Distance ("Valu-Line") executed a Master
Resale Agreement between United Telephone Company of Texas, Inc. d/b/a
Sprint and Central Telephone Company of Texas d/b/a Sprint (the
"Agreement") I have personal knowledge of the pr6visions contained in
the Agreement.
3. The parties engaged in several months of good faith negotiations
consistent with the Telecommunications Act of 1996, culminating in the
executed agreement.
4. The Agreement, together with the two attachments incorporated therein,
are an integrated package and are the result of negotiation and
compromise between the parties.
5. There are no outstanding issues between the parties with respect to the
limited subject matter of the Agreement that need the assistance of
mediation or arbitration at this time.
6. The implementation of this Agreement is consistent with the public
interest, convenience and necessity. It sets forth the provisions under
which Valu-Line will resale Sprint telecommunications services. The
Agreement furthers the development of telecommunications competition in
the State of Texas and, thus, is consistent with the policies of this
State and the United States which encourage diversity in providers,
provide interconnectivity, and increase customer choices for
telecommunications services.
7. This Agreement is procompetitive in that it allows Valu-Line to compete
in the local exchange service market by enabling the resale of Sprint's
telecommunication services. It is beneficial to end users in Valu-Line's
certificated area because it will permit them to have an additional
choice for local telephone service.
1
<PAGE>
8. The implementation of this Agreement is consistent with the policies
embodied in the Public Utility Regulatory Act of 1995 in that this
Agreement fosters, encourages, and accelerates the continuing
development of a competitive local telephone market. Past experience has
shown that competition of the provision of telecommunication services
has benefited the public as competitors have made a variety of new
services and equipment available. Because competitive pressures
generally operate to reduce prices and improve quality, competition in
the provision of local telephone service can be expected to bring these
benefits to the public as well.
FURTHER AFFIANT SAITH NOT.
/s/ Michael D. Smith
-------------------------------
Michael D. Smith
Director-Texas Revenues
for Sprint-Western Operations
Subscribed and sworn to before me this 9th day of June, 1997, by Michael
D. Smith, Director-Texas Revenues for Sprint-Western Operations.
[SEAL]
LONNA WHITEAKER
NOTARY PUBLIC
STATE OF KANSAS
/s/ Lonna Whiteaker
---------------------------
Notary Public
My Appointment Expires: 5-19-2001
2
<PAGE>
ANNEX III
OFFICE EXPENSE AGREEMENT
THIS AGREEMENT, executed this _____ day of ____________, 1997, by and
between FEIST PUBLICATIONS, INC. ("FPI"), FEIST SYSTEMS, INC. ("FSI") and FEIST
LONG DISTANCE SERVICE, INC. ("FLD").
WHEREAS, all three of the above parties use office space located at
100 South Main, Suite 100, Wichita, Kansas, which is leased in FPI's name only,
and
WHEREAS, presently rent is allocated between the three entities so
that each pays its own proportionate share; and
WHEREAS, the parties wish to include personnel and office expenses and
document their agreement by a contract in writing.
NOW THEREFORE, the parties agree as follows:
1. ALLOCATION OF EXPENSES. Each Entity, FPI, FSI, and FLD will
hereinafter pay its proportionate share of expenses actually
incurred in respect of office space, support facilities and
personnel. FPI and FSI will submit an itemized monthly
invoice to FLD covering each's proportionate share of such
expenses and FLD shall promptly pay their proportionate share
of such expenses. Likewise, FLD will submit an itemized
monthly invoice to FSI and FPI covering each's proportionate
share of such expenses and FSI and FPI shall promptly pay
their proportionate share of such expenses.
2. TERM AND BINDING EFFECT. This agreement shall remain in
effect for a term of five (5) years from ____________, 1997.
It is binding upon the parties hereto and their successors
and assigns.
IN WITNESS WHEREOF, the parties have set their hands the day and year
first above written.
FEIST PUBLICATIONS, INC.
By:
-------------------------------
Tom Feist, President
<PAGE>
FEIST SYSTEMS, INC.
By:
-------------------------------
Jay Feist, President
FEIST LONG DISTANCE SERVICES, INC.
By:
-------------------------------
Todd Feist, President
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<PAGE>
ANNEX V
INTERNET RESELLER AGREEMENT
THIS AGREEMENT, executed this ___ day of ___________, 1997, by and
between FEIST SYSTEMS, INC. ("FSI") and FEIST LONG DISTANCE SERVICE, INC.
("FLD").
IT IS AGREED between the parties hereto as follows:
1. INTERNET ACCESS SERVICES. FLD will receive the rights to
re-sell internet access services to new and existing
customers at a cost of 25% discount of FSI's retail rates.
FLD will be responsible for billing and collection of such
services and net 20 payment of FSI's invoice. FSI will handle
all install issues, provide two days of training for sales
personnel, training materials and diskettes, technical
support and will be responsible for billing FLD. FSI will
also be responsible for maintaining the infrastructure
necessary to provide such services. FLD agrees to resell FSI
internet services exclusively in the Wichita and Topeka
markets provided FSI maintains a port capacity of a total of
ten (10) subscribers of FSI and FLD per port.
2. TERM AND BINDING EFFECT. This agreement shall remain in
effect for a term of five (5) years from __________________,
1997. It is binding upon the parties hereto and shall only be
terminated with 120 day written notice.
FEIST SYSTEMS, INC.
By
------------------------------------
Jay Feist, President
FEIST LONG DISTANCE SERVICES, INC.
By:
------------------------------------
Todd Feist, President
<PAGE>
STANDSTILL AGREEMENT
Standstill Agreement ("Agreement") dated as of ________, 1998 between
Advanced Communications Group, Inc. (the "Company"), a Delaware corporation and
Mr. Rod K. Cutsinger, a resident in the State of Texas.
WHEREAS, the Company intends to conduct an initial public offering of
its shares of common stock ("Shares") in conjunction with the consummation of
the acquisition of certain target companies (the "Transaction").
WHEREAS, the Company and Cutsinger are entering into this Agreement to
establish certain arrangements with respect to the relationships between them.
WHEREAS, the Company and Cutsinger believe that these arrangements
will be in the best interests of the Company and all of its stockholders
including Cutsinger.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 The terms "beneficial ownership," "person" and "group" shall have
the respective meanings ascribed to such terms pursuant to Regulation 13D-G
adopted by the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on the date hereof. The term "affiliate" shall have the meaning ascribed to
such term pursuant to Rule 12b-2 under the Exchange Act, as in effect on the
date hereof.
1.2 "Company Voting Securities" shall mean, collectively, common
stock, any preferred stock of the Company that is entitled to vote generally
for the election of directors, any other class or series of Company securities
that is entitled to vote generally for the election of directors and any other
securities, warrants, options or rights of any nature (whether or not issued by
the Company) that are convertible into, exchangeable for, or exercisable for
the purchase of, or otherwise give the holder thereof any rights in respect of,
common stock, Company preferred stock that is entitled to vote generally for
the election of directors, or any other class or series of Company securities
that is entitled to vote generally for the election of directors.
1.3 "Consolidation Partners" shall mean Consolidation Partners L.L.C.,
a Texas limited liability company.
<PAGE>
1.4 "CPFF" shall mean Consolidation Partners Founding Fund, L.L.C., a
Texas limited liability company.
1.5 "Cutsinger" shall mean (i) Rod K. Cutsinger, and (ii) any
affiliate of Rod K. Cutsinger (excluding any member of his immediate family).
1.6 "Disinterested Directors" means directors of the Company who have
no financial interest in and are not otherwise associated with CPFF,
Consolidation Partners and any other affiliate of Cutsinger, and who are
"disinterested directors" as that term is used in Section 144 of the Delaware
General Corporate Law.
1.7 "Effective Date" means the Closing Date as defined in the
Underwriting Agreement, dated as of _______, 1998 between the Company and
PaineWebber Incorporated and CIBC Oppenheimer Corp., as Representatives of the
several Underwriters.
1.8 The "Maximum Permitted Voting Power" at any measurement date shall
mean all Company Voting Securities owned by Cutsinger, that are outstanding as
of the date hereof or issued by the Company after the date hereof, pursuant to
a stock split or a stock dividend or upon exercise of options granted under the
Company's Non-Qualified Stock Option Plan for Non-Employee Directors.
ARTICLE II
STANDSTILL
2.1 Acquisition of Company Voting Securities. Prior to the third
anniversary of the Effective Date, Cutsinger shall not, directly or indirectly
(through CPFF, Consolidation Partners or otherwise), acquire, offer to acquire,
agree to acquire, become the beneficial owner of or obtain any rights in
respect of any Company Voting Securities, by purchase or otherwise, or take any
action in furtherance thereof, if the effect of such acquisition, agreement or
other action would be (either immediately or upon consummation of any such
acquisition, agreement or other action, or expiration of any period of time
provided in any such acquisition, agreement or other action) to increase the
aggregate beneficial ownership of Company Voting Securities by Cutsinger to
such number of Company Voting Securities that have greater than the Maximum
Permitted Voting Power.
2.2 Proxy Solicitations, etc. Prior to the third anniversary of the
Effective Date, Cutsinger shall not solicit proxies, assist any other person in
any way, directly or indirectly (through CPFF, Consolidation Partners or
otherwise), in the solicitation of proxies, become a "participant" in a
"solicitation" or assist any "participant" in a "solicitation" (as such terms
are defined in Rule 14a-1 of Regulation 14A under the Exchange Act) in
opposition to nominees for
-2-
<PAGE>
directors proposed by the Board of Directors of the Company or submit any
proposal for the vote of stockholders of the Company.
2.3 No Voting Trusts, Pooling Agreements, or Formation of "Groups".
Prior to the third anniversary of the Effective Date, Cutsinger shall not (i)
form, join or in any other way participate in a partnership, pooling agreement,
syndicate, voting trust or other "group" with respect to Company Voting
Securities (other than Consolidation Partners) or (ii) enter into any agreement
or arrangement or otherwise act in concert with any other person other than the
Company (other than Consolidation Partners) for the purpose of acquiring,
holding, voting or disposing of Company Voting Securities.
2.4 No Solicitation of Bidders. Prior to the third anniversary of the
Effective Date, Cutsinger not directly or indirectly (through CPFF,
Consolidation Partners or otherwise) assist, encourage or induce any person to
bid for or acquire outstanding Company Voting Securities in any transaction or
series of related transactions (except as may be approved by a majority of the
Disinterested Directors).
2.5 Non-Circumvention. Cutsinger shall not take any action, alone or
in concert with any other person to circumvent the limitations of the
provisions of Articles II and III of this Agreement. Cutsinger shall not (i)
present to the Company or to any third party any proposal that can reasonably
be expected to result in any increase beyond the Maximum Permitted Voting Power
of Company Voting Securities beneficially owned in the aggregate by Cutsinger,
(ii) publicly suggest or announce his willingness or desire to engage in a
transaction or group of transactions that would result in any increase beyond
the Maximum Permitted Voting Power of Company Voting Securities beneficially
owned in the aggregate by Cutsinger, or (iii) initiate, request, induce or
attempt to induce or give encouragement to any other person to initiate any
proposal that can reasonably be expected to result in any increase beyond the
Maximum Permitted Voting Power of Company Voting Securities beneficially owned
in the aggregate by Cutsinger.
-3-
<PAGE>
ARTICLE III
VOTING OF COMPANY SECURITIES AND RELATED MATTERS
3.1 Board Election. Cutsinger shall vote all Company Voting Securities
owned of record by Cutsinger, and shall cause all Company Voting Securities
owned beneficially by Cutsinger to be voted, with respect to the election or
removal of directors of Company, or any other matter that may be presented to
the stockholders of the Company that would relate to a possible change of
control of the Company in accordance with the recommendations of a majority of
Disinterested Directors.
3.2 Stockholders Meetings. Cutsinger shall be present, in person or by
proxy, at all meetings of stockholders of the Company so that all Company
Voting Securities owned of record or beneficially owned by Cutsinger may be
counted for the purpose of determining the presence of a quorum at such
meetings.
ARTICLE IV
MISCELLANEOUS
4.1 Term of Agreement; Certain Provisions Regarding Termination. This
Agreement shall have a term of three years from the Effective Date and shall
not be terminated for whatever reason until after the third anniversary of the
Effective Date.
4.2 Remedies.
(a) Cutsinger and the Company acknowledge and agree that (i) the
provisions of this Agreement are reasonable and necessary to protect the proper
and legitimate interests of the parties hereto, and (ii) the parties would be
irreparably damaged in the event any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that each party shall be entitled to
preliminary and permanent injunctive relief to prevent breaches of the
provisions of this Agreement by the other party (or its affiliates) without the
necessity of proving actual damages or of posting any bond, and to enforce
specifically the terms and provisions hereof and thereof in any court of the
United States or any state thereof having jurisdiction, which rights shall be
cumulative and in addition to any other remedy to which the parties may be
entitled hereunder or at law or equity.
(b) In addition to any other remedy the Company may have under this
Agreement or in law or equity, if Cutsinger shall acquire or transfer any
Company Voting Securities in violation of this Agreement, such Company Voting
Securities which are in excess of the number permitted to be owned or
controlled by Cutsinger or which have been transferred by Cutsinger in
-4-
<PAGE>
violation of the provisions of this Agreement may not be voted by the owner
thereof or any proxy therefor.
4.3 Additional Cutsinger Parties; Several Obligations. All of the
liabilities and obligations under this Agreement of Cutsinger shall be joint
and several. Each member of Cutsinger that shall become or have the right to
become the beneficial owner, within the meaning and scope of Section 1.1
hereof, of Company Voting Securities shall, promptly upon becoming such owner
or holder, execute and deliver to the Company a joinder agreement, agreeing to
be legally bound by this Agreement to the same extent as if it had signed this
Agreement as an original signatory as a member of Cutsinger; provided that
failure to execute such an agreement shall not excuse such member's
non-compliance with any provision of this Agreement. No member of Cutsinger
shall transfer securities to another member of Cutsinger unless the transferee
shall agree to be bound by this Agreement in the manner specified above in this
Section 4.3.
4.4 Notices. All notices, and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
facsimile, to the appropriate address or facsimile number set forth below (or
at such other address or facsimile number for a party as shall be specified by
like notice):
if to Cutsinger:
with copy to:
if to the Company:
4.5 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in
-5-
<PAGE>
no way be affected, impaired or invalidated. The parties hereto agree that they
will use their best efforts at all times to support and defend this Agreement.
4.6 Amendments. This Agreement may be amended only by an agreement in
writing signed by each of the parties hereto; provided, however, that any
amendment executed by the Company must prior thereto be approved by a majority
of the Disinterested Directors.
4.7 Governing Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware without regard to its
conflict of law rules and principles.
4.8 Descriptive Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
4.9 Counterparts; Facsimile Signatures. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
bears the signatures of each of the parties hereto. This Agreement may be
executed in any number of counterparts, each of which shall be an original as
against the party whose signature appears thereon, or on whose behalf such
counterpart is executed, but all of which taken together shall be one and the
same agreement. A facsimile copy of a signature of a party to this Agreement or
any such counterpart shall be fully effective as if an original signature.
4.10 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto but in no event shall be binding upon the purchasers of any
Company Voting Securities from Cutsinger.
-6-
<PAGE>
IN WITNESS WHEREOF, Advanced Communications Group, Inc. and Rod K.
Cutsinger have executed this Standstill Agreement as of the date first above
written.
-------------------------------------
Rod K. Cutsinger
Advanced Communications Group, Inc.
-------------------------------------
By: Richard P. Anthony, President and
Chief Executive Officer
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<PAGE>
NON-COMPETITION AGREEMENT
Non-Competition Agreement ("Agreement") dated as of ____________, 1998
between Advanced Communications Group, Inc. (the "Company"), a Delaware
corporation and Mr. Rod K. Cutsinger ("Cutsinger"), a resident in the State of
Texas.
WHEREAS, the Company intends to conduct an initial public offering of
its shares of common stock ("Shares") in conjunction with the consummation of
the acquisition of certain target companies (the "Transaction").
WHEREAS, the Company and Cutsinger are entering into this Agreement to
establish certain arrangements with respect to the relationships between them.
WHEREAS, the Company and Cutsinger believe that these arrangements
will be in the best interests of the Company and all of its stockholders
including Cutsinger.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Consolidation Partners" shall mean Consolidation Partners L.L.C.,
a Texas limited liability company.
1.2 "CPFF" shall mean Consolidation Partners Founding Fund, L.L.C., a
Texas limited liability company.
1.3 "Disinterested Directors" means directors of the Company who have
no financial interest in and are not otherwise associated with CPFF,
Consolidation Partners and any other affiliate of Cutsinger, and who are
"disinterested directors" as that term is used in Section 144 of the Delaware
General Corporate Law.
ARTICLE II
NON-COMPETITION
2.1 Non-Competition. For a period of five (5) years from the date of
this Agreement, Cutsinger shall not directly or indirectly (through CPFF,
Consolidation Partners or otherwise)
<PAGE>
own, manage, operate, finance, or have a material financial interest in, or be
employed as an employee, agent or consultant by any telecommunications business
engaged in any line of business conducted by the Company at the date of this
Agreement in any service area in which the Company operates at the date of this
Agreement provided that he may own a 5% or less interest in any publicly traded
telecommunications company.
2.2 Consideration. As consideration for the covenant set forth in
Section 2.1 above, the Company will pay Rod K. Cutsinger One Million Seven
Hundred and Fifty Thousand Dollars ($1,750,000) in cash upon his execution and
delivery of this Agreement.
ARTICLE III
MISCELLANEOUS
3.1 Remedies. Cutsinger and the Company acknowledge and agree that (i)
the provisions of this Agreement are reasonable and necessary to protect the
proper and legitimate interests of the parties hereto, and (ii) the parties
would be irreparably damaged in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that each party shall be entitled
to preliminary and permanent injunctive relief to prevent breaches of the
provisions of this Agreement by the other party (or its affiliates) without the
necessity of proving actual damages or of posting any bond, and to enforce
specifically the terms and provisions hereof and thereof in any court of the
United States or any state thereof having jurisdiction, which rights shall be
cumulative and in addition to any other remedy to which the parties may be
entitled hereunder or at law or equity.
3.2 Notices. All notices, and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
facsimile, to the appropriate address or facsimile number set forth below (or
at such other address or facsimile number for a party as shall be specified by
like notice):
if to Cutsinger:
with copy to:
-2-
<PAGE>
if to the Company:
3.3 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The parties hereto agree that they will use
their best efforts at all times to support and defend this Agreement.
3.4 Amendments. This Agreement may be amended only by an agreement in
writing signed by each of the parties hereto; provided, however, that any
amendment executed by the Company must prior thereto be approved by a majority
of the Disinterested Directors.
3.5 Governing Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware without regard to its
conflict of law rules and principles.
3.6 Descriptive Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
3.7 Counterparts; Facsimile Signatures. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
bears the signatures of each of the parties hereto. This Agreement may be
executed in any number of counterparts, each of which shall be an original as
against the party whose signature appears thereon, or on whose behalf such
counterpart is executed, but all of which taken together shall be one and the
same agreement. A facsimile copy of a signature of a party to this Agreement or
any such counterpart shall be fully effective as if an original signature.
3.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
-3-
<PAGE>
IN WITNESS WHEREOF, Advanced Communications Group, Inc. and Rod K.
Cutsinger have executed this Non-Competition Agreement as of the date first
above written.
-------------------------------------
Rod K. Cutsinger
Advanced Communications Group, Inc.
-------------------------------------
By: Richard P. Anthony, President and
Chief Executive Officer
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") made and entered into this 3rd day of September 1997, by and
between RAFT, L.L.C., a South Dakota Limited Liability Company (sometimes
hereinafter referred to as "RAFT" or "Seller"), with principal offices at 200
Petro Avenue, Sioux Falls, South Dakota 57107, PAM Oil, Inc., (sometimes
hereinafter referred to as "PAM"), Scott D. Scofield, an individual (sometimes
referred to herein as "Scofield"), William Pederson (sometimes referred to
herein as "Pederson") and Firstel, Inc., a South Dakota corporation, with
principal offices at 110 South Phillips Avenue, Suite 202, Sioux Falls, South
Dakota 57104 (such corporation being hereinafter referred to as "Buyer" or
"Firstel");
W I T N E S S E T H:
WHEREAS, RAFT operates a business which is involved in the sales and
servicing of long distance and local telephone services and related
telecommunications services (referred to as "Business"), and which Business was
formerly conducted by PAM COMM, as a division of PAM Oil, Inc.; and
WHEREAS, Seller desires to sell and Buyer desires to purchase all of
the assets used in the operation of the Business (except for certain assets
excluded as set forth hereinbelow in Paragraph 2) specifically including, but
not limited to, all customer relationships, whether active or in process as of
the date of closing, and the related computer systems, licenses, certifications
and other assets related to the Business; and
WHEREAS, Seller and Buyer desire to enter into and execute this
Agreement for the purpose of setting forth the terms and conditions of the sale
and purchase contemplated herein;
NOW, THEREFORE, in consideration of the promises and subject to the
conditions in this Agreement, as well as the mutual covenants and agreements
set forth herein and in the Exhibits referenced herein and/or attached hereto,
Buyer and Seller agree as follows:
1. Assets Purchased. Seller shall sell and transfer to Buyer, and Buyer
shall purchase and accept from Seller, all of those assets owned by Seller used
in the operation of the Business, except for those assets referenced
hereinbelow in Paragraph 2, wherever the same may be located, including,
without limitation, the following (hereinafter referred to as "Assets
Purchased");
a. All rights of Seller relating to the Business with respect to
all of the customers of the Business and all contracts set
forth on Exhibit A which is attached hereto and by this
reference incorporated as if fully set forth herein.
<PAGE>
b. All equipment utilized by Seller with respect to the Business
as set forth on Exhibit B which is attached hereto and by
this reference incorporated as if fully set forth herein,
including, but not limited to, related computer systems.
c. All of the Seller's rights to conduct business (including use
of the existing trade name "PAM COMM" which name Seller
represents Buyer will have the right to use; however, the
right to use the trade name "PAM COMM" shall terminate as of
the close of business on December 31, 1997, at which time all
rights relative to the use of such name shall revert to PAM).
d. Goodwill.
e. Customer lists and files, personnel records, and records
relating to the operation of the Business, including, but not
limited to all information contained in and related to the
computers (and disks used therein) of the Business. Buyer
shall be responsible for any costs relating to data
conversion to Buyer's system.
f. All licenses and permits associated with the Business, to the
extent assignable or transferable by Seller, subject to
obtaining any required consents.
g. A Covenant Not To Compete as set forth in Exhibit C, a copy
of which is attached hereto and by this reference
incorporated as if fully set forth herein.
2. Assets Excluded. Notwithstanding anything contained herein to the
contrary, Buyer does not purchase and Seller does not sell cash on hand as of
the date of Closing, accounts receivable arising out of operations prior to
closing, or any right to receive amounts, deposits or any other sums of any
nature whatsoever relating to or arising out of operations prior to Closing.
3. Liabilities and Obligations Retained and Assumed. (a) Seller shall be
responsible for each and every liability, obligation and undertaking of the
Seller including, not limited to, any and all secured obligation, accounts
payable, and current liabilities relative to Seller and the Business and any
obligations of Seller to employees for bonus, accrued vacation or other
benefit; (b) Buyer shall assume the obligations of Seller with respect to the
rights, obligations and duties of Seller with regard to the customers and
contracts set forth on Exhibit A and agrees to release Seller from any further
obligations thereunder, to the extent set forth herein, except that with
respect to the WorldCom Service Agreement referenced herein, Buyer's only
obligation shall be to utilize WorldCom for customers of the Business as set
forth on Exhibit A until June 30, 1999, except to the extent otherwise agreed
upon by the parties hereto, and with Seller specifically warranting and
representing that it shall remain responsible for any problems or defaults with
regard to said WorldCom Service Agreement, including, but not
2
<PAGE>
limited to, defaults arising as the result of this transaction or any failure
of PAM to make payments to WorldCom as required by paragraph 9.(c) hereof.
4. Purchase Price. The purchase price shall be the sum of the amount set
forth on Exhibit A, and the amount set forth on Exhibit B, namely,
$183,178.43. In addition to the amount due for customer accounts as set forth on
Exhibit A, there are potential customers of the Business as set forth on Exhibit
D, which is attached hereto and by this reference incorporated as if fully set
forth herein. If the Business and/or Firstel (or Firstel's successor in
interest, if any) obtain a signed contract for services from any of the
potential customers listed on Exhibit D, within sixty (60) days of the date of
closing, or the date of the initial public offering of ACG, Inc., whichever
occurs first, and if such contract for service is for at least one year at
normal rates, the Seller shall be entitled to an increase in the amount of the
Exhibit A amount referenced hereinbelow in paragraph 5 in an amount six times
the estimated monthly billing for such customer. The purchase price shall be
allocated as set forth on Exhibit E, which is attached hereto and by this
reference incorporated as if fully set forth herein.
5. Payment of Purchase Price. The amount due pursuant to Exhibit B shall
be paid in cash at closing. The amount due pursuant to Exhibit A, will be due
(without interest) on December 15, 1997, or the date of completion of the
initial public offering of ACG, Inc. Provided that the initial public offering
of ACG, Inc., occurs as contemplated with Firstel, Inc., participating therein,
Seller shall receive the amount due in shares of stock, valued at the initial
public offering price, in ACG, Inc., equivalent to the Exhibit A amount. It is
currently contemplated that the mechanism utilized to accomplish this effect
would be for the purchase price to be paid to Seller in Firstel stock
immediately prior to the initial public offering; then Firstel stock would be
converted to preferred stock in ACG, Inc. (or a subsidiary of ACG, Inc.), which
would, immediately after the initial public offering, be converted to shares of
common stock in ACG, Inc., in an amount necessary to result in the Exhibit A
amount being paid to Seller as set forth herein. Seller recognizes that it
would need to sign any documents necessary to permit said stock to be issued by
ACG, Inc., as part of its initial public offering, including, but not limited
to, any documents to permit the appropriate modifications to the Registration
Statement on Form S-1 with the SEC and any other documents required by ACG,
Inc. Seller acknowledges that it will (a) be subject to the same transfer
restrictions as required in the S-1 filing, (b) make the same investment
representations, and (c) will have the same registration rights as required in
the S-1 filing, with regard to the stock of ACG, Inc., as those applicable to
Firstel and its shareholders with respect to Firstel's participation in the
proposed initial public offering of ACG, Inc. Alternatively, if Firstel does
not execute a definitive agreement with ACG, Inc, and/or receive ACG, Inc.
stock, Firstel shall have the opportunity to find a new/replacement entity to
establish a relationship which is similar to that which is contemplated between
Firstel and ACG, Inc., prior to December 15, 1997. As a result of a
relationship between Firstel and the new/replacement entity, Firstel may, but
is not obligated to, offer stock in the new/replacement entity as an
alternative to Seller; however, the decision to accept stock or
3
<PAGE>
cash as referenced hereinbelow shall be determined by Seller in its sole
discretion. If payment is made in stock, it shall be valued in the amount of
Exhibit A. If payment is made in cash, it shall be in an amount equal to eighty
percent (80%) of the amount of Exhibit A. In either event, the Exhibit A
obligation shall be deemed satisfied as paid in full. If the initial public
offering of ACG, Inc, has not occurred by December 15, 1997, or Firstel has not
offered to Seller an acceptable alternative offer of stock in a new/replacement
entity by December 15, 1997, Seller shall have the option on said date to
receive cash in the amount of eighty percent (80%) of the Exhibit A amount.
Additionally, Seller shall have the right to extend the due date relative to
the Exhibit A obligation to May 15, 1998, at which time the election to accept
stock or cash remains Seller's sole decision; however, Seller may require
payment of eighty percent (80%) of the Exhibit A amount in cash on thirty (30)
days notice at any time subsequent to December 15, 1997. In no event, however,
shall the payment date be extended beyond May 15, 1998, and if an acceptable
alternative offer of stock has not been delivered to Seller by May 15, 1998,
Seller shall be paid in cash in an amount equal to eighty percent (80%) of the
Exhibit A amount. It is specifically acknowledged that no payment, other than
in the form of cash, shall be made unless the stock payment has been authorized
pursuant to the appropriate filings made with the SEC and/or the South Dakota
Securities Commission and all documentation related thereto has been completed.
6. Closing. This transaction will be closed on September 3, 1997, at such
time as the parties may mutually agree (the "Closing") at the offices of
Seller's counsel in Sioux Falls, South Dakota, or such other time and place as
the parties may mutually agree. Except as otherwise provided in this Agreement,
at the Closing all instruments, documents and papers required to close the
purchase will be executed by Buyer and Seller (including the documents
referenced herein and/or attached hereto as Exhibits) and possession of the
Assets Purchased will be delivered to Buyer. Closing shall be deemed to have
occurred prior to the start of business September 1, 1997.
7. Representations and Warranties of Seller. Seller makes the following
representations and warranties, which have been relied upon by Buyer in
entering into this Agreement:
a. Good Standing. RAFT, L.L.C, is a limited liability company
existing and in good standing under the laws of the State of South
Dakota. PAM Oil, Inc., is a corporation existing and in good standing
under the laws of the State of South Dakota.
b. No Violation of Law or Breach of Agreement. The execution of
this Agreement, the sale of the Assets Purchased and the performance
of Seller's obligations in this Agreement will not violate any
federal, state or local law, or conflict with, or result in a breach
of any of the terms, provisions or conditions of or constitute a
default under, any agreement or conditions of, or constitute a default
under, any agreement or other instrument to which Seller is a party or
by which Seller or any of the Assets Purchased may be effected.
4
<PAGE>
c. Ownership and Right to Convey. Seller owns, and has good and
marketable title to the Assets Purchased, and can sell, assign and
transfer the Assets Purchased, free and clear of any liens,
encumbrances, charges or claims of third parties. Furthermore, when
the transaction is closed, Buyer will own the Assets Purchased free
and clear of any such liens, encumbrances, charges or claims of third
parties. All legal actions necessary to effect the sale by Seller to
Buyer of the Assets Purchased pursuant to this Agreement have been
taken by Seller. Seller shall have delivered to Buyer, prior to
receipt of the Exhibit A amount, any and all UCC releases and other
documents required to permit the transfer of the Assets Purchased
free and clear of all liens.
d. Litigation. No judgments, liens, actions, arbitrations,
decrees, investigations or proceedings are pending or threatened
before any court or before any federal, state, municipal or other
governmental body, commission or agency against Seller or PAM Oil,
Inc., which involved the assets purchased pursuant to this Agreement,
except for the litigation involving One-Call Telecom, Inc., which is
referenced hereinbelow in paragraph 14. Seller agrees to indemnify and
hold Buyer harmless from any matters of litigation that may
subsequently arise but which are the result of actions or inactions
occurring or accruing prior to the date hereof. Similarly, Buyer
agrees to indemnify and hold Seller harmless from any matters of
litigation that may subsequently arise as the result of actions or
inactions occurring or accruing subsequent to the date hereof.
e. Labor.
i. Seller has not entered into any contracts or commitments
with its present or former employees that are not cancelable by Seller
on notice of not more than thirty (30) days without liability, penalty
or premium;
ii. Seller has no collective bargaining or employment
agreements, nor any agreements that contain any severance or
termination pay liabilities or obligations with employees;
iii. Seller has no bonus, deferred compensation, profit
sharing or retirement benefit or allowance due or to come due to any
employee or former employee;
iv. Seller knows of no group, organization or union which has
tried to organize any employee(s) of Seller within the last three (3)
years.
f. Conditions of Assets. The Assets Purchased to be sold under
this Agreement are and will at Closing be in the same quantity and
quality as on the dates of the due diligence review by representatives
of Buyer, and as shown on the financial statements provided by Seller
to Buyer, except for changes occurring because of
5
<PAGE>
operations conducted since said dates in the ordinary course of
business and/or as previously disclosed to Buyer.
g. Taxes. To Seller's actual knowledge, Seller has timely filed
with the appropriate governmental agencies, all tax returns and tax
reports due and required to be filed by Seller, including all
federal, state, and city profits, income, sales, use, occupation,
property, excise, social security, withholding, unemployment
insurance, licenses and other taxes (including any penalties and
interest) and has paid or has provided for the payment of all such
taxes through the Closing except for payroll taxes and/or sales taxes
accrued, but not yet due, which Seller agrees to pay to the extent
incurred prior to Closing. Seller has no notice or knowledge of any
pending examinations pertaining to or claims for, taxes or assessments
asserted against Seller by any taking authority in respect of any
period prior to the Closing. Seller agrees to pay all sales and
transfer taxes of any nature whatsoever due or becoming due as a
result of this Agreement. Subsequent to the date of Closing,
operations of the Business will be conducted by Buyer and Buyer shall
be responsible for taxes and expenses accruing after the date thereof.
Seller, however, shall file any and all tax and financial reports with
all appropriate government agencies, (at Seller's expense), for
operations through Closing. Each party shall be responsible for the
filing of their appropriate reports for the tax periods occurring
prior and subsequent to the Closing Date,' however, both parties agree
to cooperate with one another relative thereto subsequent to the date
of Closing.
h. Disclosure. No representations or warranties in this
Agreement or any Exhibits hereto contain or will contain any untrue
statement of a material fact, or omit or will omit a material fact
necessary to make the statements contained therein not misleading.
8. Representations and Warranties of Buyer. The Buyer represents and
warrants as follows:
a. Good Standing. Buyer is a corporation existing and in good
standing under the laws of the State of South Dakota.
b. No Violation of Law or Breach of Agreement. The execution of
this Agreement, the purchase of the Assets Purchased and the
performance of Buyer's obligations in this Agreement will not violate
any federal, state or local law, or conflict with, or result in a
breach of, any of the terms, provisions or conditions of, or
constitute a default under, any agreement or other instrument to which
Buyer is a party or by which Buyer or any of the Assets Purchased may
be affected.
c. Dealings with ACG Inc. Buyer hereby warrants and represents
that it is currently negotiating with ACG, Inc., a Delaware
corporation ("ACG"), a
6
<PAGE>
holding company formed for the purpose of acquiring various entities
involved in the telecommunications industry. Buyer further warrants
and represents that such negotiations concern the acquisition by ACG
of all of the outstanding capital stock of Buyer, and that Buyer
further warrants and represents that Buyer and ACG are in the process
of negotiating a definitive agreement concerning such transaction, and
that Buyer is not currently aware of any matters or events which would
preclude the execution by Buyer and ACG of such definitive agreement.
9. Actions Relating to Closing. Seller agrees that:
a. Full Access. Seller will make available to Buyer copies of
all financial statements, books, records, tax returns or other
documents or instruments affecting the operation of the Business.
Buyer may make inquiry to Seller's creditors, suppliers and others
with whom Seller does business so Buyer may verify information
provided to Buyer and negotiate agreements that will take effect after
the Closing.
b. Operating in Ordinary Course. Seller shall have operated the
Business since August 20. 1997 in its normal and customary manner and
shall not have made any changes in the policies or methods of
operations without Buyer's prior written consent. There shall not have
been any transfers of any assets of Seller subsequent to August 20,
1997, without Buyer's prior written consent.
c. Prorations. The parties acknowledge that PAM Oil, Inc.
("PAM") is currently a party to a certain agreement with WorldCom,
Inc. ("WorldCom") concerning the provision of long distance telephone
services to PAM, to entities related to PAM (the "PAM Entities"), and
to other entities which have contracted with PAM, for the provision of
such services (the "Other Entities"). The parties further acknowledge
that Buyer shall be assuming certain of PAM's rights, duties and
obligations under the terms of such agreement with WorldCom (the
"WorldCom Agreement") as set forth hereinabove.
The parties acknowledge that WorldCom provides PAM with a "Master
Bill" for all charges for long distance telephone services (including
any applicable taxes thereon) which are provided to PAM, the PAM
Entities and the Other Entities. The parties agree that PAM shall
continue to receive the "Master Bill" from WorldCom after the closing
of this Agreement, and shall continue to pay to WorldCom the total
amount designated on the "Master Bill" on a monthly basis. The parties
further agree that Buyer shall reimburse to PAM, within ten (10) days
of receiving an invoice therefor, for all charges, taxes and itemized
expenses on the "Master Bill", after determining that the requested
reimbursement is correct. The PAM Entities shall be billed by Firstel
in the same manner as customers of Firstel. The parties agree that the
provisions of this Subsection 9(c) shall apply as of the date of
closing of this
7
<PAGE>
Agreement and shall expire on upon the expiration of the WorldCom
Agreement, which shall be June 30, 1999. Notwithstanding anything
else contained herein to the contrary, it is agreed that the amounts to
be received from customers, and the amount owed by the Business with
regard to the WorldCom Service Agreement shall be prorated as of the
date of closing. All statements to be forwarded to customers
subsequent to the date of closing shall be forwarded by Firstel and
amounts received by Firstel attributable to calls made prior to the
date of closing shall be paid to Seller less sales and excise taxes
related thereto which shall be paid by Firstel. Similarly, Seller
shall be required to reimburse Firstel for any and all amounts owed to
WorldCom for calls made prior to the date of closing, but billed after
the date of closing.
d. Use of Space. Seller hereby agrees that Buyer may utilize
space at PAM Oil, Inc., currently used by Seller prior to Closing in
the operation of the Business with said use to continue for a period
of ninety (90) days following the date of closing without any charge
or cost to Buyer.
10. Covenant Not to Compete. RAFT. PAM Oil, Inc., Scott D. Scofield and
William Pederson, both corporately and individually, hereby agree to execute
the covenant not to compete which is attached hereto as Exhibit C and by this
reference incorporated as if fully set forth herein.
11. Delivery of Lists and Other Items. Seller will deliver to Buyer, at
the Closing, all customer lists, files, and other records relating to the
Business, as referenced in Paragraph 1(e) including those maintained by
computer memory or other electronic means. All such information contained in
computer memory or data recording systems connected with computers will be
retained in such form that Buyer will have full access. Buyer shall be
responsible for the expense of data conversion to Buyer's system.
12. Conditions Precedent to Buyer's Obligation to Close and Make Payments.
The obligation of the Buyer to close this transaction and make the payments
required hereby is subject to the following conditions which, unless waived by
Buyer, must be satisfied at Closing:
a. Covenants, Representations and Warranties. The covenants,
representations and warranties made by Seller in this Agreement, the
attachments hereto and in documents previously provided, will be true,
complete and accurate in all material respects at Closing with the
same effect as though such representations, warranties and covenants
had been made or given at Closing.
b. No Material Change. The business, assets and properties of
Seller with respect to the Business will not have been materially
adversely affected as a result of fire, explosion, earthquake,
disaster, accident, casualty, labor dispute or other disruption
8
<PAGE>
which cannot be resolved without material adverse effect, change in
the business organizations, any action by the United States or of any
other governmental authority; or by flood, drought, embargo, riot,
civil disturbance, uprising, activity of armed forces or act of God or
public enemy. If Buyer waives its right to terminate the Agreement
under this paragraph, all insurance proceeds payable to Seller as a
result of such event will be assigned to and paid over to Buyer at
Closing or when the proceeds are received, whichever is later, and
Seller will cooperate with Buyer to obtain such proceeds.
c. Compliance with Agreement. Seller will have performed and
complied in all material respects with all obligations under this
Agreement which are to be performed or complied with at Closing.
d. Proceedings and Instruments Satisfactory. All documents
required by Seller under this Agreement will have been delivered to
Buyer.
e. Required Contracts. Buyer shall have received contracts with
Seller, and certain affiliates of Seller, as identified on Exhibit F,
which is attached hereto and by this reference incorporated as if
fully set forth herein, agreeing to utilize Firstel for all local and
long distance telephone services for a period of three (3) years
following the date of closing (except that the contract for Seller
only may be for a period of twenty-two (22) months instead of
thirty-six (36 months). In the event that Firstel, or its successor in
interest, is contracting with MCI at the end of the twenty-two (22)
month period, and further provided that Seller contracts to utilize
Firstel and/or its successor in interest for all of its local and long
distance telephone services for a period of an additional two (2)
years following the conclusion of the twenty-two (22) month period,
Seller shall pay Buyer an additional $16,000.00 payable at the time of
execution of the two (2) year contract.
13. Conditions Precedent to Seller's Obligation to Close. The obligation
of Seller to close this transaction is subject to the following conditions
which, unless waived by Seller, must be satisfied at Closing:
a. Covenants, Representations and Warranties. The covenants,
representations and warranties made by Buyer in this Agreement, the
attachments hereto and in documents previously provided, will be true,
complete and accurate in all material respects at Closing with the
same effect as though such representations, warranties and covenants
had been made or given at Closing.
9
<PAGE>
b. Compliance with Agreement. Buyer will have performed and
complied in all material respects with all obligations under this
Agreement which are to be performed or complied with at Closing.
c. Proceedings and Instruments Satisfactory. All documents
required by Buyer under this Agreement will have been delivered to
Seller.
14. Indemnity and Hold Harmless Agreement. The representations,
warranties and agreements made by Seller in this Agreement will survive the
Closing regardless of any inquiry that may have been made by Buyer. Seller,
PAM Oil, Inc., Scott D. Scofield and William Pederson will indemnify and hold
Buyer harmless from any liability or expenses resulting from a breach of this
Agreement by Seller, or the inaccuracy or breach of any representation,
warranty or agreement contained in this Agreement, or in any certificate,
document, list, schedule, exhibit or instrument delivered to Buyer by or on
behalf of Seller under this Agreement, including reasonable attorney's fees
incurred by Buyer to defend or prosecute any action or proceeding resulting
from any breach or inaccuracy). This agreement to indemnify and hold the Buyer
harmless will include any liabilities, claims, costs, demands or losses of any
nature incurred by Buyer including violations of the covenant not to compete.
The obligations herein with respect to indemnification and holding Buyer
harmless shall include, but not specifically be limited to, indemnification of
any claims with respect to One-Call Telecom, Inc., a Minnesota corporation, and
MCI for underutilization of services and/or any other claim. Similarly, Buyer
will indemnify and hold Seller harmless from any liability or expense resulting
from a breach of this Agreement by Seller, and obligations arising relative to
the operations of the Business, or related to its customers, subsequent to the
date hereof.
15. Confidential Information. Seller, Scott D. Scofield and William
Pederson, acknowledge that they have access to certain confidential
information, such as customer lists and customer files, which is a valuable
part of the Assets Purchased and which is ordinarily kept secret and
confidential. Seller, Scott D. Scofield and William Pederson agree that in
exchange for the consideration of the execution of this Agreement by Buyer,
they shall not, from and after the date hereof, reveal any such information to
any person or organization unless authorized to do so by Buyer in writing, or
unless required or compelled to do so by valid subpoena or court order.
16. Employees. Notwithstanding anything else contained herein to the
contrary, Firstel agrees that it will continue to employ Chet Jones and Doug
Schneider for at least three (3) months following the date of closing provided
that mutually agreeable arrangements relative to such employment can be reached
by Firstel and said two (2) employees. The employment arrangements to be
offered to Chet Jones and Doug Schneider by Firstel will provide for stock
options in ACG, Inc., and/or any new/replacement entity, provided that the
contemplated transaction with ACG, Inc., and/or any new/replacement entity, is
completed and that said individuals remain employees at that time.
10
<PAGE>
17. Consulting Services. The parties agree that Scott D. Scofield may
provide consulting services to Firstel subsequent to the date of closing, in
his areas of past experience which could include, but not be limited to,
dealing with RBOC and LEC issues, public utility commissions, telemarketing
services, contracts and legislative issues. In the event such consulting
services are provided, Scott D. Scofield shall be compensated in the form of
cash or stock options in amounts to be negotiated prior to the providing of any
such services.
18. Due Diligence. Until the date of closing, Buyer shall be entitled to
continue its due diligence with respect to the proposed transaction in the same
manner as set forth in the Letter of Intent execute by the parties on August
20, 1997.
19. Negotiations. Effective with the execution of this Agreement, RAFT
agrees to refrain from negotiations with any other entity relative to the sale
of its assets, except with regard to the settlement of the One-Call Telecom,
Inc., litigation.
20. Strategic Alliance. The parties hereby agree that effective the date
of closing, Firstel and PAM shall form a strategic alliance to solicit and
place PAM customers with Firstel. PAM will permit Firstel to contact its
customers for which, Firstel will pay PAM one percent (1%) of the gross amount
received from both current and future PAM customers each month for services
provided by Firstel, exclusive of taxes and pass through items relative which
Firstel does not make a profit, such as cellular roaming charges. In that
event, PAM agrees to endorse and include Firstel marketing materials and all
appropriate marketing newsletters and other PAM correspondence with monthly
bills and Firstel will be allowed to utilize the PAM logo, subject to the prior
written approval of PAM to market its services. PAM will have its telemarketers
generate leads for Firstel sales personnel. Firstel shall be responsible to pay
for the printing and additional distribution costs associated with sales
materials, unless such sales materials are initiated by PAM. All references in
this paragraph, and other paragraphs hereof, to Firstel, shall, subsequent to
the acquisition of Firstel by ACG, Inc., and/or any new/replacement entity as
contemplated, at the time of the initial public offering, shall be deemed to
refer to ACG, Inc, and/or any new/replacement entity and/or Firstel, as may be
appropriate.
21. Brokers and Finders. The Seller has not retained or engaged any
broker, finder or other financial intermediary in connection with the
transaction contemplated by this agreement and Seller shall indemnify Buyer
from any obligation to pay any cost or fee associated with any such broker,
finder or other financial intermediary.
22. General Provisions.
a. Entire Agreement. This Agreement is the entire agreement
between Buyer and Seller, and except as appear on the Exhibits
attached to this Agreement or referenced herein. This Agreement may
not be modified except by a writing executed by Buyer and Seller.
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<PAGE>
b. Successors and Assigns. This Agreement is binding upon and
inures to the benefit of and may be enforced by Seller and Buyer and
their respective successors and assigns.
c. Notices. All notices, request, demands and other
communications hereunder will be deemed to have been duly give if
delivered by hand, mail (certified or registered with postage prepaid,
return receipt requested) or overnight courier as follows:
1. If to the Seller: RAFT, L.L.C.
200 Petro Avenue
Sioux Falls, SD 57107
(with a copy to:) Brian J. Bauer
431 N. Phillips Ave., Suite 400
Sioux Falls, SD 57104
ii. If to the Buyer: Firstel, Inc.
110 S. Phillips Ave., Suite 202
Sioux Falls, SD 57117-5103
(with a copy to:) Vance R. C. Goldammer
101 N. Phillips Ave., Suite 600
Sioux Falls, SD 57104
e. Severability. If any one or more of the provisions in the
Agreement or any application of the provisions of this Agreement is
declared invalid or illegal or unenforceable by any court of competent
jurisdiction, the validity, legality or enforceability of the
remaining provisions of this Agreement will not be impaired by such
declaration, and this Agreement will be construed as if such invalid,
illegal or unenforceable provision was not contained in this
Agreement.
f. Singular/Plural. The singular of any word shall include the
plural and vice versa unless the context requires otherwise.
g. Choice of Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of South Dakota.
23. Transfers on Closing Date. At Closing, Seller will deliver to Buyer:
a. A Bill of Sale and all other instruments or assignments
necessary to transfer title to the Assets Purchased, free and clear of
all liens, security interests and encumbrances, containing, where
required, joint and several warranties.
12
<PAGE>
b. All other agreements, instruments and documents as may be
reasonably required by Buyer to close the purchase and sale of the
Assets referred to in this Agreement.
24. Expenses. Each party shall be responsible for their own fees, costs
and expenses as incurred by them relative to this transaction, including their
own fees for legal and accounting expenses.
Executed and agreed to on the day and year first above written.
SELLER: BUYER:
RAFT, L.L.C, a South Dakota Limited FIRSTEL, INC., a South Dakota
Liability Company, corporation,
By /s/ By /s/
---------------------------------- -----------------------------------
Its President - Partner Its President
------------------------------ -------------------------------
PAM Oil. Inc., a South Dakota
Corporation
By /s/ Scott D. Scofield
-----------------------------------
Its President
-------------------------------
/s/ Scott D. Scofield
- -------------------------------------
Scott D. Scofield, an individual
/s/ William Pederson
- -------------------------------------
William Pederson, an individual
<PAGE>
AMENDMENT TO AGREEMENT
In connection with the asset purchase agreement dated September 3,
1997 between RAFT. LLC and Firstel, Inc., the parties hereby agree to amend
that agreement as follows:
Section 5. Payment of Purchase Price.
The amount due pursuant to Exhibit A will be due on January 31,
1998, or the date of completion of the initial public offering of
ACG, Inc.
As consideration for extending the due date, RAFT, LLC will receive additional
stock in the amount of 10% of the otherwise shares due upon the initial public
offering of ACG, Inc.
RAFT, LLC Firstel, Inc.
By: /s/ Scott Scofield By: /s/ Fred L. Thurman
Its: President Its: President
<PAGE>
ANNEX III
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
among
KIN NETWORK, INC.
and its
STOCKHOLDERS
Dated as of _______ __, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Certain Definitions.........................................................................1
ARTICLE II
Management Arrangements.....................................................................8
Section 2.1. Conduct of Business...................................................8
Section 2.2. Articles of Incorporation; No Conflict with Agreement................10
Section 2.3. Registration of Common Stock.........................................11
Section 2.4. Access to Information................................................11
ARTICLE III
Corporate Governance.......................................................................11
Section 3.1. Board of Directors...................................................11
Section 3.2. Removal..............................................................12
Section 3.3. Vacancies............................................................13
Section 3.4. Covenant to Vote.....................................................13
ARTICLE IV
Transfers of Securities....................................................................13
Section 4.1. Restrictions on Transfer.............................................13
Section 4.2. Exceptions to Restrictions...........................................14
Section 4.3. No Transfer to Competitors...........................................14
Section 4.4. Endorsement of Certificates..........................................14
Section 4.5. Improper Transfer....................................................15
ARTICLE V
Purchase Rights............................................................................15
Section 5.1. Transfers by a Stockholder...........................................15
Section 5.2. Transfer of Offered Securities to Third Parties......................16
Section 5.3. Purchase of Offered Securities.......................................17
Section 5.4. Waiting Period with Respect to Subsequent Transfers..................17
Section 5.5. Change in Control Option.............................................17
Section 5.6. Right of First Refusal for New Securities............................18
Section 5.7. Legally Binding Obligation; Power of Attorney; Personal Rights.
.................................................................................19
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Section 5.8. Right to Join in Sale................................................19
ARTICLE VI
Registration Rights........................................................................20
Section 6.1. Demand Registrations.................................................20
Section 6.2. Piggyback Registrations..............................................22
Section 6.3. Registration Procedures..............................................24
Section 6.4. Indemnification......................................................27
Section 6.5. Contribution.........................................................29
Section 6.6. Rule 144.............................................................30
ARTICLE VII
Termination................................................................................30
Section 7.1. Certain Terminations.................................................31
ARTICLE VIII
Miscellaneous..............................................................................31
Section 8.1. Successors and Assigns...............................................31
Section 8.2. Amendment and Modification; Waiver of Compliance.....................31
Section 8.3. Notices..............................................................32
Section 8.4. Entire Agreement; Governing Law......................................32
Section 8.5. Injunctive Relief....................................................33
Section 8.6. Inspection...........................................................33
Section 8.7. Headings.............................................................33
Section 8.8. Recapitalizations, Exchanges, Etc., Affecting the Securities.........33
Section 8.9. Counterparts.........................................................33
</TABLE>
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<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of ________ __, 1997, among KIN
Network, Inc., a Kansas corporation (together with its successors and assigns,
the "Company"), Advanced Communications Group, Inc., a Delaware corporation
("ACG"), and Liberty Cellular, Inc., a Kansas corporation ("Liberty") ("ACG"
and "Liberty", collectively, together with their respective successors and
assigns, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company, as of the date hereof, is authorized by its
Articles of Incorporation, as amended (a true and correct copy of which, as in
effect on the date hereof, has been delivered to each Stockholder), to issue
capital stock consisting of 10,000,000 shares of its Common Stock, no par value
per share (the "Common Stock");
WHEREAS, on the date hereof (i) an aggregate of 412,221 shares of
Common Stock are owned of record and beneficially by the Stockholders; and (ii)
no other shares of Common Stock, or warrants, options, rights or other
securities exercisable for or convertible into Common Stock are issued or
outstanding;
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and desire to enter into this Agreement in order to effectuate that
purpose and to set forth their respective rights and obligations in connection
with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of Common
Stock, including issued and outstanding shares of Common Stock as well as
shares of Common Stock that may be issued hereafter, and to provide for certain
rights and obligations in respect thereto as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
<PAGE>
AFFILIATE shall mean with respect to any Person, (a) any Person which
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person or (b) any Person
who is a director or executive officer (i) of such Person, (ii) of any
Subsidiary of such Person, or (iii) of any Person described in the foregoing
clause (a). For purposes of this definition, "control" of a Person shall mean
the power, direct or indirect, (i) to vote or direct the voting of 50% or more
of the outstanding shares of voting Capital Stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise.
AGREEMENT shall mean this Agreement as in effect on the date hereof
and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
APPRAISED VALUE shall mean the fair market value per share of Common
Stock determined by agreement between the Board of Directors and a Stockholder
or, if such agreement is not obtained within 30 days after the relevant
determination date, by a qualified investment bank selected by 75% of the
members of the Board of Directors. For purposes of determining Appraised Value,
the fair market value of the Common Stock shall equal the price per share of
Common Stock that could be obtained in an open (non-forced) sale of all of the
outstanding Common Stock, with ample time for marketing and closing and
assigning equal value to each share of Common Stock. The cost of any investment
bank will be borne by the Company and any such investment bank will be given
full access to the books, records, properties and employees of the Company and
its Subsidiaries.
ARTICLES OF INCORPORATION is defined in the Recitals. Such term shall
also include the Articles of Incorporation as hereafter from time to time
amended in accordance with the terms thereof and of this Agreement.
BOARD OF DIRECTORS shall mean the Board of Directors of the Company as
from time to time hereafter constituted.
BY-LAWS shall mean the By-Laws of the Company as in effect on the date
hereof and as hereafter amended in accordance with the terms hereof and
thereof.
CAPITAL STOCK shall mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated) of such Person's capital stock or equity capital, including,
without limitation, shares of preferred or preference stock, general and
limited partnership interests, and any rights, warrants or options exercisable
for or convertible into such capital stock or equity capital.
CHANGE IN CONTROL shall mean the occurrence with respect to any
Stockholder of any of the following events:
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<PAGE>
(a) a report on Schedule 13D is filed with the Commission
pursuant to Section 13(d) of 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 such Stockholder (or one of its
subsidiaries) or any employee benefit plan sponsored by such
Stockholder (or one of its subsidiaries), 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 such Stockholder;
(b) a report is filed by such Stockholder 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 Commission;
(c) any Person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than such
Stockholder (or one of its subsidiaries) or any employee benefit plan
sponsored by such Stockholder (or one of its subsidiaries), shall
purchase securities pursuant to a tender offer or exchange offer to
acquire any securities 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 such Stockholder;
(d) the stockholders of such Stockholder shall approve:
(i) any merger, consolidation, or
reorganization of such Stockholder;
(A) in which such Stockholder is not the
continuing or surviving corporation,
(B) pursuant to which shares of outstanding
voting securities of such Stockholder 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 such Stockholder will not
survive as an independent, publicly-owned
corporation in the event that such Stockholder was a
publicly-owned corporation prior to such merger,
consolidation or reorganization;
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<PAGE>
(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 such Stockholder, or
(iii) any liquidation or dissolution of such
Stockholder;
(e) the stockholders of such Stockholder 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 combined voting power of the then-outstanding
securities of the Company;
(f) the occurrence of the distribution of any rights to the
stockholders of such Stockholder pursuant to any stockholders' rights
plan that may be adopted by such Stockholder in the future; or
(g) during any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board
of Directors of such Stockholder cease for any reason to constitute a
majority of such board, unless the election or nomination for election
by such Stockholder'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.
COMMON STOCK is defined in the Recitals.
COMMISSION shall mean the Securities and Exchange Commission and any
successor commission or agency having similar powers.
COMPANY is defined in the preamble.
COMPANY SECURITIES shall have the meaning specified in Section
6.1(g).
CONSOLIDATED TOTAL CAPITALIZATION shall mean consolidated total
stockholders' equity plus consolidated total long-term debt of the Company and
its Subsidiaries, all as determined in accordance with GAAP.
DISPOSING STOCKHOLDER shall have the meaning specified in Section
5.8(a).
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<PAGE>
EXCHANGE ACT shall mean, as of any date, the Securities Exchange Act
of 1934, as amended, or any similar Federal statute then in effect, and a
reference to a particular section thereof shall include a reference to the
comparable section, if any, of such similar Federal statute.
FIRST OFFER PRICE shall have the meaning specified in Section 5.1 (a).
FIRST OFFER TERMS shall have the meaning specified in Section 5.1 (a).
FULLY DILUTED COMMON STOCK at any time shall mean all shares of Common
Stock then issued and outstanding plus all shares of Common Stock issuable upon
the exercise of any warrants, options or rights to acquire Common Stock which
are then outstanding, regardless of whether such warrants, options, other
rights are at the time exercisable.
GAAP shall mean generally accepted accounting principles from time to
time in effect in the United States.
HOLDER REQUEST shall have the meaning specified in Section 6.1 (a).
MANAGEMENT AGREEMENT shall mean the Management Agreement dated as of
January 1, 1997 between KINI, L.C., a Kansas limited liability company, and the
Company, as amended.
MATERIAL SUBSIDIARY shall mean a Subsidiary of the Company that owns
"substantial assets" (as defined in Section 2.1(b)(iii)).
NASD shall mean the National Association of Securities Dealers, Inc.,
or any successor regulatory body exercising similar functions.
NEW SECURITIES shall have the meaning specified in Section 5.6(b).
NOTICE OF EXERCISE shall have the meaning specified in Section
5.1(b).
NOTICE OF INTENTION shall have the meaning specified in Section
5.1(a).
OFFERED SECURITIES shall have the meaning specified in Section
5.1(a).
PARENT shall mean, with respect to any Person, any other Person of
which such Person is a direct or indirect Subsidiary.
-5-
<PAGE>
PERMITTED TRANSFEREE shall mean, with respect to any Stockholder,
those Persons to whom transfers of Securities are permitted to be made by such
Stockholder pursuant to Subsection (b) of Section 4.2 hereof.
PERSON shall mean an individual or a corporation, association,
partnership, joint venture, organization, business, individual, trust, or any
other entity or organization.
PRIME RATE shall mean the lesser of (a) the reference interest rate
announced from time to time by ______________ at its principal banking office
in _______, ______ County, ________ on loans to such bank's most creditworthy
customers or (b) 10% per annum.
PROPOSED PURCHASER shall have the meaning specified in Section 5.8(b).
PUBLIC OFFERING shall mean a public offering and sale of equity
securities of the Company pursuant to an effective registration statement on
Form S-1 under the Securities Act.
PURCHASE OFFER shall have the meaning specified in Section 5.8(b).
QUALIFIED PUBLIC OFFERING shall mean a Public Offering of Common
Stock, at the conclusion of which the aggregate number of issued and
outstanding shares of Common Stock that have been sold to the public pursuant
to one or more effective registration statements under the Securities Act is
equal to at least 20% of the Fully Diluted Common Stock after giving effect to
such sale and the listing of the Common Stock on the New York Stock Exchange,
American Stock Exchange, Nasdaq Stock Market or the National Association of
Securities Dealers, Inc. Automated Quotation System.
REGISTRABLE SECURITIES shall mean the following:
(a) all shares of Common Stock outstanding on the date hereof
or issuable under warrants or options outstanding on the date hereof;
and
(b) any shares of Common Stock issued or issuable by the
Company in respect of any shares of Common Stock referred to in the
foregoing clause (a) by way of a pay-in-kind dividend, stock dividend
or stock split or in connection with a combination or subdivision of
shares, reclassification, recapitalization, merger, consolidation or
other reorganization of the Company.
As to any particular Registrable Securities that have been issued,
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, (ii) they shall have been
distributed to the public
-6-
<PAGE>
pursuant to Rule 144, (iii) they shall have been otherwise transferred or
disposed of, and new certificates therefor not bearing a legend restricting
further transfer shall have been delivered by the Company, and subsequent
transfer or disposition of them shall not require their registration or
qualification under the Securities Act or any similar state law then in force,
or (iv) they shall have ceased to be outstanding.
REGISTRATION EXPENSES shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Article VI hereof,
including, without limitation, all Commission, stock exchange or NASD
registration and filing fees, all fees and expenses of complying with
securities and blue sky laws (including the reasonable fees and disbursements
of underwriters' counsel in connection with blue sky qualifications and NASD
filings), all fees and expenses of the transfer agent and registrar for the
Registrable Securities, all printing expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and the reasonable fees and
disbursements of one firm of counsel (other than house counsel) retained by the
holders of a majority of the Registrable Securities included in the offering to
represent such holders in the offering, but excluding underwriting discounts
and commissions and applicable transfer and documentary stamp taxes, if any,
which shall be borne by the seller of the securities in all cases.
RELATED ENTITY shall mean, with respect to any Person, (a) any direct
or indirect Subsidiary of such Person, (b) any Parent of such Person or (c) any
Person which has the same Parent as such Person.
SALE PROPOSAL shall have the meaning specified in Section 5.1 (a).
SECURITIES shall mean the Stock.
SECURITIES ACT shall mean, as of any date, the Securities Act of 1933,
as amended, or any similar Federal statute then in effect, and in reference to
a particular section thereof shall include a reference to the comparable
section, if any, of any such similar Federal statute.
SELLING STOCKHOLDER shall have the meaning specified in Section
5.1(a).
SIGNIFICANT TRANSACTION shall have the meaning specified in Section
2.1(b).
STOCK with respect to any Person shall mean Capital Stock of such
Person of any class or classes, the holders of which are ordinarily (and not
only upon the happening of a contingency) entitled to vote for the election of
members of the board of directors (or Persons performing similar functions) of
such Person, including, without limitation, the Common Stock.
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<PAGE>
STOCKHOLDER shall mean (i) any Stockholder and (ii) any Permitted
Transferee of Stockholder, or of any other Permitted Transferee, who becomes a
party to or bound by the provisions of this Agreement in accordance with the
terms hereof.
STOCK RIGHTS shall mean at any time any and all warrants, options and
other rights outstanding at such time to purchase or otherwise acquire Common
Stock of the Company of any class, whether or not such warrants, options or
rights are exercisable at such time. At the date of this Agreement, the Company
has no issued and outstanding Stock Rights.
SUBJECT STOCKHOLDER shall have the meaning specified in Section 5.5.
SUBSIDIARY shall mean as to any Person a corporation or partnership of
which a majority of the outstanding shares of voting Capital Stock are at the
time owned, directly or indirectly through one or more intermediaries, or both,
by such Person. At the date of this Agreement the Company has no Subsidiaries.
THIRD PARTY shall mean, as to any Stockholder, any person other than a
Permitted Transferee of such Stockholder.
UNDERWRITTEN OFFERING shall have the meaning specified in Section 6.1
(g).
ARTICLE II
MANAGEMENT ARRANGEMENTS
SECTION 2.1. CONDUCT OF BUSINESS.
(a) The parties hereto confirm that it is their intention that the
business and affairs of the Company and its Subsidiaries shall be managed by
its Board of Directors in the best interests of the Company and its
Subsidiaries taken as a whole. In furtherance of the foregoing, each of the
parties hereto agrees that, after the date hereof, except in the case of
transactions expressly contemplated by this Agreement, neither the Company nor
any of its Subsidiaries will enter into any written or oral contract, agreement
or other arrangement to engage in business or enter into any transaction, or
will engage in business or enter into any transaction, with any Stockholder or
any Affiliate of a Stockholder (other than the Company and its Subsidiaries)
unless the terms and provisions of such contract, agreement or other
arrangement or the terms on which such business or transaction is conducted, as
the case may be, are fair to the Company or such Subsidiary and are
substantially equivalent to terms that would have been obtained in an
arm's-length relationship. The provisions of this Section 2.1 (a) shall be
deemed satisfied if the relevant transaction (i) has been approved by 75% of
the members of the Board of Directors voting on such matter, excluding any
director designees of the Stockholder who (or whose Affiliate has) an interest
in the transaction and such
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interest was disclosed to the Board of Directors prior to such approval and
other directors abstaining from such vote or (ii) is a commercial transaction
entered into in the ordinary course of business by the Company or its
Subsidiary and such transaction has been negotiated on arm's length terms
between the operating management or employees of the Company or its Subsidiary
and the other party to the transaction.
(b) Notwithstanding the fact that no vote may be required, or that a
lesser percentage vote may be specified, by law, by the Articles of
Incorporation or By-Laws, by any agreement with any national securities
exchange or otherwise, except as hereinafter provided in this paragraph (b) or
otherwise in this Agreement, the Company and the Stockholders shall not take or
permit any of the following actions (individually, a "Significant Transaction")
unless otherwise authorized by a vote of at least 75% of the members of the
entire Board of Directors:
(i) Any merger or consolidation involving the Company or any
Subsidiary of the Company (other than transactions involving the
merger or consolidation of a wholly-owned Subsidiary of the Company
into the Company or with or into another wholly-owned Subsidiary of
the Company), if such merger or consolidation would involve the
Company or one or more Subsidiaries that in the aggregate own (or,
following such transaction, would own) "substantial assets" under
subparagraph (iii) below.
(ii) Any sale, lease, exchange, transfer or other
disposition, directly or indirectly, in a single transaction or series
of related transactions, of all or substantially all, or a substantial
part, of the assets of the Company or any of its Subsidiaries, or of
any of the outstanding capital stock of any Subsidiary of the Company,
to or with any Person other than to or with the Company or a
wholly-owned Subsidiary of the Company. The term "substantial part"
means assets having a gross fair market value which exceeds 20% of the
Consolidated Total Capitalization of the Company and its Subsidiaries,
as reflected on the consolidated balance sheet of the Company and its
Subsidiaries as at the end of the last full fiscal quarter prior to
the date such determination is made.
(iii) Any purchase, lease, exchange or other acquisition of
assets (including securities) by the Company or any Subsidiary of the
Company, in a single transaction or a series of related transactions,
if such assets constitute or would constitute substantial assets. The
term "substantial assets" means assets having a gross fair market
value which, or assets to be acquired for consideration which, exceeds
20% of the Consolidated Total Capitalization of the Company and its
Subsidiaries, as reflected on the consolidated balance sheet of the
Company and its Subsidiaries as at the end of the last full fiscal
quarter prior to the date such determination is made.
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(iv) Any increase or reduction of the number of shares of any
class of the Company's authorized Capital Stock or the creation of any
additional class of Capital Stock of the Company, or the issuance or
sale of shares of Capital Stock of the Company or any of its
Subsidiaries (or warrants, options or rights to acquire shares of
Capital Stock or securities convertible into or exchangeable for
Capital Stock or any type of debt instrument which has equity
features), except the issuance or sale of shares of Capital Stock of a
wholly-owned Subsidiary of the Company to the Company or to another
wholly-owned Subsidiary of the Company.
(v) Any amendment to or modification or repeal of any
provision of the Articles of Incorporation or By-Laws of the Company.
(vi) Any amendment to or modification or repeal of any
provision of, or the termination of, the Management Agreement.
(vii) The dissolution of the Company; the adoption of a plan
of liquidation of the Company or any Subsidiary of the Company holding
"substantial assets" (as defined in subparagraph (iii) above); any
action by the Company or any Subsidiary of the Company to commence any
suit, case proceeding or other action (A) under any existing or future
law of any jurisdiction relating to bankruptcy, insolvency,
reorganization or relief of debtors seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or making a general assignment for the
benefit of its creditors.
(viii) Any redemption, offer to purchase made by the Company
or any of its Subsidiaries or other acquisition of Stock or Stock
Rights of the Company.
SECTION 2.2. ARTICLES OF INCORPORATION; NO CONFLICT WITH AGREEMENT.
(a) Each Stockholder hereby acknowledges receipt of a copy of the
Articles of Incorporation as in effect on the date hereof. The provisions of
the Articles of Incorporation are hereby approved by, and made a part of this
Agreement among, the parties hereto.
(b) Each Stockholder shall vote its shares of Stock, and shall take
all other actions necessary or appropriate, to ensure that the Articles of
Incorporation and By-Laws of the Company do not, at any time, conflict with the
provisions of this Agreement.
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SECTION 2.3. REGISTRATION OF COMMON STOCK. In the event of a Public
Offering of Common Stock, each Stockholder shall, at a meeting convened for the
purpose of amending the Articles of Incorporation, vote to increase the number
of issued and outstanding shares of Common Stock, whether by stock split, stock
dividend or otherwise, or change in its par value or increase the authorized
number of shares of stock, as recommended by 75% of the members of the entire
Board of Directors.
SECTION 2.4. ACCESS TO INFORMATION. The Company will permit each
Stockholder and its representatives at its expense to visit and inspect all
properties, books and records of the Company and its Subsidiaries and to
discuss the affairs, finances and accounts of the Company with the principal
officers of the Company, its attorneys and auditors, all at such reasonable
times and as often as may reasonably be requested in order to enable each
Stockholder to reasonably monitor its investment in the Company. All
information obtained by each Stockholder will be kept confidential and used
only for purposes related to his investment in the Company.
ARTICLE III
CORPORATE GOVERNANCE
SECTION 3.1. BOARD OF DIRECTORS.
(a) The Stockholders and the Company hereby agree that at all times
after the Closing Date, the Board of Directors of the Company and the board of
directors (or comparable governance body of any partnership) of each Material
Subsidiary, shall consist entirely of the members described in this Section 3.1
(a). On the Closing Date and from time to time thereafter, the Stockholders
shall take all such actions as may be necessary or appropriate to cause the
persons described below to be elected or re-elected as the members of the Board
of Directors and to be maintained in such positions at all times:
(i) four persons designated by ACG; and
(ii) five persons designated by Liberty.
(b) Each Stockholder hereby agrees to vote all shares of Stock owned
or held of record by such Stockholder, at each annual or special meeting of
Stockholders of the Company at which directors of the Company are to be
elected, in favor of, or to take all actions by written consent in lieu of any
such meeting as are necessary to cause, the election or re-election as members
of the Board of Directors of those individuals described in Section 3.1 (a),
and to otherwise effect the intent of the provisions of Section 3.1 (a).
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(c) Each committee of the Board of Directors and, unless otherwise
agreed by ACG and Liberty, each board of directors (or comparable governance
body of any partnership) of each Material Subsidiary shall include a number of
directors designated by each Stockholder (rounded to the nearest whole number,
but in no event less than one such director) equivalent to the proportion of
directors designated by each Stockholder then serving on the whole Board of
Directors or the whole board of directors of such Material Subsidiary, as
applicable.
(d) The Board of Directors and, unless otherwise agreed by ACG and
Liberty, the board of directors of each Material Subsidiary shall follow the
following procedures:
(i) Meetings. Meetings of the applicable board of directors
may be held at any time upon the call of at least two directors, by
oral, telephonic, telegraphic or facsimile notice duly given or sent
at least one day, or by written notice sent by express mail at least
three days, before the meeting to each director. Reasonable efforts
shall be made to ensure that each director actually receives timely
notice of any meeting. An annual meeting of the Board of Directors
shall be held without notice immediately following the annual meeting
of stockholders of the Company.
(ii) Agenda. A reasonably detailed agenda shall be supplied
to each director reasonably in advance of each meeting of the
applicable board of directors, together with other appropriate
documentation with respect to agenda items calling for board action,
to inform adequately directors regarding matters to come before the
board. Any director wishing to place a matter on the agenda for any
meeting of the applicable board of directors may do so by
communicating with the Chairman of the Board sufficiently in advance
of the meeting of the applicable board of directors so as to permit
timely dissemination to all directors of information with respect to
the agenda items.
SECTION 3.2. REMOVAL. If a director designated and elected pursuant to
Section 3.1,
(i) has been designated pursuant to Section 3.1(a)(i) and,
during such director's term as director, ACG requests by written
notice to the other Stockholders that such director be removed; or
(ii) has been designated pursuant to Section 3.1 (a)(ii) and,
during such director's term as director, Liberty requests by written
notice to the other Stockholders that such director be removed;
then in each case such director shall be removed upon the affirmative vote of
the holders of a majority of the outstanding shares of Stock, and each
Stockholder hereby agrees promptly to vote
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all shares of Stock owned or held of record by it and to take all such other
actions as may be necessary or appropriate to effect such removal in accordance
with such request.
SECTION 3.3. VACANCIES. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, retirement,
resignation or removal of any director or for any other reason there shall
exist or occur any vacancy on the Board of Directors, each Stockholder hereby
agrees to take such actions as will result in the election or appointment as a
director of an individual designated or elected to fill such vacancy and serve
as a director by the Stockholders that had designated or elected (pursuant to
Section 3.1) the director whose death, disability, retirement, resignation or
removal resulted in such vacancy on the Board of Directors (in the manner set
forth in Section 3.1).
SECTION 3.4. COVENANT TO VOTE. Each Stockholder hereby agrees to take
all actions necessary to call, or cause the Company and the appropriate
officers and directors of the Company to call, a special or annual meeting of
Stockholders of the Company and to vote all shares of Stock owned or held of
record by such Stockholder at any such meeting and at any other annual or
special meeting of stockholders in favor of, or take all actions by written
consent in lieu of any such meeting as may be necessary to cause, the election
as members of the Board of Directors of those individuals so designated in
accordance with, and to otherwise effect the intent of, this Article III. In
addition, each Stockholder agrees to vote the shares of Stock owned by such
Stockholder upon any other matter arising under this Agreement submitted to a
vote of the stockholders in such a manner as to implement the terms of this
Agreement.
ARTICLE IV
TRANSFERS OF SECURITIES
SECTION 4.1. RESTRICTIONS ON TRANSFER. Each Stockholder agrees that it
will not, directly or indirectly, offer, sell, transfer, assign or otherwise
dispose of (or make any exchange, gift, assignment or pledge of) (collectively,
for purposes of Articles IV and V hereof only, a "transfer") any of its shares
of Stock or Stock Rights, except as provided in Section 4.2 or in accordance
with Article V or other than in connection with an exercise of any Stock Right
in accordance with its terms. In addition to the other restrictions noted in
this Article IV, each Stockholder agrees that it will not, directly or
indirectly, offer, sell, transfer, assign or otherwise dispose of any of its
Securities except as permitted under the Securities Act and other applicable
securities laws.
SECTION 4.2. EXCEPTIONS TO RESTRICTIONS. The provisions of Section 4.1
(and Article V except as noted below) shall not apply to any of the following
transfers:
(a) Pursuant to a Public Offering;
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(b) Pursuant to a merger of the Company; and
(c) Pursuant to Sections 5.1, 5.2, 5.3, 5.5 and 5.8.
The provisions of this Agreement shall be applied to the shares of
Stock and Stock Rights owned by any Permitted Transferee of a Stockholder in
the same manner and to the same extent as though such Stock or Stock Rights
were owned by such Stockholder.
SECTION 4.3. NO TRANSFER TO COMPETITORS. Notwithstanding any provision
of this Agreement to the contrary, no Stockholder shall transfer any Stock or
Stock Rights to a Person (a) that is an individual or (b) that the Board of
Directors has determined in good faith competes with the Company in any
material respect, without the prior written consent of 75% of the members of
the entire Board of Directors of the Company.
SECTION 4.4. ENDORSEMENT OF CERTIFICATES.
(a) In addition to any other legend which the Company may reasonably
deem advisable under the Securities Act and applicable state securities laws,
the certificates representing all shares of Stock and all Stock Rights subject
to this Agreement shall be endorsed at all times during the term of this
Agreement as follows:
THIS [CERTIFICATE / WARRANT / OPTION] IS SUBJECT TO, AND IS
TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A STOCKHOLDERS
AGREEMENT DATED AS OF _______ __, 1997, AMONG THE COMPANY, ADVANCED
COMMUNICATIONS GROUP, INC. AND LIBERTY CELLULAR, INC., A COPY OF THE ABOVE
REFERENCED AGREEMENT WILL BE FURNISHED BY THE COMPANY WITHOUT CHARGE UPON
WRITTEN REQUEST BY ANY STOCKHOLDER TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE.
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Stock and all certificates or other
instruments representing Stock Rights now or hereafter issued to or acquired by
any of the Stockholders or their successors hereto shall bear the legend set
forth above and such shares of Stock and Stock Rights shall be subject to the
applicable provisions of this Agreement. The obligations of each party hereto
shall be binding upon each transferee to whom shares of Stock or Stock Rights
are transferred by any party hereto (including, without limitation, any Third
Party to whom shares are transferred pursuant to Article V), except in the case
of transfers pursuant to Subsection (b) or (c) of Section 4.2. Prior to
consummation of any transfer, except for transfers pursuant to Subsection (b)
or (c) of Section 4.2, such party shall cause the transferee to execute an
agreement in form and substance reasonably satisfactory to the other parties
hereto, providing that such transferee shall fully comply with the terms of
this Agreement. Prompt
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notice shall be given to the Company by the transferor of any transfer (whether
or not to a Permitted Transferee) of any of its Stock or Stock Rights.
SECTION 4.5. IMPROPER TRANSFER. Any attempt to transfer or encumber
any shares of Stock or any Stock Rights not in accordance with this Agreement
shall be null and void and neither the issuer of such Securities nor any
transfer agent of such Securities shall give any effect to such attempted
transfer or encumbrance in its stock records.
ARTICLE V
PURCHASE RIGHTS
SECTION 5.1. TRANSFERS BY A STOCKHOLDER.
(a) Except for sales of Securities pursuant to the provisions of
Article VI hereof, transfers permitted by clauses (a) and (b) of Section 4.2
and the provisions of Sections 5.5 and 5.8, if at any time any Stockholder
shall desire to sell any Securities owned by it (such Stockholder desiring to
sell Securities being referred to herein as a "Selling Stockholder"), then such
Selling Stockholder shall deliver written notice of its desire to sell
Securities (a "Notice of Intention"), accompanied by a copy of a proposal
relating to such sale (the "Sale Proposal"), to each of the other Stockholders
and to the Company, setting forth such Selling Stockholder's desire to make
such sale (which shall be for cash only), identifying the Securities proposed
to be transferred and stating the number of shares of Stock proposed to be
transferred or the number of shares covered by Stock Rights proposed to be
transferred (the "Offered Securities"), the cash price or prices per applicable
Security at which such Selling Stockholder proposes to sell the Offered
Securities (the "First Offer Price") and the other terms applicable thereto
(the "First Offer Terms").
(b) Upon receipt of the Notice of Intention, the Company and the other
Stockholders shall then have the right to purchase at the First Offer Price and
on the other terms specified in the Sale Proposal all or, subject to Section
5.1(d), any portion of the Offered Securities in the following order of
priority: the Company shall have the first right to purchase the Offered
Securities, and thereafter,the other Stockholders shall have the right to
purchase the Offered Securities pro rata on the basis of the respective numbers
of shares of Fully Diluted Common Stock owned by them or represented by Stock
Rights owned by them (or in such other proportion as such Stockholders may
unanimously agree). The rights of the Stockholders and the Company pursuant to
this Section 5.1 (b) shall be exercisable by the delivery of notice to the
Selling Stockholder (each a "Notice of Exercise"), within 30 calendar days from
the date of delivery of the Notice of Intention. The Notice of Exercise shall
state the total numbers of shares of Stock or Stock Rights such Stockholder (or
the Company) is willing to purchase without regard to whether or not other
Stockholders purchase any shares of the Offered Securities. A copy of such
Notice of Exercise shall also be delivered by each Stockholder to the Company
and each other Stockholder. The rights of the Stockholders and the Company
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pursuant to this Section 5.1(b) shall terminate if unexercised 30 calendar
days after the date of delivery of the Notice of Intention.
(c) In the event that the Company or any Stockholder exercises its
rights to purchase any or all of the Offered Securities in accordance with
Section 5.1 (b), then the Selling Stockholder must sell Offered Securities to
the Company or such Stockholder (as the case may be) within 30 calendar days
from the date of the delivery of the last Notice of Exercise received by the
Selling Stockholder.
(d) Notwithstanding the foregoing provisions of this Section 5.1,
unless the Selling Stockholder shall have consented to the purchase of less
than all of the Offered Securities, neither the Company nor any Stockholder may
purchase any Offered Securities unless all of the Offered Securities are to be
purchased.
(e) For purposes of this Article V, if the Company or any Stockholder
shall fail to give notice of its election to exercise an option hereunder
within the specified time period, then the Company or such Stockholder (as the
case may be) will be deemed to have waived its rights with respect thereto on
the day after the last day of such period.
SECTION 5.2. TRANSFER OF OFFERED SECURITIES TO THIRD PARTIES. Subject
to compliance with Section 5.8, if all notices required to be given pursuant to
Section 5.1 have been duly given and the Stockholders and the Company determine
not to exercise their respective options to purchase the Offered Securities or
determine to exercise their respective options to purchase less than all of the
Offered Securities without receiving the consent of the Selling Stockholder as
required by Section 5.1(d) and the Selling Stockholder does not desire to sell
less than all the Offered Securities, then the Selling Stockholder shall have
the right, for a period of 120 calendar days from the earlier of (i) the
expiration of the applicable option period pursuant to Section 5.1 with respect
to such Sale Proposal or (ii) the date on which such Selling Stockholder
receives notice from other Stockholders and the Company that they will not
exercise in whole or in part the options granted pursuant to Section 5.1, to
sell to any Third Party the Offered Securities remaining unsold at a price not
less than the First Offer Price and on terms substantially the same as the
other First Offer Terms.
SECTION 5.3. PURCHASE OF OFFERED SECURITIES.
(a) The consummation of any purchase and sale pursuant to Section 5.1
shall take place on such date, not later than 30 calendar days after the
expiration of the applicable option period pursuant to Section 5.1 with respect
to such option, as the Selling Stockholder shall select.
(b) Prior to the consummation of any sale pursuant to Section 5.1 or
5.2, the Selling Stockholder shall comply with Section 4.4(b) hereof. Upon the
consummation of any such purchase and sale, the Selling Stockholder shall
deliver certificates and/or other instruments evidencing the
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Offered Securities sold duly endorsed, or accompanied by written instruments of
transfer in form satisfactory to the purchaser duly executed, by the Selling
Stockholder, free and clear of any liens, against delivery of the purchase
price constituting the First Offer Price payable in the manner specified in
Section 5.1 (a). Shares of Stock or Stock Rights sold pursuant to this Section
5.3 shall remain subject to all of the provisions of this Agreement in the
hands of the transferee thereof, and prior to the completion of such sale such
transferee shall agree in a writing in form and substance reasonably
satisfactory to the Company to be bound and shall become bound by the terms of
this Agreement.
SECTION 5.4. WAITING PERIOD WITH RESPECT TO SUBSEQUENT TRANSFERS. In
the event that the Company and the Stockholders do not exercise their options
to purchase the Offered Securities, and the Selling Stockholder shall not have
sold the Offered Securities to a Third Party for any reason before the
expiration, as applicable, of the 120-day period described in Section 5.2, then
such Selling Stockholder shall not give another Notice of Intention pursuant to
Section 5.1 for a period of 180 calendar days after the last day of such
120-day period.
SECTION 5.5. CHANGE IN CONTROL OPTION. Each Stockholder (which term,
for purpose of this Section 5.5, shall include all Permitted Transferees
thereof as the context may require) shall be subject to the purchase and sale
obligations set forth in this Section 5.5 in the event that it undergoes a
Change in Control. If any Stockholder undergoes a Change in Control ("Subject
Stockholder"), the remaining Stockholders shall have the option to purchase, on
a pro rata basis (based upon the number of shares of Fully Diluted Common Stock
owned by each such Stockholder), all the Subject Stockholder's shares of Stock,
and the Subject Stockholder shall be obligated to sell such shares of Stock to
the other Stockholders. The price per share at which such Stock shall be
purchased shall be the Appraised Value. Such option must be exercised, and the
shares of Stock purchased, within 60 days after the date on which the Change in
Control occurs. To the extent not exercised within that time period, the option
will expire and be of no further force and effect. The purchase price for each
share of Stock purchased pursuant to this Section 5.5 shall be payable in cash.
SECTION 5.6. RIGHT OF FIRST REFUSAL FOR NEW SECURITIES.
(a) The Company hereby grants to the Stockholders a pro rata right of
first refusal to purchase shares of any New Securities (as defined below) which
the Company may, from time to time, propose to sell and issue. Such right of
first refusal shall allow each Stockholder to purchase a pro rata portion of
the shares of Stock or Stock Rights or other securities, as may be included in
the New Securities proposed to be issued. Such pro rata portions shall be
determined by reference to the aggregate number of shares of Fully Diluted
Common Stock held by each Stockholder before the proposed issuance of New
Securities. In the event a Stockholder does not purchase any or all of its pro
rata portion of New Securities, the remaining Stockholders shall have the right
to purchase their respective pro rata portions of such unpurchased New
Securities until all of the New Securities
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are purchased or until no other Stockholder desire to purchase any more New
Securities; provided, that all such remaining Stockholders purchasing Stock or
Stock Rights, as the case may be, hereunder shall have held Stock or Stock
Rights, respectively, before the issuance of the New Securities. The right of
first refusal granted hereunder shall terminate if, unexercised within thirty
(30) days after receipt of the notice described in Section 5.6(c) below.
(b) "New Securities" shall mean any authorized but unissued shares,
and any treasury shares, of Capital Stock (including Common Stock) of the
Company and all rights, options or warrants to purchase Capital Stock
(including, without limitation, Stock Rights), and securities of any type
whatsoever that are, or may become, convertible into Capital Stock; provided,
however. that the term "New Securities" does not include (i) shares of Common
Stock issued upon the exercise of Stock Rights or other rights to acquire Stock
that are issued after the date hereof in a transaction in which the
Stockholders have the right to purchase their respective pro rata portions of
the relevant Stock Rights or other rights pursuant to Section 5.6(a) hereof, in
each such case in accordance with the terms thereof; (ii) securities issued
pursuant to the acquisition of another corporation or other entity by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization; (iii) shares of Stock issued in connection with any stock
split, stock dividend or recapitalization of the Company; and (iv) any
borrowings, direct or indirect, from financial institutions or other Persons by
the Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such borrowings do
not have equity features, including warrants, options or other rights to
purchase Capital Stock, and are not convertible into or exchangeable for
Capital Stock of the Company; and (vi) shares and options to purchase shares of
Common Stock issued to employees, officers or directors of the Company pursuant
to any stock incentive plan, provided that the aggregate number of shares of
Common Stock issued pursuant to the stock incentive plans approved by at least
75% of the members of the entire Board of Directors.
(c) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Stockholder written notice of its intention,
describing the number of shares of Stock and/or Stock Rights or other
securities it intends to issue as New Securities, the purchase price therefor
(which shall be payable solely in cash) and the terms upon which the Company
proposes to issue the same. Each Stockholder shall have 30 days from the date
such notice is given to determine whether to purchase all or any portion of the
Stockholder's pro rata share of such New Securities for the purchase price and
upon the terms specified in the Company's notice by giving written notice to
the Company and stating therein the quantity of New Securities to be purchased.
(d) The obligations of the Company under this Section 5.6 shall
terminate immediately prior to any Public Offering pursuant to a firm
commitment underwriting.
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SECTION 5.7. LEGALLY BINDING OBLIGATION; POWER OF ATTORNEY; PERSONAL
RIGHTS. Subject to Section 5.1 (a), the making of an offer, the giving or
failing to give notice within the stated period, the acceptance of an offer or
the making of a decision or election, in each case as provided in Sections 5.1,
5.6 or 5.8, shall create a legally binding obligation to buy or sell, as the
case may be, the subject Securities as provided in such Sections 5.1, 5,2, 5.3,
5.5, 5.6 or 5.8 respectively.
SECTION 5.8. RIGHT TO JOIN IN SALE.
(a) If any Stockholder or group of Stockholders proposes to sell,
dispose of or otherwise transfer in any single or related series of
transactions any Securities representing more than 10% of the Fully Diluted
Common Stock (each a "Disposing Stockholder") other than to the Company or the
Stockholders pursuant to Section 5.1 hereof, such Disposing Stockholder shall
refrain from effecting, other than to a Permitted Transferee, such transaction
unless, prior to the consummation thereof, each other Stockholder shall have
been afforded the opportunity to join in such sale on a pro rata basis, as
hereinafter provided.
(b) Prior to consummation of any proposed sale, disposition or
transfer of the Securities described in Section 5.8(a), the Disposing
Stockholder shall cause the person or group that proposes to acquire such
shares (the "Proposed Purchaser") to offer (the "Purchase Offer") in writing to
each other Stockholder to purchase shares of Stock and/or Stock Rights owned by
such Stockholder which are the same type, class or series proposed to be sold
by the Disposing Stockholders, such that sum of the number of shares of such
Stock so offered to be purchased and the number of shares of Stock then
represented by the Stock Rights so offered to be purchased from such
Stockholder shall be equal to the product obtained by multiplying the total
number of shares of the same type, class or series of Stock or other Securities
being sold by the Disposing Stockholder then owned by such Stockholder by a
fraction, the numerator of which is the aggregate number of shares of each
type, class or series of Stock or other Securities proposed to be purchased by
the Proposed Purchaser from the Disposing Stockholder or Stockholders and the
denominator of which is the aggregate number of outstanding shares of each
type, class or series of Stock or other Securities that are owned by the
Disposing Stockholder or Stockholders. Such purchase shall be made at the price
per share and on such other terms and conditions as the Proposed Purchaser has
offered to purchase each type, class or series of Stock or other Securities, as
the case may be, to be sold by the Disposing Stockholder or Stockholders. Each
Stockholder shall have 20 days from the date of receipt of the Purchase Offer
in which to accept such Purchase Offer, and the closing of such purchase shall
occur within 30 days after such acceptance or at such other time as such
Stockholder and the Proposed Purchaser may agree. The number of shares of Stock
and/or Stock Rights, as the case may be, to be sold to the Proposed Purchaser
by the Disposing Stockholder or Stockholders shall be reduced by the aggregate
number of shares of Stock and/or Stock Rights, as the case may be, purchased by
the Proposed Purchaser from the other Stockholders pursuant to the acceptance
by them of Purchase Offers in accordance with the provisions of this Section
5.8(b). In the event that a sale or other transfer subject
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to this Section 5.8 is to be made to a Proposed Purchaser who is not a
Stockholder, the Disposing Stockholder shall notify the Proposed Purchaser
that the sale or other transfer is subject to this Section 5.8 and shall
ensure that no sale or other transfer is consummated without the Proposed
Purchaser first complying with this Section 5.8. It shall be the responsibility
of each Disposing Stockholder to determine whether any transaction to which it
is a party is subject to this Section 5.8.
ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.1. DEMAND REGISTRATIONS.
(a) At any time after the Company's first Public Offering, any
Stockholder may request in writing that the Company effect the registration
under the Securities Act of all or part of its Registrable Securities,
specifying in the request the number and types of Registrable Securities to be
registered by each such holder and the intended method of disposition thereof
(such notice is hereinafter referred to as a "Holder Request"). Upon receipt of
such Holder Request, the Company will promptly give written notice of such
requested registration to all other holders of Registrable Securities, which
other holders shall have the right, subject to the provisions of Section 6.1(h)
hereof, to include the Registrable Securities held by them in such registration
and thereupon the Company will, as expeditiously as possible, use its best
efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register pursuant to the Holder's Request; and
(ii) all other Registrable Securities which the Company has
been requested to register by any other holder thereof by written
request given to the Company within 30 calendar days after the giving
of such written notice by the Company,
all to the extent necessary to permit the disposition of the Registrable
Securities so to be registered pursuant to an Underwritten Offering; provided,
however, that the Company shall not be obligated to file a registration
statement pursuant to any Holder Request under this Section 6.1 (a):
(1) Unless the Company shall have received requests for such
registration with respect to at least 10% of the Fully Diluted Common
Stock;
(2) Other than a registration statement on Form S-3 or a
similar short form registration statement, within a period of 12
months after the effective date of any other registration statement
relating to any registration request under this Section 6.1 (a) that
was not effected on Form S-3 (or any similar short form); or
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(3) Within the six month period immediately following the
effective date of a registration previously effected by the Company
pursuant to this Section 6.1.
(b) Notwithstanding the foregoing provisions of Section 6.1 (a), the
Company shall not be obligated to file more than two registration statements
pursuant to this Section 6.1.
(c) If the Company proposes to effect a registration requested
pursuant to this Section 6.1 by the filing of a registration statement on Form
S-3 (or any similar short-form registration statement), the Company will comply
with any request by the managing underwriter to effect such registration on
another permitted form if such managing underwriter advises the Company that,
in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering.
(d) A registration requested pursuant to Section 6.1 (a) will not be
deemed to have been effected unless it has become effective; provided, that, if
after it has become effective, the offering of Registrable Securities pursuant
to such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court,
such registration will be deemed not to have been effected.
(e) The Company will pay all Registration Expenses in connection with
each of the registrations of Registrable Securities effected by it pursuant to
this Section 6.1.
(f) The Board of Directors of the Company shall have the right to
select the investment banker (or investment bankers) that shall manage the
proposed offering (collectively, the "managing underwriter").
(g) Whenever a requested registration pursuant to this Section 6.1
involves a firm commitment underwriting (an "Underwritten Offering"), the only
shares that may be included in such Offering are (i) Registrable Securities,
and (ii) securities of the Company which are not Registrable Securities
("Company Securities").
(h) If a registration pursuant to this Section 6.1 involves an
Underwritten Offering and the managing underwriter shall advise the Company
that, in its judgment, the number of shares proposed to be included in such
Offering should be limited due to market conditions, then the Company will
promptly so advise each holder of Registrable Securities that has requested
registration, and the Company Securities, if any, shall first be excluded from
such Offering to the extent necessary to meet such limitation; and if further
exclusions are necessary to meet such limitation, the shares shall be excluded
pro rata until such limitation has been met.
SECTION 6.2. PIGGYBACK REGISTRATIONS.
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(a) If the Company at any time after its first Public Offering
proposes to register any of its equity or debt securities under the Securities
Act (other than a registration on Form S-4 or S-8 or any successor or similar
forms thereto and other than pursuant to a registration under Section 6.1),
whether or not for sale for its own account, on a form and in a manner that
would permit registration of Registrable Securities for sale to the public
under the Securities Act, it will give written notice to all the holders of
Registrable Securities promptly of its intention to do so, describing such
securities and specifying the form and manner and the other relevant facts
involved in such proposed registration (including, without limitation; (x)
whether or not such registration will be in connection with an underwritten
offering of Registrable Securities and, if so, the identity of the managing
underwriter and whether such offering will be pursuant to a "best efforts" or
"firm commitment" underwriting and (y) the price (net of any underwriting
commissions, discounts and the like) at which the Registrable Securities are
reasonably expected to be sold) if such disclosure is acceptable to the
managing underwriter. Upon the written request of any such holder delivered to
the Company within 30 calendar days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such holder and the intended method of disposition thereof), the Company will
use best efforts to effect the registration under the Securities Act of all of
the Registrable Securities that the Company has been so requested to register;
provided however, that:
(i) If, at any time after giving such written notice of its
intention to register any securities and prior to the effective date
of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable
Securities who made a request as hereinabove provided and thereupon
the Company shall be relieved of its obligation to register any
Registerable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights, of the holders
of the Registrable Securities to request that such registration be
effected as a registration under Section 6.1 to the extent the Company
is then obligated to file a registration statement pursuant to that
section.
(ii) If such registration involves an Underwritten Offering,
all holders of Registrable Securities requesting some or all of their
Registrable Securities to be included in the Company's registration
must sell that portion of their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions
as apply to the Company.
No registration effected under this Section 6.2 shall relieve the Company of
its obligation to effect the registrations provided for in Section 6.1.
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(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 6.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange
offers, dividend reinvestment plans or stock option or other employee benefit
plans.
(c) The Registration Expenses incurred in connection with each
registration of Registrable Securities requested pursuant to this Section 6.2
shall be paid by the Company.
(d) If a registration pursuant to this Section 6.2 involves an
Underwritten Offering and the managing underwriter advises the Company that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, then the Company will
include in such registration (i) first, the securities the Company proposes to
sell, and (ii) second, the number of shares of Common Stock requested to be
included in such registration that, in the opinion of such managing
underwriter, can be sold, such amount to be allocated pro rata among all such
requesting holders on the basis of the class of securities and the relative
number of shares of Registrable Securities, as the case may be, each such
holder has requested to be included in such registration.
(e) In connection with any Underwritten Offering with respect to which
holders of Registrable Securities shall have requested registration pursuant to
this Section 6.2, the Board of Directors of the Company shall have the right to
select the managing underwriter with respect to the offering.
SECTION 6.3. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required to use its best efforts to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in Section 6.1 or 6.2, the Company will, as
expeditiously as possible:
(i) Prepare and, in any event within 60 calendar days after
the end of the period within which requests for registration may be
given to the Company, file with the Commission 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 the Company may discontinue any registration
of its securities that is being effected pursuant to Section 6.2 at
any time prior to the effective date of the registration statement
relating thereto.
(ii) Prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such
registration statement and the prospectus
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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 not
exceeding nine months and to comply with the provisions of the
Securities 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, the Company 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 the
Company 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 Securities 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 such
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 the Company
shall not for any such purpose be required (1) to qualify to do
business as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 6.3(a)(iv), it is not then so
qualified, or (2) to subject itself to taxation in any such
jurisdiction, or (3) 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 such 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 Securities Act
within the appropriate period mentioned in Section 6.3(a)(ii), if the
Company 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
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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 Commission 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 Company), an earnings
statement of the Company which will satisfy the provisions of Section
11 (a) of the Securities 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 the Company 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 Registerable Securities 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 the Company, and cause all of the Company'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 the Company in customary form and
in form and scope reasonably satisfactory to such underwriter or agent
and their counsel.
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(b) Each holder of Registrable Securities will, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.3(a)(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 6.3(a)(vi).
(c) If a registration pursuant to Section 6.1 or 6.2 involves an
Underwritten Offering, each holder of Registerable Securities agrees, whether
or not such holder's Registrable Securities are included in such registration,
not to effect any public sale or distribution, including any sale pursuant
to Rule 144 under the Securities 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.
SECTION 6.4. INDEMNIFICATION.
(a) In the event of any registration of any securities of the Company
under the Securities Act pursuant to Section 6.1 or 6.2, the Company 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 Securities Act, as follows:
(i) 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 not misleading;
(ii) 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
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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 the Company; and
(iii) 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 subparagraph (i) or (ii) 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.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 6.1 or 6.2, that the Company 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 6.4(a)) the Company 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 the Company 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 the
Company 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 Company and such sellers pursuant to this Section 6.4 are to be several
and not joint; provided, however, that, with respect to each claim pursuant to
this Section, the Company shall be liable for the full amount of such claim,
and each such seller's liability under this Section 6.4 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.
(c) 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 6.4, 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
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indemnifying party of its obligations under this Section 6.4, 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 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 6.4(c), 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 6.4(c), then such indemnifying party shall,
subject to the provisions of this Section 6.4, indemnify and hold harmless the
indemnified party from any and all losses, claims, damages or liabilities by
reason of such settlement or judgment.
(d) The Company 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.
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SECTION 6.5. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
6.4 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
the Company, 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 Securities 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. The Company 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 6.4(b)
were available. The Company 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 Registrable Securities. For
purposes of this Section 6.5, each Person, if any, who controls an underwriter
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as such underwriter, and each director and each officer
of the Company who signed the registration statement, and each Person, if any,
who controls the Company or a seller of Registrable Securities within the
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company or a seller of Registrable Securities, as the case
may be.
SECTION 6.6. RULE 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities, make publicly available other information) , and it will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
shares of Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of
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Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE VII
TERMINATION
SECTION 7.1. CERTAIN TERMINATIONS.
(a) Except to the extent specifically provided elsewhere in this
Agreement, the provisions of Articles II, III, IV and V shall terminate on the
date on which any of the following events first occurs: (i) a Qualified Public
Offering, or (ii) the tenth anniversary of the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any shares of Common Stock or Stock Rights.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. SUCCESSORS AND ASSIGNS. Except as provided in Section 4.2
and as otherwise provided herein, all of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto. No
Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Sections 4.2 and 5.3 (if
applicable) as provided therein in all respects. The Company may not assign any
of its rights hereunder to any Person other than an Affiliate of the Company.
If any transferee of any Stockholder shall acquire any shares of Stock or Stock
Rights, in any manner, whether by operation of law or otherwise, such Stock or
Stock Rights shall be held, subject to all of the terms of this Agreement, and
by taking and holding such Securities such Person shall be entitled to receive
the benefits of and be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement.
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SECTION 8.2. AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE.
(a) This Agreement may be amended only by a written instrument duly
executed by the Stockholders and all Permitted Transferees. In the event of the
amendment or modification of this Agreement in accordance with its terms, the
Stockholders shall cause the Board of Directors of the Company to meet within
30 calendar days following such amendment or modification or as soon thereafter
as is practicable for the purpose of adopting any amendment to the Articles of
Incorporation and By-Laws of the Company that may be required as a result of
such amendment or modification to this Agreement, and, if required, proposing
such amendments to the Stockholders entitled to vote thereon, and the
Stockholders agree to vote in favor of such amendments.
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail, except as otherwise provided herein.
SECTION 8.3. NOTICES. Any notice, request, claim, demand, document and
other communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telex or telecopy (with such telex or telecopy confirmed promptly in writing
sent by first class mail), or first class mail, or other similar means of
communication, as follows:
(i) If to the Company, addressed to its principal executive
offices to the attention of its Secretary; and
(ii) If to a Stockholder, to the address of such Stockholder
set forth in the stock records of the Company, or to such
other address as any party shall have specified by notice
given to the other parties in the manner specified above; and
All such communications shall be deemed to have been given or made
when so delivered by hand or sent by telex (answer back received) or telecopy,
or if mailed, five business days after being so mailed.
SECTION 8.4. ENTIRE AGREEMENT; GOVERNING LAW.
-31-
<PAGE>
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter. The
Company represents to the Stockholders that the rights granted to the holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted or obligations accepted under any other agreement (including the
Articles of Incorporation) to which the Company is a party.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF KANSAS (WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN KANSAS).
SECTION 8.5. INJUNCTIVE RELIEF. The Stockholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Stockholders irreparable injury for which adequate remedy at law is not
available. Therefore, the Stockholders agree that each Stockholder shall be
entitled to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Stockholder from committing
any violations of the provisions of this Agreement.
SECTION 8.6. INSPECTION. For so long as this Agreement shall be in
effect, this Agreement shall be made available for inspection by any
Stockholder at the principal executive offices of the Company.
SECTION 8.7. HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.8. RECAPITALIZATIONS, EXCHANGES, ETC., AFFECTING THE
SECURITIES.
(a) The provisions of this Agreement shall apply to the full extent
set forth herein with respect to the Stock and the Stock Rights, and to any and
all equity or debt securities of the Company, or any successors or assigns of
the Company (whether by merger, consolidation, sale of assets, or otherwise)
which may be issued in respect of, in exchange for, or in substitution of, such
equity or debt securities and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, reclassifications,
recapitalizations, reorganizations and the like occurring after the date
hereof.
-32-
<PAGE>
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
COMPANY:
KIN NETWORK, INC.
BY:
------------------------------------
E. CLARKE GARNETT
PRESIDENT
STOCKHOLDERS:
ADVANCED COMMUNICATIONS
GROUP, INC.
BY:
------------------------------------
ROD K. CUTSINGER
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
LIBERTY CELLULAR, INC.
BY:
------------------------------------
E. CLARKE GARNETT
-33-
<PAGE>
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
-34-
<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 and for the
period from inception (June 6, 1996) through 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
December 29, 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 and for the year ended 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
December 29, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the financial statements of Great
Western Directories, Inc. as of January 31, 1996 and December 31, 1996 and
for the year ended January 31, 1995 and 1996 and December 31, 1996, dated
October 2, 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
December 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports on the financial statements of
FirsTel, Inc. as of and for the year ended December 31, 1995 and 1996, dated
September 26, 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
December 29, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports 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
December 26, 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 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.
December 29, 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 $.0001 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
December 29, 1997
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