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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 001-13875
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ADVANCED COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0549396
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
390 SOUTH WOODS MILL ROAD, 63017
SUITE 150, ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (314) 205-8668
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
$.0001 PAR VALUE COMMON STOCK NEW YORK STOCK EXCHANGE, INC.
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by references in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based upon the closing price of such stock on March 18, 1999 as
reported by the New York Stock Exchange, was approximately $64.3 million.
The number of shares outstanding of the registrant's Common Stock as of
March 18, 1999 was approximately 19,859,262 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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INDEX
PART I
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Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 7
Item 3. Legal Proceedings........................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......................... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters... 8
Item 6. Selected Financial Data..................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 11
Item 8. Financial Statements and Supplementary Data................................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 34
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 34
Item 11. Executive Compensation...................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 39
Item 13. Certain Relationships and Related Transactions.............................. 40
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K............ 40
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PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN USED IN
THIS FORM 10-K THE WORDS "ANTICIPATES," "INTENDS," "PLANS," "BELIEVES,"
"EXPECTS," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS, INCLUDING, BUT NOT LIMITED TO, THE
COMPANY'S PROJECTIONS AND ESTIMATES REGARDING CASH FLOWS, CAPITAL EXPENDITURES
AND PLANNED SERVICE OFFERINGS, ARE BASED UPON MANAGEMENT'S BELIEFS, AS WELL AS
ON ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT, AND
INVOLVE VARIOUS RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE
COMPANY. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE NOT
LIMITED TO, THOSE FACTORS IDENTIFIED IN "ITEM 7 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION" IN THIS FORM 10-K.
ITEM 1. BUSINESS
The following section describes the Company's current businesses, plans for
future business and its strategy. Successful execution of these plans are
contingent upon satisfying many factors, including among many items, the
Company's ability to obtain adequate financing to implement the strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and"--Factors That May Affect
Future Results and Financial Condition." The Company continues to explore a
variety of financiang possibilities including the sale of certain assets or
businesses and opportunities to raise private equity.
GENERAL
Advanced Communications Group, Inc. ("Advanced Communications" or the
"Company") is a regional competitive local exchange carrier ("CLEC") that
provides integrated communications services to business and residential
customers located in the Midwestern region of the United States. The Company's
integrated communications services include local, long distance, Internet
access, cellular and enhanced voice and data services. Advanced Communications
focuses primarily on small to medium-sized businesses in Kansas, Minnesota,
Nebraska, North Dakota, Oklahoma, South Dakota and Texas. As of December 31,
1998, Advanced Communications had over 125,000 local access lines in services
and provided integrated communications services to over 60,000 customers. The
Company also publishes yellow pages directories in certain Texas, Oklahoma and
California markets that have over 40,000 advertising customers. In 1998,
Advanced Communications distributed 3.4 million copies of yellow pages
directories in 23 markets.
Advanced Communications currently owns and operates telecommunications
networks that include six digital switches in Kansas, Oklahoma, South Dakota and
Texas and plans to install four additional switches in Texas, Minnesota and
Kansas in 1999. The Company is also in the process of installing its first Class
5 switch in Wichita, KS. Advanced Communications' local exchange network
architecture is designed to allow it to provide services to customers within a
targeted 350-mile radius of each switch location. The Company has selected a
number of central office locations of the incumbent local exchange carriers
("ILECs") for interconnection with its local exchange switches through physical
collocation of its transmission electronics in the ILEC central offices and at
the Company's own interconnection locations, or points of presence. In areas in
which Advanced Communications does not currently have network equipment, it
resells the communications services of providers such as Southwestern Bell
Telephone Company, US West Communications, Inc. and others. Advanced
Communications has entered into comprehensive local exchange resale agreements
with Southwestern Bell, US West, affiliates of GTE Corporation and Sprint
Corporation covering each of the states in which the majority of its customers
are currently located. The Company has also entered into agreements with several
interexchange carriers to provide switching and network transmission services
for its long distance traffic and have agreements to resell cellular service in
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selected markets. These agreements allow Advanced Communications to offer
bundled local and long distance telecommunications services without incurring
substantial expenditures for the construction of network facilities.
Advanced Communications completed its initial public offering in February
1998, at which time it acquired six telecommunications service providers, a
yellow pages publisher, two telephone equipment sales and maintenance companies
and its predecessor company, which was organized in 1996. For the year ended
December 31, 1998, the Company had pro forma revenues of $114.2 million and pro
forma earnings before interest, income taxes, depreciation, amortization and
stock-based compensation ("EBITDA") of $.4 million.
EXISTING PRODUCTS AND SERVICES
As of December 31, 1998, Advanced Communications was providing local, long
distance, Internet access, cellular and other enhanced telecommunications
services to over 60,000 business and residential customers in its markets.
Advanced Communications currently provides its local services on a resale basis
through Southwestern Bell, US WEST and GTE. The Company also publishes yellow
pages directories serving 23 market areas in Texas, Oklahoma, and California
with over 40,000 advertising customers.
LOCAL SERVICES. Advanced Communications primarily offers local dial tone,
private line service and value-added services such as call waiting, caller ID
and voice mail, on a resale basis through Southwestern Bell, US WEST and GTE.
The Company intends to continue to purchase local telephone services from ILECs
on a wholesale basis and resell such services to business and residential
customers. As of December 31, 1998, Advanced Communications was authorized to
resell local service in Iowa, Kansas, Minnesota, Montana, Nebraska, North
Dakota, Oklahoma, South Dakota, Texas and Wyoming. Advanced Communications is
also seeking authorization to resell local services in Arkansas, Colorado and
Missouri. The Company intends to seek facilities-based CLEC certification in its
targeted states and in contiguous states. Advanced Communications plans to
deploy its own switching platforms and transmission facilities using owned and
leased trunking capacity and leased unbundled network elements and DS-1 services
to interconnect to its customers as the demand for its services justifies such
expenditures.
ONE PLUS LONG DISTANCE SERVICES. Advanced Communications offers traditional
outbound switched services which allow customers to make long distance calls by
dialing "1" plus the area code and phone number. Customers choose Advanced
Communications as their long distance provider by placing an order with the
Company.
LONG DISTANCE DEDICATED SERVICES. For certain high volume customers,
Advanced Communications offers a dedicated access line which bypasses the ILEC.
The Company's switch is directly connected to the end users instead of switching
through an ILEC. The customer's per minute rates are lower and ILEC originating
access fees are eliminated.
TOLL FREE 800/888/877 SERVICES. Advanced Communications offers toll-free
service so that calls are paid by the party receiving the call.
CELLULAR SERVICES. Advanced Communications offers cellular service on a
resale basis to customers in Idaho, Iowa, Minnesota, Montana, Nebraska, North
Dakota and South Dakota. The Company typically offers cellular service as part
of a comprehensive package of telecommunications services to its business and
residential customers.
YELLOW PAGES PUBLISHING. Advanced Communications' yellow pages business
derives its revenue primarily from the sale of advertising space in its
directories. During the year ended December 31, 1998, the Company produced and
distributed approximately 3.4 million copies of yellow pages directories in 23
markets in Oklahoma, Texas and California, including in many of the Company's
target telecommunications markets. Advanced Communications is preparing to enter
into one new market in 1999 and one new
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market in 2000. The Company continuously evaluates whether to publish additional
directories in contiguous markets.
PLANNED PRODUCTS AND SERVICES
ENHANCED SERVICES. Advanced Communications' planned network design and
technology will permit it to offer a full range of enhanced services to
complement its basic switched local and long distance services. The demand for
these value-added, higher margin services, including the demand for high speed
data transmission services, is being driven primarily by the significant growth
in Internet usage and the growing complexity of the telecommunications
requirements of the Company's customers. Advanced Communications will have the
capability to provide an integrated turnkey solution to all of its customers'
voice, data and video transmission requirements, including the following
enhanced services: internet access, web hosting and enhanced internet business
services, transparent LAN services, and frame relay.
WHOLESALES SERVICES. Advanced Communications intends to offer its local and
Internet access services on a wholesale basis to selected Internet service
providers. The Internet service providers will be able to obtain additional
network capacity by accessing the Company's switches, which would help eliminate
some of the congestion produced by the rapid growth of Internet users.
BUSINESS STRATEGY
Advanced Communications believes that the Telecommunications Act of 1996, by
opening the local exchange markets to competition, and the ongoing deregulation
of the telecommunications industry, have created significant opportunities for
CLECs such as the Company that can offer bundled communications services at
lower prices than the ILECs. Advanced Communications' original and present
business strategy is to establish a loyal customer base by focusing on
underserved business customers in smaller markets and providing them with
bundled local and long distances services that are billed on a single statement.
The Company then plans to deploy digital switching platforms with local and long
distance capability and lease fiber trunking capacity to connect its switches
with its transmission equipment collocated in the ILEC central offices. The key
components of Advanced Communications' business strategy include the following:
CONCENTRATE ON SMALLER REGIONAL MARKETS. Advanced Communications focuses
its marketing and expansion activities on small to mid-sized cities in the
Midwestern United States. These cities present the Company with attractive
opportunities since the ILECs have placed a lower priority on defending their
market share and installing advanced network infrastructure in these smaller
markets. The regional concentration of Advanced Communications' targeted market
also permits the Company to penetrate the potential customer base in a
cost-efficient manner and enables it to achieve the necessary collocations and
rapidly interface with the ILECs. This is an important competitive advantage, as
customers often choose a provider based on the speed with which new services can
be installed and provided.
TARGET CUSTOMERS WITH MULTIPLE SERVICE REQUIREMENTS. The Company's primary
targeted customer base of small and medium-size businesses seek cost effective
solutions for all of their telecommunications needs. Advanced Communications
believes these customers have been generally neglected by the ILECs, who tend to
focus on larger business customers and do not have marketing and customer
service programs designed specifically to address the needs of small to medium
sized businesses. Advanced Communications offers these customers "one-stop
shopping" by integrating all of its services, including bundled third-party
services, and providing them with a single sales contact and one easy-to-read
billing statement.
CAPITALIZE ON LOCAL PRESENCE TO GAIN MARKET SHARE. Advanced Communications'
experienced, local sales team and technical support staff are able to provide
its customers with personalized communications solutions. The Company believes
this gives it a competitive advantage in its target markets, over the ILECs who
generally do not have significant local sales and technical personnel in those
markets. Advanced
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Communications expects to strengthen brand awareness by tailoring its marketing
programs and advertising campaigns in each local market.
TARGET ESTABLISHED CUSTOMER BASE FOR CROSS-SELLING. Advanced Communications
believes that its established base of long distance and yellow page customers
represents a substantial untapped customer base for cross-selling its services,
as only a small portion of such customers currently subscribe to its other
services. The Company believes that their familiarity with its brand name and
the potential discounts associated with comprehensive service packages will make
these customers highly receptive to the Company's cross-selling efforts.
EXPAND GROSS MARGINS THROUGH COST-EFFICIENT DEPLOYMENT OF NETWORK
FACILITIES. Once the Company has a sufficient customer base and traffic volume
in a certain area on a reselling basis to justify investing in its own
facilities, the Company will install its own switches and transmission equipment
using a network architecture that minimizes the extent of investment. The
Company plans to cost effectively access its customers on a broad geographic
area by interconnecting in ILEC central offices, leasing local and intercity
transmission capacity and acquiring network capacity from the ILECs in the form
of unbundled loops and DS-1 service. Adding its own digital switching platforms
to leased bandwidth provides the technology typically used in more developed
commercial areas in offering enhanced services to our targeted smaller markets.
The Company also plans to deploy packet-based switching platforms, which, along
with its circuit-based switches, will enable the Company to offer a flexible,
comprehensive service package. If a particular market justifies the additional
investment, the Company will collocate in additional ILEC central offices,
establish additional point of presence locations for its transmission equipment
and construct its own "last mile" transport to selected customers. The Company
believes this incremental approach will result in lower initial capital
expenditures will allow the Company to penetrate a broad geographic area served
by multiple ILEC end offices and enter new markets more quickly, and reduces the
costs associated with building its own system -- all of which should contribute
to improved gross margins.
PROVIDE HIGHER MARGIN ENHANCED SERVICE OFFERINGS. The Company believes that
its network design and technology will allow it to deliver an integrated package
of enhanced services to complement its basic switched voice transmission
services. These services, certain of which it offers currently on a resale
basis, include:
- enhanced local features such as conference calling, speed dialing, call
waiting, voice mail, call forwarding, caller ID, last number redial and
return calling;
- Advanced Intelligent Network services such as end-user time-of-day routing
and local number portability;
- Internet services for both retail customers and Internet Service
Providers, including dedicated and dial-up high speed Internet access, Web
page design and support, and Web server hosting;
- high speed ATM and frame relay digital packet-switched data transmission
and video transport services; and
- LAN to LAN interconnect services.
ENHANCE SERVICE DELIVERY CAPABILITIES WITH INSTALLATION OF NEW OPERATIONAL
SUPPORT SYSTEM. Advanced Communications plans to install a computerized back
office system to facilitate organized, efficient order management, service
provisioning, trouble management, billing and collection and customer service.
Until this system is operational, the Company plans to enter into an agreement
with a service bureau to handle its back office functions. The system Advanced
Communications is installing is scalable and flexible to support its expected
future back office requirements. When installed, this system will:
- minimize the time to initiate local and long distance services for new
customers internally and through the ILEC;
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- provide detailed and customized customer billing information;
- respond quickly to customers' needs and information requests; and
- monitor and analyze traffic, financial and operating trends.
The Company intends to actively negotiate arrangements to "electronically
bond" its platform with its trading partner's, including ILECs and other service
providers, to expedite electronic flow-through order processing. Advanced
Communications has engaged an experienced team of engineering and information
technology professionals to develop these back office systems, which will give
it a competitive advantage over companies using legacy systems.
INCREASE SIZE AND PRODUCTIVITY OF DIRECT TELECOMMUNICATIONS SALES FORCE AND
CUSTOMER CARE ORGANIZATION. Advanced Communications intends to recruit and
retain a motivated, experienced direct local sales force and customer care
representatives. Advanced Communications has implemented a 100% commission-based
compensation system for its sales force. The Company has expanded its
telecommunications sales force from 45 people at February 1, 1998 to over 200 in
24 offices in seven states at December 31, 1998. Advanced Communications has
also expanded its customer care organization from approximately 160
representatives at February 1, 1998 to approximately 250 representatives at
December 31, 1998.
LEVERAGE ESTABLISHED DIRECTORIES BUSINESS. Advanced Communications'
existing yellow pages directories business provides consistent cash flow to fund
a portion of its capital and operating requirements. The Company intends to
leverage its established market positions in its directories business through
joint marketing its directories and telecommunications services, in order to
increase brand awareness and attract new customers to its telecommunications
services. Advanced Communications continues to use the opening sections of many
of its directories as a product catalog to showcase its communications services.
The Company's strategy for its directories business is to publish new
directories and make selective acquisitions. Advanced Communications intends to
target markets that are contiguous to its existing markets and use its
established sales infrastructure, brand name recognition and existing
advertising customers and readership, to minimize the costs associated with
launching new directories.
LEVERAGE PROVEN MANAGEMENT TEAM. Advanced Communications' senior management
team is comprised of proven, experienced telecommunications executives with
in-depth knowledge of local and long distance exchange services, particularly in
its current markets. Richard O'Neal, the acting Chief Executive Officer, founded
Great Western Directories, Inc., one of the largest independent publishers of
yellow pages, which was acquired by the Company in its initial public offering.
James F. Cragg, the President and Chief Operating Officer, has held executive
positions with MCI, Snyder Communications and, most recently, Brooks Fiber
Properties, Inc. The Company's Chief Financial Officer, William H. Zimmer III,
spent over 15 years at Cincinnati Bell, where he served in various senior
management capacities. Other key members of the Company's management team have
significant experience in network operations, sales and marketing, billing and
collection, back office support systems and finance.
EMPLOYEES
At December 31, 1998, the Company had 1,020 employees. Of these, 348 were in
its yellow pages publishing operations and 672 were in its telecommunications
operations.
ITEM 2. PROPERTIES
The Company owns office buildings in Amarillo and Longview, Texas and leases
office space for its customer service centers in Dallas, Texas; Oklahoma City,
Oklahoma; Wichita, Kansas; Sioux Falls, South Dakota. The Company also leases
its Corporate Headquarters in St. Louis, Missouri, as well as various sales
offices throughout its geographic territory. The leases for these offices expire
at various times through January 2008.
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The Company may lease or purchase additional space for general office use or
to house network switching equipment in connection with the expansion of its
business.
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of 1998, the lawsuit filed against Great Western
Directories, Inc. ("Great Western") one of the Company's wholly owned
subsidiaries, and Mr. Richard O'Neal, President of Great Western, President of
the Company's Directories Services Group, the Company's acting Chief Executive
Officer and a director, by Brenda Baldwin, was settled and the lawsuit was
dismissed. The plaintiff in the action alleged violation of Section 10b of the
Securities Exchange Act of 1934 and Rule 10b-5 and violation of the Texas
securities laws. Under the terms of the settlement, neither Mr. O'Neal nor the
Company was required to pay any money to the plaintiff.
As is the case with many companies, the Company faces exposure to actual or
potential claims and lawsuits involving its business and assets. The Company is
currently party to a number of lawsuits consisting of ordinary, routine
litigation incidental to the business of the Company. The Company believes that
any liabilities resulting from such claims should not have a material adverse
effect on the Company's financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its stockholders during
the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) PRINCIPAL MARKET
The Company's common stock is traded on the New York Stock Exchange under
the symbol "ADG". The Company is authorized to issue 180,000,000 shares of
Common Stock, par value $.0001 per share and 20,000,000 shares of preferred
stock, par value $.0001 per share. At March 18, 1999, 19,859,262 shares of
Common Stock and 142,857 shares of Series A Redeemable Convertible Preferred
Stock were outstanding.
(B) STOCK PRICE AND DIVIDEND INFORMATION
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MARKET PRICE
-------------------- DIVIDENDS
YEAR ENDED DECEMBER 31, 1998 HIGH LOW PER SHARE
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1st Quarter (from February 18,
1998) $ 17.00 $ 12.69 --
2nd Quarter 16.00 6.63 --
3rd Quarter 12.94 4.88 --
4th Quarter 7.19 3.00 --
</TABLE>
No dividends have been paid on the Common Stock since the Company's
inception. 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. The Company's revolving credit facility restricts dividend payments and
any new credit facility which the Company may obtain for working capital
requirements in the foreseeable future may also place limitations on the payment
of dividends (except for dividends payable in Common Stock and certain preferred
stock). The Company is exploring alternatives with respect to credit facilities.
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(C) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of March 18, 1999, there were 161 owners of record of the Common Stock.
On that date, the closing price of the Common Stock on the NYSE was $4.88.
(D) RECENT SALES OF UNREGISTERED SECURITIES
On November 16, 1998, the Company acquired by merger all of the issued and
outstanding capital stock of Telecom Resources, Inc. ("TRI") from the
shareholders of TRI for 477,538 shares of common stock of the Company at a per
share price of $4.29 per share. TRI was a privately held company, the capital
stock of which was held by a limited number of stockholders. The shares of
Company common stock issued by the Company to the TRI shareholders as merger
consideration, were not registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the exemption from registration afforded by
Section 3(B) and 4(2) of the Securities Act.
In support of the applicability of the aforementioned exemption from
registration, each person receiving the unregistered shares of Company common
stock represented to the Company that: (i) such person, by reason of such
person's business or financial experience, could be reasonably assumed to have
the capacity to protect his/her own interest in connection with the transaction,
(ii) such person was familiar with the operations and business of TRI, it
subsidiaries and the Company and had an opportunity to review the financial
statements, business plan, books and records of both TRI and the Company and to
meet with and ask questions of and receive answers from the officers and
directors and other senior executives and representatives of each company, (iii)
that such person fully understood the nature and risks of his/her investment in
the Company common stock and could afford a total loss of the investment, (iv)
such person's investment in the Company Common Stock was not disproportionate to
his/her other investments or his/her net worth, and (v) the aquisition of the
Company common stock in connection with the merger transaction was solely for
such person's own account for investment purposes and not for the account of any
other person and not with a view to or for sale in connection with any
distribution, assignment or resale of the Company common stock.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
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PRO FORMA (UNAUDITED) ACTUAL
---------------------------- -----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, INCEPTION TO
---------------------------- --------------------------- DECEMBER 31,
1998 1997 1998 1997 1996
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Revenues:
Telecommunications................... $ 66,853 $ 46,045 $ 59,638 $ -- $ --
Directory............................ 47,336 43,247 38,090 -- --
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Total revenues..................... 114,189 89,292 97,728 -- --
Operating costs:
Cost of services..................... 71,466 50,435 62,162 -- --
Selling, general and administrative
expenses........................... 42,274 30,705 37,933 2,071 649
Depreciation and amortization........ 10,862 9,306 9,720 3 --
Stock-based compensation............. 1,760 870 1,760 870 --
------------- ------------- ------------- ------------ ------------
Loss from operations................. (12,173) (2,024) (13,847) (2,944) (649)
Other income (expense):
Interest expense..................... (1,955) (775) (1,845) (256) (10)
Equity in loss of KINNET............. (577) (854) (491) -- --
Loss on sale of KINNET............... (2,399) -- (2,399) -- --
Other................................ 873 253 844 -- --
------------- ------------- ------------- ------------ ------------
Loss before income taxes............... (16,231) (3,400) (17,738) (3,200) (659)
Income tax expense (benefit)........... (5,555) 2,177 (6,459) -- --
------------- ------------- ------------- ------------ ------------
Net loss......................... $ (10,676) $ (5,577) $ (11,279) $ (3,200) $ (659)
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Basic and diluted loss per share....... $ (.54) $ (.28) $ (.61) $ (.39) $ (.08)
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Weighted average common
shares outstanding................... 19,646,001 19,615,865 18,593,947 8,230,006 8,227,736
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
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CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
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DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
(IN THOUSANDS)
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Cash and cash equivalents......................................................... $ 13,734 $ -- $ 33
Working capital (deficit)......................................................... 761 (5,239) (689)
Total assets...................................................................... 214,368 2,695 92
Total debt, including current portion............................................. 35,158 3,141 575
Redeemable convertible preferred stock............................................ 1,122 -- --
Stockholders' equity (deficit).................................................... 131,584 (2,544) (632)
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ITEM 7.MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
On February 18, 1998, the Company completed its initial public offering
(IPO). In connection with the IPO, the Company simultaneously acquired nine
operating companies and a 49% interest in KIN Network, Inc. (KINNET)
(collectively, the Acquired Companies or the Acquisitions). Prior to February
1998, the Company had not conducted any operations other than those relating to
the IPO and the Acquisitions. Consequently, the actual financial statements
included herein relate only to the parent company prior to February 18, 1998,
but include the results of the Acquired Companies for the period February 18,
1998 to December 31, 1998. Certain pro forma operating information is presented
for comparative purposes as if the IPO and the Acquisitions had occurred on
January 1, 1997.
The pro forma operating information does not purport to represent the
results of operations of the Company that would have actually occurred if the
IPO and the Acquisitions had in fact occurred on the date stated above. 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 pro forma Consolidated Statements of Operations reflect
the historical results of operations of the Acquired Companies and were derived
from the respective Acquired Companies' financial statements.
The following table sets forth, for the periods presented, certain pro forma
information relating to the operations of the Company, expressed as a percentage
of revenues, excluding stock-based compensation expense:
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PRO FORMA
YEAR ENDED DECEMBER
31
--------------------
1998 1997
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<S> <C> <C>
Telecommunications revenues....................................... 58.5% 51.6%
Directory revenues................................................ 41.5 48.4
--------- ---------
Total revenues.......................................... 100.0 100.0
Cost of services.................................................. 62.6 56.5
Selling, general and administrative expenses...................... 37.0 34.4
Depreciation and amortization..................................... 9.5 10.4
--------- ---------
Income (loss) from operations........................... (9.1)% (1.3)%
--------- ---------
--------- ---------
</TABLE>
RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998, COMPARED
TO THE YEAR ENDED DECEMBER 31, 1997
Pro forma revenues for the year ended December 31, 1998 increased 27.9% to
$114.2 million from $89.3 million in 1997. Pro forma revenues from
telecommunication services were $66.9 million and 58.5% of pro forma total
revenues, compared to $46.0 million and 51.6% of total pro forma revenues in
1997. The $20.8 million, or 45.2%, increase in telecommunications revenues is
due primarily to increased local service revenue as the Company implemented
aggressive sales and marketing of local services in addition to long distance
services. Pro forma local service revenue in 1998 was $20.4 million compared to
$1.6 million in 1997. At December 31, 1998, the Company had approximately
125,000 local access lines in service compared to 18,000 at December 31, 1997.
Pro forma directory revenues for the year ended December 31, 1998 increased
9.5% to $47.3 million from $43.2 million in 1997. The Company distributed
twenty-three directories in 1998 and twenty-four directories in 1997. Two
directories, which accounted for $.9 million of revenue in 1997, were
discontinued
11
<PAGE>
in 1998. This decrease in revenue was offset by $2.6 million of revenue for
another directory that was recognized in 1998 but not in 1997 because the timing
of distribution resulted in no revenue in 1997. The Company does not recognize
revenue from a directory until a directory is substantially delivered. Excluding
the impact of these nonrecurring directories, pro forma revenues from recurring
directories increased 5.7%.
Pro forma cost of services for the year ended December 31, 1998 increased to
$71.5 million from $50.4 million in 1997, an increase of 41.7%. Pro forma cost
of services as a percentage of pro forma total revenues was 62.6% in 1998
compared to 56.5% in 1997. The higher cost percentage in 1998 is due to the mix
of services provided as the telecommunications segment represents a larger
portion of services. Telecommunication cost of service was $49.4 million, or
73.8% of telecommunications revenues for the year ended December 31, 1998,
compared to pro forma cost of telecommunications services of $29.7 million, or
64.5% of pro forma telecommunications revenues in 1997. The higher cost of
providing telecommunications service in gross dollars is due to the increase in
local service. The increase in operating costs of the telecommunications segment
as a percentage of telecommunications revenues in 1998 is due to higher volume
of lower margin local service. Local service revenue accounted for 17.9% of
revenues in 1998 compared to 1.8% in 1997. When the Company is able to deploy
its own local switching facilities, the Company expects to transition its resale
customers to its own switch-based facilities. The Company believes that it will
be able to achieve higher gross margins by providing telecommunications services
on its own network than it can currently obtain by reselling the services of the
incumbent providers. The lower gross margin of the telecommunications segment in
1998 is partially offset by higher gross margins of the directory segment. The
cost of directory services in 1998 was $22.1 million, or 46.7% of directory
revenue, compared to directory costs of $20.8 million, or 48.0% of directory
revenue, in 1997. The lower cost of directory services as a percentage of sales
is due to incremental advertising revenues from recurring directories exceeding
the direct incremental cost associated with those revenues.
Pro forma selling, general and administrative expenses for the year ended
December 31, 1998, increased to $42.3 million from $30.7 million in 1997. The
increase in gross dollars is due primarily to the direct costs associated with
the higher sales volume. As a percentage of total revenues, pro forma selling
and administrative costs were 37.0% in 1998, and 34.4% in 1997. The expense rate
increased in 1998 due to general and administrative costs associated with the
Company's new organization structure as a public company. The Company expects
that its selling, general and administrative costs will increase as the Company
undertakes more aggressive sales and marketing programs to develop its
businesses.
Pro forma depreciation and amortization was approximately $10.9 million in
1998, compared to $9.3 million in 1997. Pro forma depreciation and amortization
includes approximately $8.3 million of amortization in both periods relating to
intangible assets resulting from the Acquisitions. The Company expects that its
depreciation and amortization will continue to increase as the Company
implements its strategy of installing its own network and facilities.
Stock-based compensation expense of $1.8 million was recognized in the year
ended December 31, 1998, compared to $.9 million in 1997. This expense relates
to 300,000 stock options issued in December 1997. The options vested equally
over a three-month period from the date of the grant. These amounts represent
the total compensation expense based on the estimated fair market value of the
options on the date of the grant and the exercise price.
Pro forma interest expense was approximately $2.0 million in 1998 compared
to $.8 million in 1997. The increase in interest expense is due to borrowings
under the Company' revolving credit agreement used for general corporate
purposes including financing 1998 capital expenditures.
Pro forma 1998 results include a $2.4 million loss relating to the Company's
sale of its entire 49% interest in KINNET back to the original owner of KINNET
for $10.0 million in cash, 225,000 shares of the Company's common stock, valued
at $0.9 million, and the indefeasible right to use (IRU) certain network
facilities of KINNET valued at $7.0 million. The sale of the KINNET stock
resulted in a $2.4 million loss
12
<PAGE>
due to the tax impact associated with this sale. This tax impact is considered a
component of other income (expense) rather than a component of income tax
expense. The effect of this transaction allowed the Company to realize the
benefit of net operating losses.
Pro forma income tax benefit was $5.6 million in 1998 compared to $2.2
million income tax expense in 1997. The decrease is due to higher operating
losses in 1998 than in 1997.
Pro forma net loss was $10.7 million, or $.54 per share, in 1998, compared
to pro forma net loss of $5.6 million, or $.28 per share, in 1997. The increase
in net loss includes the effect of the following items: a loss on the sale of
KINNET of $2.4 million, a tax credit of $1.2 million from eliminating a
valuation allowance relating to the realization of future income tax benefits
and stock-based compensation expense of $1.8 million. Excluding these items, pro
forma net loss for the year ended December 31, 1998, would have been $8.3
million, or $.42 per share, compared to net loss of $5.0 million, or $.25 per
share, in 1997. The increase in net loss excluding these items is due primarily
to the increase in local service business as this product has lower margins than
the Company's other services. Also impacting the higher net loss in 1998 is the
aforementioned increase in selling and administrative costs.
Pro forma earnings before interest, taxes, depreciation, amortization,
equity interest in KINNET and stock-based compensation expense (EBITDA) was
positive $.4 million for the year ended December 31, 1998, a decrease from $8.2
million in 1997. The decrease is primarily due to lower earnings from the
telecommunications operations in 1998, offset partially by higher earnings from
the Company's directory publishing segment. EBITDA is a measure commonly used in
the telecommunications industry and is presented to assist in understanding the
Company's operating results and is not intended to represent cash flow or
results of operations in accordance with generally accepted accounting
principles. EBITDA may not be comparable to similarly titled disclosures of
other companies or could be defined differently.
The Company did not complete the Acquisitions until February 18, 1998;
therefore, actual results include only the activity of the Acquired Companies
from February 18, 1998 to December 31, 1998. For the year ended December 31,
1998, actual loss from operations was $13.8 million and net loss was $11.3
million, or $.61 per share. Excluding the loss on sale of KINNET of $2.4
million, the benefit from the valuation allowance reversal of $1.2 and the
stock-based compensation expense of $1.8 million, the Company had a net loss of
$9.0 million, or $.48 per share. The Company had no operating revenues in 1997
and was engaged principally in activities relating to the IPO.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1998 was $.8 million and its
ratio of current assets to current liabilities was 1.02.
On February 18, 1998, the Company completed its IPO and simultaneously
acquired nine operating companies and a 49% interest in another company. Cash
proceeds from the offering, net of offering costs, were $99.9 million. Of this
amount, $84.1 million was used to pay the cash portion of the purchase price of
the acquired companies, $3.6 million was used to retire debt of the Company and
the Acquired Companies, and $1.75 million was paid to a stockholder of the
Company for a five-year non-compete agreement. Consequently, available cash
remaining from the offering was approximately $10.5 million.
When the initial public offering occurred the Company was engaged in
negotiating a line of credit facility for $25.0 million with a financial
institution. The amount of such a facility with the residual cash from the
offering, was considered adequate to cover the costs of integrating the
Company's operations and providing for its initial working capital needs. In
August 1998, the Company finalized its arrangements with the financial
institution for a $25.0 million, one-year revolving credit facility and, at
December 31, 1998, had drawn down $17.0 million against this facility.
From the date of the initial public offering on February 18, 1998, through
December 31, 1998, the Company experienced an after-tax use of cash in
operations of $8.8 million. This is due primarily to start-
13
<PAGE>
up costs included in selling, general and administrative expense and line
acquisition costs related to the Company's growing local access business. During
this period, the Company also invested $16.7 million in additional property and
equipment, including the development of integrated back-office systems and
furniture, fixtures and computer equipment for its 24 sales offices. Because of
its net use of cash in operations, the Company used $17.0 million from the CIBC
credit facility to finance these additions to property and equipment.
Management recognized that additional sources of cash would be required to
implement the Company's BUILD SMART strategy for capital expenditures, to effect
further acquisitions, and to re-finance the one-year CIBC credit facility. On a
forward-looking basis, the Company's capital expenditure budget calls for
spending approximately $226.0 million over the five-year period beginning in
1999. This plan calls for expenditures of approximately $58.0 million in 1999,
$54.0 million in 2000, $44.0 million in 2001, $37.0 million in 2002, and $33.0
million in 2003. Substantially all of these expenditures will be for the
deployment of cost-efficient network facilities. Assuming these capital
expenditures were financed with a combination of high yield debt, bank debt and
equipment financing, management estimates that the Company's cash from
operations will turn positive in 2002. Alternatively, if these expenditures are
postponed because no incremental capital is available to the Company, management
believes the Company's strategy would be modified to focus solely on operations
that currently produce positive cash flow.
Prior to and since finalization of the CIBC credit facility, management has
explored a number of financing options, including the issuance of high yield
debt, long-term bank financing, and equipment financing. However, because of a
general tightening in the markets for new credit, the Company's underwriters and
potential creditors have repeatedly advised management of the need for either an
equity infusion or sale of certain assets in order to support any substantive,
long-term credit facility.
This condition led management to evaluate the utility value of the Company's
assets and to explore the possibility of a private equity infusion and
subordinated debt. In the course of evaluating its assets the 49% interest in
KINNET was identified as an asset with a substantial liquidation value and one
with an operational value that could be leveraged to provide significant future
benefits. Accordingly, in November 1998, management began negotiations with the
original owner of KINNET for the sale of the Company's interest. In December
1998, the Company sold this interest back to its original owner for $10.0
million in cash, 225,000 shares of the Company's common stock (valued at $0.9
million), and the indefeasible right to use certain network facilities of KINNET
(valued at $7.0 million).
In addition to selling the KINNET interest, management has considered and
continues to consider various possibilities for the sale of certain assets or
businesses. The Company also continues to explore proposals for raising private
equity. If consummated, these alternatives would represent a means of generating
sufficient liquidity to facilitate a debt offering, a financing that is critical
to implementing the Company's business strategy.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
ANTICIPATED OPERATING LOSSES AND NEGATIVE CASH FLOWS
Although the Company was EBITDA positive on a pro forma basis in 1998, the
Company expects to generate losses and expects to become EBITDA negative while
it focuses on further development of its telecommunications services business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to
sufficiently increase its revenue base or to achieve and sustain profitability
and generate sufficient cash flows to meet its working capital, capital
expenditure and debt service requirements, which could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
INCREASED LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of December 31, 1998, the Company had total consolidated indebtedness of
$35.2 million and stockholders' equity of $131.2 million. To fully implement the
Company's current development plans and to fund any future expansion not
contemplated by the Company's current development plans, the Company will be
required to secure additional financing.
The Company's degree of financial and operating leverage could have
important consequences to the Company's future prospects, including the
following: (i) limiting the ability of the Company to obtain additional
financing for its working capital, capital expenditure and debt service
requirements or other purposes; (ii) requiring that a substantial portion of the
Company's cash flow from operations, if any, be dedicated to the payment of
principal of and interest on its indebtedness; (iii) limiting its flexibility in
planning, or reacting to, changes in its business; (iv) making the Company more
highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; (v) making it more difficult for the Company to meet
its obligations; and (vi) making the Company more vulnerable to a downturn in
its business or in the markets in which it operates. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's ability to meet its debt service obligations with respect to
existing and future indebtedness will depend upon its revenue generating
capacity and ability to control expenses, which will be affected by prevailing
economic conditions and financial, business and other factors, many of which are
beyond the Company's control. There can be no assurance that the Company's
operations will generate sufficient cash flow at levels that will be sufficient
to repay its indebtedness.
SIGNIFICANT CAPITAL REQUIREMENTS AND NEED FOR ADDITIONAL FINANCING
Implementation of the Company's current development plans and the funding of
anticipated operating losses will require significant capital. The Company
currently estimates that its aggregate capital requirements for network
deployment planned through the end of 2000 will be approximately $112.0 million.
In addition, the Company will continue to evaluate additional revenue-generating
opportunities and other strategic initiatives in each of its businesses and, if
attractive opportunities develop, it may determine to make the investments
necessary to enable the Company to realize all of its strategic objectives. The
Company's failure to generate or raise sufficient funds may compel it to delay
or forego expansion plans or opportunities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
ADG's expectations of future capital requirements are based on the Company's
current estimates. The amount and timing of the Company's capital requirements
could change if, among other things, (i) ADG's current development plans or
revenue or cost projections change or prove to be inaccurate, (ii) the Company
pursues additional revenue-generating opportunities or effects any significant
acquisitions or joint ventures, or (iii) the Company alters the schedule or
scope of its network deployment plans. The amount and timing of the Company's
capital requirements may also change as a result of the demand for its products
and services and regulatory, technological and competitive developments
affecting the Company (including new opportunities). There can be no assurance
that the Company's actual capital requirements will not be significantly higher
or lower than its current estimates.
TELECOMMUNICATIONS BUSINESS DEVELOPMENT AND EXPANSION RISKS
The success of the Company's telecommunications services business depends,
among other things, upon the Company's ability to assess potential markets;
obtain and maintain required governmental and regulatory authorizations,
franchises and permits; secure financing; market to, sell and provision new and
15
<PAGE>
existing customers; implement needed interconnections and collocations with ILEC
facilities; lease adequate trunking capacity from ILECs or other CLECs; purchase
and install switches; develop and implement efficient OSS and other back office
systems; control costs; and attract, assimilate and retain additional qualified
sales and technical personnel.
YEAR 2000 ISSUE
The year 2000 issue is a matter of worldwide concern for carriers and
affects many aspects of telecommunications technology, including the computer
systems and software applications that are essential for network administration
and operations. A significant portion of the voice and data networking and
network management devices have date-sensitive processing in them which affect
network administration and operations functions such as service activation,
service assurance and billing processes.
The Company and its vendors have evaluated the year 2000 readiness of the
Company's computer systems and software applications. Certain of the Company's
key processing systems have recently been implemented and the vendors of such
systems have represented to the Company that the systems are compliant with the
year 2000 issues without any modification. The Company will require confirmation
of year 2000 compliance in its future requests for proposals from equipment and
software vendors. Other legacy computer systems and software that are currently
in use are not currently compliant with the year 2000 issues; however,
management had previously planned on replacing or upgrading such systems for
business reasons other than the year 2000 issue. These replacements and upgrades
are expected to be completed by September 30, 1999. The failure of its computer
systems and software applications to accommodate the year 2000 could have a
material adverse effect on the Company's business, financial condition, results
of operation and cash flow.
Further, if the networks, and systems of the ILECs, interexchange carriers
and others on whose services the Company depends and with whom its networks and
systems must interface are not year 2000 functional, it could have a material
adverse effect on the operation of the Company's networks and, as a result, have
a material adverse effect on the Company. Most major domestic carriers have
indicated that they are addressing their network and support systems to make
them year 2000 functional. However, other domestic and international carriers
may not be year 2000 functional. The Company plans to participate in the
interoperability testing processes being put in place by industry organizations
and intends to continue to monitor the performance of its accounting,
information and processing systems and software applications and those of its
third-party constituents to identify and resolve any year 2000 issues. To the
extent necessary, the Company may need to replace, upgrade or reprogram certain
systems and software applications to ensure that all of its computer systems and
software applications and all of its interoperability applications are year 2000
functional. However, based on current information, the Company does not believe
that it will incur costs for any replacement, upgrade or reprogramming of its
existing computer systems and software applications to resolve any year 2000
issues that will be materially in excess of the $500,000 currently budgeted.
The estimated costs and date of completion of Y2K remediation are based on
management's best estimates, which were derived from numerous assumptions about
future events. These assumptions include the availability of certain resources,
third-party modification plans and other factors. There can be no guarantee that
these estimates will be achieved and actual results could differ materially.
Specific factors that might cause material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to identify and correct all relevant computer codes, and the cost and
availability of replacements for devices with embedded chips.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Advanced Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for the years ended December 31, 1998 and 1997,
and for the period from inception (June 6, 1996) through December 31, 1996. In
connection with our audits of the consolidated financial statements, we also
have audited the accompanying financial statements schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997, and for the period from inception (June 6, 1996)
through December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
St. Louis, Missouri
February 10, 1999
17
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED) ACTUAL
---------------------------- -----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, INCEPTION TO
---------------------------- --------------------------- DECEMBER 31,
1998 1997 1998 1997 1996
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications................... $ 66,853 $ 46,045 $ 59,638 $ -- $ --
Directory............................ 47,336 43,247 38,090 -- --
------------- ------------- ------------- ------------ ------------
Total revenues..................... 114,189 89,292 97,728 -- --
Operating costs:
Cost of services..................... 71,466 50,435 62,162 -- --
Selling, general and administrative
expenses........................... 42,274 30,705 37,933 2,071 649
Depreciation and amortization........ 10,862 9,306 9,720 3 --
Stock-based compensation............. 1,760 870 1,760 870 --
------------- ------------- ------------- ------------ ------------
Loss from operations................. (12,173) (2,024) (13,847) (2,944) (649)
Other income (expense):
Interest expense..................... (1,955) (775) (1,845) (256) (10)
Equity in loss of KINNET............. (577) (854) (491) -- --
Loss on sale of KINNET............... (2,399) -- (2,399) -- --
Other................................ 873 253 844 -- --
------------- ------------- ------------- ------------ ------------
Loss before income taxes............... (16,231) (3,400) (17,738) (3,200) (659)
Income tax expense (benefit)........... (5,555) 2,177 (6,459) -- --
------------- ------------- ------------- ------------ ------------
Net loss......................... $ (10,676) $ (5,577) $ (11,279) $ (3,200) $ (659)
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Basic and diluted loss per share....... $ (.54) $ (.28) $ (.61) $ (.39) $ (.08)
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Weighted average common
shares outstanding................... 19,646,001 19,615,865 18,593,947 8,230,006 8,227,736
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 13,734 $ --
Accounts receivable (net of allowance of $9,900 in 1998)................................. 26,581 --
Deferred costs........................................................................... 4,201 --
Prepaid expenses and other current assets................................................ 2,091 --
Deferred taxes........................................................................... 3,782 --
---------- ---------
Total current assets................................................................... 50,389 --
---------- ---------
Property, plant and equipment, net......................................................... 26,532 6
Intangible assets from business acquisitions, net.......................................... 124,882 --
Other assets............................................................................... 12,565 2,689
---------- ---------
Total other assets..................................................................... 163,979 2,695
---------- ---------
Total assets........................................................................... $ 214,368 $ 2,695
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities................................................. $ 29,389 $ 2,098
Short-term debt and current maturities of long-term debt................................. 17,194 3,141
Other current liabilities................................................................ 3,045 --
---------- ---------
Total current liabilities.............................................................. 49,628 5,239
Long-term obligations:
Long-term debt........................................................................... 17,964 --
Deferred tax liabilities................................................................. 15,192 --
---------- ---------
Total liabilities...................................................................... 82,784 5,239
---------- ---------
Commitments and contingencies..............................................................
Stockholders' equity (deficit):
Preferred stock, Series A Redeemable Convertible $.0001 par value: 20,000,000 shares
authorized; 142,857 shares issued and outstanding; $2,000 liquidation preference....... 1,122 --
Common stock, $.0001 par value: 180,000,000 shares authorized; 19,859,262 and 8,232,276
shares issued and outstanding, respectively............................................ 2 1
Additional paid-in capital............................................................... 146,611 1,314
Treasury stock, 234,141 and 0 common shares, respectively................................ (1,013) --
Retained earnings (accumulated deficit).................................................. (15,138) (3,859)
---------- ---------
Total stockholders' equity (deficit)................................................... 131,584 (2,544)
---------- ---------
Total liabilities and stockholders' equity............................................. $ 214,368 $ 2,695
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
----------------- PREFERRED PAID IN TREASURY ACCUMULATED EQUITY
SHARES AMOUNT STOCK CAPITAL STOCK DEFICIT (DEFICIT)
----------- ---- ---------- ------------ --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
June 6, 1996........... 8,227,736 $ 1 $ -- $ 27 $ -- $ -- $ 27
Net loss................. -- -- -- -- -- (659) (659)
----------- ---- ---------- ------------ --------- ------------- ---------------
Balance, December 31,
1996................... 8,227,736 $ 1 $ -- $ 27 $ -- $ (659) $ (632)
Issuance of stock options
and warrants........... -- -- -- 1,237 -- -- 1,237
Issuance of stock for
services performed..... 4,540 -- -- 50 -- -- 51
Net loss................. -- -- -- -- -- (3,200) (3,200)
----------- ---- ---------- ------------ --------- ------------- ---------------
Balance, December 31,
1997................... 8,232,276 $ 1 $ -- $ 1,314 $ -- $ (3,859) $ (2,544)
Issuance of stock options
and warrants........... -- -- -- 5,862 -- -- 5,862
Issuance of preferred
stock.................. -- -- 1,122 -- -- -- 1,122
Initial public offering,
net of offering
costs................ 8,000,000 1 -- 99,899 -- -- 99,900
Issuance of stock for
acquired companies..... 3,861,127 -- -- 39,536 -- -- 39,536
Acquisition of treasury
stock.................. (234,141) -- -- -- (1,013) -- (1,013)
Net loss................. -- -- -- -- -- (11,279) (11,279)
----------- ---- ---------- ------------ --------- ------------- ---------------
Balance, December 31,
1998................... 19,859,262 $ 2 $ 1,122 $ 146,611 $ (1,013) $ (15,138) $ 131,584
----------- ---- ---------- ------------ --------- ------------- ---------------
----------- ---- ---------- ------------ --------- ------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, INCEPTION TO
---------------------- DECEMBER 31,
1998 1997 1996
----------- --------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $ (11,279) $ (3,200) $ (659)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization.......................................... 9,720 3 --
Stock-based compensation expense....................................... 1,760 870 --
Equity in loss of KINNET............................................... 491 -- --
Loss on sale of KINNET................................................. 2,399 -- --
Deferred tax provision................................................. (6,459) -- --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net........................................... (7,115) 1 (1)
Deferred costs..................................................... 425 -- --
Prepaid expenses and other current assets.......................... (644) -- --
Other assets, net.................................................. (10,690) -- --
Increase (decrease) in:
Accounts payable and accrued liabilities........................... 11,855 1,950 148
Other current liabilities.......................................... 689 -- --
----------- --------- ------
Net cash used in operating activities.............................. (8,848) (376) (512)
----------- --------- ------
Cash flows from investing activities:
Cash paid for businesses acquired, net of cash acquired.................. (83,256) -- --
Additions to property, plant and equipment, net.......................... (16,738) -- (8)
Cash from sale of KINNET................................................. 10,000 -- --
----------- --------- ------
Net cash used in investing activities.............................. (89,994) -- (8)
----------- --------- ------
Cash flows from financing activities:
Borrowings of long-term debt............................................. 17,000 2,566 574
Repayment of long-term debt.............................................. (4,197) -- --
Increase in deferred offering costs...................................... -- (2,223) (48)
Proceeds from common stock issuance, net of offering costs............... 99,900 -- 27
Acquisition of treasury stock............................................ (127) -- --
----------- --------- ------
Net cash provided by financing activities.......................... 112,576 343 553
----------- --------- ------
Net increase (decrease) in cash and cash equivalents............... 13,734 (33) 33
Cash and cash equivalents -- beginning of period........................... -- 33 --
----------- --------- ------
Cash and cash equivalents -- end of period................................. $ 13,734 $ -- $ 33
----------- --------- ------
----------- --------- ------
Supplemental cash flows information:
Cash paid for interest................................................... $ 739 $ -- $ --
----------- --------- ------
----------- --------- ------
Cash paid for income taxes............................................... $ -- $ -- $ --
----------- --------- ------
----------- --------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Advanced
Communications Group, Inc. and its wholly owned subsidiaries (the Company). All
significant intercompany transactions have been eliminated in consolidation.
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.
The Company was founded to create a regional competitive local exchange
carrier that primarily provides a portfolio of telecommunications services to
business customers in service areas of Southwestern Bell and U S WEST and
publishes yellow page directories in selected markets. The Company completed its
initial public offering (IPO) on February 18, 1998. In connection with the IPO,
the Company simultaneously acquired nine operating companies and a 49% interest
in KIN Network, Inc. (KINNET) (collectively, the Acquired Companies or the
Acquisitions). Prior to February 1998, the Company had not conducted any
operations other than those relating to the IPO and the Acquisitions.
Consequently, the actual financial statements included herein relate only to the
parent Company prior to February 18, 1998, but include the results of the
Acquired Companies for the period February 18, 1998 to December 31, 1998.
Certain pro forma operating information is presented for comparative
purposes as if the IPO and the Acquisitions had occurred on January 1, 1997. The
pro forma operating information does not purport to represent the results of
operations of the Company that would have actually occurred if the IPO and the
Acquisitions had in fact occurred on the date stated above. 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 pro forma Consolidated Statements of Operations reflect the
historical results of operations of the Acquired Companies and were derived from
the respective Acquired Companies' financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS -- The Company considers cash in banks and
highly-liquid investments purchased with an original maturity of three months or
less to be cash and cash equivalents.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Improvements are capitalized. Repair and maintenance costs are expensed as
incurred. The cost and related accumulated depreciation of assets retired or
disposed of are removed from the accounts, and any gains or losses are reflected
in results of operations. Depreciation is computed using the straight-line
method over the respective useful lives of the assets. The estimated useful
lives of the assets are: buildings and improvements -- 40 years;
telecommunications equipment -- 5 to 10 years; furniture and office equipment --
3 to 5 years; and leasehold improvements -- life of lease.
INTANGIBLE ASSETS FROM BUSINESS ACQUISITIONS -- Intangible assets resulting
from the cost of businesses acquired exceeding the fair value of net assets
acquired consist principally of customer lists and goodwill. The value of
customer lists and their estimated useful lives were determined using
independent appraisals. Customer lists and goodwill are amortized on a
straight-line basis over their estimated useful lives ranging from 5 to 10 years
and 15 to 40 years, respectively. For the year ended December 31, 1998,
amortization expense relating to intangible assets, customer lists and goodwill
was $7,261,000.
22
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES -- Income taxes are recognized during the year based on all
events that have been recognized in the consolidated financial statements, with
deferred taxes being provided for differences between the book basis and tax
basis of assets and liabilities as measured by the enacted tax laws.
REVENUE RECOGNITION -- Directory revenues are derived from the sale of
advertising space in telephone directories and are recognized on the date that
the directory is published and substantially delivered. If the estimate of total
directory costs exceeds advertising revenues for a specific region's telephone
directory, a provision is made for the entire amount of such estimated loss.
Directory costs are deferred until the date that the directory is published and
substantially delivered. Directory costs include all direct costs related to the
publishing of a region's telephone directory, such as publishing and
distribution expenses, 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. Because the future economic benefit of the
direct costs related to prototype directories cannot be determined, such direct
costs are charged to expense as incurred. The Company recognized approximately
$400,000 of expense in the year ended December 31, 1998, relating to a prototype
directory.
Telecommunications revenues are recognized when long-distance, local and
toll free services are provided. Billings made in advance for local services are
deferred until earned.
STOCK-BASED COMPENSATION -- 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 intrinsic, value-based method of
accounting required by Accounting Principles Board Opinion (APB) No. 25. The
Company has elected to remain with the accounting in APB No. 25 and has included
in these financial statements pro forma disclosures of net loss and net loss 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.
NET EARNINGS (LOSS) PER SHARE -- Basic earnings per share (Basic EPS) is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share (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. In periods in which the inclusion of such securities or
contracts are antidilutive, the effect of such securities is not given
consideration.
In calculating Diluted EPS for the year ended December 31, 1998 and 1997,
options and warrants to purchase 3,960,312, and 2,288,640 respectively, shares
of common stock were outstanding during part of the year but were not included
in the computation of Diluted EPS due to their anti-dilutive effect.
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
carrying value of its notes payable and capital lease obligations approximate
fair value.
23
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF --
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flow expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.
COMPREHENSIVE INCOME -- The Company has adopted SFAS No. 130, "Reporting
Comprehensive Income," as of the first quarter of 1998. SFAS No. 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, it has no impact on the Company's net income or
stockholders' equity. For the years ended December 31, 1998 and 1997 and for the
period ended December 31, 1996, the Company did not incur items to be reported
in comprehensive income that were not already included in the reported net
earnings; therefore, comprehensive income (loss) and net income (loss) were the
same for these periods.
NEW ACCOUNTING PRONOUNCEMENTS -- In February 1998, the FASB issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits."
This statement requires additional pension related disclosures. Adoption of this
statement will have no impact on the Company's net income, financial position or
cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998, with earlier application encouraged. The Company accounts for its software
costs in accordance with this SOP.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company is in compliance
with this SOP.
3. ACQUISITIONS
In February 1998, the Company completed its IPO. Concurrent with and as a
condition to the closing of the IPO, the Company acquired 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
KINNET (collectively the Acquisitions or the Acquired Companies). The
Acquisitions are accounted for using the purchase method of accounting.
24
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
3. ACQUISITIONS (CONTINUED)
The following table sets forth for accounting purposes the fair value of
consideration paid with respect to the Acquisitions and the assets acquired:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
<S> <C>
Consideration Paid for Acquired Companies:
Cash................................................................................................ $ 85,043
Common stock........................................................................................ 37,896
Notes payable....................................................................................... 17,350
Options and warrants................................................................................ 4,101
----------
Total purchase price............................................................................ $ 144,390
----------
----------
Assets Acquired:
Net working capital................................................................................. $ 9,829
Property and equipment.............................................................................. 5,141
Customer lists...................................................................................... 47,800
Goodwill............................................................................................ 96,741
Net deferred tax liability.......................................................................... (15,121)
----------
Total assets acquired........................................................................... $ 144,390
----------
----------
</TABLE>
The following pro forma information presents results of operations as if the
Acquisitions had occurred at the beginning of the periods presented. This pro
forma information is based on historical information and does not necessarily
reflect the actual results that would have occurred nor is it necessarily
indicative of the future results of the combined companies.
Pro Forma Information (Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Total revenues................................................................. $ 114,189 $ 89,292 $ 85,414
Net income (loss).............................................................. (10,676) (5,577) 171
Earnings (loss) per share...................................................... (.54) (.28) .00
</TABLE>
In November 1998, the Company acquired all of the outstanding stock of
Telecom Resources, Inc. and affiliates (TRI) for 477,538 newly issued shares of
common stock valued at $1.6 million. TRI, based in Dallas, Texas, offers its
customers a web-based virtual office package that combines voice, fax and data
into a single interface. This acquisition is accounted for under the purchase
method of accounting. The excess of cost over the estimated fair value of assets
acquired and liabilities assumed was allocated to goodwill. Approximately $3.3
million was allocated to goodwill and will be amortized over 15 years. The
results of operations and the pro forma results would not have been
significantly different if TRI had been acquired at the beginning of 1998.
25
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
4. INVESTMENT IN KINNET
In connection with the IPO, the Company purchased a 49% interest in KINNET,
an owner and operator of a fiber optic network in Kansas, for $18.0 million. The
Company accounted for its investment in KINNET using the equity method.
In December 1998, the Company sold its entire interest in KINNET back to the
original owner of KINNET for $10.0 million in cash, 225,000 shares of the
Company's common stock, valued at $0.9 million, and the indefeasible right to
use (IRU) certain network facilities of KINNET valued at $7.0 million. The sale
of the KINNET stock resulted in a $2.4 million loss due to the tax effect
associated with this transaction. This tax effect is considered a component of
other income (expense) rather than a component of income tax expense. The effect
of this transaction allowed the Company to realize the benefit of net operating
losses. The Company's stock received is included in treasury stock based upon
the fair market value on the date of the transaction. The IRU, which is included
in property, plant and equipment, has a term of 20 years and was valued based on
the fair value of leasing the equivalent network capacity.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Land and buildings............................................................................. $ 934 $ --
Leasehold improvements......................................................................... 1,709 --
Telecommunications equipment................................................................... 14,889 --
Furniture and office equipment................................................................. 7,851 8
Construction in progress....................................................................... 7,880 --
--------- ---------
33,263 8
Less accumulated depreciation.................................................................. (6,731) (2)
--------- ---------
$ 26,532 $ 6
--------- ---------
--------- ---------
</TABLE>
6. OTHER ASSETS
Other assets consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred acquisition costs.................................................................. $ -- $ 929
Deferred offering costs..................................................................... -- 1,757
Deferred line acquisition costs, net of $1,853 accumulated amortization in 1998............. 9,373 --
Deferred debt costs, net of $196 accumulated amortization in 1998........................... 1,022 --
Noncompete agreement, net of $510 accumulated amortization in 1998.......................... 1,240 --
Other, net of $196 accumulated amortization in 1998......................................... 930 3
--------- ---------
$ 12,565 $ 2,689
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the Company had deferred certain legal, accounting,
appraisal and other costs incurred in connection with the Acquisitions and the
IPO. When the Acquisitions were completed,
26
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
6. OTHER ASSETS (CONTINUED)
deferred acquisition costs were included in the determination of excess purchase
price. Deferred offering costs were charged to additional paid-in capital upon
the closing of the IPO.
Deferred line acquisition costs include the direct costs incurred in
connection with establishing local access line service contracts for customers
and are being amortized on a straight-line basis over the estimated life of the
average customer local service contract.
7. LONG-TERM DEBT
The carrying amount of long-term debt, which approximates fair value,
consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Borrowings under revolving line of credit, variable interest, 8.25% at December 31, 1998.... $ 17,000 $ --
8% Note due upon consummation of IPO (related parties)...................................... -- 2,875
5% Notes payable due February 18, 2000, interest due annually (related parties)............. 15,000 --
10% Convertible notes due February 18, 2000, interest due annually
(related parties)......................................................................... 2,000 --
7% Note due annually through February 18, 2001, interest due annually
(related parties)......................................................................... 350 --
Notes payable to banks and capital lease obligations........................................ 808 --
--------- ---------
35,158 2,875
Less short-term borrowings and current maturities........................................... (17,194) (2,875)
--------- ---------
$ 17,964 $ --
--------- ---------
--------- ---------
</TABLE>
The Company has a $25.0 million revolving credit facility with a financial
institution that expires on August 6, 1999. At December 31, 1998, the Company
had outstanding borrowings of $17.0 million under this facility. Borrowings
under the facility are limited to 85% of eligible accounts receivable, and
interest varies at the bank's Base Rate as defined. Under the revolving credit
facility the Company must pay commitment fees of .5% on the unused portion of
the line; maintain certain financial ratios; and is restricted from, among other
things, paying dividends, selling assets and incurring additional indebtedness.
Until the IPO, the Company's activities had been financed through a
Subordinated Promissory Note as amended (the Note) with Consolidated Partners
Founding Fund (CPFF), a related party, in the principal amount of $3,230,000 and
bearing an annual interest rate of eight percent. The Note was due on the
earlier of December 31, 1998, or the consummation of the IPO. At December 31,
1997, the principal balance under the Note was approximately $2,875,000.
In connection with the IPO in February 1998, the entire balance of the Note
was repaid. During 1998, 1997 and 1996, the Company incurred interest expense of
$149,000, $256,000 and $10,000 respectively, related to the Note. Included in
long-term debt at December 31, 1998 are notes relating to the Acquisitions
totaling $15,393,000 which are due to current members of management. For the
year ended December 31, 1998, the Company recognized interest expense of
$709,000 relating to these notes.
27
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
7. LONG-TERM DEBT (CONTINUED)
The 5% Notes and 10% Convertible Notes may be prepaid at any time and are
subordinated to the Company's senior debt as defined therein. The 10%
Convertible Notes are convertible into shares of the Company's common stock at
$14.00 per share.
8. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Current:........................................................................... $ --
Federal.......................................................................... --
---------
State............................................................................ --
---------
Deferred:
Federal.......................................................................... (5,945)
State............................................................................ (514)
---------
(6,459)
---------
Income tax expense (benefit)....................................................... $ (6,459)
---------
---------
</TABLE>
No provision for federal, state and local income taxes was recorded at
December 31, 1997 and 1996 because the historical Company had sustained
cumulative losses since its inception. A 100% valuation allowance had been
established for the related deferred tax asset.
Significant components of deferred tax assets and liabilities at December
31, 1998 and 1997 were:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals................................................ $ 3,782 $ --
Customer lists amortization.......................................... 49 --
Net operating loss carryforwards..................................... 1,222 1,193
----------- ---------
5,053 1,193
Valuation allowance.................................................. -- (1,193)
----------- ---------
5,053 --
----------- ---------
Deferred tax liabilities:
Intangible assets.................................................... (16,144) --
Property and equipment depreciation.................................. (319) --
----------- ---------
(16,463) --
----------- ---------
Net deferred tax asset (liability)..................................... $ (11,410) $ --
----------- ---------
----------- ---------
</TABLE>
28
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
8. INCOME TAXES (CONTINUED)
The benefit for income taxes reconciles to the amount computed by applying
the statutory federal tax rate of 34% is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Computed expected tax benefit.......................................... $ (6,031) $ (1,088)
Non-deductible goodwill and intangibles................................ 332 --
State income tax benefit............................................... (339) (105)
Loss on sale of KINNET................................................. 816 --
Other.................................................................. (44) --
Change in valuation allowance.......................................... (1,193) 1,193
--------- ---------
$ (6,459) $ --
--------- ---------
--------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion, or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Net operating loss
carryforwards of $3,139,000 and $78,000 expire in 2012 and 2013, respectively.
Management believes that the Company will generate sufficient taxable income to
absorb all net operating loss carryforwards and deductible temporary differences
prior to their expiration.
9. STOCK OPTIONS AND WARRANTS
In connection with the Acquisitions and IPO, the Company issued various
common stock warrants that allow the holder to purchase shares of common stock
at defined exercise prices. As of December 31, 1998, 1,584,427 of such warrants
were issued and outstanding.
The Company has an employee incentive stock option plan which allows the
Company to grant key employees incentive and non-qualified stock options to
purchase up to 3,500,000 shares of the Company's common stock at not less than
the market price on the date of the grant. Options not exercised accumulate and
are exercisable, in whole or in part, in any subsequent period but not later
than ten years from the date of the grant.
The Company also has a Non-Employee Director stock option plan, approved by
the stockholders, under which the Company grants an option to purchase 15,000
shares of common stock to each director who is neither an officer of the Company
nor compensated under any employment or consulting arrangements (Non-Employee
Director) upon their initial appointment as director and an additional option to
purchase 5,000 shares upon each subsequent re-election to director. Under the
plan, the option exercise price is the fair market value of the Company's common
stock on the date of the grant, and the options are exercisable, on a cumulative
basis, at 33 1/3% per year commencing on the first anniversary date of the
grant.
29
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of the stock option and warrant transactions under the plans for
the years ended December 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
AVERAGE NUMBER OF AVERAGE NUMBER OF
PRICE SHARES PRICE SHARES
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Options and warrants outstanding at beginning of year................ $ 8.76 2,288,640 $ -- 0
Options and warrants granted......................................... $ 9.89 4,116,172 $ 7.59 2,813,640
Options and warrants canceled........................................ $ 13.57 2,444,500 $ 2.50 525,000
Options and warrants exercised....................................... $ -- 0 $ -- 0
--------- ---------- --------- ----------
Options and warrants outstanding at end of year...................... $ 6.96 3,960,312 $ 8.76 2,288,640
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Exercisable at end of year........................................... 1,580,377 107,561
---------- ----------
---------- ----------
</TABLE>
Other information regarding stock options and warrants outstanding as of
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS
OPTIONS AND WARRANTS OUTSTANDING EXERCISABLE
------------------------------------------------------ -------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OF OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OF OPTIONS EXERCISE PRICE
- ------------------ ---------- ----------------------- ----------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
$2.50-$4.00 778,593 8.7 $ 2.53 596,927 $ 2.50
$4.50-$4.50 1,272,250 10.0 $ 4.50 -- --
$4.67-$10.50 914,714 8.7 $ 6.50 252,028 $ 6.61
$14.00-$14.00 994,755 6.2 $ 14.00 731,422 $ 14.00
- ------------------ ---------- --- ------ ---------- ------
$2.50-$14.00 3,960,312 8.5 $ 6.96 1,580,377 $ 8.48
- ------------------ ---------- --- ------ ---------- ------
- ------------------ ---------- --- ------ ---------- ------
</TABLE>
The Company accounts for the option plans using APB No. 25, Accounting for
Stock Issued to Employees. Accordingly, no compensation expense has been
recognized relating to the stock options. Pro forma net earnings and net
earnings per common share in the following table were prepared as if the Company
had accounted for its stock options and warrants under the fair market value
method of SFAS No. 123.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net loss -- pro forma.............................................................. $ 13,566 $ 5,972
Net loss per share -- pro forma.................................................... .73 .73
</TABLE>
For the pro forma disclosures, the fair value of each option and warrant
grant is estimated at the date of the grant using an option pricing model with
the following assumptions: no expected dividends, risk-free interest rates of
5.5%, price volatility of 50% and expected lives of 4 years.
On December 13, 1998, the Company's Board of Directors approved the
re-pricing of approximately 2,125,000 options granted to key employees with a
weighted-average exercise price of $13.53. Under the terms of the re-pricing,
holders of the affected options received one new option for each two existing
options. The new options have an exercise price of $4.50 per share, which
represents the fair market value of the Company's stock on December 14, 1998.
30
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
In connection with the Acquisitions, the Company issued warrants to purchase
756,078 shares of common stock at $6.61 per share and options to purchase
598,500 shares of common stock at $14.00 per share (the IPO price). The fair
value of these options and warrants was determined to be $4,101,000 on the date
of grant, which was recorded by the Company as a component of the purchase price
of the Acquisitions.
During December 1997, the Company awarded two of its officers with ten-year
options to purchase 300,000 shares of common stock at an exercise price of $2.50
per share which vest in full at the end of three months. Additionally, in May
1997, the Company granted to one of its consultants a warrant for the purchase
of 7,561 shares of common stock at an exercise price of $2.65 per share. During
the year ended December 31, 1998 and 1997, the Company recognized $1,760,000 and
$870,000 respectively of compensation expense related to these options and
warrants.
10. BENEFIT PLANS
The Company has a stock purchase plan whereby eligible employees may elect
to invest up to 10% of their salary and the Company contributes an amount equal
to 15% of each participant's contribution. The Company also has a 401(k) plan
whereby eligible employees may elect to contribute a portion of their salary and
the Company contributes an amount equal to 50% of employee contributions up to
6% of the employee's base salary. The Company recognized expense of $281,000 in
1998 and no expense in 1997 or 1996, relating to these plans.
11. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2008. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases in 1998, 1997 and 1996 was $1,370,000, $48,000 and $0,
respectively.
At December 31, 1998, the Company's future minimum rental payments due under
noncancelable leases were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(IN THOUSANDS) LEASES LEASES
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1999..................................................................... $ 124 $ 1,861
2000..................................................................... 124 1,502
2001..................................................................... 124 1,094
2002..................................................................... 120 814
2003..................................................................... 81 380
Thereafter............................................................... 413 --
--------- -----------
$ 986 $ 5,651
-----------
-----------
Less amount representing interest........................................ 364
---------
Present value of minimum lease payments.................................. $ 622
---------
---------
</TABLE>
31
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
12. PREFERRED STOCK
In January 1998, the Company entered into an agreement with a certain
utility Company regarding the possible creation of a strategic alliance. Under
the terms of the agreement, which was consummated contemporaneously with the
closing of the IPO, the Company issued 142,857 shares of Series A Redeemable
Convertible Preferred Stock (Preferred Stock) with an aggregate liquidation
preference of $2.0 million. The Preferred Stock is convertible into shares of
common stock at the IPO price ($14.00) eighteen months after the consummation of
the IPO. The Preferred Stock does not pay dividends and its holders are not
entitled to vote in the election of directors. If a strategic alliance has not
been entered into by the 13th month after the IPO, the Company may, at its
option, redeem the Preferred Stock for total proceeds of $1.25 million.
13. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions, proceedings and pending
claims arising in the normal course of business. Some of the foregoing involve,
or may involve, compensatory, punitive or other damages in material amounts.
Litigation is subject to many uncertainties, and it is possible that some of the
legal actions, proceedings and claims referred to above could be decided against
the Company. The Company's management believes that any resulting liability will
not materially affect the Company's financial position, liquidity or results of
operations.
14. REPORTABLE SEGMENTS
The Company has two reportable segments: yellow pages directory publishing
(directory) operations and telecommunications operations. The directory
operations publish and distribute yellow page directories in various markets in
Oklahoma, Texas and California. The telecommunications operations provide local,
long distance and other telecommunications services to customers in service
areas of Southwestern Bell and US West.
The following summarizes key financial information regarding the operations
of each segment for the year ended December 31, 1998:
<TABLE>
<CAPTION>
DIRECTORY TELECOMMUNICATIONS
(IN THOUSANDS) OPERATIONS OPERATIONS TOTAL
- ------------------------------------------------- ----------- ------------------ ----------
<S> <C> <C> <C>
Revenues......................................... $ 38,090 $ 59,638 $ 97,728
Cost of services................................. 17,847 44,315 62,162
Selling, general and administrative expenses..... 14,419 23,514 37,933
Depreciation and amortization.................... 4,191 5,529 9,720
----------- -------- ----------
Operating income (loss) before stock-based
compensation................................... $ 1,633 $ (13,720) $ (12,087)
----------- -------- ----------
----------- -------- ----------
Total assets..................................... $ 82,409 $ 131,959 $ 214,368
----------- -------- ----------
----------- -------- ----------
Capital expenditures............................. $ 285 $ 16,453 $ 16,738
----------- -------- ----------
----------- -------- ----------
</TABLE>
The costs associated with the Company's corporate overhead including, but
not limited to, executive salaries, salaries of shared administrative personnel
and the direct costs of company-wide programs, have not been allocated and are
included in telecommunications operations.
32
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
31, 1996
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA ACTUAL ACTUAL ACTUAL PRO FORMA
1998 -- Pro Forma 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
----------- ----------- ----------- ----------- -----------
Revenues........................................ $ 32,195 $ 28,015 $ 25,159 $ 28,820 $ 114,189
Operating income (loss)......................... 836 (460) (3,897) (8,652) (12,173)
Net income (loss)............................... (521) (1,031) (3,691) (5,433) (10,676)
Net income (loss) per common share.............. (0.03) (0.05) (0.19) (0.27) (0.54)
Common shares used in per share calculation..... 19,616 19,616 19,616 19,822 19,646
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
1997 -- Pro Forma 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
----------- ----------- ----------- ----------- -----------
Revenues........................................ $ 27,528 $ 23,284 $ 18,267 $ 20,213 $ 89,292
Operating income (loss)......................... 2,386 784 (1,776) (3,418) (2,024)
Net income (loss)............................... 261 (485) (2,146) (3,207) (5,577)
Net income (loss) per common share.............. 0.01 (0.02) (0.11) (0.16) (0.28)
Common shares used in per share calculation..... 19,616 19,616 19,616 19,616 19,616
</TABLE>
33
<PAGE>
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company has never filed a Current Report on Form 8-K to report a change
in accountants because of a disagreement over accounting principles or
procedures, financial statement disclosure or otherwise.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of
Advanced Communications' directors and executive officers (ages as of December
31, 1998). The Board of Directors (the "Board') consists of twelve directors,
divided into three classes of directors serving staggered terms. Currently there
are ten directors and two vacancies. Directors and executive officers of
Advanced Communications 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 Advanced Communications are elected at annual
meetings of the stockholders. Executive officers of Advanced Communications
generally are appointed by the Board shortly after each annual meeting of
stockholders.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION(S) WITH COMPANY EXPIRES
- ----------------------------------- --- --------------------------------------------- ---------
<S> <C> <C> <C>
Richard O'Neal 58 Acting Chief Executive Officer, President 1999
Directory Services Group and Director
James F. Cragg 47 President and Chief Operating Officer and 2001
Director
William H. Zimmer III 45 Executive Vice President, Chief Financial 1999
Officer, Treasurer, Secretary and Director
Fred L. Thurman 48 Senior Vice President Corporate Development 2000
and Director
Todd J. Feist 35 Vice President and Chief Operating Officer 1999
Central Region and Director
Robert F. Benton 68 Director 2001
Rod K. Cutsinger 55 Director 2000
Reginald J. Hollinger 35 Director 2000
David M. Mitchell 50 Director 2001
Marvin C. Moses 54 Director 2001
</TABLE>
RICHARD O'NEAL has been President Directory Services Group and a Director of
Advanced Communications since February 1998. He is currently Acting Chief
Executive Officer since the resignation of Richard Anthony in November 1998. He
founded Great Western Directors, Inc. in 1984 and has served as its President
since that time. Mr. O'Neal has served as an officer and director of several
publishing organizations such as Yellow Page Publishers Association and the
Association of Directory Publishers, two of the largest organizations in that
industry.
JAMES F. CRAGG has served as President and Chief Operating Officer of the
Company since January 1998 when he was promoted from Executive Vice President,
Sales and Marketing a position he held since December 1997. From January 1997 to
December 1997, Mr. Cragg was employed by Brooks Fiber Properties, Inc., Cragg
most recently serving 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 June 1995 to May
1996, Mr. Cragg was Senior Vice President, Business Markets for Snyder
34
<PAGE>
Communications Inc., an integrated marketing company. From October 1994 to June
1995, Mr. Cragg was a Director of Sales and Marketing and a principal for Ernst
& Young LLP. From 1983 to October 1994, Mr. Cragg held various management
positions at MCI. His last position at MCI was Director of Sales and Service,
Mid-America Region.
WILLIAM H. ZIMMER III has been Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of Advanced Communications since
December 1997. Since 1991, Mr. Zimmer had been employed as Treasurer and
Secretary of Cincinnati Bell, 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 Cincinnati Bell. As Secretary and Treasurer of Cincinnati
Bell, 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.
FRED L. THURMAN is Senior Vice President Corporate Development and has
served as a Director of Advanced Communications since February 1998. He has been
President of FirsTel since April 1994. Prior to that time he served as a
consultant to FirsTel for six months. Between 1984 and 1989, Mr. Thurman
provided accounting, tax and management advisory services as a certified public
accountant to Dial-Net, Inc., a long distance telephone company, which was
acquired by WorldCom in 1993. Since 1979, Mr. Thurman was also a partner in
Thurman, Comes, Foley & Co. LLP, a public accounting firm in Sioux Falls, South
Dakota, but in the last several years has not been active in the practice. Mr.
Thurman is also a director of Voyager Financial Services Corp. and Voyager Bank
located in Minneapolis, Minnesota.
TODD J. FEIST is Vice President and Chief Operating Officer Central Region
and has served as a Director since February 1998. He has been President of Feist
Long Distance since February 1996. From April 1994 to February 1996, Mr. Feist
was Network Manager for Feist Long Distance, and from 1987 to April 1994, he was
Distribution Manager of Feist Long Distance in Lubbock, Texas.
ROBERT F. BENTON has been a Director of Advanced Communications since July
1998. He has been Chairman of Orion Systems, Inc., a systems integration
company, since January 1998. From 1987 to May 1994, he served as Chairman of
Intermedia Communications, Inc. Prior to 1987, Mr. Benton served in a variety of
executive positions with CONTEL, ITT and C&P.
ROD K. CUTSINGER has been a Director of Advanced Communications since
November 1998 and had been a director from the Company's inception until June
1998. Mr. Cutsinger was the founder of Advanced Communications. He 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 took the
company public in late 1983. 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 served
as the principal officer of Vadacom, Inc., a switched based long distance
company headquartered in Houston, that sold substantially all its assets in
1995. Mr. Cutsinger is also an executive officer, director and equity interest
owner of CPFF and Consolidation Partners.
The Company and Mr. Cutsinger are parties to an agreement pursuant to which
Mr. Cutsinger, among other things, agreed that, for three years after the
completion of the initial public 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 Advanced Communications 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
35
<PAGE>
vote for the election of directors. Mr. Cutsinger's obligations under the
standstill agreement will terminate if he is removed from the Board or not
renominated for election as a director in 2000.
REGINALD J. HOLLINGER has been a Director since February 1998. Mr. Hollinger
is a Managing Director and Group Head of the Telecommunications Investment
Banking at PaineWebber Incorporated ("PaineWebber"). Mr. Hollinger serves as a
member of PaineWebber's Investment Banking Division's Management Committee.
Prior to joining PaineWebber in April 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 a Director since February 1998. Mr. Mitchell has
been engaged primarily as an investor in the telephone businesses since 1982,
when he founded National Telephone Exchange, Inc. 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 of Longview, Inc. ("Value-Line") at
the time it was acquired by the Company. In the acquisition agreement relating
to Valu-Line, the Company's Board, subject to its fiduciary obligations, agreed
to place Mr. 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.
MARVIN C. MOSES has been a Director since July 1998. Mr. Moses has been a
consultant and private investor since May 1996. From November 1995 to April
1996, he served as the Vice Chairman and Chief Financial Officer and, from
August 1995 to November 1995, was also Executive Vice President of Frontier. Mr.
Moses also was the Executive Vice President and Chief Financial Officer of ALC
Communications Corp. from 1988 to August 1995, when that company was acquired by
Frontier. Mr. Moses is also currently a director of Teleglobe, Inc. and Advanced
Telecommunications, Inc.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
AWARDS
---------------------------- PAYOUTS
ANNUAL COMPENSATION (f) (g) -------------
(a) ------------------------------- RESTRICTED SECURITIES (h)
NAME AND (b) (c) (d) (e) STOCK UNDERLYING LTIP
PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS OPTIONS PAYOUTS
- --------------------------------- --------- --------- --------- --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard P. Anthony 1998 211,218 -- 354,125(1) -- -- --
Chief Executive Officer (1) 1997 -- -- -- -- 500,000 --
James F. Cragg 1998 175,000 87,500 -- -- 50,000 --
President and Chief 1997 -- 100,000 -- -- 287,500(3) --
Operating Officer (2)
William H. Zimmer III 1998 185,000 47,500 -- -- 50,000 --
Executive Vice President and 1997 -- 50,000 -- -- 175,000(3) --
Chief Financial Officer
Richard O'Neal 1998 300,000 -- -- -- 75,000(3) --
Acting Chief Executive 1997 -- -- -- -- -- --
Officer and President
Directory Services Group
Fred L. Thurman 1998 175,000 -- -- -- 50,000(3) --
Senior Vice President 1997 -- -- -- -- -- --
Corporate Development
<CAPTION>
(a) (i)
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION
- --------------------------------- -----------------
<S> <C>
Richard P. Anthony --
Chief Executive Officer (1) --
James F. Cragg --
President and Chief --
Operating Officer (2)
William H. Zimmer III --
Executive Vice President and --
Chief Financial Officer
Richard O'Neal --
Acting Chief Executive --
Officer and President
Directory Services Group
Fred L. Thurman --
Senior Vice President --
Corporate Development
</TABLE>
- ------------------------
(1) Mr. Anthony ceased employment with the Company in November 1998. Other
annual compensation represents Mr. Anthony's severance payout upon the
termination of his employment agreement.
36
<PAGE>
(2) Mr. Cragg was promoted from Executive Vice President Sales and Marketing to
his current position in January 1999.
(3) Stock option awards are adjusted for repricing in December 1998 whereby
holders of the affected options received one new option for each two
existing options.
EMPLOYMENT AGREEMENTS
Messrs. Cragg and Zimmer entered into six-year employment agreements
providing for their employment at an annual base salary of $175,000 and
$185,000, respectively. The agreements provide for a bonus potential equal to
100% of base salary for Mr. Cragg and 50% of base salary for Mr. Zimmer. The
agreements also provide for the annual grant of options to purchase up to 50,000
shares of Common Stock each at the current market price on the date of grant, if
certain targets set by the Compensation Committee are met. The options vest
immediately upon (i) their death or disability, (ii) their resignation following
a change of control, or (iii) the termination of their employment other than
"with cause," as defined. If Messrs. Cragg or Zimmer resign after a change in
ownership or management of the Company that significantly alters their job
responsibilities or compensation, they will be entitled to their base salary for
a period of two years. Unless they so resign or the Company terminates their
employment "with cause," Messrs. Cragg or Zimmer will be entitled to their base
salary for a one-year period upon their termination. The employment agreement
also provides for a one-year post-termination non-competition obligation that is
extended to three years if they voluntarily resign 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 that provide for base salaries of $300,000,
$140,000 and $175,000, respectively, and a bonus potential ranging from 50% to
63% of base salary. If the Company terminates Mr. O'Neal's employment other than
for "cause" (as defined in his agreement) or if 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 year's salary if
he resigns following a change in control of his employer. Mr. Feist is entitled
to receive six month's salary if his employer terminates him for a reason other
than with "cause" and one year's salary if he resigns following a change in
control of his employer. These agreements contain three-year non-competition
covenants.
On December 16, 1998, a Severance Agreement by and between the Company and
Richard P. Anthony was executed in connection with the termination of his
employment with the Company. Under the terms of the Severance Agreement, Mr.
Anthony received a lump sum payment of $354,125, which represents $250,000 paid
to satisfy the obligation under his employment agreement and $104,125 severance
pay. Mr. Anthony was also given the right to exercise all of the non-qualified
stock options to purchase 500,000 shares of the Company's common stock that had
been previously awarded to him through November 8, 2001. Of those stock options,
350,000 are exercisable at $14.00 a share and 150,000 of such options are
exercisable at $2.50 per share. The Company also agreed to pay Mr. Anthony's
health insurance through November 8, 1999 and allowed Mr. Anthony to keep his
company-owned computer.
INFORMATION AS TO STOCK OPTIONS
The following table provides certain information as to options grants in
fiscal 1998 to the persons named in the Summary Compensation Table.
37
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANT VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED # FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
(A) (B) (C) (D) (E) (F) (G)
- ----------------------------------------- ----------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Anthony....................... -- -- -- -- -- --
James F. Cragg........................... 50,000 1.6 5.88 1/13/09 184,488 467,912
William H. Zimmer III.................... 50,000 1.6 5.88 1/13/09 184,488 467,912
Richard O'Neal........................... 75,000 2.4 4.50 12/14/08 212,252 537,888
Fred L. Thurman.......................... 50,000 1.6 4.50 12/14/08 141,501 358,592
</TABLE>
The following table lists option exercises in fiscal 1998 and the value of
options held as of the end of fiscal 1998 by the persons listed in the Summary
Compensation Table.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN THE
OPTIONS AT FISCAL MONEY OPTIONS AT
YEAR-END FISCAL YEAR-END
($) ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) REALIZED($) UNEXERCISABLE UNEXERCISABLE
(A) (B) (C) (D) (E)
- ----------------------------------------- --------------- --------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Richard P. Anthony....................... -- -- 266,667/233,333 253,500/0
James F. Cragg........................... -- -- 150,000/187,500 253,500/0
William H. Zimmer III.................... -- -- 0/225,000 0/0
Richard O'Neal........................... -- -- 0/75,000 0/0
Fred Thurman............................. -- -- 0/50,000 0/0
</TABLE>
DIRECTOR COMPENSATION
Directors of the Company 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, and are
reimbursed for reasonable out-of-pocket travel expenditures incurred.
Non-employee directors also receive options to purchase shares of Common Stock
pursuant to the 1997 Nonqualified Stock Option Plan for Non-Employee directors
(the "Directors' Plan"). Non-employee directors elected or appointed to the
Board will receive options to acquire 15,000 shares of Common Stock on the date
of their initial election or appointment. Additional non-qualified stock options
to acquire 5,000 shares of Common Stock will thereafter be awarded to each
director on the date of the annual meeting of stockholders at which he or she is
reelected to serve an additional three-year term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Reginald Hollinger, a Managing Director and Group Head of the
Telecommunications Investment Banking at PaineWebber Incorporated and a member
of the Investment Banking Division's Management Committee, is also a member of
the Board's Compensation Committee. PaineWebber Incorporated is the Company's
investment banking firm and served as the lead manager in the Company's IPO. The
Company anticipates that it will continue to utilize the services of PaineWebber
Incorporated during the
38
<PAGE>
remainder of the current fiscal year and thereafter. Neither the Board nor Mr.
Hollinger believe these relationships affect in any manner their respective
abilities to serve on, or fulfill their obligations to the Company and its
stockholders as participating members of the Compensation Committee of the Board
of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 18, 1999 by (a)
each of the executive officers of the Company, (b) each of the Company's
directors, (c) all executive officers and directors of the Company as a group,
and (d) each other person (or group or affiliated persons) who is known by the
Company to own beneficially 5% or more of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(2)
-----------------------------
NAME(1) NUMBER PERCENT
- ------------------------------------------------------------------------------------- ---------------- -----------
<S> <C> <C>
Richard P. Anthony................................................................... 323,922(3) 1.6%
Robert Benton........................................................................ 2,000 *
James F. Cragg....................................................................... 197,793(4) 1.0
William H. Zimmer III................................................................ 6,284 *
Richard O'Neal....................................................................... 869,020(5) 4.3
Fred L. Thurman...................................................................... 243,746(6) 1.2
Todd J. Feist........................................................................ 321,429 1.6
Rod K. Cutsinger..................................................................... 5,196,664(7) 26.2
Reginald J. Hollinger................................................................ 5,000(8) *
David M. Mitchell.................................................................... 192,144(9) 1.0
Marvin Moses......................................................................... -- --
Consolidation Partners............................................................... 4,867,921 24.5
Officers and directors as a
group (11 individuals)............................................................. 7,358,002(10) 34.9
</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 390 South Woods Mill Road, Suite 150, St. Louis,
Missouri 63017; the address of Messrs. Cutsinger and Powell, Consolidation
Partners Founding Fund (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) Includes 266,667 shares of common stock subject to stock options that are
immediately exercisable.
(4) Includes 150,000 shares of common stock subject to stock options that are
immediately exercisable.
(5) Includes warrants to purchase 469,020 shares of common stock at $14.00 per
share. A Trustee for Mr. O'Neal's children owns 189,020 of these
non-transferable, ten-year warrants.
(6) Includes 13,513 shares of common stock issuable upon exercise of a warrant
at $14.00 per share and 39,498 shares of common stock issuable upon
conversion of a 10% convertible note issued by the Company, convertible at
$14.00 per share.
39
<PAGE>
(7) Includes 4,867,921 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
beneficially owned by trusts for the benefit of the Cutsingers' two adult
children, including Brad K. Cutsinger, over which Rod K. Cutsinger has sole
voting and dispositive power.
(8) Includes 5,000 shares of common stock subject to stock options that are
currently exercisable.
(9) Includes 6,000 shares of common stock issuable upon exercise of a warrant at
$14.00 per share and 5,000 shares of common stock subject to stock options
that are currently exercisable.
(10) Includes 1,204,698 shares of common stock which such persons have the right
to acquire upon the exercise of options and warrants which are immediately
exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 Directories, Inc. and
other yellow page publishers. During the fiscal year ended December 31, 1998,
the Company paid BSI approximately $1.3 million, for yellow page colorizing
services. Great Western Directories, Inc. and BSI have entered into a Sales
Agreement pursuant to which BSI expects to continue to render the foregoing
services to Great Western Directories after the IPO upon terms and conditions
that the Company considers reasonable under the circumstances. BSI has also
agreed to give Great Western Directories the exclusive right to market
Worldpages in its service areas.
Until the IPO, the Company's activities had been financed through a
promissory note with Consolidated Partners Founding Fund (CPFF), a limited
liability corporation owned by Rod K. Cutzinger and his family. In February
1998, the $3.2 million balance of the note was paid. During 1998, the Company
incurred interest expense of $149,000 relating to the note.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Item 8 of this report includes the financial statements of Advanced
Communications Group, Inc.
2. FINANCIAL STATEMENT SCHEDULES
See Schedule II--Valuation and Qualifying Accounts on page 44. No other
schedules are included because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
During the quarter ended December 31, 1998, the Company filed a Current
Report on Form 8-K dated November 9, 1998, regarding the appointment of Richard
O'Neal as Acting Chief Executive and James F. Cragg as Acting President and
Chief Operating Officer.
(c) EXHIBITS
See the Exhibit Index attached hereto.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K
for the fiscal year ended December 31, 1998, to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By: /s/ RICHARD O'NEAL
-----------------------------------------
Richard O'Neal
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
/s/ WILLIAM H. ZIMMER III
-----------------------------------------
William H. Zimmer III
CHIEF FINANCIAL OFFICER, SECRETARY AND
TREASURER
(PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)
Dated: March 30, 1999
41
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ ROBERT F. BENTON
- ------------------------------ Director March 30, 1999
Robert F. Benton
/s/ JAMES F. CRAGG
- ------------------------------ Director March 30, 1999
James F. Cragg
/s/ ROD K. CUTSINGER
- ------------------------------ Director March 30, 1999
Rod K. Cutsinger
/s/ TODD J. FEIST
- ------------------------------ Director March 30, 1999
Todd J. Feist
/s/ REGINALD J. HOLLINGER
- ------------------------------ Director March 30, 1999
Reginald J. Hollinger
/s/ DAVID M. MITCHELL
- ------------------------------ Director March 30, 1999
David M. Mitchell
/s/ MARVIN C. MOSES
- ------------------------------ Director March 30, 1999
Marvin C. Moses
/s/ RICHARD O'NEAL
- ------------------------------ Director March 30, 1999
Richard O'Neal
/s/ FRED L. THURMAN
- ------------------------------ Director March 30, 1999
Fred L. Thurman
/s/ WILLIAM H. ZIMMER III
- ------------------------------ Director March 30, 1999
William H. Zimmer III
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- --------------------- ------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation, incorporated herein by reference to the Company's
Registration Statement on Form S-1.
3.1A Form of Amendment to Restated Certificate of Incorporation, incorporated herein by
reference to the Company's Registration Statement on Form S-1.
3.2 Restated Bylaws of ACG, filed herewith.
3.3 Form of Certificate of Designation of Series A Redeemable Convertible Preferred Stock (see
Annex A to Exhibit 10.46), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
4.0 Credit Agreement dated August 6, 1998 by and between Advanced Communications Group, Inc.
and Canadian Imperial Bank of Commerce, filed herewith.
*10.1 ACG 1997 Stock Awards Plan, incorporated herein by reference to the Company's Registration
Statement on Form S-1.
*10.1A Form of Non-Qualified Stock Option Agreement, incorporated herein by reference to the
Company's Registration Statement on Form S-1.
*10.2 Non-Qualified Stock Option Plan for Non-Employee Directors, incorporated herein by
reference to the Company's Registration Statement on Form S-1.
*10.3 Employment Agreement between ACG and Richard P. Anthony, incorporated herein by reference
to the Company's Registration Statement on Form S-1.
*10.4 Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
(see Annex V to Exhibit 2.1), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
*10.5 Form of Employment Agreement between Feist Long Distance Service, Inc. and Todd Feist (see
Annex VII to Exhibit 2.3A), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
*10.6 Form of Employment Agreement between Fred L. Thurman and FirsTel, Inc. (see Annex V to
Exhibit 2.4), incorporated herein by reference to the Company's Registration Statement on
Form S-1.
10.7 Form of Indemnification Agreement entered into between ACG and each of its executive
officers and directors, incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.9 Form of Series A Warrant issued to shareholders of Great Western Directories, Inc.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
10.10 Form of Series B Warrant issued to shareholders of Great Western Directories, Inc.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
10.12 Form of Series D Warrant issued to shareholders of Great Western Directories, Inc. (see
Annex IV to Exhibit 2.1), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.13 Form of 5% Subordinated Note issued to shareholders of Great Western Directories, Inc.
(see Annex III to Exhibit 2.1), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.14 Form of 10% Convertible Subordinated Note issued to shareholders of FirsTel, Inc. (see
Annex III to Exhibit 2.4), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.15 Management Agreement dated January 1, 1997 between INI, L.C. and KIN Network, Inc.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- --------------------- ------------------------------------------------------------------------------------------
<C> <S>
10.16 Sales Agreement Terms and Conditions dated July 16, 1997 between Big Stuff, Inc. and Great
Western Directories, Inc., incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.16A Supplemental Letter dated December 22, 1997 from Big Stuff, Inc. to Great Western
Directories, Inc. regarding exclusive marketing rights to Worldpages in certain areas,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
*10.17 Employment Agreement between ACG and William H. Zimmer III, incorporated herein by
reference to the Company's Registration Statement on Form S-1.
*10.18 Employment Agreement between ACG and James F. Cragg, incorporated herein by reference to
the Company's Registration Statement on Form S-1.
10.19 Form of Series E Warrant issued to certain shareholders of Tele-Systems, Inc.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
10.20 Form of Series F Warrant issued to certain shareholders of Tele-Systems, Inc.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
10.21 Form of Series G Warrant issued to certain shareholders of Tele-systems, Inc. (see Annex
IV to Exhibit 2.4), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.22 Form of Series H Warrant issued to Daniel W. And Cheryl A. Peters (see Annex IV to Exhibit
2.9), incorporated herein by reference to the Company's Registration Statement on Form
S-1.
10.23 Form of Series I Warrant issued to Daniel W. And Cheryl A. Peters (see Annex V to Exhibit
2.9), incorporated herein by reference to the Company's Registration Statement on Form
S-1.
10.24 Warrant issued to Joseph C. Cook, incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.25 Form of Series K Warrant issued to certain consultants, incorporated herein by reference
to the Company's Registration Statement on Form S-1.
10.26 Form of Series L Warrant issued to G. Edward Powell and Brad K. Cutsinger, incorporated
herein by reference to the Company's Registration Statement on Form S-1.
10.27 Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
June 4, 1997 (Oklahoma), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.28 Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
April 4, 1997 (Kansas), incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.29 Agreement for Service Resale dated as of June 6, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (South Dakota), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.30 Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
Communications, Inc. (Wyoming), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.31 Agreement for Service Resale dated as of October 14, 1997 between FirsTel, Inc. and U S
West Communications, Inc. (Iowa), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- --------------------- ------------------------------------------------------------------------------------------
<C> <S>
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 FirsTel Amendment to Agreement for Service Resale,
dated July, 1997 between FirsTel, Inc. and U S West Communications, Inc. (North Dakota),
incorporated herein by reference to the Company's Registration Statement on Form S-1.
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 U S West Communications, Inc.
(Nebraska), incorporated herein by reference to the Company's Registration Statement on
Form S-1.
10.34 Agreement for Service Resale dated as of August 12, 1997 between FirsTel, Inc. and U S
West Communications, Inc. (Minnesota), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.35 Resale Agreement dated as of April 30, 1997, between GTE Southwest Incorporated and
Valu-Line Long Distance (Texas), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
10.36 Resale Agreement dated as of September 12, 1997, between GTE Southwest Incorporated and
Valu-Line Long distance (Texas), incorporated herein by reference to the Company's
Registration Statement on Form S-1.
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
Spring and Southwest Incorporated and Valu-Line Long Distance (Texas), incorporated
herein by reference to the Company's Registration Statement on Form S-1.
10.38 Form of Office Expense Agreement by and between Feist Publications, Inc., Feist Systems,
Inc. and Feist Long Distance Service. Inc., incorporated herein by reference to the
Company's Registration Statement on Form S-1.
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), incorporated herein by reference to
the Company's Registration Statement on Form S-1.
10.40 Form of InterNet Reseller Agreement by and between Feist Systems, Inc. and Feist Long
Distance Service, Inc., incorporated herein by reference to the Company's Registration
Statement on Form S-1.
10.41 Form of Standstill Agreement dated as of February 18, 1998 between ACG and Rod K.
Cutsinger, incorporated herein by reference to the Company's Registration Statement on
Form S-1.
10.42 Form of Non-Competition Agreement dated as of February 18, 1998 between ACG and Rod K.
Cutsinger, incorporated herein by reference to the Company's Registration Statement on
Form S-1.
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.,
incorporated herein by reference to the Company's Registration Statement on Form S-1.
10.44 Amendment to the Asset Purchase Agreement filed as Exhibit 10.43, incorporated herein by
reference to the Company's Registration Statement on Form S-1.
10.45 Form of Stockholders' Agreement among KIN Network, Inc. and its Stockholders, incorporated
herein by reference to the Company's Registration Statement on Form S-1.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- --------------------- ------------------------------------------------------------------------------------------
<C> <S>
10.46 Letter Agreement dated January 15, 1998 among Advanced Communications Group, Inc.,
Northwestern Public Service Company and Northwestern Growth Corporation, incorporated
herein by reference to the Company's Registration Statement on Form S-1.
10.47 Form of Series M Warrant issued to William McCaughey, incorporated herein by reference to
the Company's Registration Statement on Form S-1.
10.48 Form of Stock Option and Put Agreement issued to Mark Beall, incorporated herein by
reference to the Company's Registration Statement on Form S-1.
11 Computation of Net Earnings Per Share, filed herewith.
21 List of subsidiaries of the Company, filed herewith.
23 Independent Auditors' Consent.
27 Financial Data Schedule filed with the Securities and Exchange Commission in EDGAR version
only.
</TABLE>
- ------------------------
* Compensatory plan or management arrangement.
46
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD ENDED DECEMBER 31,
1996
<TABLE>
<CAPTION>
ADDITIONS ACQUISI-
BALANCE AT CHARGED TO TIONS FROM DEDUCTIONS BALANCE AT
BEGINNING COSTS AND ACQUIRED FROM END OF
(In thousands) OF PERIOD EXPENSES COMPANIES RESERVES PERIOD
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
anticipated returns:
Year ended December 31, 1998........... $ -- $ 3,156 $ 9,551 $ 2,807(A) $ 9,900
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Year ended December 31, 1997........... $ -- $ -- $ -- $ --(A) $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Period ended December 31, 1996......... $ -- $ -- $ -- $ --(A) $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(A) Accounts charged off less recoveries and returns.
47
<PAGE>
OCTOBER 9, 1997
RESTATED BYLAWS
OF
ADVANCED COMMUNICATIONS GROUP, INC.
(which include Amendments
adopted by the Board of Directors
on November 9, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1................................................................................................1
Offices..................................................................................................1
Section 1.1 Registered Office.......................................................................1
Section 1.2 Other Offices...........................................................................1
ARTICLE 2................................................................................................1
Stockholders.............................................................................................1
Section 2.1 Reference to Charter Documents..........................................................1
Section 2.2 Record Date.............................................................................1
Section 2.3 Stockholder List........................................................................2
Section 2.4 Proxies.................................................................................2
Section 2.5 Treasury Stock..........................................................................2
ARTICLE 3................................................................................................2
Board of Directors.......................................................................................2
Section 3.1 Reference to Charter Document...........................................................2
Section 3.2 Quorum, Voting, Other...................................................................3
Section 3.3 Place of Meetings, Order of Business....................................................3
Section 3.4 First Meeting...........................................................................3
Section 3.5 Regular Meetings........................................................................3
Section 3.6 Special Meetings........................................................................3
Section 3.7 Compensation............................................................................3
Section 3.8 Action Without a Meeting, Telephone Conference Meeting..................................4
Section 3.9 Chairman of the Board of Directors......................................................4
ARTICLE 4................................................................................................4
Committees...............................................................................................4
Section 4.1 Designation, Powers.....................................................................4
Section 4.2 Procedure; Meetings; Quorum.............................................................5
Section 4.3 Removal of Members; Vacancies...........................................................5
ARTICLE 5................................................................................................5
Officers.................................................................................................5
Section 5.1 Number, Titles and Term of Office.......................................................5
Section 5.2 Powers and Duties of the Chief Executive Officer........................................5
Section 5.3 Powers and Duties of the President......................................................5
Section 5.4 Vice Presidents.........................................................................6
Section 5.5 Secretary...............................................................................6
Section 5.6 Assistant Secretaries...................................................................6
Section 5.7 Treasurer...............................................................................6
Section 5.8 Assistant Treasurers....................................................................7
Section 5.9 Action With Respect to Securities of Other Corporations.................................7
Section 5.10 Delegation..............................................................................7
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6................................................................................................7
Capital Stock............................................................................................7
Section 6.1 Certificates of Stock...................................................................7
Section 6.2 Transferf of Shares.....................................................................8
Section 6.3 Ownership of Shares.....................................................................8
Section 6.4 Regulations Regarding Certificates......................................................8
Section 6.5 Lost or Destroyed Certificates..........................................................8
ARTICLE 7................................................................................................8
Miscellaneous Provisions.................................................................................8
Section 7.1 Fiscal Year.............................................................................8
Section 7.2 Corporate Seal..........................................................................8
Section 7.3 Notice and Waiver of Notice.............................................................9
Section 7.4 Facsimile Signatures....................................................................9
Section 7.5 Reliance Upon Books, Reports and Records................................................9
Section 7.6 Application of Bylaws...................................................................9
ARTICLE 8................................................................................................9
Indemnification of Officers and Directors................................................................9
ARTICLE 9...............................................................................................10
Amendments..............................................................................................10
</TABLE>
ii
<PAGE>
BYLAWS
OF
ADVANCED COMMUNICATIONS GROUP, INC.
ARTICLE 1 OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation required by the State of Delaware to be maintained in the State of
Delaware shall be the registered office named in the Corporation's Restated
Certificate of Incorporation dated October 7, 1997, as amended if amended
("Charter Document"), or such other office as may be designated from time to
time by the Board of Directors in the manner provided by law.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2 STOCKHOLDERS
SECTION 2.1. REFERENCE TO CHARTER DOCUMENTS. Article V of the Charter
Document sets forth certain provisions relating to the calling and holding of
annual and special meetings of stockholders, the presiding officer at meetings
of stockholders, the votes required for the election of directors and the taking
of other action at meetings of stockholders, procedures for stockholder
initiatives, stockholder rights to inspect corporate records, the prohibition on
the use of stockholder consents following the consummation of the Corporation's
initial underwritten public offering and certain other matters, which provisions
are incorporated herein by reference.
SECTION 2.2. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of stockholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than 60 days nor less than ten
days before the date of such meeting of stockholders, nor more than 60 days
prior to any other action to which such record date relates.
If the Board of Directors does not fix a record date for any meeting
of the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of
<PAGE>
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 2.3. STOCKHOLDER LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The stockholder list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.4. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him, her or it
by proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed,
in which event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after three years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
SECTION 2.5. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.5 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
ARTICLE 3 BOARD OF DIRECTORS
SECTION 3.1. REFERENCE TO CHARTER DOCUMENT. Article VI of the Charter
Document sets forth certain provisions relating to the Board of Directors of the
Corporation,
2
<PAGE>
including the power, number, qualifications, tenure and removal of directors,
the filling of vacancies on the Board of Directors, the creation of committees
of directors and certain other matters, which provisions are incorporated herein
by reference.
SECTION 3.2. QUORUM; VOTING; OTHER. A majority of the number of
directors fixed in accordance with the Charter Document shall constitute a
quorum for the transaction of business of the Board of Directors, and the vote
of a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. Directors need not be stockholders
nor residents of the State of Delaware.
SECTION 3.3. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board, or in the Chairman of the Board's absence by the
President or by the Board of Directors.
SECTION 3.4. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
SECTION 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board, or in the Chairman of the Board's
absence, by the President, or in the President's absence, by another officer of
the Corporation. Notice of such regular meetings shall not be required.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or in the Chairman of the
Board's absence by the President, or, on the written request of any director, by
the Secretary, in each case on at least twenty-four (24) hours' personal,
written, telegraphic, cable or wireless notice to each director. Such notice, or
any waiver thereof pursuant to Article 7, Section 7.3 hereof, need not state the
purpose or purposes of such meeting, except as may otherwise be required by law
or provided for in the Charter Document or these Bylaws. Meetings may be held at
any time without notice if all the directors are present (except where a
director is present for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened) or if those not present waive notice of the meeting in
writing.
SECTION 3.7. COMPENSATION. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
3
<PAGE>
SECTION 3.8. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous vote at a meeting,
and may be stated as such in any document or instrument filed with the Secretary
of State of the State of Delaware.
Subject to the requirement for notice of meetings, members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of such Board of Directors or
committee, as the case may be, by means of a conference telephone connection
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened.
SECTION 3.9. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall be chosen from the members of the Board of Directors
and shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman of the Board may sign only those instruments for and on
behalf of the Company which the Board of Directors has specifically authorized
the Chairman to sign, and in general, the Chairman shall have only such other
powers and duties as may be required of that position under the laws of
Delaware, or as may be specifically assigned to the Chairman by these Bylaws or
by the Board of Directors from time to time.
ARTICLE 4 COMMITTEES
SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the General Corporation Law of the State of Delaware to be submitted
to stockholders for approval or (ii) adopting, amending or repealing any
provision of these Bylaws.
4
<PAGE>
SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be practicable. At every meeting of any
such committee, the presence of a majority of all the members thereof shall
constitute a quorum, and the affirmative vote of a majority of the members
present shall be necessary for the adoption by it of any resolution.
SECTION 4.3. REMOVAL OF MEMBERS; VACANCIES. The Board of Directors
shall have the power at any time to remove any member(s) of a committee and to
appoint other directors in lieu of the person(s) so removed and shall also have
the power to fill vacancies in a committee.
ARTICLE 5 OFFICERS
SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a Chief Executive Officer, President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice President
or Senior Vice President), a Treasurer, a Secretary, and such officers as the
Board of Directors may from time to time elect or appoint (including, but not
limited to, one or more Assistant Secretaries, and one or more Assistant
Treasurers). Each officer shall hold office until such officer's successor shall
be duly elected and shall qualify or until such officer's death or until such
officer shall resign or shall have been removed. Any number of offices may be
held by the same person, unless the Charter Documents provide otherwise. No
officer need be a director.
SECTION 5.2. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. Subject
to the control of the Board of Directors, the Chief Executive Officer shall have
the general executive charge, management and control of the properties, business
and operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities. Without in any manner limiting the foregoing,
the Chief Executive Officer shall see that all orders and resolutions of the
Board of Directors are carried into effect, shall report official acts to the
Board of Directors for approval and shall have such powers and perform all other
duties that may be required of him under the laws of Delaware, the Bylaws of the
Corporation or by the Board of Directors from time to time, and may agree upon
and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation. The Chief Executive Officer shall
designate who shall perform the duties of the Chief Executive Officer in his
absence.
SECTION 5.3. POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of
Directors or the Chief Executive Officer otherwise determines, the President
shall be the Chief Operating Officer of the Company and may, upon (and to the
extent of) direction by the Chief Executive Officer, act as general manager of
the Corporation's business affairs, subject to the
5
<PAGE>
control of the Chief Executive Officer. The President shall have primary
responsibility for the Corporation's operations and sales of the Corporation's
services and products. He shall have general supervision and active management
of the business of the Corporation, and see that all orders and resolutions of
the Board of Directors are carried into effect; subject, however to the right of
the Board of Directors to delegate any specific powers to any other officer or
officers of the Corporation, except such as may be by statute exclusively
conferred upon the President. He shall report his official acts to the Chief
Executive Officer for approval and shall have such powers, and perform all other
duties that may be required of him, under the laws of Delaware, the Bylaws of
the Corporation, the Board of Directors or the Chief Executive Officer. Unless
circumscribed by the Board of Directors or the Chief Executive Officer, the
President may agree upon and execute all leases, contracts, evidences of
indebtedness and other obligations in the name of the Corporation and execute
all certificates for shares of capital stock of the Corporation.
SECTION 5.4. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chief Executive
Officer or the President of the Corporation. Each Vice President shall have such
other powers and duties as from time to time may be assigned to such Vice
President by the Board of Directors, the Chairman of the Board or the President.
SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of capital stock of the Corporation; shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board
or the President; and shall in general perform all acts incident to the office
of Secretary, subject to the control of the Board of Directors, the Chairman of
the Board or the President.
SECTION 5.6. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the Board of Directors, the Chairman of
the Board, the President or the Secretary. The Assistant Secretaries shall
exercise the powers of the Secretary during that officer's absence or inability
or refusal to act.
SECTION 5.7. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chief Executive Officer or the President. The Treasurer
6
<PAGE>
shall perform all acts incident to the position of Treasurer, subject to the
control of the Board of Directors, the Chief Executive Officer or the President;
and the Treasurer shall, if required by the Board of Directors, give such bond
for the faithful discharge of the Treasurer's duties in such form as the Board
of Directors may require.
SECTION 5.8. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chief
Executive Officer, the President, or the Treasurer. The Assistant Treasurers
shall exercise the powers of the Treasurer during that officer's absence or
inability or refusal to act.
SECTION 5.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chief Executive Officer
or the President, together with the Secretary or any Assistant Secretary shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of security holders of or with respect to any action of
security holders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
SECTION 5.10. DELEGATION. For any reason that the Board of Directors
may deem sufficient, the Board of Directors may, except where otherwise provided
by statute, delegate the powers or duties of any officer to any other person,
and may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board of Directors
shall be effected from time to time by resolution of the Board of Directors.
ARTICLE 6 CAPITAL STOCK
SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Charter Document, as shall be approved by the Board
of Directors. Every holder of stock represented by certificates shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue.
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<PAGE>
The stock certificates shall be consecutively numbered and shall be entered in
the books of the Corporation as they are issued and shall exhibit the holder's
name and number of shares.
SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate theretofore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE 7 MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January of each year.
SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
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<PAGE>
SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the Charter Document or under the provisions of
these Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission (including by telecopy or facsimile
transmission) or (ii) by deposit of the same in a post office box or by delivery
to an overnight courier service company in a sealed prepaid wrapper addressed to
the person entitled thereto at such person's post office address, as it appears
on the records of the Corporation, and such notice shall be deemed to have been
given on the day of such transmission or mailing or delivery to courier, as the
case may be.
Whenever notice is required to be given by law, the Charter Document
or under any of the provisions of these Bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person,
including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice
unless so required by the Charter Document or these Bylaws.
SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions
of these Bylaws is or may be in conflict with any law of the United States, of
the State of Delaware or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law, and shall in all other respects be in full force and
effect.
ARTICLE 8 INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall provide indemnification and the advancement of
expenses to its officers and directors to the extent and upon the terms set
forth in Section 2 of Article VIII of the Charter Document.
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<PAGE>
ARTICLE 9 AMENDMENTS
The Board of Directors and the stockholders of the Corporation shall
have the power to make, alter, amend and repeal any or all of the provisions of
these Bylaws to the extent and upon the terms set forth in Article VII of the
Charter Document.
<PAGE>
CREDIT AGREEMENT
AMONG
ADVANCED COMMUNICATIONS GROUP, INC.,
AS BORROWER
The Several Lenders from Time to Time Parties Hereto
and
CANADIAN IMPERIAL BANK OF COMMERCE
AS AGENT
DATED AS OF AUGUST 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
ARTICLE 1. DEFINITIONS -1-
1.1 Defined Terms -1-
1.2 Other Definitional Provisions -23-
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS -24-
2.1 Commitment -24-
2.2 Notes -24-
2.3 Procedure for Borrowing -24-
2.4 Commitment Fee -25-
2.5 Optional and Mandatory Termination or Reduction -25-
2.6 Optional and Mandatory Prepayments -26-
2.7 Conversion and Continuation Options -26-
2.8 Maximum Amounts of Tranches -27-
2.9 Interest Rates; Default Rate Payment Dates -27-
2.10 Computation of Interest and Fees -28-
2.11 Inability to Determine Interest Rate -28-
2.12 Pro Rata Treatment and Payments; Funding Reliance -29-
2.13 Illegality -29-
2.14 Requirements of Law -30-
2.15 Taxes -31-
2.16 Indemnity -32-
2.17 Discretion of Lender as to Manner of Funding -32-
2.18 Change of Lending Office -32-
ARTICLE 3. REPRESENTATIONS AND WARRANTIES -33-
3.1 Financial Condition -33-
3.2 No Change -34-
3.3 Corporate Existence; Compliance with Law -34-
3.4 Corporate Power; Authorization; Enforceable Obligations -34-
3.5 No Legal Bar -35-
3.6 No Material Litigation -35-
3.7 No Default -35-
3.8 Ownership of Property; Liens -35-
3.9 Intellectual Property -36-
3.10 No Burdensome Restrictions -36-
3.11 Taxes -36-
3.12 Federal Regulations -36-
3.13 ERISA -36-
3.14 Holding Company; Investment Company Act; Other Regulations -37-
3.15 Purpose of Loans -37-
3.16 Environmental Matters -37-
3.17 Subsidiaries -38-
</TABLE>
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<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
3.18 Insurance -38-
3.19 IPO -39-
3.20 Acquisitions; Acquisition Documents -39-
3.21 Security Documents -40-
3.22 Accuracy and Completeness of Information -40-
3.23 Regulatory Compliance -40-
3.24 Labor Matters -41-
3.25 Leaseholds, Permits, etc. -41-
3.26 Solvency -42-
ARTICLE 4. CONDITIONS PRECEDENT -42-
4.1 Conditions to Initial Loans -42-
4.2 Conditions to Each Loan -45-
ARTICLE 5. AFFIRMATIVE COVENANTS -46-
5.1 Financial Statements -46-
5.2 Certificates; Other Information -47-
5.3 Payment of Obligations -49-
5.4 Maintenance of Existence -49-
5.5 Maintenance of Property; Insurance -49-
5.6 Inspection of Property; Books and Records; Discussions -49-
5.7 Notices -50-
5.8 Environmental Laws -50-
5.9 ERISA -51-
5.10 Post Closing Matters -52-
5.11 Further Assurances -52-
ARTICLE 6. NEGATIVE COVENANTS -52-
6.1 Interest Coverage Ratio -52-
6.2 Limitation on Indebtedness -53-
6.3 Limitation on Liens -53-
6.4 Limitation on Guarantee Obligations -54-
6.5 Limitation on Fundamental Changes -54-
6.6 Limitation on Sale of Assets -54-
6.7 Limitation on Dividends -55-
6.8 Limitation on Investments, Loans and Advances -55-
6.9 Limitation on Transactions with Affiliates -56-
6.10 Limitation on Sales and Leasebacks -56-
6.11 Limitation on Negative Pledge Clauses -56-
6.12 Limitation on Lines of Business -56-
6.13 New Subsidiaries -56-
6.14 Capital Expenditures -57-
6.15 Amendments to Material Agreements -57-
6.16 Limitation on Disposition of Assets and Liabilities -57-
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
ARTICLE 7. EVENTS OF DEFAULT -57-
7.1 Events of Default -57-
ARTICLE 8. THE AGENT -60-
8.1 Appointment -60-
8.2 Delegation of Duties -60-
8.3 Exculpatory Provisions -60-
8.4 Reliance by Agent -61-
8.5 Notice of Default -61-
8.6 Non-Reliance on Agent and Other Lenders -61-
8.7 Indemnification -62-
8.8 Agent in Its Individual Capacity -62-
8.9 Successor Agent -62-
ARTICLE 9. MISCELLANEOUS -63-
9.1 Amendments and Waivers -63-
9.2 Notices -63-
9.3 No Waiver; Cumulative Remedies -64-
9.4 Survival of Representations and Warranties -64-
9.5 Payment of Expenses and Taxes; Indemnification -64-
9.6 Successors and Assigns; Participations and Assignments -65-
9.7 Adjustments; Setoff -67-
9.8 Effectiveness -68-
9.9 Counterparts -68-
9.10 Severability -68-
9.11 Integration -68-
9.12 Governing Law -68-
9.13 FCC Approvals -68-
9.14 Submission To Jurisdiction; Waivers -69-
9.15 Acknowledgments -69-
9.16 Waivers of Jury Trial -70-
</TABLE>
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<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Note
Exhibit B-1 Form of Notice of Borrowing
Exhibit B-2 Form of Notice of Conversion
Exhibit C Form of Borrower Pledge Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Guarantee
Exhibit F Form of Closing Certificate
Exhibit G Form of Borrowing Base Certificate
Exhibit H Form of Commitment Transfer Supplement
Exhibit I Form of Contribution Agreement
Schedule I Lending Offices of Lender
Schedule 3.1(a) Changes to Financial Statements
Schedule 3.1(c) Material Guarantee Obligations and Contingent Liabilities
Schedule 3.1(e) Operating Forecast and Cash Flow Projections
Schedule 3.2 Changes in Financial Condition
Schedule 3.4 Required Consents of Governmental Authorities
Schedule 3.5 Violation of Requirement of Law or Contractual Obligation
Schedule 3.6 Litigation
Schedule 3.8 Exceptions to Title to Borrower's Properties
Schedule 3.9 Intellectual Property Matters
Schedule 3.11 Taxes
Schedule 3.13 ERISA
Schedule 3.16 Environmental Matters
Schedule 3.17 Capitalization of Borrower and Subsidiaries
Schedule 3.18 Insurance
Schedule 3.21 Jurisdictions for Filing UCC Financing Statements
Schedule 3.24 Labor Matters
Schedule 3.27 Licenses and Authorizations
Schedule 4.1(k) Filings, Registrations and Recordings
Schedule 4.1(t) Sources and Uses of Funds
Schedule 5.10 Post-Closing Items
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Existing Liens
Schedule 6.7 Permitted Dividends
Schedule 9.2 Telecopy Numbers of Borrower and Agent
</TABLE>
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<PAGE>
CREDIT AGREEMENT, dated as of August 6, 1998, between ADVANCED
COMMUNICATIONS GROUP, INC., a Delaware corporation (the "Borrower"), the several
banks and other financial institutions from time to time party hereto (the
"Lenders") and CANADIAN IMPERIAL BANK OF COMMERCE, as agent for the Lenders
hereunder (the "Agent").
PRELIMINARY STATEMENT
The Borrower was formed to create a competitive local exchange carrier
capable of providing integrated telecommunications services to business
customers primarily in the states of Kansas, Minnesota, Nebraska, North Dakota,
Oklahoma, South Dakota and Texas and, to a lesser extent, in the states of
Arkansas, Colorado, Montana, Missouri, Idaho, Iowa, Louisiana, New Mexico, North
Dakota, Wyoming and California (the "Region"). On February 18, 1998, the
Borrower completed an initial public offering of its Common Stock and received
net proceeds therefrom of approximately $99,900,000. The Borrower applied not
less than approximately $84,100,000 of such net proceeds to consummate the
transactions under the Acquisition Documents (all terms used herein and not
otherwise defined having the meanings ascribed to them in Section 1.1) pursuant
to which the Borrower acquired eight companies that provide telecommunications
services in the Region, one company that publishes independent yellow page
directories in Texas and Oklahoma and a 49% interest in Kinnet, which operates a
fiber-optic telecommunications network located in Kansas (each an "Acquisition",
and collectively the "Acquisitions").
The Borrower desires that the Lenders make revolving credit loans in
an aggregate principal amount not to exceed $25,000,000 which loans will be used
for working capital, capital expenditures and general corporate purposes. The
Lenders are willing to provide such loans, subject to the terms and conditions
set forth herein.
In consideration of the foregoing premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ACC" shall mean Advanced Communication Corp., a Delaware -
corporation.
"Account" means any "account" (as such term is defined in Section
9-106 of the Uniform Commercial Code as in effect from time to time in the State
of New York) of the Borrower or any Guarantor arising from its sale or lease of
goods or rendering of services.
"Account Debtor" shall have the meaning ascribed thereto in clause (b)
of the definition of "Eligible Account".
<PAGE>
"Account Owner" shall mean (i) with respect to any Account of the
Borrower, the Borrower and (ii) with respect to any Account of a Subsidiary of
the Borrower, such Subsidiary.
"Acquisition Closing Date" shall mean the date on which all the
conditions precedent under each of the Acquisition Documents to the consummation
of the Acquisition have been satisfied in accordance with the terms thereof and
the Acquisitions are completed.
"Acquisition Documents" shall mean the collective reference to (a) the
Restated Stock Purchase Agreement, dated as of October 6, 1997, among the
Borrower, ACC, Great Western and the stockholders of Great Western (the "Great
Western Stock Purchase Agreement"), as amended by Amendment No. 1 thereto dated
as of January 8, 1998; (b) the Agreement and Plan of Exchange, dated as of
October 6, 1997, among the Borrower, ACC, ACG Acquisition Corp., Valu-Line and
the shareholders of Valu-Line (the "Valu-Line Agreement and Plan of Exchange"),
as amended by Amendment No. 1 thereto dated as of January 8, 1998 and the Second
Amendment thereto dated as of January 13, 1998; (c) the Agreement and Plan of
Exchange, dated as of October 6, 1997, among the Borrower, ACC, 1+USA
Acquisition Corp., Feist Long Distance and the stockholders of Feist Long
Distance (the "Feist Agreement and Plan of Exchange"), as amended by Amendment
No. 1 thereto; (d) the Agreement and Plan of Exchange, dated as of October 6,
1997, among the Borrower, FirsTel, the stockholders of FirsTel and others (the
"FirsTel and Plan of Exchange"), as amended by Amendment No. 1 thereto dated as
of December 15, 1997 and Amendment No. 2 thereto dated as of January 8, 1998;
(e) the Agreement and Plan of Exchange dated as of October 6, 1997, among the
Borrower, ACC, ACG Acquisition II Corp., Tele-Systems and the stockholders of
Tele-Systems (the "Tele-Systems Agreement and Plan of Exchange"), as amended by
Amendment No. 1 thereto dated as of January 8, 1998; (f) the Restated Asset
Purchase Agreement dated as of October 6, 1997, among the Borrower, ACC, Long
Distance Management II, and Robert Alexander (the "Long Distance Management II
Restated Asset Purchase Agreement"), as amended by Amendment No. 1 thereto dated
as of January 8, 1998; (g) the Restated Asset Purchase Agreement, dated as of
October 6, 1997, among the Borrower, ACC, Long Distance Management of Kansas,
Robert Alexander and others (the "Long Distance Management of Kansas Restated
Asset Purchase Agreement"), as amended by Amendment No. 1 thereto, dated as of
January 8, 1998; (h) the Restated Asset Purchase Agreement dated as of October
6, 1997, among the Borrower, ACC, Switchboard and others (the "Switchboard
Restated Asset Purchase Agreement"), as amended by the First Amendment thereto
dated as of October 6, 1997, and the Second Amendment thereto dated as of
January 8, 1998; (i) the Restated Asset Purchase Agreement dated as of October
6, 1997, among National Telecom, the Borrower, ACG Acquisition II Corp. and
Daniel W. and Cheryl A. Peters (the "ACG Restated Asset Purchase Agreement"), as
amended by Amendment No. 1 thereto dated as of January 8, 1998; (j) the
Agreement and Plan of Exchange dated as of October 6, 1997, among the Borrower,
ACC, Kinnet and Liberty Cellular, Inc. (the "Kinnet Agreement and Plan of
Exchange"), as amended by Amendment No. 1 thereto dated as of January 8, 1998;
(k) the
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Agreement of Merger dated as of October 9, 1997 among the Borrower, ACC and
Advanced Communications Acquisition, Inc. (the "ACG Agreement of Merger"), as
amended by Amendment No. 1 thereto (l) the Asset Purchase Agreement, dated as of
September 3, 1997, among RAFT, L.L.C., PAM Oil, Inc., Scott D. Scofield, William
Pederson and FirsTel, Inc., as amended by the Amendment thereto dated -, 1998,
and (m) each of the other agreements, notes, guarantees, consents, instruments,
certificates and opinions delivered by the Borrower, or any other Person in
connection with the consummation of the Acquisitions.
"Acquisitions" shall have the meaning ascribed thereto in the
Preliminary Statement.
"Affiliate" shall mean, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" of a
Person shall mean the power, directly or indirectly, either (a) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (b) to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agent" shall have the meaning ascribed thereto in the heading hereto
and shall include such other Lender or financial institution as shall have
subsequently been appointed as the successor Agent pursuant to Section 8.9.
"Agreement" shall mean this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Alternate Base Rate" shall mean, on any particular date, a rate of
interest per annum equal to the higher of:
(a) the rate of interest most recently announced by CIBC-Bank at its
Domestic Lending Office as its prime rate (which rate is not
necessarily intended to be the lowest rate of interest charged by
CIBC-Bank in connection with extensions of credit); and
(b) the Federal Funds Rate for such date plus 0.50%.
"Alternate Base Rate Loans" shall mean Loans the rate of interest
applicable to which is based upon the Alternate Base Rate.
"Applicable Margin" shall mean (a) for each Loan that bears interest
at the Alternate Base Rate, 0.50% per annum and (b) for each Loan that bears
interest at a Eurodollar Rate, 1.50% per annum.
"Assignee" shall have the meaning ascribed thereto in Section 9.6(c).
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"Available Commitment" means, on any date, the excess of (a) the
lesser of (i) the Unused Commitment as of such date and (ii) the then Borrowing
Base as of such date, over (b) the aggregate principal amount of all Loans
outstanding as of such date.
"Benefit Plan" shall mean a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or any Commonly Controlled Entity is an "employer" as defined in
Section 3(5) of ERISA.
"Borrower" shall have the meaning ascribed thereto in the heading
hereto.
"Borrower Pledge Agreement" shall mean the Pledge Agreement,
substantially in the form of Exhibit C, executed and delivered by the Borrower
in favor of Agent for the benefit of the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"Borrower Security Agreement" shall mean the Security Agreement
between the Borrower and the Agent for the benefit of the Lenders, substantially
in the form of Exhibit D, as the same may be amended, supplemented or otherwise
modified from time to time.
"Borrowing Base" shall mean, at any time, an amount equal to 85% of
the sum of (a) the face value of all Eligible Accounts as reflected on the books
of the Borrower and its Subsidiaries, and (b) Great Western Deferred Revenue, in
each case, net of all credits, discounts, reserves and allowances.
"Borrowing Base Calculation Date" shall have the meaning specified in
clause (g) of Section 5.2.
"Borrowing Base Certificate" shall have the meaning specified in
clause (g) of Section 5.2.
"Borrowing Date" shall mean any Business Day specified in a notice
pursuant to Section 2.3 as a date on which the Borrower requests that the
Lenders make Loans hereunder.
"Business" shall have the meaning ascribed thereto in Section 3.16(b).
"Business Day" shall mean (a) a day other than a Saturday, Sunday or
other day on which commercial banks in New York City or St. Louis, Missouri are
authorized or required by law to close and (b) with respect to the date of
(i) making or continuing any Loans as, or converting any Loans from or
into, Eurodollar Loans,
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(ii) making any payment or prepayment or principal of or payment of
interest on any portion of the principal amount of any Loans being
maintained as Eurodollar Loans, or
(iii) the Borrower giving any notice (or the number of Business Days
to elapse prior to the effectiveness thereof) in connection with any matter
referred to in the immediately preceding clause (b)(i) or (b)(ii),
any such day on which dealings in Dollars are also carried on in the interbank
market in London, England.
"Business Activity Report" shall mean a report filed with the taxing
authority of a state setting forth the business activity of the Borrower and/or
its Subsidiaries in such state during the immediately preceding year.
"Capital Expenditures" shall mean any expenditure in respect of the
purchase or other acquisition of (including any expenditures under any Financing
Leases with respect to) fixed or capital assets of the Borrower or any
Subsidiary but shall exclude any such assets acquired in connection with normal
replacement and maintenance programs that, in accordance with GAAP, would be
properly charged to current operations.
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents" shall mean (a) securities issued or directly and
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than twelve months from
the date of acquisition, (b) securities issued or directly and fully guaranteed
or insured by any state of the United States of America or any agency or
instrumentality thereof having maturities of not more than twelve months from
the date of acquisition and, at the time of acquisition, having the highest
rating generally obtainable from either S&P or Moody's, (c) time deposits and
certificates of deposit of any Lender or any domestic commercial bank having
capital and surplus in excess of $1,000,000,000, in each case, having maturities
of not more than twelve months from the date of acquisition, (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (a), (b) and (c) above entered into with any
Lender or any domestic commercial bank meeting the qualifications specified in
clause (c) above and (e) commercial paper rated at least A-1 or the equivalent
thereof by S&P or P-1 or the equivalent thereof by Moody's.
"Change of Control" shall mean the occurrence of any of the following:
(a) Except for Designated Holders, any Person or "group" (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934) (i)
shall have acquired
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beneficial ownership of 20% or more of any outstanding class of Capital Stock
having ordinary voting power in the election of directors of the Borrower or
(ii) shall obtain the power (whether or not exercised) to elect a majority of
the Borrower's directors;
(b) a majority of the persons who comprised the Board of Directors of
the Borrower on the Closing Date shall be replaced, unless such replacement
shall have been approved by at least two-thirds of the Board of Directors of the
Borrower then still in office who either were members of such Board of Directors
on the Closing Date or whose election as a member of such Board of Directors was
previously so approved;
(c) the failure of the Borrower, at all times, to own, directly or
indirectly, all the issued and outstanding Capital Stock of each of its
Subsidiaries and not less than 49% of the issued and outstanding Capital Stock
of Kinnet, in each case, free and clear of all Liens (other than the Lien of any
Stock Pledge Agreement in favor of the Lenders); or
(d) except as permitted under Section 6.5, the Borrower or any
Material Subsidiary shall be liquidated or dissolved.
"CIBC-Bank" shall mean Canadian Imperial Bank of Commerce, a Canadian
chartered bank, or one or more of its agencies, branches or affiliates in its or
their respective capacity or capacities, as the case may be, as a Lender or
Lenders hereunder.
"Closing Date" shall mean the date on which the conditions precedent
set forth in Section 4.1 shall be satisfied or waived.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all assets of the Borrower or any Material
Subsidiary, now owned or hereafter acquired, upon which a Lien is purported to
be created by any Security Document.
"Commitment" shall mean, as to any Lender, the obligation of such
Lender to make Loans to the Borrower in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth under the heading
"Commitments" opposite such Lender's name on Schedule I, as such amount may be
reduced from time to time pursuant to this Agreement. As of the date of this
Agreement, the aggregate amount of the Commitments shall be equal to
$25,000,000.
"Commitment Percentage" shall mean, as to any Lender, at any time, the
percentage which such Lender's Commitment then constitutes of the aggregate
Commitment.
"Commitment Fee" shall have the meaning ascribed thereto in Section
2.4.
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"Commitment Period" shall mean the period from and including the date
of this Agreement to, but not including, the Termination Date or such earlier
date on which the Commitment shall terminate as provided herein.
"Commitment Transfer Supplement" shall have the meaning ascribed
thereto in Section 9.6(c).
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Communications Act" shall mean the Communications Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Compliance Certificate" shall have the meaning ascribed thereto in
Section 5.2(c).
"Contractual Obligation" shall mean as to the Borrower or any
Subsidiary, any provision of any security issued by the Borrower or any
Subsidiary or of any agreement, instrument or other undertaking to which the
Borrower or any Subsidiary is a party or by which it or any of its property is
bound.
"Contribution Agreement" shall mean the Contribution Agreement among
Great Western, Valu-Line, FirsTel, Feist Long Distance and Tele-Systems,
substantially in the form of Exhibit I with such modifications or amendments as
may be approved by the Agent and the Lenders.
"Default" shall mean any of the events specified in Section 7.1,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Delinquent Account" shall mean any Account that has been outstanding
more than 60 days past the due date set forth in the invoice creating such
Account or more than 90 days after the original date of such invoice.
"Delivered Reports" shall mean each of the following documents
delivered by the Borrower to the Agent:
1. Unaudited Consolidated Statements of Operations of the Borrower and
Subsidiaries, for the fiscal quarter ended March 31, 1998.
2. Unaudited Consolidated Balance Sheets of the Borrower and
Subsidiaries, for the fiscal quarter ended March 31, 1998.
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3. Unaudited Consolidated Statements of Cash Flows of the Borrower and
Subsidiaries, for the fiscal quarter ended March 31, 1998.
4. Unaudited Computation of Earnings Per Share of the Borrower and
Subsidiaries, for the fiscal quarter ended March 31, 1998.
5. Unaudited Pro Forma Combined Statement of Operations of the
Borrower for the fiscal year ended December 31, 1996.
6. Audited Consolidated Balance Sheets of the Borrower as of December
31, 1996.
7. Audited Consolidated Statements of Operations of the Borrower for
the period from June 6, 1996 through December 31, 1996.
8. Audited Consolidated Statements of Changes in Stockholders' Deficit
of the Borrower for the period from June 6, 1996 through December 31, 1996.
9. Audited Consolidated Statements of Cash Flows of the Borrower for
the period from June 6, 1996 through December 31, 1996.
10. Audited Balance Sheets of Great Western as of January 31, 1996.
11. Audited Balance Sheets of Great Western as of December 31, 1996.
12. Audited Statements of Operations of Great Western for the years
ended January 31, 1995, January 31, 1996 and December 31, 1996.
13. Audited Statements of Cash Flows of Great Western for the years
ended January 31, 1995, January 31, 1996 and December 31, 1996.
14. Audited Statements of Stockholders' Equity of Great Western for
the years ended January 31, 1995 and January 1996, and for the eleven
months ended December 31, 1996.
15. Audited Combined Balance Sheets of Valu-Line and Related Companies
as of December 31, 1995 and December 31, 1996.
16. Audited Combined Statements of Income of Valu-Line and Related
Companies for each of the three years in the period ended December 31,
1996.
17. Audited Combined Statements of Stockholders' Equity of Valu-Line
and Related Companies for each of the three years in the period ended
December 31, 1996.
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18. Audited Combined Statements of Cash Flows of Valu-Line and Related
Companies for each of the three years in the period ended December 31,
1996.
19. Audited Balance Sheet of Feist as of December 31, 1996.
20. Audited Statements of Operations of Feist for the year ended
December 31, 1996.
21. Audited Statements of Stockholders' Equity of Feist for the year
ended December 31, 1996.
22. Audited Statements of Cash Flows of Feist for the year ended
December 31, 1996.
23. Audited Balance Sheets of FirsTel for the years ended December 31,
1996 and December 31, 1995.
24. Audited Statements of Operations of FirsTel for the years ended
December 31, 1996 and December 31, 1995.
25. Audited Statements of Stockholders' Deficit of FirsTel for the
years ended December 31, 1996 and December 31, 1995.
26. Audited Statements of Cash Flows of FirsTel for the years ended
December 31, 1996 and December 31, 1995.
27. Audited Balance Sheet of Kinnet as of December 31, 1994, December
31, 1995, and December 31, 1996.
28. Audited Statements of Operations of Kinnet for the years ended
December 31, 1994, December 31, 1995, and December 31, 1996.
29. Audited Statements of Stockholders' Equity of Kinnet for the years
ended December 31, 1994, December 31, 1995, and December 31, 1996.
30. Audited Statements of Cash Flows of Kinnet for the years ended
December 31, 1994, December 31, 1995, and December 31, 1996.
31. Unaudited Pro Forma Combined Balance Sheet of the Borrower for the
year ended December 31, 1997 and the three months ended March 31, 1997.
32. Unaudited Pro Forma Combined Statement of Operations of the
Borrower for the fiscal year ended December 31, 1997.
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33. Unaudited Pro Forma Combined Statement of Operations of the
Borrower and Subsidiaries for the three months ended March 31, 1998.
"Designated Holders" shall mean the collective reference to
Richard P. Anthony, James F. Cragg and William H. Zimmer III.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Domestic Lending Office" shall mean, initially, the office of each
Lender designated as such in Schedule I (or designated pursuant to a Commitment
Transfer Supplement), and thereafter, such other office of such Lender, if any,
which shall be making or maintaining Alternate Base Rate Loans as may be
designated from time to time by notice from such Lender to the Borrower and the
Agent.
"Eligible Account" means, at the time of any determination thereof,
any Account of an Account Owner as to which each of the following requirements
has been fulfilled;
(a) the Account Owner has lawful and absolute title to such Account;
(b) such Account is a valid, binding and legally enforceable
obligation of the Person who is obligated under such Account (the "Account
Debtor");
(c) such Account is not subject to any dispute, setoff, counterclaim,
or other claim or defense on the part of the Account Debtor or to any claim
on the part of the Account Debtor denying liability under such Account in
whole or in part;
(d) the Account Owner has the full and unqualified right to assign and
grant a Lien in such Account to the Agent, for the benefit of the Lenders,
as security for the Obligations;
(e) pursuant to a Security Agreement, such Account is subject to a
fully perfected Lien in favor of the Agent, for the benefit of the Lenders,
which Lien is prior to the rights of, and enforceable as such against, any
other Person and such Account is not subject to any other Liens;
(f) such Account is evidenced by an invoice rendered to the Account
Debtor and is not evidenced by any instrument or chattel paper;
(g) such Account is a bona fide Account arising from the sale (on an
absolute basis and not on a consignment, approval or sale-and-return basis)
of goods and services by an Account Owner in the ordinary course of such
Account Owner's business, which goods have been shipped or, delivered to,
and which services have been performed for, the Account Debtor for such
Account;
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(h) with respect to such Account, no Account Debtor is:
(i) incorporated in or primarily conducting business in any
jurisdiction located outside the United States (unless such Account is
supported by a letter of credit approved by the Agent in writing),
(ii) an Affiliate of the Borrower or any other Account Owner,
(iii) a foreign government or any agency, department or
instrumentality thereof, or
(iv) an agency, department or instrumentality of the United Sates
or any state governmental authority in the United States unless the
requirements of the Assignment of Claims Act of 1940, as amended, and
any similar state legislation shall have been satisfied in respect
thereof and the Agent is satisfied as to the absence of set-offs,
counterclaims and other defenses to payment on the part of the United
States or such state governmental authority;
(i) such Account is not outstanding more than 60 days past the due
date set forth in the invoice with respect thereto or more than 90 days
after the date of the original invoice;
(j) such Account is not an Account owing by an Account Debtor who, at
the time of any determination of Eligible Accounts, owes any amount with
respect to one or more Delinquent Accounts, unless the aggregate amount of
such Delinquent Accounts (based upon outstanding dollar amounts) is less
than 25% of the aggregate value (computed as aforesaid) owed by such
Account Debtor (it being understood, however, that no Delinquent Account
shall be included as an Eligible Account).
(k) with respect to the Account Debtor under such Account, none of the
Account Owner, the Borrower or any Affiliate of the Account Owner or the
Borrower is indebted to such Account Debtor for any goods provided or
services rendered by such Account Debtor or otherwise and which
indebtedness has been contested or otherwise not paid when due; and
(l) the Account Debtor has not been the subject of any bankruptcy or
insolvency proceeding;
provided, that there shall be excluded from Eligible Accounts:
(i) any Account as to which the Agent believes in its reasonable
credit judgment that collection thereof is insecure or that such
Account
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may not be paid by reason of the Account Debtor's financial inability
to pay;
(ii) any Account of an Account Debtor that exceeds a credit or
concentration limit determined by the Agent in the exercise of its
reasonable credit judgment; and
(iii) any Accounts, the Account Debtor of which is located in a
state in which the Borrower (or, if the Account Owner is a Subsidiary,
either such Subsidiary or the Borrower on behalf of such Subsidiary)
has not filed a Business Activity Report for the current year with the
appropriate Governmental Authority if the filing of such report is
required for the Borrower (or such Subsidiary) to bring suit or
otherwise to enforce its remedies against such Account Debtor in the
courts or through any judicial process of such state, unless such
Account Debtor is, with respect to such Account, subject (as
determined in the Agent's sole judgment) to the jurisdiction of the
courts of another state which either (x) does not impose such
requirements or (y) does impose such requirements but in which the
Borrower has filed a Business Activity Report for the current year
"Environmental Laws" shall mean any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning public health, public and workplace safety or
protection of the environment, as now or may at any time hereafter be in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Eurodollar Base Rate" shall mean with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period and
appearing on Page 3750 of the Telerate screen at or about 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period or, if
such rate does not appear on such page or otherwise on such service, such rate
shall be determined by reference to such other publicly available service for
displaying Eurodollar rates as may be agreed between the Agent and the Borrower
or, in the absence of such agreement, the "Eurodollar Base Rate" shall be the
rate of interest per annum equal to the average (rounded upwards, if necessary,
to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered by CIBC-Bank to prime international
banks in the offshore dollar market at or about 11:00 a.m., New York time, two
Business Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in an amount approximately equal
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to the amount of the CIBC Bank Eurodollar Loan and for a period approximately
equal to such Interest Period.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Office" shall mean, initially, the office of each Lender
designated as such in Schedule I (or designated pursuant to a Commitment
Transfer Supplement), and thereafter, such other office of such Lender, if any,
which shall be making or maintaining Eurodollar Loans as may be designated from
time to time by notice from such Lender to the Borrower and the Agent.
"Eurodollar Rate" shall mean with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurodollar Base Rate
--------------------
1.00 Eurodollar Reserve Requirements
"Eurodollar Reserve Requirements" shall mean, for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves) under any regulations of the Board of Governors of the Federal Reserve
System or other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board)
maintained by a member bank of such System.
"Event of Default" shall mean any of the events specified in
Section 7.1; provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"FCC" shall mean the Federal Communications Commission or any
successor thereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"Federal Funds Rate" shall mean for any particular date, an interest
rate per annum equal to the interest rate (rounded upward to the nearest 1/16th
of 1%) offered in the interbank market to the Lenders as the overnight Federal
Funds Rate at or about 10:00 a.m., New York City time, on such day (or, if such
day is not a Business Day, on the next preceding Business Day).
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"Fee Letter" shall mean the letter from the Agent to the Borrower
dated August 6, 1998.
"Feist Long Distance" shall mean Feist Long Distance Service, Inc., a
Kansas corporation.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"FirsTel" shall mean FirsTel, Inc., a South Dakota corporation.
"Fully Diluted Outstanding" shall mean with respect to the
determination of the number of shares of Voting Securities outstanding on any
date, the sum of (a) all shares of Voting Securities outstanding on such date
and (b) all shares of Voting Securities that would be outstanding if all
outstanding rights, warrants or options that may be exercised, exchanged or
converted into Voting Securities were exercised, exchanged or converted on such
date.
"Funded Debt" shall mean, as of any date of determination, the sum
of all Indebtedness of the Borrower and each of its Subsidiaries other than
Indebtedness of the type described in clause (f) and clause (h) of the
definition thereof.
"GAAP" shall mean generally accepted accounting principles in the
United States of America consistent with those utilized in preparing the audited
financial statements referred to in Section 3.1 except insofar as (a) the
Borrower shall have elected (which election shall not have been required by the
American Institute of Certified Public Accountants or any similar body and shall
continue to be effective for subsequent years) with the concurrence of its
independent public accountant, to adopt more recently promulgated generally
accepted accounting principles; and (b) the Required Lenders shall have
consented to such election (it being understood that such consent may be
conditioned upon negotiation of such changes to this Agreement, including
Section 6.1, as the Required Lenders may in their sole discretion deem
appropriate).
"Governmental Authority" shall mean any national government (United
States or foreign), any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Great Western" shall mean Great Western Directories, Inc., a Texas
corporation.
"Great Western Deferred Revenue" shall mean revenue from the sale of
advertising in telephone directories that have been published and delivered,
which revenue has been recognized under Great Western's accounting principles
(as described in audited financial statements for the year ended January 31,
1996 prepared by KPMG Peat Marwick in the
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note captioned "Revenue and Cost Recognition") but which do not constitute
Eligible Accounts solely because an invoice in respect thereof has not been
issued; provided that such invoices are issued (a) in the ordinary course of
business in accordance with past practices and Borrower's accounting principles
as in effect on the date hereof and (b) in any event, all such revenue is
invoiced within four months after such directories have been published and
delivered.
"Guarantee" shall mean a Guarantee in favor of the Agent, for the
benefit of the Lenders, substantially in the form of Exhibit E, executed and
delivered by a Guarantor pursuant to which such Guarantor shall guarantee the
Obligations of the Borrower, as amended, supplemented or modified from time to
time.
"Guarantee Obligation" shall mean as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counter-indemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, lease, dividend or other obligation (the
"primary obligation") of any other third Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth,
liquidity or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided that
the term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be deemed to be the lower
of (a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"Guarantors" shall mean the collective reference to Great Western,
Valu-Line, FirsTel, Feist Long Distance and Tele-Systems.
"Hedging Agreements" shall mean (a) any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge or arrangement under which the
Borrower is a party or a beneficiary
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and (b) any other agreement or arrangement designed to limit or eliminate the
risk and/or exposure of the Borrower to fluctuations in currency exchange rates.
"High Yield Debt" shall mean any Net Debt Proceeds from the offering
of any Indebtedness of the Borrower or any Subsidiary in an aggregate principal
amount not to exceed $100,000,000 which (i) is issued to the public pursuant to
a registration statement which is declared effective by the SEC or to Qualified
Institutional Buyers (as such term is defined in Rule 144A under the Securities
Act of 1933) (other than banks), (ii) is not secured or credit enhanced, (iii)
ranks pari passu with or subordinate to the Obligations and (iv) has such other
terms and conditions as are acceptable to the Agent.
"Indebtedness" of any Person at any date shall mean, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under Financing Leases, (d) all obligations of such Person in respect of
outstanding letters of credit, acceptances and similar obligations issued or
created for the account of such Person, (e) all liabilities secured by any Lien
on any property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof, (f) liabilities arising under
Hedging Agreements (other than interest rate caps) of such Person, (g) all
Guarantee Obligations of such Person and (h) any asserted withdrawal liability
of such Person or a Commonly Controlled Entity to a Plan.
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" shall mean pertaining to a condition of Insolvency.
"Intellectual Property" shall have the meaning set ascribed thereto in
Section 3.9.
"Interest Coverage Ratio" shall mean as of any date of determination,
the ratio of:
(a) Operating Cash Flow for the preceding fiscal quarter to
(b) Interest Expense for such quarter.
"Interest Expense" shall mean, for any period, the sum of (a) all
interest in respect of all Funded Debt of the Borrower and the Subsidiaries
accrued or capitalized during such period (whether or not actually paid during
such period), plus (b) the net amounts payable (or minus the net amounts
receivable) under Hedging Agreements which amounts accrued during such period,
plus (c) all financing or commitment fees in respect of Indebtedness of the
Borrower and the Subsidiaries accrued or capitalized during such period (whether
or not actually paid during such period) but shall exclude (i) any arrangement
or financing fees paid on the Closing Date in respect of the Indebtedness
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created under this Agreement, and (ii) any transaction or "up front" fees
incurred in establishing or entering into any such Hedging Agreement.
"Interest Payment Date" shall mean (a) as to any Alternate Base Rate
Loan, the last day of each March, June, September and December to occur while
such Loan is outstanding, (b) as to any Eurodollar Loan having an Interest
Period of three months or less, the last day of such Interest Period, and (c) as
to any Eurodollar Loan having an Interest Period longer than three months, each
day which is three months, or a whole multiple thereof, after the first day of
such Interest Period and the last day of such Interest Period.
"Interest Period" with respect to any Eurodollar Loan shall mean:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Termination Date, shall end on the Termination Date or such date of
final payment, as the case may be;
(iii) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
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(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"IPO" shall mean the issuance by the Borrower pursuant to an initial
registered public offering under the Securities Act of a number of shares of
Common Stock as a result of which the Company received net proceeds of
approximately $99,900,000, of which not less than $84,100,000 shall be used to
consummate the Acquisitions.
"IRS" shall mean the Internal Revenue Service.
"Kinnet" shall mean KIN Network Inc. a Kansas corporation.
"Liberty Cellular" shall mean Liberty Cellular Inc., a Kansas
corporation.
"Lien" shall mean (a) any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
Financing Lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction), (b) any arrangement or agreement
which prohibits the Borrower or any Subsidiary from creating any mortgage,
pledge, hypothecation, deposit arrangement, encumbrance, lien, charge or other
security interest, or from entering into any agreement or arrangement described
in clause (a) of this definition or (c) the sale, assignment, pledge or transfer
for security of any accounts, general intangibles or chattel paper of the
Borrower or any Subsidiary with or without recourse.
"Loan Documents" shall mean this Agreement and each other
agreement, instrument or certificate (including, without limitation, each
Borrowing Base Certificate) executed and delivered to the Lenders pursuant
hereto including, without limitation, the Notes, the Guarantees, the Security
Documents, the Contribution Agreement and the Fee Letter.
"Loan Parties" shall mean the Borrower, each Guarantor, and any other
Person (other than the Agent or any of the Lenders) which is or becomes a party
to a Loan Document.
"Loans" shall have the meaning ascribed thereto in Section 2.1.
"Long Distance Management II" shall mean Long Distance Management II,
Inc., an Oklahoma corporation.
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"Long Distance Management of Kansas" shall mean Long Distance
Management of Kansas, Inc., a Kansas corporation.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise) or
prospects of the Borrower, and its Subsidiaries on a consolidated basis, or (b)
the validity or enforceability of this Agreement, any of the Notes or any of the
other Loan Documents, the Liens created hereunder or thereunder or the rights or
remedies of the Agent or the Lenders hereunder or thereunder.
"Material Subsidiary" shall mean each of Great Western, Valu-Line,
FirsTel, Feist Long Distance and Tele-Systems.
"Materials of Environmental Concern" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"National Telecom" shall mean National Telecom, a proprietorship.
"Net Income" for any period shall mean, net income (or deficit) of the
Borrower and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"Net Debt Proceeds" shall mean, with respect to the sale or issuance
by the Borrower or any of its Subsidiaries to any Person of any Indebtedness
permitted by the Agent and the Required Lenders after the Closing Date other
than Indebtedness permitted under Section 6.2, the excess of: (a) the gross cash
proceeds received by the Borrower or any of its Subsidiaries from such sale or
issuance, over (b) all reasonable fees and expenses incurred in connection with
such sale or issuance (including customary underwriting commissions and legal,
investment banking, brokerage and accounting and other professional fees,
trustee fees, sales commissions and disbursements) which have not been paid to
Affiliates of the Borrower in connection therewith.
"Non-Excluded Taxes" shall have the meaning ascribed thereto in
Section 2.18.
"Note" shall have the meaning ascribed thereto in Section 2.2.
"Notice of Borrowing" shall have the meaning ascribed thereto in
Section 2.3.
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"Obligations" shall mean the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Borrower or any Subsidiary, as applicable, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding and whether
the Agent, for the benefit of the Lenders, is oversecured or undersecured with
respect to such Loans) the Notes and all other obligations and liabilities of
the Borrower or any Subsidiary, as applicable, to the Agent and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Notes, the other Loan Documents or any Hedging
Agreement with the Agent or any Lender (or any of their respective affiliates)
or any other document made, delivered or given in connection therewith or
herewith, whether on account of principal, interest, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements of counsel
to the Agent or the Lenders that are required to be paid by the Borrower or any
Subsidiary, as applicable, pursuant to the terms of the Credit Agreement, any
other Loan Document or any Hedging Agreement with the Agent or any Lender (or
any of their respective affiliates)) or otherwise.
"Operating Cash Flow" shall mean, for any period of determination, an
amount equal to the sum of (without duplication) (a) Net Income for such period,
after deduction of (i) all items which should be classified as extraordinary,
all determined in accordance with GAAP; (ii) all insurance proceeds (other than
proceeds of business interruption insurance) received during such period to the
extent, if any, included in Net Income and (iii) tax adjusted gains (or
inclusion of tax adjusted losses) incurred in connection with the disposition of
capital assets, plus (b) all amounts deducted in computing such Net Income in
respect of (i) Interest Expense (after giving effect to all Hedging Agreements
and payments and receipts thereunder), (ii) noncash amortization expense
(including amortization of financing costs, noncurrent assets and non-cash
charges), (iii) depreciation, (iv) income taxes and (v) all other non-cash
expenses.
"Participant" shall have the meaning ascribed thereto in Section
8.6(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor thereto.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan" shall mean at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or any Subsidiary
is, an "employer" as defined in Section 3(5) of ERISA, other than a
Multiemployer Plan.
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"Pledged Stock" shall have the meaning ascribed thereto in the
Borrower Pledge Agreement.
"Properties" shall have the meaning ascribed thereto in Section
3.16(a).
"Register" shall have the meaning ascribed thereto in Section 10.6(d).
"Registration Statement" shall mean the Registration Statement of the
Borrower on Form S-1 (Reg. No. 33-37671), including all amendments thereto and
including the form of prospectus contained therein.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as in effect from time to time.
"Reorganization" shall mean with respect to any Multiemployer Plan,
the condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in section
4043(c) of ERISA other than those events for which the notice requirement has
been waived under applicable regulations.
"Required Lenders" shall mean Lenders whose Commitment Percentages
aggregate at least 66% of the Commitments outstanding.
"Requirement of Law" as to any Person shall mean the articles of
organization and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case, applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" shall mean, with respect to a Person, the
chairman of the board of directors, the chief executive officer or the president
of such Person or, with respect to financial matters, the chief financial
officer of such Person.
"S&P" shall mean Standard & Poor's Rating Group.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" shall mean any filing made by the Borrower under the
Securities Act of 1933 (and the rules and regulations thereunder) or the
Securities Exchange Act of 1934 (and the rules and regulations thereunder).
"Security Agreement" shall mean each Security Agreement, substantially
in the form of Exhibit D, executed and delivered by the Borrower or by a
Guarantor, as the same may be modified, amended or supplemented from time to
time.
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"Security Documents" shall mean the collective reference to the
Borrower Pledge Agreement, the Security Agreements and all other security
documents (including all financing statements on Form UCC-1) hereafter delivered
to the Agent granting a Lien on any asset or assets of the Borrower or any
Subsidiary to secure the obligations and liabilities of the Borrower under the
Notes and/or under any of the other Loan Documents or to secure any guarantee by
any Subsidiary of any such obligations and liabilities.
"Seller Notes" shall mean the promissory notes issued to stockholders
of Great Western and FirsTel in connection with the Acquisitions which notes are
in an aggregate principal amount not to exceed $17,500,000 and contain terms and
conditions (including interest rate, amortization, subordination and maturity)
acceptable to the Lenders.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" shall mean, as of any date, with respect to the Borrower or
any Subsidiary (a) the property of the Borrower or such Subsidiary, at fair
valuation, will exceed the debts of the Borrower or such Subsidiary, as the case
may be, (b) the Borrower or such Subsidiary will be able to pay its debts as
such debts become absolute and matured, and (c) the Borrower or such Subsidiary
will have, as of such date, sufficient capital with which to conduct its
business. For purposes of this definition, (i) "debt" means "liability on a
claim" and "claim" means (x) any right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
any right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured and (ii) in fair valuation of the Borrower's
and its Subsidiaries' assets means the amount which may be realized within a
reasonable time, either through collection or sale of such assets at regular
market value, based upon the amount which could be obtained for such assets
within such period by a capable and diligent seller from an interested buyer who
is willing (but under no compulsion) to purchase under ordinary selling
conditions.
"Subsidiary" shall mean a corporation, partnership or other entity of
which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by
reason of the occurrence of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise expressly stated herein all references to any Subsidiary are to
direct or indirect subsidiaries of the Borrower.
"Switchboard" shall mean Switchboard of Oklahoma City, Inc., a an
Oklahoma corporation.
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"Tele-Systems" shall mean Tele-Systems, Inc., a Kansas corporation.
"Telecommunications Act" shall mean the Telecommunications Act of 1996
and the rules and regulations thereunder.
"Termination Date" shall mean June 30, 1999.
"Tranche" shall mean the collective reference to Eurodollar Loans, the
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Transferee" shall have the meaning ascribed thereto in Section
9.6(f).
"Type" shall mean as to any Loan, its nature as an Alternate Base Rate
Loan or a Eurodollar Loan.
"Unused Commitments" shall mean, as to any Lender at any time, the
amount of such Lender's Commitment at such time, less the aggregate outstanding
principal amount of such Lender's Loans to the Borrower at such time.
"Valu-Line" shall mean Valu-Line of Longview, Inc., a Texas
corporation.
"Voting Securities" shall mean any class of Capital Stock of the
Borrower or any Subsidiary, as applicable, pursuant to which the holders thereof
have the general voting power under ordinary circumstances to vote for the
election of directors (irrespective of whether or not at the time any other
class will have or might have voting power by reason of the occurrence of any
contingency).
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have their respective defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein, in the Notes and in any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower or any Subsidiary not defined in Section 1.1 and accounting terms
partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
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ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitment. (a) Subject to the terms and conditions hereof, each
Lender agrees to make revolving credit loans ("Loans") to the Borrower from time
to time during the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed such Lender's Commitment; provided, that no
Lender shall be permitted or required to make any Loan if after giving effect
thereto
(i) the aggregate outstanding principal amount of Loans made by such
Lender would exceed the lesser of (A) such Lender's Commitment and (B) such
Lender's Commitment Percentage of the Borrowing Base; or
(ii) the aggregate outstanding principal amount of the Loans made by
all the Lenders would exceed the lesser of (A) the Commitment and (B) the
Borrowing Base.
Subject to the foregoing, during the Commitment Period, the Borrower may use the
Commitment by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii)
Alternate Base Rate Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Agent in accordance with Section 2.3; provided that
no Loan shall be made as a Eurodollar Loan after the day that is one month prior
to the Termination Date.
2.2 Notes. The Loans made by each Lender shall be evidenced by one or
more promissory notes of the Borrower, each substantially in the form of Exhibit
A, with appropriate insertions as to payee, date and principal amount (a
"Note"), payable to the order of such Lender and in a principal amount equal to
the lesser of (a) the amount of the initial Commitment of such Lender and (b)
the aggregate unpaid principal amount of all Loans made by such Lender. Each
Lender is hereby authorized to record the date, Type and amount of each Loan
made by it, each continuation thereof, each conversion of all or a portion
thereof to another Type, the date and amount of each payment or prepayment of
principal thereof and, in the case of Eurodollar Loans, the length of each
Interest Period with respect thereto, on the schedule annexed to and
constituting a part of its Note, and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded absent manifest
error. Each Note shall (i) be dated the Closing Date, (ii) be stated to mature
on the Termination Date and (iii) provide for the payment of interest in
accordance with Section 2.9.
2.3 Procedure for Borrowing. The Borrower may borrow under the
Commitment during the Commitment Period on any Business Day; provided provided
that the Borrower shall give the Agent an irrevocable notice substantially in
the form of Exhibit B-1 (a "Notice of Borrowing") and, in accordance with
Section 5.2(g), a Borrowing Base Certificate (which notice
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and certificate must be received by the Agent prior to 10:00 a.m., New York City
time, (a) three Business Days prior to the requested Borrowing Date, if all or
any part of the requested Loans are to be Eurodollar Loans initially, or (b) one
Business Day prior to the requested Borrowing Date, otherwise), specifying (i)
the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, Alternate Base Rate Loans or a
combination thereof and (iv) if the borrowing is to be entirely or partly of
Eurodollar Loans, the amounts of such Eurodollar Loans and the lengths of the
initial Interest Periods therefor. Each borrowing under the Commitment shall be
in an amount equal to (x) in the case of Alternate Base Rate Loans, $500,000 or
a whole multiple of $100,000 in excess thereof (or, if the then Available
Commitment is less than $500,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $500,000 or a whole multiple of $100,000 in excess thereof.
Upon receipt of any such notice from the Borrower, the Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Agent for the account of the Borrower
at the office of the Agent specified in Section 9.2
prior to 11:00 a.m., New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Agent. Such borrowing will then
be made available to the Borrower by the Agent in the manner specified by the
Borrower in such Notice of Borrowing in the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
2.4 Commitment Fee; Administrative Fee. (a) The Borrower agreeds to
pay to the Agent for the account of each Lender a commitment fee (the
"Commitment Fee") for the period from and including the first day of the
Commitment Period to the Termination Date, computed at the rate of 0.50% per
annum on the average daily amount of the Unused Commitment of such Lender
payable quarterly in arrears on the last day of each March, June, September and
December and on the Termination Date or such earlier date as the Commitment
shall terminate as provided herein, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Agent, for its own account for
services rendered by the Agent, concurrent with signing of this Agreement, the
fees set forth in the Fee Letter.
2.5 Optional and Mandatory Termination or Reduction. (a) The Borrower
shall have the right, upon not less than three Business Days' notice (if any
Eurodollar Loans are outstanding at such time) or two Business Days' notice
(otherwise) to the Agent, to terminate the Commitments or, from time to time, to
reduce the amount of the Commitments. Any such reduction shall be in an amount
equal to $1,000,000 or a whole multiple thereof and shall reduce permanently the
Commitments then in effect; provided that no such termination or reduction shall
be permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, the aggregate principal amount of the Loans
then outstanding would exceed the Commitments then in effect. Any reduction of
the Commitments shall be accompanied by payment in full of all accrued
Commitment Fees on the amount so reduced to and including the date of such
reduction. The Agent agrees promptly to notify the Lenders of any notice of
reduction or termination received by the Agent.
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(b) The Commitments shall be reduced to zero on the Termination Date.
2.6 Optional and Mandatory Prepayments. (a) Subject to Section 2.16,
the Borrower may, at any time and from time to time prepay the Loans, in whole
or in part, without premium or penalty, upon at least three Business Days' (in
the case of Eurodollar Loans) or two Business Days' (otherwise) irrevocable
written notice to the Agent, specifying the date and amount of prepayment and
whether the prepayment is of Eurodollar Loans, Alternate Base Rate Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. If any such notice is given, the amount specified in such notice shall be
due and payable on the date specified therein, together with any amounts payable
pursuant to Section 2.16, accrued interest to such date on the amount prepaid
and any outstanding fees and expenses then due and owing. Partial prepayments
and optional prepayments of the Loans shall be applied to the Loans but shall
not reduce the Commitments unless the Borrower so specifies in its written
notice to the Agent. Partial prepayments shall be in an aggregate principal
amount of $1,000,000 or a whole multiple of $100,000 in excess thereof.
(b) The Borrower shall concurrently with the receipt of any Net Debt
Proceeds by the Borrower or any Subsidiary (other than any Indebtedness
permitted under Section 6.2), pay to the Agent for the benefit of the Lenders an
amount equal to such Net Debt Proceeds, which prepayment shall be applied to the
Loans (with a concomitant reduction in the Commitments).
(c) If at any time
(i) the aggregate outstanding principal amount of the Loans madeby any
Lender exceeds the lesser of (w) such Lender's Commitment and (x) such
Lender's Commitment Percentage of the Borrowing Base; or
(ii) the outstanding aggregate principal amount of the Loans made by
all Lenders exceeds the lesser of (y) the Commitments and (z) the Borrowing
Base;
then the Borrower, will promptly and, in any event, within one Business Day,
make a mandatory prepayment of the Loans to the Agent for the benefit of the
Lenders in an aggregate amount equal to such excess.
(d) Each prepayment of the Loans pursuant to this Section 2.6 shall be
accompanied by payment in full of all accrued interest thereon, to and including
the date of such prepayment, together with any additional amounts owing pursuant
to Section 2.16 and any outstanding fees and expenses due and owing.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by
giving the Agent prior irrevocable notice of such election substantially in the
form of Exhibit B-2 (a "Notice of Conversion") (which notice must be received by
the Agent by at least 10:00 a.m., New York City
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time, three Business Days prior to such election); provided that any such
conversion of Eurodollar Loans may be made only on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
Alternate Base Rate Loans to Eurodollar Loans by giving the Agent prior
irrevocable notice of such election (which notice must be received by the Agent
by at least 10:00 a.m., New York City time, three Business Days prior to such
election). Any such Notice of Conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice, the Agent shall promptly notify each Lender thereof. All or
any part of the outstanding Eurodollar Loans and Alternate Base Rate Loans may
be converted as provided herein; provided that (i) no Loan may be converted into
a Eurodollar Loan when any Default has occurred and is continuing and (ii) no
Loan may be converted into a Eurodollar Loan after the date that is one month
prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in Section 1.1 of the length of the next Interest
Period to be applicable to such Loans; provided that no Eurodollar Loan may be
continued as such (i) when any Default has occurred and is continuing or (ii)
after the date that is one month prior to the Termination Date; provided,
further, that if the Borrower shall fail to give any required notice as
described above in this paragraph, or if such continuation is not permitted
pursuant to the preceding proviso, such Loans shall be automatically converted
to Alternate Base Rate Loans on the last day of such then expiring Interest
Period. The Agent agrees to notify the Lenders of any notice of continuation
referred to herein received by the Agent.
2.8 Maximum Amounts of Tranches. All borrowings, conversions and
continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and shall be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $500,000 or a whole multiple of
$100,000 in excess thereof. There shall not be more than five Tranches at any
one time outstanding.
2.9 Interest Rates; Default Rate Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for the
first day of such Interest Period (subject to daily adjustments, if any,
required by changes in the Eurodollar Reserve Requirements) plus the Applicable
Margin.
(b) Each Alternate Base Rate Loan shall bear interest at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin.
(c) If an Event of Default has occurred and is continuing, the Loans
shall bear interest at a rate per annum equal to the rate that would otherwise
be applicable thereto pursuant to the foregoing provisions of this Section plus
2% from the date of occurrence of such Event of Default until the date such
Event of Default is cured or waived (after as well as before judgment). In
addition (but without duplication), should any interest on such Loans or any
Commitment Fees
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or other amount (other than principal) payable hereunder not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest (to the extent permitted by law in the case of
interest on interest) at a rate per annum which is the rate described in Section
2.9(b) plus 2%, in each case, from the date of such non-payment until such
amount is paid in full (after as well as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date; provided that interest accruing pursuant to Section 2.9(c) shall be
payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Commitment Fees and the
Alternate Base Rate interest shall be calculated on the basis of a 365/366 day
year and the Eurodollar Rate interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Agent shall as soon as practicable
notify the Borrower and the Lenders of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the
Alternate Base Rate or the Eurodollar Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall, as soon as practicable, notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent, at the request of
the Borrower, shall deliver to the Borrower a statement showing the quotations
used by the Agent in determining any interest rate pursuant to Section 2.9(a).
2.11 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Required Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining its
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given, (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as Alternate Base Rate Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Alternate Base Rate Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to Alternate Base
Rate Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or
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continued as such, nor shall the Borrower have the right to convert Base Rate
Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments; Funding Reliance. (a) Each
borrowing by the Borrower of Loans from the Lenders hereunder, each payment by
the Borrower on account of any Commitment Fee hereunder and any reduction of the
Commitments of the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including each prepayment)
by the Borrower on account of principal of and interest on the Loans shall
(except as may be required as a result of Section 2.16) be made pro rata
according to the respective outstanding principal amounts of the Loans then held
by the Lenders. All payments (including prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without setoff or counterclaim and shall be made
prior to 12:00 noon, New York City time, on the due date thereof to the Agent,
for the account of the Lenders, at the Agent's office specified in Section 9.2,
in Dollars and in immediately available funds. The Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal and
interest thereon, shall be payable at the then applicable rate during such
extension. If any payment on a Eurodollar Loan becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day (and, with respect to payments of principal and interest
thereon, shall be payable at the then applicable rate during such extension)
unless the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make available to the Agent the
amount that would constitute its Commitment Percentage of such borrowing, the
Agent may assume that such Lender is making such amount available to the Agent,
and the Agent may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. If such amount is not made available to the
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Agent, on demand, such amount with interest thereon at a rate equal to
the daily average Federal Funds Rate for the period until such Lender makes such
amount immediately available to the Agent. A certificate of the Agent submitted
to any Lender with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Agent by such Lender
within three Business Days of such Borrowing Date, the Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to Alternate Base Rate Loans hereunder, on demand, from the Borrower.
2.13 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the Commitment of such
Lender hereunder to make Eurodollar Loans, continue
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Eurodollar Loans as such and convert Alternate Base Rate Loans to Eurodollar
Loans shall forthwith be canceled and (b) such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to
Alternate Base Rate Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower, shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.16.
2.14 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 2.15 and changes in the
rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition; and the result
of any of the foregoing is to increase the cost to such Lender, by an
amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans, or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, any additional
amounts necessary to compensate such Lender for such increased cost or
reduced amount receivable. If any Lender becomes entitled to claim any
additional amounts pursuant to this Section, it shall promptly notify the
Borrower through the Agent, of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable pursuant to
this Section submitted by such Lender through the Agent to the Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the
Obligations hereunder.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof has or shall have the effect of
reducing the rate of return on such Lender's or the corporation's capital as a
consequence of its
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obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such change or compliance (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, after submission by such Lender to the Borrower (with a copy to
the Agent) of a written request therefor, the Borrower shall pay to such Lender
the additional amount or amounts as will compensate such Lender for such
reduction. This covenant shall survive the termination of this Agreement and the
payment of the Obligations hereunder.
2.15 Taxes. (a) All payments made by the Borrower under this Agreement
and the Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or any Lender as a result of a
present or former connection between the Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement or the Notes). If any such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder or under the Notes, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Non-Excluded Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement and
the Notes; provided that the Borrower shall not be required to increase any such
amounts payable to any Lender if such Lender fails to comply with the
requirements of paragraph (b) of this Section. Whenever any Non-Excluded Taxes
are payable by the Borrower, as promptly as possible thereafter, the Borrower
shall send to the Agent for its own account or for the Account of such Lender,
as the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Agent the required receipts or other required documentary evidence,
the Borrower shall indemnify the Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Lenders as a result
of any such failure. The covenants in this Section shall survive the termination
of this Agreement and the payment of the Notes and payment of the Obligations
hereunder.
(b) Each Lender shall:
(i) deliver to the Borrower and the Agent (A) in the case of a Lender
that is not incorporated under the laws of the United States or any state
thereof, two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as the case may
be, and (B) in the case of any other Lender, an Internal Revenue Service
Form W-8 or W-9, as applicable, or successor applicable form, as the case
may be;
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(ii) deliver to the Borrower and the Agent two further copies of any
such form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it
to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to Section 9.6 shall, upon the effectiveness of the related transfer,
be required to provide all the forms and statements required pursuant to this
Section; provided that, in the case of a Participant, such Participant shall
furnish all such required forms and statements to the Lenders from which the
related participation shall have been purchased.
2.16 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in payment when due of
the principal amount of or interest on any Eurodollar Loan, (b) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same, (c) default by
the Borrower in making any prepayment of Eurodollar Loans after the Borrower has
given a notice thereof or (d) the making of a prepayment or conversion of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto including, without limitation, in each case, any such loss or
expense arising from the redeployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Obligations hereunder.
2.17 Discretion of Lender as to Manner of Funding.
Notwithstanding any other provisions of this Agreement, each Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood that for the purposes of this Agreement
all determinations hereunder shall be made assuming each Lender had actually
funded and maintained each Eurodollar Loan through the purchase of deposits of
Dollars in the London interbank market having a maturity corresponding to each
Loan's Interest Period and bearing an interest rate equal to the Eurodollar Rate
for such Interest Period.
2.18 Change of Lending Office. (a) Each Lender agrees that if it makes
any demand for payment under Section 2.14 or Section 2.15, or if any adoption or
change of the type described in Section 2.13 shall occur with respect to it, it
will use reasonable efforts (consistent
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with its internal policy and legal and regulatory restrictions and so long as
such efforts would not be disadvantageous to it as determined in its sole
discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to make payments
under Section 2.14 or Section 2.15, or would eliminate or reduce the effect of
any adoption or change described in Section 2.13.
(b) If any Lender other than (in its capacity as a Lender) the Agent
(an "Affected Lender"), becomes entitled to payment or indemnification from the
Borrower pursuant to Section 2.14 or Section 2.15(a) (without prejudice to any
amounts then due to such Lender under such Sections) that are not applicable to
all Lenders and such cost, tax, reserve or similar imposition is not avoided by
the designation of a different lending office, then the Borrower may designate
another Lender or another bank or financial institution acceptable to the Agent
to assume in accordance with Section 9.6 all (but not part) of the Commitments,
Loans and the other rights and obligations of such Affected Lender hereunder (a
"Replacement Lender"), in each case, on a date mutually acceptable to the
Replacement Lender, such Affected Lender and the Borrower, without recourse
upon, warranty by, or expense to, such Affected Lender or the Agent, for a
purchase price equal to the outstanding principal amount of the Loans of such
Affected Lender plus all interest accrued thereon and all other amounts owing to
such Affected Lender hereunder, and, upon such assumption and purchase by the
Replacement Lender, such Replacement Lender shall be deemed to be a "Lender" for
purposes of this Agreement and such Affected Lender shall cease to be a "Lender"
for purposes of this Agreement and shall no longer have any obligations
hereunder.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans, the Borrower hereby represents and warrants to the Agent and
each Lender as follows:
3.1 Financial Condition. (a) Except as set forth in Schedule 3.1(a),
the balance sheets and the related statements of income, shareholders equity and
cash flows in the Delivered Reports, copies of which have heretofore been
furnished to the Lenders, are complete and correct in all material respects and
present fairly the financial condition of each Person as at the respective dates
of such balance sheets, and the results of its operations and its shareholders
equity and cash flows for each of the periods then ended. All such financial
statements, including the related schedules and notes thereto relating to the
audited financials, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein).
(b) Except as set forth in Schedule 3.1(c), as of March 31, 1998, none
of the Borrower and the Subsidiaries has any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto.
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(c) All balance sheets, all statements of income and shareholders
equity and of cash flows and all other financial information which shall
hereafter be furnished by or on behalf of or the Borrower to the Agent for the
purposes of, or in connection with, this Agreement or any transaction
contemplated hereby have been or will be prepared in accordance with GAAP
consistently applied throughout the periods involved (except as disclosed
therein) and do or will present fairly (subject to normal year-end adjustment in
the case of financial statements for any fiscal quarter) the financial condition
of the Borrower or any Subsidiary, as the case may be, as at the dates thereof
and the results of their operations and their shareholders equity and cash flows
for the periods then ended.
(d) The operating forecast and cash flow projections of the Borrower
and its Subsidiaries calculated for the fiscal year ending December 31, 1998 and
December 31, 1999, each prepared by or under the direct supervision of a
Responsible Officer of each of the Borrower and set forth in Schedule 3.1(e),
have each been prepared in good faith and utilizing reasonable assumptions.
Neither the Borrower nor any of its Subsidiaries has any reason to believe such
operating forecast and projections are materially incorrect or misleading in any
material respect.
3.2 No Change. Except as set forth in Schedule 3.2, since December 31,
1997, (a) there has been no development or event which has had or could
reasonably be expected to have a Material Adverse Effect, (b) except pursuant to
the Acquisition Agreements as they relate to final distributions by Subchapter S
corporations to their former owners prior to the consummation of the
Acquisitions on the Acquisition Closing Date, no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Borrower or any Subsidiary and (c) except pursuant to the IPO, none of the
Capital Stock of the Borrower or any Subsidiary has been redeemed, retired,
purchased or otherwise acquired for value by the Borrower or any Subsidiary of
the Borrower.
3.3 Corporate Existence; Compliance with Law. Each of the Borrower and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate
power and authority, and the legal right to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect and (d) is
in compliance with all Requirements of Law, except to the extent that the
failure to comply therewith could not reasonably, individually or in the
aggregate, be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. Each of
the Borrower and its Subsidiaries has the corporate power and authority, and the
legal right, to make, deliver and perform the Loan Documents to which it is a
party and to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. The Borrower has appropriate power and
authority to borrow hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions set forth in this Agreement
and in
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the Notes. Except as set forth on Schedule 3.4, no consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required (a) in connection with the execution,
delivery, performance, validity or enforceability of the Loan Documents to which
the Borrower or any Subsidiary is a party or (b) in connection with the
borrowings hereunder, other than any of the foregoing that, if not obtained,
could not reasonably be expected to have a Material Adverse Effect. On the
Closing Date, the Agent and each Lender shall have received complete and current
copies of all consents, authorizations and filings listed on Schedule 3.4. This
Agreement has been, and each other Loan Document to which it is a party will be,
duly executed and delivered on behalf of the Borrower and each Subsidiary. This
Agreement constitutes, and each other Loan Document to which the Borrower or any
Subsidiary, as the case may be, is a party when executed and delivered will
constitute, a legal, valid and binding obligation of the Borrower or such
Subsidiary, as the case may be, enforceable against the Borrower or such
Subsidiary, as the case may be, in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. Except as set forth on Schedule 3.5, the execution,
delivery and performance of the Loan Documents to which the Borrower or any
Subsidiary is a party, the borrowings by the Borrower hereunder and the use of
the proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or such Subsidiary, will not accelerate or result in
the acceleration of any payment obligations of the Borrower or such Subsidiary
and will not result in, or require, the creation or imposition of any Lien on
any of the respective properties or revenues of the Borrower or any such
Subsidiary pursuant to any such Requirement of Law or Contractual Obligation
other than as contemplated by the Security Documents.
3.6 No Material Litigation. Except as set forth in Schedule 3.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower or any of
its Subsidiaries, threatened by or against the Borrower or any Subsidiary or
against any of the respective properties or revenues of the Borrower or any
Subsidiary (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
3.7 No Default. Neither of the Borrower nor any Subsidiary is in
default under, or with respect to, any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Except as set forth in Schedule 3.8,
each of the Borrower and its Subsidiaries has good record and marketable title
in fee simple to, or a valid leasehold interest in, all its real property, and
good title to, or a valid leasehold interest in, all its other property. None of
such property is subject to any Lien except as permitted by Section 6.3.
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3.9 Intellectual Property. Each of the Borrower and its Subsidiaries
owns, or is licensed to use, all trademarks, trade names, copyrights,
technology, know-how, processes, logos and insignia necessary for the conduct of
its business as currently conducted except for those which the failure to own or
license could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). Except as set forth in Schedule 3.9, no claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower or any Subsidiary know of any valid
basis for any such claim. Except as disclosed in Schedule 3.9, the use of such
Intellectual Property by the Borrower or any Subsidiary does not infringe on the
rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of the Borrower or any Subsidiary could reasonably be expected to
have a Material Adverse Effect.
3.11 Taxes. Except as set forth in Schedule 3.11, each of the Borrower
and the Subsidiaries has filed or caused to be filed all tax returns which are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any tax, fee or other charge the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or such Subsidiary, as the case may be);
and no tax Lien has been filed, and, to the knowledge of the Borrower, no claim
is being asserted, with respect to any such tax, fee or other charge which, if
determined against the Borrower or any Subsidiary, could reasonably be expected
to have a Material Adverse Effect.
3.12 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations of
such Board of Governors. If requested by any Lender or the Agent, the Borrower
will furnish to the Agent or any Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.
3.13 ERISA. The Borrower and each Subsidiary do not maintain or
contribute to any Plan other than those listed on Schedule 3.13. Except as
disclosed in Schedule 3.13, the Borrower and each Subsidiary do not maintain,
contribute to or have any material obligation with respect to, any welfare plan
(as defined in Section(3)(1) of ERISA) which provides benefits to employees
after termination of employment other than as required by Part 6 of Title I of
ERISA or similar state laws regarding continuation of benefits. Except as
disclosed on Schedule 3.13, each Plan has complied and is in compliance in all
material respects with the applicable provisions of ERISA and the Code. The
Borrower and each Subsidiary have not breached any of the responsibilities,
obligations or duties imposed on it by ERISA, the Code, or regulations
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promulgated thereunder with respect to any Plan, which breach could have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary nor any
fiduciary of any Plan who is an officer or an employee of the Borrower or any
Subsidiary has engaged in a nonexempt prohibited transaction described in
Section 406 of ERISA or 4975 of the Code with respect to a Plan which could have
a Material Adverse Effect. With respect to any employee benefit plan (as defined
in Section 3(3) of ERISA) currently or formerly maintained or contributed to by
any Commonly Controlled Entity, no liability exists and no event has occurred
which could subject the Borrower or any Subsidiary to any liability. Except as
disclosed on Schedule 3.13, neither the Borrower nor any Subsidiary has
maintained, contributed to, or had an obligation to contribute to any
Multiemployer Plan or any Single Employer Plan, at any time during the six years
prior to the date on which this representation is made or deemed made. Except as
disclosed on Schedule 3.13, neither the Borrower nor any Subsidiary has any
material obligation to make any payment to any employee pursuant to any existing
employment contract or arrangement. Except as disclosed in Schedule 3.13, none
of the Borrower or any Subsidiary has any liability, direct or indirect,
contingent or otherwise, under Section 4201 or 4204 or 4212(c) of ERISA. Neither
the Borrower nor any Subsidiary has any outstanding liability in respect of (i)
a failure to make a required contribution or payment to a Multiemployer Plan or
(ii) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from
such a plan.
3.14 Holding Company; Investment Company Act; Other Regulations.
Neither the Borrower nor any Subsidiary is (a) a "holding company", a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended, or (c) subject to regulation under any Federal or state statute,
regulation, decree or order which limits its ability to incur Indebtedness or
conditions such ability upon any act, approval or consent of any Governmental
Authority.
3.15 Purpose of Loans. The proceeds of the Loans shall be used (a) to
finance working capital needs, (b) to finance capital expenditures and (c) for
general corporate purposes of the Borrower and its Subsidiaries .
3.16 Environmental Matters. Except as set forth on Schedule 3.16:
(a) The facilities and properties owned, leased or operated by the
Borrower and its Subsidiaries (the "Properties") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts
or concentrations which (i) constitute or constituted a violation of, or
(ii) could reasonably be expected to give rise to liability under, any
Environmental Law.
(b) The Properties and all operations at the Properties are in
compliance in all material respects with all applicable Environmental Laws,
and there is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the Properties or the
business operated by the Borrower and its Subsidiaries (the "Business")
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which could materially interfere with the continued operation of any of the
Properties or materially impair the fair saleable value thereof.
(c) Neither the Borrower nor any Subsidiary has received any notice of
violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental
Laws with regard to any of the Properties or the Business, nor do the
Borrower or any Subsidiary have knowledge or reason to believe that any
such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from any of the Properties in violation of, or in a manner or
to a location which could reasonably be expected to give rise to liability
under, any Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on or under any
of the Properties in violation of, or in a manner that could reasonably be
expected to give rise to liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to any of the Properties or the Business, nor
are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to any of
the Properties or the Business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from any of the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in connection
with any of the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could reasonably give rise
to liability under Environmental Laws.
3.17 Subsidiaries. (a) The authorized, issued and outstanding Capital
Stock of each Subsidiary is set forth in Schedule 3.17. All the issued and
outstanding Capital Stock of each Subsidiary is owned beneficially and of record
by the Borrower, free and clear of all liens, options or rights of others except
as provided in the Pledge Agreements. There are no outstanding subscriptions,
options, warrants, calls, put rights (including preemptive rights) or any other
agreements or commitments of any nature with respect to the Capital Stock of any
Subsidiary. No person has or will have any preemptive rights to subscribe for
any additional Capital Stock of any Subsidiary.
(b) As of the Closing Date, with the exception of the Material
Subsidiaries, none of the Borrower's Subsidiaries has any assets or liabilities
aggregating $10,000.
3.18 Insurance. All policies of insurance of any kind or nature
maintained by or issued to the Borrower or any Subsidiary, including, without
limitation, policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, worker's
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compensation, employee health and welfare, title, property and liability
insurance, are in full force and effect in all material respects and are of a
nature and provide such coverage as is sufficient and as is customarily carried
by companies of similar size and character.
3.19 IPO. The Registration Statement was declared effective in
accordance with the provisions of the Securities Act of 1933 on February 12,
1998. No stop order suspending the effectiveness of the Registration Statement
has been issued by the SEC and no proceedings for that purpose have been
initiated, or to the knowledge of the Borrower, threatened by the SEC. All
necessary state securities authorizations were received. No such authorization
has been revoked or suspended by any state authority and no proceedings for that
purpose have been initiated, or to the knowledge of the Borrower, threatened by
any state authority. The IPO was completed on February 18, and the Company
received net proceeds therefrom of approximately $99,900,000.
3.20 Acquisitions; Acquisition Documents. (a) The Borrower applied
approximately $84,100,000 of the net proceeds of the IPO to consummate the
Acquisitions. Each of the Acquisitions was consummated in material accordance
with the terms of the Acquisition Documents on February 18, 1998. Each party to
the Acquisition Documents has complied in all material respects with all
substantive terms and provisions contained therein on its part to be observed
and the Borrower does not have any claims against any such party.
(b) The Borrower has delivered to the Agent and the Lenders true,
complete and correct copies of each of the Acquisition Documents (including all
exhibits, schedules and disclosure letters referred to therein or delivered
pursuant thereto, as requested by the Agent) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof. None of such documents and agreements has been amended or supplemented,
nor have any of the provisions thereof been waived in any material respect,
except pursuant to a written agreement or instrument which has heretofore been
consented to by the Lenders. Each of the Acquisition Documents has been duly
executed and delivered by the Borrower, each Subsidiary and each other party
thereto and is a legal, valid and binding obligation of the Borrower, Subsidiary
and other party thereto enforceable, in all material respects, in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the rights of creditors generally and
by general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
(c) The representations and warranties of the Borrower, each
Subsidiary and each other party to the Acquisition Documents are true and
correct in all material respects on the Closing Date as if made on and as of
such date, except for representations as to current shareholders and other facts
intended by the terms of or the performance of the Acquisition Documents to
change effective upon the Acquisition Disclosure Date. Such representations and
warranties, together with the definitions of all defined terms used therein, are
by this reference deemed incorporated herein mutatis mutandis, and each Lender
entitled to rely on the accuracy of such representations and warranties.
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3.21 Security Documents. (a) Each Security Agreement is effective to
create in favor of the Agent, for the benefit of the Lenders, a legal, valid and
enforceable security interest in all right, title and interest of the Loan Party
which is party thereto in the collateral described therein except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). When financing
statements have been filed in the offices in the jurisdictions listed in
Schedule 3.21, each such Security Agreement shall constitute a fully perfected
first Lien on, and security interest in, all right, title and interest of the
Loan Party in the collateral described therein as to which a security interest
may be perfected by filing a financing statement.
(b) Except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law), the Borrower Pledge
Agreement is effective to create in favor of the Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Pledged Stock
described therein and the proceeds thereof and, when stock certificates
representing such Pledged Stock have been delivered to the Agent, such Pledge
Agreement shall constitute a fully perfected first Lien on, and security
interest in, all right, title and interest of the Loan Party thereto in the
pledged securities and the proceeds thereof described therein subject to
continuous possession of the pledged securities by the Agent.
3.22 Accuracy and Completeness of Information. All information,
reports and other papers and data (other than projections) with respect to the
Borrower or any Subsidiary (in each case, prior to and after giving effect to
the Acquisitions) furnished to the Lenders by the Borrower or any such
Subsidiary, or on behalf of the Borrower, and all SEC Reports were, at the time
furnished, complete and correct in all material respects, or have been
subsequently supplemented by other information, reports or other papers or data,
to the extent necessary to give the Lenders a true and accurate knowledge of the
subject matter in all material respects. All projections with respect to the
Borrower or any Subsidiary, furnished by the Borrower, were prepared and
presented in good faith by the Borrower based upon facts and assumptions that
the Borrower believe to be reasonable in light of current and foreseeable
conditions. No document furnished or statement made in writing to the Lenders by
or on behalf of the Borrower in connection with the negotiation, preparation or
execution of this Agreement and no SEC Report contains any untrue statement of a
material fact, or omits to state any such material fact necessary in order to
make the statements contained therein not misleading, in either case which has
not been corrected, supplemented or remedied by subsequent documents furnished
or statements made in writing to the Lenders. There is no fact known to the
Borrower or any of its Subsidiaries which has, or could reasonably be expected
to have, a Material Adverse Effect.
3.23 Regulatory Compliance. (a) The Borrower and its Subsidiaries are
in compliance with the Communications Act and the Telecommunications Act, except
to the extent that the failure to be in compliance could not reasonably be
expected to have a Material Adverse Effect.
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(b) The Borrower has no knowledge of any investigation, notice of
apparent liability, violation, forfeiture or other order or complaint issued by
or before the FCC, or of any other proceedings of or before the FCC, which could
reasonably be expected to have a Material Adverse Effect.
(c) Each of the Borrower and its Subsidiaries hold all FCC licenses
necessary for the operation of its business. No event has occurred which (i)
results in, or after notice of lapse of time or both would result in,
revocation, suspension, adverse modification, non-renewal, impairment,
restriction or termination of, or order of forfeiture with respect to, any such
license in any respect that could reasonably be expected to have a Material
Adverse Effect, or (ii) affects or could reasonably be expected in the future to
affect any of the rights of the Borrower or its Subsidiaries under any license
in any respect that could reasonably be expected to have a Material Adverse
Effect.
(d) The Borrower and its Subsidiaries have duly filed in a timely
manner all material filings, reports, applications, documents, instruments and
information required to be filed by it under the Communications Act and under
any other applicable state and local laws, and all such filings were when made
true, correct and complete in all material respects, except to the extent that
the failure of any of the statements made in this paragraph to be true and
correct could not reasonably be expected to have a Material Adverse Effect.
(e) The Borrower and its Subsidiaries are categorized as a
"non-dominant" carrier by the FCC pursuant to Part 61 of Title 47 of the Code of
Federal Regulations.
3.24 Labor Matters. Except as set forth in Schedule 3.24, neither the
Borrower nor any Subsidiary is a party to any collective bargaining agreements.
There are no strikes, lockouts or other labor disputes pending or, to the
knowledge of the Borrower and each Subsidiary, threatened against the Borrower
or any Subsidiary which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. The hours worked and payments made
to employees of the Borrower and each Subsidiary have not been in violation of
the Fair Labor Standards Act of 1938, as amended, or any other applicable
Requirement of Law, except to the extent such violations could not, individually
or in the aggregate, be reasonably expected to have a Material Adverse Effect.
All material payments due from the Borrower or any Subsidiary on account of
wages and employee health and welfare insurance and other benefits have been
paid or accrued as a liability on the books of the Borrower or such Subsidiary,
as applicable.
3.25 Leaseholds, Permits, etc. Each of the Borrower and the
Subsidiaries possesses or has the right to use, all leaseholds, easements,
franchises and permits and all authorizations and other rights which are
material to and necessary for the conduct of its business. Except for such
noncompliance with the foregoing which could not reasonably be expected to have
a Material Adverse Effect, all the foregoing are in full force and effect, and
each of the Borrower and the Subsidiaries is in substantial compliance with the
foregoing without any known conflict with the valid rights of others. No event
has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such leasehold,
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easement, franchise, license or other right, which termination or revocation,
considered as a whole, could reasonably be expected to have a Material Adverse
Effect.
3.26 Solvency. On the Closing Date, after giving effect to the
Acquisitions and to the borrowings hereunder on such date each of the Borrower
and the Subsidiaries is Solvent.
3.27 Regulatory Matters. Each Loan Party has duly and timely filed all
material filings which are required to be filed by it under the Communications
Act, and is in all material respects in substantial compliance with the
Communications Act, including, without limitation, Section 310 thereof, and the
rules and regulations of the FCC relating thereto (the "FCC Rules") except as
set forth on Schedule 3.27. Schedule 3.27 lists all the FCC Licenses and all
other material certificates, authorizations and licenses relating to
telecommunications regulation of any Governmental Authorities granted or
assigned to the Loan Parties in connection with the operation of the businesses
owned by the respective Loan Parties (collectively, the "Licenses"), and such
Licenses are the only material authorizations, licenses and permits necessary
for the conduct of the businesses of the Loan Parties as of the date hereof. All
such Licenses are validly issued and in full force and effect, and the Loan
Parties have fulfilled and performed in all material respects their obligations
with respect thereto and have full power and authority to operate thereunder.
ARTICLE 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to make
or maintain the Loan requested to be made by it on the Closing Date is subject
to the satisfaction, immediately prior to or concurrently with the making of
such Loan on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Agent shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower, with a
counterpart for each Lender, (ii) for the account of each Lender, one or
more Notes in the amount of each Lender's respective Commitment, conforming
to the requirements hereof and executed by a duly authorized officer of the
Borrower, (iii) the Security Documents, each executed and delivered by a
duly authorized officer of the Loan Party thereto, with a counterpart or a
conformed copy for each Lender, (iv) the Guarantees, each executed by a
duly authorized officer of the Guarantor party thereto, and (v) the
Contribution Agreement, executed by a duly authorized officer of each
Guarantor.
(b) Corporate Proceedings of the Borrower. The Agent shall have
received with a counterpart for each Lender, a copy of the resolutions, in
form and substance satisfactory to the Agent, of the Board of Directors of
the Borrower authorizing (i) the execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents to which it is a
party, and (ii) the borrowings contemplated hereunder certified by the
Secretary or an Assistant Secretary of the Borrower as of the Closing Date,
which certificate shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded and shall be in form and
substance satisfactory to the Agent. The Agent also shall have received,
with a counterpart for each Lender, a
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certificate of the Borrower, dated the Closing Date, as to the incumbency
and signature of the officers of the Borrower executing any Loan Document,
satisfactory in form and substance to the Agent, executed by the Chief
Executive Officer or any Vice President and the Secretary or any Assistant
Secretary of the Borrower.
(c) Corporate Proceedings of the Subsidiaries. The Agent shall have
received a copy of the resolutions of the Board of Directors of each
Guarantor or, alternatively, Material Subsidiary authorizing the execution,
delivery and performance of this Agreement and the other Loan Documents and
Acquisition Document to which it is a party certified by the Secretary or
an Assistant Secretary of such Subsidiary, as of the Closing Date, which
certificate shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded and shall be in form and
substance satisfactory to the Agent. The Agent shall have received a
certificate of each Subsidiary, dated the Closing Date, as to the
incumbency and signature of the officers of each Subsidiary executing any
Loan Document satisfactory in form and substance to the Agent, executed by
the President or any Vice President and the Secretary or an Assistant
Secretary of such Subsidiary.
(d) Corporate Documents. The Agent shall have received, with a
counterpart for each Lender, true and complete copies of the charter
documents of the Borrower and each Subsidiary, certified as of the Closing
Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Borrower or such Subsidiary, as the case may be.
(e) Consents, Licenses and Approvals. The Agent shall have received,
with a counterpart for each Lender, a certificate of a Responsible Officer
of the Borrower (i) attaching copies of all consents, authorizations and
filings referred to in Schedule 3.4, and (ii) stating that such consents,
licenses and filings are in full force and effect, and each such consent,
authorization and filing shall be in form and substance satisfactory to the
Agent.
(f) Closing Fees and Expenses. The Agent previously shall have
received the fees to be received on the Closing Date referred to in the Fee
Letter and shall have received reimbursement of all costs and expenses
(including the fees and expenses of counsel to the Agent).
(g) Legal Opinions. The Agent shall have received, with a counterpart
for each Lender, the executed legal opinions of counsel to the Borrower,
which opinions shall be satisfactory in form and substance to the Agent.
(h) Acquisition Documents; Certificate. The Agent shall have received,
with copies for each Lender, true and correct copies of each of the
Acquisition Documents including all schedules and exhibits thereto and side
letters affecting the terms thereof or otherwise delivered in connection
therewith as requested by the Agent together with all closing documents,
opinions and certificates executed in connection therewith, which shall all
be in full force and effect. The Acquisition Documents shall not have been
amended,
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supplemented or otherwise modified since the date thereof, except as may
have been consented to in writing by the Lenders. The Acquisition Documents
shall be accompanied by a certificate to such effect, dated as of the
Closing Date, of a Responsible Officer of each of the Borrower. The
transactions described in the Acquisition Documents shall have been
consummated in all material respects in accordance with the terms and
provisions thereof and each of the Borrower, each Subsidiary and each other
party to the Acquisition Documents shall be in material compliance with all
the terms of the Acquisition Documents to which it is a party.
(i) Closing Certificate. The Agent shall have received, with a
counterpart for each Lender, a closing certificate of the Borrower, dated
as of the Closing Date satisfactory in form and substance to the Agent.
(j) Borrower Pledge Agreement; Pledged Stock; Stock Powers. The Agent
shall have received the Borrower Pledge Agreement executed by an authorized
officer of the Loan Party thereto together with (i) certificates
representing the Pledged Stock pursuant to the Pledge Agreements, (ii) an
undated stock power executed in blank for each such certificate and (iii)
an acknowledgment of and consent to each such Pledge Agreement by the
Borrower or each of its Subsidiaries, as applicable.
(k) Filings, Registrations and Recordings. All filings, registrations
and recordings listed in Schedule 4.1(k) shall have been properly filed,
registered or recorded in each jurisdiction listed in Schedule 4.1(k). Any
documents (including, without limitation, financing statements) required to
be filed under any of the Security Documents in order to create, in favor
of the Agent, for the benefit of the Lenders, a perfected security interest
in the collateral thereunder shall have been properly filed in each office
in each jurisdiction listed in each Security Agreement, and such filings
are the only ones required in order to create in favor of the Agent, for
the benefit of the Lenders, a perfected Lien on the respective collateral
described therein in the jurisdictions listed on Schedule 4.1(k). The
Agent, shall have received evidence reasonably satisfactory to it of each
such filing, registration or recordation and satisfactory evidence of the
payment of any necessary fee, tax or expense relating thereto.
(l) Lien Searches. The Agent shall have received (i) lien searches
with respect to the assets of the Borrower and its Subsidiaries under such
names and in such jurisdictions as the Agent shall have requested and the
results of such lien searches shall be satisfactory to the Agent and (ii)
without limiting the foregoing, evidence satisfactory to the Agent of the
filing of duly executed financing statements on form UCC-3, and the taking
by the Borrower and its Subsidiaries of any other actions necessary or, in
the opinion of the Agent, desirable to terminate any existing liens created
with respect to the assets acquired pursuant to the Acquisition Documents.
(m) Insurance. The Agent shall have received evidence satisfactory to
it of the existence of the insurance required hereunder and pursuant to the
Security Documents and the Agent, for the benefit of the Lenders, shall
have been named as loss payee under each
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insurance policy maintained by the Borrower and its Subsidiaries (other
than worker's compensation, public liability, employee benefits and welfare
insurance).
(n) Financial Information. The Agent shall have received, with a
counterpart for each Lender, a copy of each of the financial statements
referred to in Section 3.1 in form and substance satisfactory to the Agent.
(o) Payoff Letters. With the exception of any Indebtedness permitted
under Section 6.2 and listed on Schedule 6.2, the Agent shall have received
signed payoff letters from each Person who on the Closing Date is a lender
to the Borrower or any Subsidiary and evidencing that any Indebtedness of
the Borrower or such Subsidiary to such lender has been repaid in full.
(p) Solvency Certificate. The Agent shall have received, with a
counterpart for each Lender, a solvency certificate from the Borrower in
form and substance satisfactory to the Agent.
(q) No Material Adverse Effect. Since December 31, 1997, no Material
Adverse Effect shall have occurred to the Borrower or any Material
Subsidiary.
(r) Schedules. The Borrower shall have delivered to the Agent with a
copy for each Lender each of the Schedules required under this Agreement
and each such Schedule shall be in form and substance satisfactory to each
of the Agent and the Lenders in its sole discretion.
4.2 Conditions to Each Loan. The agreement of each Lender to make any
Loan requested to be made by it on any date (including, without limitation, its
initial Loan) is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower and each other Loan Party in or pursuant to
the Loan Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date (both before and
after giving effect to such Loan).
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to
be made on such date.
(c) Aggregate Amount. Immediately before and immediately after giving
effect to such Loan,
(i) the aggregate outstanding principal amount of Loans made by
such Lender shall not exceed the lesser of (x) such Lender's
Commitment and (y) such Lender's Commitment Percentage of the
Borrowing Base; and
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(ii) the aggregate outstanding principal amount of the Loans made
by the Lenders shall not exceed the lesser of (x) the Commitment and
(y) the Borrowing Base.
(d) Notice of Borrowing; Borrowing Base Certificate. The Agent shall
receive a Notice of Borrowing satisfying the requirements of Section 2.3
together with a Borrowing Base Certificate satisfying the requirement of
Section 5.2(g).
(e) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be satisfactory in form and substance to the Agent, and the Agent
shall have received such other documents, instruments and legal opinions in
respect of any aspect or consequence of the transactions contemplated
hereby or thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such Loan that the statement in any
document delivered by the Borrower in connection with such borrowing are true
and correct and that the conditions contained in this Section 4.2 have been
satisfied.
ARTICLE 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment remains in
effect, any Note remains outstanding and unpaid or any Obligation is owing to
any Lender or the Agent hereunder, the Borrower shall and shall cause each
Subsidiary to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and the Subsidiaries as at the end of such year and
the related statements of income, stockholders equity and cash flows for
such year, setting forth in each case in comparative form the figures as of
the end of and for the previous year, reported on without a "going concern"
or like qualification or exception, or qualification arising out of the
scope of the audit, by KPMG Peat Marwick LLP or other independent certified
public accountants of nationally recognized standing, together with a
consolidating balance sheet and consolidating statements of income and cash
flows of the Borrower and its Subsidiaries, reviewed by KPMG Peat Marwick
LLP or such other independent certified public accountants; provided that
the furnishing of a Form 10-K Annual Report covering such period and as
filed with the SEC shall satisfy the requirements of this Section 5.1(a);
(b) as soon as available, but in any event not later than 45 days
after the end of each quarterly period for each of the fiscal quarters of
each fiscal year of the Borrower, the unaudited consolidated and
consolidating balance sheet of the Borrower and the Subsidiaries as at the
end of such quarter and the related unaudited statements of income,
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stockholders equity and cash flows of the Borrower and the Subsidiaries for
such quarter and the portion of the fiscal year through the end of such
quarter and setting forth in each case in comparative form the figures from
the budget for such fiscal year furnished to the Lenders pursuant to
Section 5.2(d) and the actual figures for the corresponding date or period
in the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments; provided that the furnishing of a Form 10-Q Quarterly Report
covering such period and as filed with the SEC shall satisfy the
requirement of this Section 5.1(b);
(c) as soon as available, but in any event not later than 45 days
after the end of each calendar month of the Borrower, an unaudited balance
sheet and unaudited statements of income of the Borrower and its
Subsidiaries as at the end of such month and the portion of the fiscal year
through the end of such month, setting forth in each case in comparative
form the figures for the comparable period from the budget for such fiscal
year furnished to the Lenders pursuant to Section 5.2(d) and the actual
figures for the corresponding date or period in the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 5.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) (i) concurrently with the delivery of the financial statements
referred to in Section 5.1(a), Section 5.1(b), and Section 5.1(c), a
certificate of a Responsible Officer of each of the Borrower, stating that,
to the best knowledge of such Responsible Officer, during the period
covered by such financial statements, each of the Borrower and the
Subsidiaries during such period has observed or performed in all material
respects all its covenants and other agreements, and satisfied in all
material respects every condition, contained in this Agreement and in each
other Loan Document to which it is a party to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate and
(ii) concurrently with the delivery of the financial statements referred to
in Section 5.1(a) and Section 5.1(b), a written statement setting forth
management's discussion and analyses of the financial condition and results
of operations of the Borrower and its Subsidiaries for the
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period addressed by such financial statements; provided that the furnishing
of a Form 10-K Annual Report or a Form 10-Q Quarterly Report, as
applicable, covering the relevant period and as filed with the SEC shall
satisfy the requirements of this Section 5.2 (b)(ii);
(c) concurrently with the delivery of the financial statements
referred to in Section 5.1(a) and Section 5.1(b), a certificate of a
Responsible Officer of the Borrower, in form and substance satisfactory to
the Agent, showing compliance by the Borrower and the Subsidiaries with the
Interest Coverage Ratio contained in Section 6.1;
(d) not later than 45 days after the end of each fiscal year of the
Borrower, a copy of the projections by the Borrower of the operating budget
and cash flow budget of the Borrower and the Subsidiaries for the
succeeding fiscal year set forth on a monthly basis, such projections to be
accompanied by a certificate of a Responsible Officer to the effect that
such projections have been prepared on the basis of sound financial
planning practices and that such Responsible Officer has no reason to
believe that such projections are incorrect or misleading in any material
respect and shall in any event include a description of all proposed
Capital Expenditures of the Borrower or any Subsidiary for such succeeding
fiscal year;
(e) within ten days after the same are sent, copies of all financial
statements and reports which the Borrower or any Subsidiary generally sends
to its shareholders, and within ten days after the same are filed, copies
of all financial statements and reports which Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(f) promptly upon receipt thereof, copies of all substantive
management letters and other substantive material reports which are
submitted to the Borrower or any Subsidiary by its independent accountants
in connection with any annual or interim audit of the books of the Borrower
or such Subsidiary made by such accountants;
(g) on the tenth Business Day of each calendar month and on the date
that the Borrower shall request a Loan by delivering a Notice of Borrowing,
a certificate in the form of Exhibit G attached hereto (a "Borrowing Base
Certificate"), signed by a Responsible Officer of the Borrower setting
forth the Borrowing Base (with supporting calculations in reasonable
detail) as of the last day of the fiscal month last ended (the "Borrowing
Base Calculation Date"), with such new information as such Responsible
Officer, after making due inquiries, has obtained or is otherwise aware of,
and certifying: (i) that the information contained in such Borrowing Base
Certificate is true and complete in all material respects; (ii) that there
has been no material adverse change in any Account Owner's Accounts, taken
as a whole, since the date of the most recent audit of such Accounts; (iii)
that as of the Borrowing Base Calculation Date for such Borrowing Base
Certificate, the outstanding principal amount of all Loans does not (and,
after giving effect to the making of all Loans being requested will not)
exceed the Borrowing Base; and (iv) as to such other matters as the Agent
and the Lenders may reasonably request;
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(h) on the tenth Business Day of each calendar month, a report as of
the Borrowing Base Calculation Date, signed by a Responsible Officer of the
Borrower setting forth in reasonable detail, (i) a list of all Eligible
Accounts and their respective Account Debtors, (ii) the aging of Accounts,
(iii) any changes in the reserves made for bad Accounts and the amount of
Accounts written off during the calendar month ending on the Borrowing Base
Calculation Date, (iv) any extension of the maturity of, refinancing or
other material change in the terms of any Accounts or any promissory notes
made by customers of the Borrower in favor of the Borrower during such
calendar month and (v) any additional information that the Agent and the
Lenders may request in writing with respect to Accounts;
(i) promptly, such additional financial and other information as the
Agent and the Lenders may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower or any of its Subsidiaries, as the case may be.
5.4 Maintenance of Existence. Renew and keep in full force and effect
its corporate existence, take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business except to the extent such failure to renew, keep its corporate
existence in full force and effect, or maintain all such rights, privileges and
franchises could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect and comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, be reasonably expected to have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted, maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks (but including in any event public liability, libel, business interruption
and storm damage) as are usually insured against in the same general area by
companies engaged in the same or a similar business and name the Agent for the
benefit of the Lenders, as loss payee under each such policy (other than
worker's compensation, public liability, employee benefits and welfare
insurance), and furnish to each Lender, upon request, full information as to the
insurance carried including certified copies of policies and certificates of
insurance from a recognized insurance broker reasonably acceptable to the
Required Lenders.
5.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account, in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit after
reasonable notice representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and
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records at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial and other condition
of the Borrower and each Subsidiary with officers and employees of the Borrower
and such Subsidiary and with their independent certified public accountants.
5.7 Notices. Promptly after the Borrower knows or has reason to know
thereof, and, in any event, within 5 days thereof with respect to any notice
under clause (a) or 10 days with respect to any other notice under this Section,
give notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any Subsidiary, or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any such Subsidiary and any Governmental Authority, which in
either case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any such
Subsidiary in which the amount involved is $100,000 or more and is not
covered by insurance or in which injunctive or similar relief is sought;
(d) any material labor dispute to which the Borrower or any Subsidiary
may become a party and which involves any group of employees, any strikes
or walkouts relating to any of its plants or facilities and the expiration
or termination of any labor contract to which the Borrower or such
Subsidiary is a party or by which the Borrower or such Subsidiary is bound;
and
(e) any development or event which could reasonably be expected to
have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
5.8 Environmental Laws. (a) Comply in all material respects, and
ensure compliance in all material respects by all tenants and subtenants, if
any, with all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except to the extent that failure to do so could
not, individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply
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in all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to the extent that
the same are being contested in good faith by appropriate proceedings and the
pendency of such proceedings could not be reasonably expected to have a Material
Adverse Effect.
(c) Defend, indemnify and hold harmless the Agent and the Lenders, and
their respective parents, subsidiaries, affiliates, employees, agents, officers
and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or nature
known or unknown, contingent or otherwise, arising out of, or in any way
relating to the violation of, noncompliance with or liability under any
Environmental Laws applicable to the operations of the Borrower, any Subsidiary
or the Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of the
foregoing arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor. This indemnity shall continue in full force
and effect regardless of the termination of this Agreement.
5.9 ERISA. (a) Establish, maintain and operate all Plans to comply in
all material respects with the applicable provisions of ERISA, the Code, and all
other applicable laws, and the regulations and interpretations thereunder and
the respective requirements of the governing documents for such Plans;
(b) Within ten Business Days after receipt by the Borrower or any
Subsidiary of any unfavorable determination letter from the IRS regarding
the qualification of a Plan under Section 401(a) of the Code, and promptly
following the request of the Agent for any favorable determination letters,
provide the Agent and the Lenders with copies of each such letter;
(c) Within ten Business Days after the filing thereof, provide the
Agent and the Lenders with copies of any annual report (IRS Form 5500
series) with respect to a Single Employer Plan, including Schedule B
thereto;
(d) Within ten Business Days after the Borrower or any Subsidiary
knows or has reason to know that a non-exempted prohibited transaction
(defined in Sections 406 of ERISA and 4975 of the Code) has occurred, a
statement of the chief financial officer of the Borrower or such Subsidiary
describing such transaction and the action which Borrower or such
Subsidiary, as applicable, has taken, is taking or proposes to take with
respect thereto;
(e) Within ten Business Days after the filing thereof, provide the
Agent and the Lenders with copies of each actuarial report for any Single
Employer Plan and each actuarial report and annual report received from any
Multiemployer Plan;
(f) Within ten Business Days after the occurrence thereof,
notification of any material increase in the benefits of any existing
Single Employer Plan or the establishment
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by the Borrower or any of its Subsidiaries of any new Single Employer Plan
or the commencement of contributions by Borrower to any Single Employer
Plan to which the Borrower or such Subsidiary was not previously
contributing;
(g) Within ten Business Days after the Borrower, any Subsidiary or any
Commonly Controlled Entity knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Benefit Plan or
Multiemployer Plan, a failure to make any required contribution to a
Benefit Plan or Multiemployer Plan, the creation of any Lien in favor of
the PBGC or a Benefit Plan or Multiemployer Plan or any withdrawal from, or
the receipt of notice with respect to the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the receipt of notice from the PBGC or any Multiemployer
Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Benefit Plan or Multiemployer Plan;
and
(h) Concurrently with each delivery of the financial statement
referred to in Section 5.1(a) and Section 5.1(b), if there is any material
change in the number of employees of the Borrower or any Subsidiary as to
whom the Borrower or such Subsidiary is required to make contributions to a
Multiemployer Plan, provide notice to the Agent of such new number and the
change in the aggregate contribution made by the Borrower or such
Subsidiary to such Plan.
5.10 Post Closing Matters. Perform and comply with each of the
post-closing covenants set forth on Schedule 5.10 within the time period set
forth on such Schedule 5.10 for the performance and compliance thereof.
5.11 Further Assurances. From time to time hereafter, execute and
deliver, or cause to be executed and delivered, such additional instruments,
certificates or documents, and take all such actions, as the Agent or the
Lenders may reasonably request, for the purposes of implementing or effectuating
the Loan Documents, or of more fully perfecting, preserving or renewing the
rights of the Lenders with respect to the Collateral (or with respect to any
additions thereto or replacements or proceeds thereby or with respect to any
other property or assets hereafter acquired by the Borrower which may be deemed
to be part of the Collateral) pursuant hereto or thereto.
ARTICLE 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any Obligation is owing to
any Lender or the Agent hereunder, the Borrower shall not and shall not permit
any of its Subsidiaries to:
6.1 Interest Coverage Ratio. On the last day of any fiscal quarter of
the Borrower, permit the Interest Coverage Ratio to be less than 3.00 to 1.00.
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6.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of the Borrower or any Subsidiary (including
Financing Leases) incurred to finance the purchase price of equipment,
fixtures and other similar property of the Borrower or such Subsidiary in
an amount not to exceed in the aggregate $10,000,000;
(c) Guarantees by the Borrower or any Subsidiary of Indebtedness
permitted under clause (a) and clause (b) of this Section 6.2;
(d) Indebtedness of the Borrower to any Subsidiary or of any
Subsidiary to the Borrower or any other Subsidiary;
(e) other Indebtedness of the Borrower in an amount not to exceed
$2,500,000 in the aggregate which is neither secured nor guaranteed;
(f) the Seller Notes;
(g) existing Indebtedness of the Borrower and its Subsidiaries set
forth on Schedule 6.2; and
(h) any High Yield Debt.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its properties, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) inchoate Liens for taxes, assessments or governmental charges or
levies or Liens for taxes, assessments, governmental charges or levies not
yet due or which are being contested in good faith by appropriate
proceedings; provided that adequate reserves with respect thereto are
maintained on the books of the Borrower or its Subsidiaries, as the case
may be, in conformity with GAAP;
(b) statutory Liens of carriers', warehousemen's, mechanics', material
men's, repairmen's or other similar Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or which
are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements; and deposits to secure true leases in the ordinary course;
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(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and landlords'
Liens which, in the aggregate, are not substantial in amount and which do
not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business
of the Borrower or any Subsidiary;
(e) Liens securing Indebtedness permitted under Section 6.2(b)
(including financing statements filed in connection with Financing Leases
permitted under Section 6.2(b); provided that such Liens shall extend only
to the equipment, fixtures and other similar property so financed (and
improvements or attachments thereto) and the proceeds thereof;
(f) any attachment or judgment Lien not constituting an Event of
Default under Section 7.1 (i);
(g) Liens created pursuant to the Security Documents; and
(h) existing Liens set forth in Schedule 6.3.
6.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation other than:
(a) the Guarantees; and
(b) Guarantees permitted under Section 6.2(c);
6.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary may be merged or consolidated with or into the
Borrower (provided that Borrower shall be the continuing or surviving
corporation) or any Subsidiary of the Borrower may be merged or
consolidated with or into any one or more wholly-owned Subsidiaries of the
Borrower; and
(b) any wholly-owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all its assets (upon voluntary liquidation or otherwise)
to the Borrower or any other wholly-owned Subsidiary of the Borrower.
6.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, any Capital Stock, receivables and fee or
leasehold interests), whether now owned or hereafter
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acquired, or issue any Capital Stock or other securities, in one transaction or
a series of transactions to any Person, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business;
(b) the sale of telecommunications services, telephone directories and
other similar assets in the ordinary course;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof;
(d) sales of property, business or assets (other than Capital Stock)
to any Material Subsidiaries; and
(e) the issuance of Common Stock of the Borrower.
6.7 Limitation on Dividends. Except as permitted by Schedule 6.7,
declare or pay any dividend on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any shares of any class of
Capital Stock of the Borrower or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Borrower.
6.8 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) any extension of trade credit in the ordinary course of business
and investments in customer accounts or notes receivable for inventory sold
or services rendered in the ordinary course of business and consistent with
past practice;
(b) any investment in Cash Equivalents;
(c) any investment by the Borrower in any Material Subsidiary, or by
any Material Subsidiary in the Borrower or any other Material Subsidiary;
(d) any loans by the Borrower to any Subsidiary, or by any Subsidiary
to the Borrower to the extent permitted under Section 6.2(d);
(e) any promissory notes received as consideration by the Borrower in
connection with a sale of property or assets permitted under Section
6.6(d);
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(f) investments received in connection with the bankruptcy of
suppliers and customers or received pursuant to a plan of reorganization of
any supplier or customer, in each case, in settlement of delinquent
obligations or disputes with such suppliers or customers;
(g) deposits permitted under Section 6.3(c); and
(h) any loans and advances to directors, officers, and employees of
the Borrower and its Subsidiaries made in the ordinary course of business
and for business related purposes, in an aggregate amount outstanding at
any one time not to exceed $50,000.
6.9 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or a Subsidiary's business and (c) upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate (as certified by the Board of Directors
of the Borrower).
6.10 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
6.11 Limitation on Negative Pledge Clauses. (a) Enter into with any
Person any agreement, other than (i) this Agreement or (ii) any Lien permitted
under or Financing Leases permitted by this Agreement (in which case, any
prohibition or limitation shall be effective only against the assets financed
thereby), which prohibits or limits the ability of the Borrower or any
Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired.
(b) Enter into any agreement or arrangement that limits the rights or
ability of any Subsidiary to declare or pay any dividends in cash or property or
to make loans or advances or other payments of any nature or to make any
distributions or transfers of its assets, in each case, to the Borrower or any
other Person as to which such Subsidiary is a Subsidiary.
6.12 Limitation on Lines of Business. Engage in any business activity
except for providing integrated telecommunications services and publishing
telephone directories, in each case, in the Region and such activities as may be
incidental or related thereto.
6.13 New Subsidiaries. Create or permit to exist any Subsidiary other
than those listed on Schedule 3.17; provided that it may create an additional
Subsidiary so long as (i) each such Subsidiary shall be wholly owned by the
Borrower or a wholly owned Subsidiary of the
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Borrower, (ii) each such Subsidiary shall have executed a Security Agreement, a
Guarantee and such other documents as the Agent may require and (iii) if not
previously done, the owner of the Capital Stock of such Subsidiary shall execute
a Pledge Agreement and such other documents as the Agent may require and shall
deliver to the Agent, for the benefit of the Lenders, all the issued and
outstanding Capital Stock of such Subsidiary.
6.14 Capital Expenditures. Make or commit to make (by way of the
acquisition of securities of a Person or otherwise) any Capital Expenditures
exceeding in the aggregate $25,000,000.
6.15 Amendments to Material Agreements. Enter into or consent to any
amendment of or waive any rights under the Acquisition Documents or the Seller
Notes, which restricts or diminishes in any material respects any right or
benefit enjoyed with respect to any of the foregoing by the Borrower or the
Lenders or which would adversely affect the rights of the Lenders under the Loan
Documents or the Lien of the Agent for the benefit of the Lenders created
thereby.
6.16 Limitation on Disposition of Assets and Liabilities. Convey,
sell, assign, transfer or otherwise dispose of any of the Borrower's or any
Material Subsidiary's assets or liabilities, whether now owned or hereafter
acquired or incurred, as applicable, and whether in one transaction or a series
of transactions, to any Subsidiary other than a Material Subsidiary.
ARTICLE 7. EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events shall occur and
be continuing:
(a) The Borrower shall fail to pay any principal of any Note when due
in accordance with the terms thereof or hereof; or the Borrower shall fail
to pay any interest on any Note, or any other amount payable hereunder,
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or performance of any
agreement contained in Article 6, Section 5.7 or Section 5.9; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of clause (b) of (c) of Section 5 or Section 9 of
the Pledge Agreement or clause (h), (i), (j) or (p) of Section 5 of each
Security Agreement; or
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(e) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document, and such default shall continue
unremedied for a period of 30 days; or
(f) The Borrower or any Subsidiary shall (i) default in any payment
(regardless of amount) of principal of or interest on any Indebtedness
having an aggregate principal amount in excess of $500,000 (other than the
Notes) beyond the period of grace (not to exceed 30 days), if any, provided
in the instrument or agreement under which such Indebtedness was incurred
or (ii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice, if
required, such Indebtedness to become due prior to its stated maturity; or
(g) (i) The Borrower, any Subsidiary or Kinnet shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, 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
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower, any such Subsidiary or Kinnet shall
make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower, any such Subsidiary or Kinnet any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
the Borrower, any such Subsidiary or Kinnet any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Borrower, any such Subsidiary or Kinnet
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower, any such Subsidiary or Kinnet
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower, any Subsidiary or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence
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to have a trustee appointed, or a trustee shall be appointed, to administer
or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Required Lenders is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
a Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through (vi)
above, such event or condition, together with all other such events or
conditions, if any, could reasonably be expected to have a Material Adverse
Effect; or
(i) One or more judgments or decrees shall be entered against the
Borrower or any Subsidiary involving in the aggregate a liability (to the
extent not covered by third-party insurance as to which the insurer has
acknowledged coverage) of $500,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof; or
(j) (x) Any of the Security Documents shall cease, for any reason
(except as permitted by Section 6.5) to be in full force and effect, or the
Borrower or any other Loan Party which is a party to any of the Security
Documents shall so assert, (y) the Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and priority
purported to be created thereby or (z) the Agent shall not have, for any
reason whatsoever, a valid and perfected first security interest for the
benefit of the Lenders in the Collateral, subject only to Liens permitted
under Section 6.3; or
(k) Any Guarantee shall, for any reason other than the satisfaction in
full of all the Obligations and termination of this Agreement, cease to be
in full force and effect (except as permitted by Section 6.5) or shall be
declared to be null and void, or any Guarantor shall deny that it has any
further liability, including with respect to future advances by the
Lenders, under such Guarantee or any Guarantor gives notice to such effect;
(l) Any of the representations and warranties of the Borrower, any
Subsidiary or any other party to the Acquisition Documents shall prove to
have been incorrect in any material respect on or as of the date made or
deemed made, or as of the Closing Date as if made on and as of such date;
(m) The Borrower or any of the Material Subsidiaries shall cease
commercial operations for a period of seven consecutive days; or
(n) A Change of Control shall occur.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to the Borrower,
automatically the Commitment shall
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immediately terminate and the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement and the Notes shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Agent may, by notice to the Borrower, declare the
Commitment to be terminated forthwith, whereupon the Commitment shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Agent may, or upon the request of the Required Lenders the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
ARTICLE 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
appoints Canadian Imperial Bank of Commerce as Agent of such Lender under this
Agreement and the other Loan Documents. Each such Lender irrevocably authorizes
Canadian Imperial Bank of Commerce, as the Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against the Agent.
8.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except
for its own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower, any other Loan Party or any officer of any of
them contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other Loan
Document or for any failure of the Borrower or any other Loan Party to perform
its obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Lender
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to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
Subsidiary.
8.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the Notes and the other
Loan Documents in accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Notes.
8.5 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default unless the Agent
has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders; provided that unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and the Subsidiaries and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own
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credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower and the
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Agent hereunder or furnished to the Agent
for the account of, or with a counterpart or copy for, each Lender, the Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Borrower or any
Subsidiary which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the joint and several obligation of the Borrower to do so), ratably
according to their respective Commitment Percentages in effect on the date on
which indemnification is sought under this Section (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this Section shall survive the payment of the Obligations
hereunder.
8.8 Agent in Its Individual Capacity. The Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with the Borrower and any Subsidiary as though the Agent were not an Agent
hereunder and under the other Loan Documents. With respect to Loans made or
renewed by it and any Note issued to it, the Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not the Agent, and the terms "Lender"
and "Lenders" shall include the Agent in its individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon ten days'
notice to the Lenders. If the Agent shall resign or be terminated, as the case
may be, as Agent under this Agreement and the other Loan Documents, then the
Required Lenders shall appoint a successor agent, whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Notes. After
any retiring or terminated Agent's resignation
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or termination, as the case may be, as Agent, the provisions of this Section
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.
ARTICLE 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any Note or any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section. The Required Lenders may, or, with the written consent of the Required
Lenders, the Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto for the purpose of
adding any provisions to this Agreement or changing in any manner the rights of
the Lenders or of the Borrower hereunder; (b) enter into with the Borrower
written amendments, supplements or modifications to the Note and the other Loan
Documents for the purpose of adding provisions to the Notes or such other Loan
Documents or changing in any manner the rights of the Lenders or the Borrower
thereunder or (c) waive, on such terms and conditions as the Required Lenders or
the Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement, the Notes or the other Loan Documents or any
Default or Event of Default and its consequences; provided that no such waiver
and no such amendment, supplement or modification (i) shall reduce the amount or
extend the scheduled date of maturity of any Note or of any installment thereof,
or reduce the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or increase the amount or extend the
expiration date of any Lender's Commitments, in each case, without the consent
of all the Lenders, or (ii) shall amend, modify or waive any provision of this
Section, Section 2.6(c) (or the definition of Net Debt Proceeds) or vary the
percentage in the definition of Borrowing Base or any other provision of this
Agreement or any other Loan Document which specifically by its terms requires
the approval or consent of all the Lenders or reduce the percentage specified in
the definition of Required Lenders, or consent to the assignment or transfer by
the Borrower or any other Loan Party of any of its rights and obligations under
this Agreement, the Notes and the other Loan Documents or release all or any
substantial portion of the Collateral, in each case, without the written consent
of all the Lenders, or (iii) shall amend, modify or waive any provision of
Article 8 without the written consent of the then Agent. Any such waiver and any
such amendment, supplement or modification shall apply equally to each of the
Lenders and shall be binding upon the Borrower, the Lenders, the Agent and all
future holders of the Notes. In the case of any waiver, the Borrower, the
Lenders and the Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes and any other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or, in the case of notice
by mail, when received, or, in the case of telecopy notice, when
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received, addressed as follows or to such other address as may be hereafter
notified by the respective parties hereto and any future holders of the Notes:
The Borrower: Advanced Communications Group, Inc.
390 South Woods Mill Road, Suite 150
St. Louis, MO 63017
Attention: Chief Financial Officer
Telecopy: Provided in Schedule 9.2
The Agent: CIBC, Inc.
425 Lexington Avenue
New York, NY 10017
Attention: Media Group
Telecopy: Provided in Schedule 9.2
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to Section 2.3, Section 2.5, Section 2.8, Section 2.9, Section 2.10 or
Section 2.15 shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the Notes and the
making of the Loans hereunder.
9.5 Payment of Expenses and Taxes; Indemnification. The Borrower
agrees (a) to pay or reimburse the Agent for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement,
the Notes and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
fees and disbursements of counsel to the Agent, (b) to pay or reimburse the
Agent and each Lender for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the Notes,
the other Loan Documents and any such other documents, including, without
limitation, the fees and disbursements of counsel to the Agent and each Lender,
and (c) to pay, and indemnify and hold harmless the Agent and each Lender from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes, if
any, which may be payable or determined to
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be payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the Notes, the other Loan Documents and any such other
documents, and (d) to pay, and indemnify and hold harmless the Agent and each
Lender (including each of their respective parents, subsidiaries, officers,
directors, employees, agent and affiliates) from and against, any and all other
claims, demands, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, settlements, expenses or disbursements of whatever kind
or nature arising from, in connection with or with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
Notes, the other Loan Documents, the Acquisition Documents or any other
documents or the use of the proceeds of the Loans or any other purpose (all the
foregoing in this clause (d), collectively, the "indemnified liabilities");
provided that the Borrower shall not have any obligation hereunder to the Agent
or the Lenders with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Agent or such Lender. The agreements in
this Section 9.5 shall survive repayment of the Obligations hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent, all future holders of the Notes and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Note for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. The Borrower
agrees that if amounts outstanding under this Agreement and the Notes are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to have
the right of setoff in respect of its participating interest in amounts owing
under this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or any Note; provided that, in purchasing such participating interest,
such Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Section 2.14, Section 2.15 and Section 2.16 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it were a Lender; provided that, in the case of Section 2.15, such
Participant shall have complied with the requirements of said Section and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to
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any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of the
Borrower and the Agent (which in each case shall not be unreasonably withheld),
to an additional bank or financial institution (an "Assignee") all or any part
of its rights and obligations under this Agreement and the Notes pursuant to a
"Commitment Transfer Supplement", substantially in the form of Exhibit H,
executed by such Assignee, such assigning Lender and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Borrower and the Agent
and delivered to the Agent for its acceptance and recording in the Register;
provided that (i) any such assignment must be in a minimum amount equal to the
lesser of (x) $5,000,000 and (y) the aggregate Commitment of such Lender then in
effect, and (ii) after giving effect to any such assignment, such Lender shall
have either (x) sold all its rights and obligations hereunder and under the
Notes or (y) retained at least $5,000,000 of the aggregate Commitment. Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Commitment Transfer Supplement, (1) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein and (2) the assigning Lender
thereunder, to the extent provided in such Commitment Transfer Supplement, shall
be released from its obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such assigning
Lender shall cease to be a party hereto; provided that the provisions of Section
2.14, Section 2.15, Section 2.16 and Section 9.5 shall continue to benefit such
assigning Lender to the extent required by such Sections).
(d) The Agent shall maintain, at its address referred to in Section
9.2, a copy of each Commitment Transfer Supplement delivered to it and a
register (the "Register") for the recordation of the names and addresses of any
Assignees and the Commitment of, and principal amount of the Loans owing to, any
Assignees from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower and the Agent may treat each
Person whose name is recorded in the Register as the owner of the Loan recorded
therein for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
the assigning Lender, an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent) and the
Borrower together with payment to the Agent of a registration and processing fee
of $3,500, the Agent shall promptly accept such Commitment Transfer Supplement
and, on the effective date determined pursuant thereto, shall record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and Borrower. On or prior to such effective date,
the Borrower, at its own expense, shall execute and deliver to the Agent (in
exchange for the Note of the assigning
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Lender) a new Note to the order of such Assignee in an amount equal to the
Commitment, assumed by such Assignee pursuant to such Commitment Transfer
Supplement and, if the assigning Lender has retained a Commitment, a new Note to
the order of the assigning Lender in an amount equal to the Commitment retained
by it hereunder. Such new Notes shall be dated the Closing Date and shall
otherwise be in the form of the Notes replaced thereby.
(f) The Borrower authorizes the Lenders to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee, any and all
financial information in the Lenders' possession concerning the Borrower and its
respective Affiliates which has been delivered to the Agent or the Lenders by or
on behalf of the Borrower pursuant to this Agreement or which has been delivered
to the Agent or the Lenders by or on behalf of the Borrower in connection with
the Lender's credit evaluation of the Borrower and its respective Affiliates
prior to becoming a party to this Agreement.
(g) Nothing herein shall prohibit any Lender from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
9.7 Adjustments; Setoff. (a) If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by setoff, pursuant to events or proceedings of the nature
referred to in Section 7.1(g), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loans, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to setoff and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Agent after any such setoff and
application made by such Lender; provided that the failure to give such notice
shall not affect the validity of such setoff and application.
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9.8 Effectiveness. This Agreement shall become effective on the date
when counterparts hereof executed on behalf of the Borrower, the Agent and each
Lender shall have been received by the Agent and notice thereof shall have been
given by the Agent to the Borrower.
9.9 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with each of the Borrower and the
Agent.
9.10 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.11 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Agent or any Lender relative
to subject matter hereof or thereof not expressly set forth or referred to
herein or in the other Loan Documents.
9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF OTHER THAN
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK.
9.13 FCC Approvals. Notwithstanding anything herein or in any other
Loan Document, but without limiting or waiving in any way the Obligations of the
Borrower or any Material Subsidiary, as the case may be, hereunder or
thereunder, the Agent's rights hereunder are subject to the Communications Act
and all applicable policies, rules and regulations of the FCC. The Agent (on
behalf of the Lenders) will not take any action pursuant to this Agreement which
would constitute or result in any assignment or transfer control of any FCC
license, whether de jure or de facto, if such assignment or transfer of control
would require under then existing law (including the Communications Act and the
published policies, rules and regulations promulgated by the FCC), the prior
approval of the FCC or any other Governmental Authority, without first obtaining
such approval. Each of the Borrower and any Material Subsidiary, as the case may
be, agrees to take any action which the Agent may reasonably request in order to
cause the Agent (on behalf of the Lenders) to obtain and enjoy the full rights
and benefits granted by this Agreement and the Guarantees, including
specifically, at the cost and expense of the Borrower and any Material
Subsidiaries, the use of their commercially reasonable best efforts to assist in
obtaining
-68-
<PAGE>
approval of the FCC or Governmental Authority for an action or transaction
contemplated by this Agreement or the Guarantees which are then required by law,
and specifically, without limitation, upon request upon and during the
continuance of an Event of Default, to prepare, sign and file (or cause to be
filed) with the FCC or other Governmental Authority the assignor's, transferor's
or controlling person's portion of any application or applications for consent
to (i) the assignment of any FCC license or transfer control thereof, (ii) any
sale or sales of property constituting any Collateral by the Agent or on behalf
of the Lenders, or (iii) any assumption by the Agent, the Lenders or their
designees of voting rights or management rights in property constituting any
Collateral effected in accordance with the terms of this Agreement or any other
Loan Document.
9.14 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Borrower, as
the case may be, at its address set forth in Section 9.2 or at such other
address of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing contained herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
9.15 Acknowledgments. The Borrower hereby acknowledges that:
(a) Neither the Agent nor any Lender has any fiduciary relationship
with or duty to or the Borrower arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship between the
Agent and the Lenders, on the one hand, and the Borrower, on the other hand, in
connection herewith or therewith is solely that of creditor and debtor; and
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<PAGE>
(b) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby between
the Agent, the Lenders and the Borrower.
9.16 Waivers of Jury Trial. THE BORROWER, THE AGENT AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
-70-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
BORROWER:
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-----------------------------------
Name:
Title:
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/
-----------------------------------
Name:
Title:
LENDERS:
CIBC, INC.
By: /s/
-----------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
ADVANCED COMMUNICATIONS GROUP,
INC., as Depositor
By: /s/
-----------------------------------
Name:
Title:
Notice Address:
390 South Mills Road
Suite 150
St. Louis, MO 63017
Attention: Chief Financial Officer
Telecopy: Provided in Schedule 9.2 to the
Credit Agreement
CANADIAN IMPERIAL BANK OF COMMERCE,
as Custodian
By: /s/
-----------------------------------
Name:
Title:
Notice Address:
425 Lexington Avenue
New York, New York 10017
Attention: Media Group
Telecopy: Provided in Schedule 9.2 to the
Credit Agrement
<PAGE>
EXHIBIT 11
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
UNAUDITED
------------------------
PRO FORMA YEAR ENDED ACTUAL YEAR ENDED
------------------------ -------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
(In thousands, except per share 31, 31, 31, 31, 31,
amounts) 1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE:
Average number of common shares
outstanding for basic and
diluted computation (see
Note).......................... 19,646 19,616 18,594 8,230 8,228
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) earnings...... $ (10,676) $ (5,577) $ (11,279) $ (3,200) $ (659)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Basic earnings per share........ $ (.54) $ (.28) $ (.61) $ (.39) $ (.08)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted earnings per share...... $ (.54) $ (.28) $ (.61) $ (.39) $ (.08)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Note: The effect of the assumed exercise of stock options and the assumed
conversion of the note payable and preferred stock have not been included in the
computation of diluted earnings per share for the period after issuance because
to do so would have been anti-dilutive for the periods presented.
48
<PAGE>
EXHIBIT 21
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
The following are wholly-owned subsidiaries of the Company:
ACG Acquisition II Corp., a Delaware corporation
ACG Acquisition VI Corp., a Delaware corporation
ACG Acquisition VII Corp., a Delaware corporation
ACG Acquisition X Corp., a South Dakota corporation
Feist Long Distance Service, Inc., a Kansas corporation
FirsTel, Inc., a South Dakota corporation
Great Western Directories, Inc., a Texas corporation
1+USA V Acquisition Corp., a Delaware corporation
Shared Tenant Services, Inc., a Texas corporation
Tele-Systems, Inc., a Kansas corporation
Telecom Resources, Inc., a Texas corporation
Valu-Line of Longview, Inc., a Texas corporation
Valu-Line of Louisiana, Inc., a Louisiana corporation
49
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advanced Communications Group, Inc.
We consent to incorporation by reference in the registration statements on
Forms S-8 (File Nos. 333-71273, 333-71275, 333-71277 and 333-71283) of our
report dated February 10, 1999 relating to the consolidated balance sheets of
Advanced Communications Group, Inc. and subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years ended December 31,
1998 and 1997, and for the period from inception (June 6, 1996) through December
31, 1996, and the related schedule, which report appears in the December 31,
1998 Annual Report on Form 10-K of Advanced Communications Group, Inc.
KPMG LLP
St. Louis, Missouri
March 31, 1999
50
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,734
<SECURITIES> 0
<RECEIVABLES> 36,481
<ALLOWANCES> 9,900
<INVENTORY> 0
<CURRENT-ASSETS> 50,389
<PP&E> 33,263
<DEPRECIATION> 6,731
<TOTAL-ASSETS> 214,368
<CURRENT-LIABILITIES> 49,628
<BONDS> 0
0
1,122
<COMMON> 2
<OTHER-SE> 130,460
<TOTAL-LIABILITY-AND-EQUITY> 214,368
<SALES> 97,728
<TOTAL-REVENUES> 97,728
<CGS> 62,162
<TOTAL-COSTS> 62,162
<OTHER-EXPENSES> 2,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,845
<INCOME-PRETAX> (17,738)
<INCOME-TAX> (6,459)
<INCOME-CONTINUING> (11,279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,279)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
