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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ADVANCED COMMUNICATIONS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.0001 per share
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(2) Aggregate number of securities to which transaction applies:
23,851,281
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$32,730.95
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(2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement
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(3) Filing Party:
Issuer
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(4) Date Filed:
July 1, 1999, August 26, 1999, November 3, 1999,
December 2, 1999, December 2, 1999, January 11, 2000, and January 24,
2000
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[LOGO]
Dear Fellow Stockholders,
Enclosed are a Special Meeting notice, a proxy statement and a voting form
in connection with the up-coming Special Meeting of Stockholders of Advanced
Communications Group, Inc. (New York Stock Exchange symbol "ADG") to be held at
10:00 a.m., local time, on February 16, 2000, at Advanced's corporate offices at
390 South Woods Mill Road, Suite 260, St. Louis, MO.
At the meeting you will be voting on several transactions which we believe
are vital to Advanced's future, including the acquisitions of YPtel Corporation,
Web YP, Inc. and Big Stuff, Inc. Our Board of Directors and management believe
that these acquisitions of YPtel, Web YP and Big Stuff will create an entity
capable of competing in the global print and Internet marketplace. We believe
significant benefits and operating efficiencies will be realized by combining
the resources of each of these companies. And, most importantly, we believe this
strategy has the greatest potential for maximizing stockholder value which can
be achieved by taking advantage of the success of our company's yellow pages
publishing division and creating a leading Internet yellow pages provider.
The Board of Directors of our company has received the opinion of
PaineWebber Incorporated, dated October 26, 1999, to the effect that, as of
October 20, 1999, and subject to certain limitations and based on certain
assumptions, the consideration to be paid, in the aggregate, in connection with
the acquisitions and the other transactions described in the proxy statement was
fair from a financial point of view to our company.
The Special Meeting is being held because Advanced did not hold an annual
meeting of stockholders in 1999. The Special Meeting will not be in lieu of the
2000 Annual Meeting. Advanced intends to hold an annual meeting of stockholders
later in 2000.
Sincerely,
[SIGNATURE]
Richard O'Neal
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
This proxy statement is dated January 24, 2000 and is first being mailed to
stockholders on or about January 24, 2000.
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ADVANCED COMMUNICATIONS GROUP, INC.
390 SOUTH WOODS MILL ROAD
SUITE 260
ST. LOUIS, MISSOURI 63017
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 16, 2000
------------------------
To the Stockholders of
ADVANCED COMMUNICATIONS GROUP, INC.:
The Special Meeting of Stockholders of Advanced will be held at Advanced's
corporate offices at 390 South Woods Mill Road, Suite 260, St. Louis, Missouri,
on February 16, 2000, at 10:00 a.m., local time, for the following purposes:
1. To elect two directors for terms expiring in 2002;
2. To consider and vote upon a proposal to approve the change in business
focus, strategy and direction of Advanced which includes:
- the acquisition of YPtel Corporation, Web YP, Inc. and Big Stuff, Inc.
and the issuance to the stockholders of the companies to be acquired of
approximately 19,545,454 shares of Advanced common stock, directly or
indirectly, as acquisition consideration;
- the issuance of up to 1,090,909 shares of Advanced common stock in
exchange for the cancellation of indebtedness owed or to be owed by Web
YP and Big Stuff to two stockholders of Web YP and Big Stuff prior to
closing;
- the issuance of approximately 2,863,637 shares of Advanced common stock
in consideration for the redemption of promissory notes on which
Advanced is the borrower, but which amount may be increased or
decreased depending upon the date of closing of the acquisitions;
- the issuance of an aggregate of up to 351,281 shares of Advanced common
stock upon the exercise of options and warrants granted to officers,
directors and employees of YPtel and to three current and former
non-employee directors of Advanced as compensation for their efforts in
negotiating the acquisition agreements on behalf of Advanced;
- the restructuring of the Advanced board of directors, which will
ultimately include increasing the size of the board from seven seats to
eight, the resignation of three members of the board, including one of
the directors elected pursuant to Proposal 1, and the appointment of
three new directors to fill some of the vacancies created by the
resignations; and
- the amendment to Advanced's Restated Certificate of Incorporation, as
amended, to change its name to "WorldPages.com, Inc."
and, conditioned upon the approval of Proposal 2;
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3. To consider and act upon a proposal to approve the benefits accruing to
Mr. Richard O'Neal, Advanced's Chairman of the Board and Chief Executive
Officer who is also a director, officer and significant stockholder of
Web YP and Big Stuff, consisting in part of the issuance to him of:
- 1,603,636 shares of Advanced common stock upon redemption of
indebtedness owed to him by Advanced which amount may be increased or
decreased depending upon the date of closing of the acquisitions;
- up to 954,545 shares of Advanced common stock in exchange for the
cancellation of indebtedness owed or to be owed to him by Web YP and
Big Stuff, but only upon the consummation of the acquisitions of YPtel,
Web YP and Big Stuff; and
- 1,667,837 shares of Advanced common stock upon the consummation of the
Web YP and Big Stuff acquisitions based on his holdings of common stock
of Web YP and Big Stuff.
All of the shares of Advanced common stock mentioned in Proposal 3 are included
in the shares to be approved for issuance in Proposal 2.
Only stockholders of record as of the close of business on December 23, 1999
are entitled to notice of and to vote at the Special Meeting or any adjournments
or postponements of the Special Meeting. A list of stockholders entitled to vote
at the Special Meeting will be available for review by any stockholder at the
executive offices of Advanced not less than ten days prior to the Special
Meeting.
By Order of the Board of Directors
[SIG]
Michael A. Pruss
SECRETARY
January 24, 2000
St. Louis, Missouri
EVEN IF YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE MARK, DATE AND
SIGN THE ENCLOSED VOTING FORM AND RETURN IT IN THE ENCLOSED POSTAGE PREPAID
RETURN ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR VOTING
FORMS AND VOTE IN PERSON IF THEY DESIRE. PLEASE NOTE, IF YOU DO NOT RETURN THE
ENCLOSED VOTING FORM, IT IS EQUIVALENT TO A VOTE AGAINST THE CHANGE IN STRATEGY
AND RELATED ACQUISITIONS AND NAME CHANGE.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS................... 1
SUMMARY..................................................... 5
RISK FACTORS TO BE CONSIDERED BY ADVANCED STOCKHOLDERS IN
CONNECTION WITH PROPOSAL 2 AND PROPOSAL 3................. 13
ADVANCED SPECIAL MEETING.................................... 22
PROPOSAL 1--ELECTION OF DIRECTORS........................... 24
PROPOSAL 2--THE ACQUISITIONS AND RELATED MATTERS............ 27
PROPOSAL 3--APPROVAL OF BENEFITS ACCRUING TO MR. RICHARD
O'NEAL.................................................... 32
CORPORATE INFORMATION ABOUT ADVANCED AND ITS MANAGEMENT..... 35
BUSINESS OF ADVANCED AND GREAT WESTERN...................... 53
SELECTED HISTORICAL FINANCIAL INFORMATION OF ADVANCED....... 55
ADVANCED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 57
BUSINESS OF YPTEL........................................... 63
SELECTED HISTORICAL FINANCIAL INFORMATION OF YPTEL.......... 65
YPTEL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 67
BUSINESS OF WEB YP AND BIG STUFF............................ 72
SELECTED HISTORICAL FINANCIAL INFORMATION OF WEB YP......... 76
WEB YP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 77
SELECTED HISTORICAL FINANCIAL INFORMATION OF BIG STUFF...... 78
BIG STUFF MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 79
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 81
BACKGROUND OF THE ACQUISITIONS.............................. 88
REASONS FOR THE PROPOSED ACQUISITIONS....................... 92
OPINION OF ADVANCED'S FINANCIAL ADVISOR..................... 94
AMENDED AND RESTATED YPTEL AGREEMENT AND RELATED
AGREEMENTS................................................ 105
DESCRIPTION OF THE AMENDED AND RESTATED WEB YP AGREEMENT AND
THE AMENDED AND RESTATED BIG STUFF AGREEMENT.............. 114
SALE OF ADVANCED'S TELECOMMUNICATIONS OPERATIONS TO IONEX
TELECOMMUNCIATIONS........................................ 117
REGULATORY APPROVALS........................................ 118
</TABLE>
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<TABLE>
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INDEPENDENT AUDITORS........................................ 120
STOCKHOLDER NOMINATIONS AND PROPOSALS....................... 120
OTHER MATTERS............................................... 120
INDEX TO FINANCIAL STATEMENTS............................... F-1
Annex A--Amended and Restated YPtel Agreement............... A-i
Annex B--Amended and Restated Web YP Agreement.............. B-i
Annex C--Amended and Restated Big Stuff Agreement........... C-i
Annex D--Opinion of Advanced's Financial Advisor............ D-i
</TABLE>
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SUMMARY
BACKGROUND
Advanced was originally founded to create a regional competitive local
exchange carrier to provide an integrated portfolio of telecommunications
services principally to business customers in selected service areas of
Southwestern Bell Telephone Company and U S WEST Communications, Inc. In
February 1998, Advanced acquired nine operating companies, eight of which were
telecommunications companies and one of which, Great Western Directories, Inc.,
was an independent publisher of yellow pages directories.
Since its initial public offering in February 1998, Advanced has faced
liquidity problems that have prevented it from implementing its plans and
realizing its goals of becoming a regional competitive local exchange carrier.
In early April 1999, Advanced's board was approached by Imperial Capital
Limited, a venture capital firm that, through a contractual arrangement,
controls much of the capital stock of YPtel Corporation. The principals of
Imperial Capital, who individually or through their trusts own capital stock of
YPtel, include Messrs. Stephen Lister, Jeffrey Rosenthal and Edward Truant.
Imperial Capital proposed that Advanced acquire YPtel, and in addition, Web
YP, Inc. and Big Stuff, Inc.
Like Advanced, YPtel is one of the ten largest independent yellow
pages publishers in the United States. Web YP hosts over 125,000 websites and
provides online users and customers access to white and yellow pages listings as
well as website production. Big Stuff provides production support to Web YP for
website and ad design and also provides ad colorization services for independent
telephone directory publishers.
In April 1999, Mr. James F. Cragg, the then president and chief operating
officer of Advanced, Mr. Stephen Lister, vice president of YPtel, Mr. Dick Reid,
president and chief executive officer of Big Stuff and chief executive officer
of Web YP, Mr. Richard O'Neal and Imperial Capital executed a letter of intent
which provided for a number of transactions which would result in Advanced
changing its business focus, strategy and direction. As part of the
restructuring, and to stop the losses generated by its telecommunications
operations and to better position itself to obtain the capital it would need to
implement its new strategy, Advanced also decided to sell its telecommunications
operations. In short, it decided to concentrate on growing its yellow
pages publishing business and developing itself as an Internet directory
company. The parties negotiated the terms of the acquisitions of YPtel, Web YP
and Big Stuff and signed acquisition agreements as of June 3, 1999. On
October 26, 1999, the parties amended the terms of each of the acquisition
agreements.
Mr. O'Neal is the chairman of the board and the acting chief executive
officer of Advanced. He is executive vice president and a director of Web YP and
president, secretary, treasurer and a director of Big Stuff, in addition to
holding significant ownership interest in each of those companies. Due to
Mr. O'Neal's involvement with all of those companies and his efforts to
consummate the transactions that are the subject of this proxy statement,
Advanced acknowledges that the transactions may be viewed as not having been
negotiated on an arm's-length basis.
On July 14, 1999, Advanced and four of its wholly-owned subsidiaries, Feist
Long Distance Service, Inc., FirsTel, Inc., Telecom Resources, Inc. and
Valu-Line of Longview, Inc., entered into a stock purchase agreement with Ionex
Telecommunications, Inc. under which Advanced agreed to sell all of the capital
stock of those wholly-owned subsidiaries to Ionex Telecommunications for $49.8
million, subject to a dollar-for-dollar reduction to the extent current assets
at the time of closing of the sale are less than current liabilities at the time
of closing and to the extent of any decrease in property, plant and equipment
from May 1, 1999 to the closing date. The sale closed on November 19, 1999, and,
Advanced received net proceeds of $42.6 million, which reflects preliminary
adjustment for working capital of $7.2 million.
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Advanced's telecommunications operations are being accounted for as
discontinued operations and are presented that way in Advanced's financial
statements for the nine month period ended September 30, 1999. Nevertheless,
Advanced fulfilled its obligation by continuing to operate these subsidiaries
until the sale to Ionex Telecommunications closed.
By mid-September 1999, Advanced's management became concerned that due to
timing delays beyond Advanced's control, the acquisitions contemplated under the
YPtel Agreement, the Web YP Agreement and the Big Stuff Agreement would not
close on or before October 31, 1999, the termination date under each acquisition
agreement. Accordingly, on September 21, 1999, Advanced's board requested an
extension of each of the acquisition agreements. Imperial Capital, as a
representative of a majority of the YPtel shareholders, indicated that it was
not willing to extend the YPtel Agreement.
Advanced's board of directors inquired regarding the terms under which
Imperial Capital would agree to extend the YPtel Agreement beyond its
October 31, 1999 termination date. Between September 21 and October 7, 1999,
certain Imperial Capital representatives and certain directors of Advanced had
numerous discussions concerning various alternatives and terms of extension.
On October 26, 1999, after extensive negotiations by and among Advanced's
board of directors, the Imperial Capital principals and YPtel's board of
directors, an Amended and Restated YPtel Agreement was executed. Among other
terms, the Amended and Restated YPtel Agreement provides for:
- an increase in the aggregate consideration to be received by the YPtel
shareholders to 15,000,000 shares of Advanced common stock from
7,545,454 shares;
- a termination date of March 1, 2000; and
- elimination of the contingent issuances of Advanced common stock based on
the net sale proceeds to be received pursuant to the sale of the Advanced
telecommunications operations.
The basic terms of the Web YP Agreement and the Big Stuff Agreement were
modified in the same manner as those described above relating to the YPtel
Agreement, however, the aggregate consideration to be received by the Web YP and
Big Stuff stockholders was not modified. See "Background of the Acquisitions."
THE PROPOSED ACQUISITIONS
Implementing the change in Advanced's business focus, strategy and direction
involves many actions. If the stockholders of Advanced approve Proposal 2,
Advanced intends to:
- Acquire YPtel by issuing 15,000,000 shares of Advanced common stock, which
will represent approximately 33.9% of the outstanding Advanced common
stock immediately after closing, in exchange for all of the then issued
and outstanding capital stock of YPtel;
- In order to defer any Canadian federal taxes resultant from the
transaction, YPtel stockholders who are Canadian residents for purposes
of the tax laws of Canada will have the option of receiving Advanced
common stock or Class A Special Shares of an indirect wholly-owned
subsidiary of Advanced. The basic terms of the Class A Special Shares,
which are exchangeable on a one-for-one basis for Advanced common
stock, are summarized in the section captioned "--Summary of the Terms
of the Class A Special Shares."
- Acquire Web YP by issuing 3,090,909 shares of Advanced common stock, which
will represent approximately 7.0% of the outstanding Advanced common stock
immediately after closing, in exchange for all of the then issued and
outstanding capital stock of Web YP; and
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- Acquire Big Stuff by issuing 1,454,545 shares of Advanced common stock,
which will represent approximately 3.3% of the outstanding Advanced common
stock immediately after closing, in exchange for all of the then issued
and outstanding capital stock of Web YP.
As a result of the acquisitions and related transactions, Mr. Richard
O'Neal, Advanced's chairman and chief executive officer will acquire
approximately 4,226,018 additional shares of Advanced common stock increasing
his ownership from 4.4% to 11.6% of the pro forma shares expected to be
outstanding. The transactions will not result in any other individuals or
entities owning more than 5% of the pro forma shares outstanding after the
transactions close except for those that already own more than 5% of the
currently outstanding shares of Advanced common stock.
OTHER ACTIONS TO BE TAKEN TO CHANGE THE BUSINESS FOCUS, STRATEGY AND DIRECTION
OF ADVANCED
- Restructure the composition of Advanced's current board of directors by:
- obtaining the resignation of all but three of Advanced's current
directors to be effective immediately after closing of the
acquisitions;
- increasing the size of Advanced's board to eight positions; and
- appointing five new directors to fill the vacancies created by the
resignations to be effective immediately after closing of the
acquisitions.
- Amend Advanced's Restated Certificate of Incorporation, as amended, to
change the name under which Advanced is incorporated to
"WorldPages.com, Inc."
OTHER TRANSACTIONS IN CONNECTION WITH THE ACQUISITIONS
In connection with implementing the foregoing, Advanced, YPtel, Web YP and
Big Stuff agreed that additional shares of Advanced common stock should be
issued for the reasons set forth below. If the stockholders of Advanced approve
Proposal 2, Advanced further intends to:
- Issue approximately 2,863,637 shares of Advanced common stock in
redemption of principal and interest on indebtedness in the form of 5%
subordinated promissory notes owed by Advanced to the former stockholders
of Great Western. The maximum amount of principal on the 5% subordinated
notes which may be redeemed is $15.0 million. The amount of interest on
the 5% subordinated notes which may be redeemed is $750,000 assuming a
closing date of February 15, 2000. The indebtedness was originally
incurred in connection with Advanced's acquisition of Great Western in
February 1998.
- Issue up to 1,090,909 shares of Advanced common stock in exchange for the
cancellation of up to $6.0 million in indebtedness owed by Web YP and Big
Stuff to Messrs. Richard O'Neal and Dick Reid, currently the only
stockholders of Web YP and Big Stuff. A portion of this indebtedness was
incurred by Web YP and Big Stuff to allow them to take advantage of
business opportunities which arose during the period after the signing of
the letter of intent which contemplated Advanced's acquisition of Web YP
and Big Stuff.
- Issue the following securities:
- warrants to purchase up to 75,000 shares of Advanced common stock at an
exercise price of $6.96 per share to Messrs. George Anderson, Robert
Flynn, Wilmot Matthews and Nicholas J. Ross, the current directors of
YPtel, and to Mr. Max Gotlieb, a current officer of YPtel. These
warrants are being issued to replace currently outstanding options to
purchase YPtel common stock which will be cancelled upon closing. The
terms of the new warrants were determined without regard to the terms
of the YPtel options which will be cancelled and without regard to the
exchange ratio of YPtel shares to Advanced shares; and
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- options to purchase 186,281 shares of Advanced common stock at a
weighted-average exercise price of $4.89 to employees of YPtel. These
options are being issued to replace currently outstanding options to
purchase YPtel common stock which will be cancelled upon closing. The
terms of the new options were determined without regard to the terms of
the YPtel options which will be cancelled and without regard to the
exchange ratio of YPtel shares to Advanced shares.
- Seek ratification of options previously granted to Messrs. Benton and
Cutsinger, non-employee directors of Advanced, and Mr. Moses, a former
non-employee director of Advanced, to purchase a total of 90,000 shares of
Advanced common stock at an exercise price of $6.96 per share as
compensation for negotiating on behalf of Advanced the contemplated
acquisitions of YPtel, Web YP and Big Stuff.
SUMMARY OF THE TERMS OF THE CLASS A SPECIAL SHARES
The purpose of the Class A Special Shares is to provide a mechanism for
stockholders of YPtel to acquire securities on a tax-deferred basis under the
tax laws of Canada which gives them the right to obtain Advanced common stock at
such times as the stockholders decide to exchange their Class A Special Shares
for Advanced common stock.
The Class A Special Shares will be issued by ACG Exchange Company, an
indirect, wholly-owned subsidiary of Advanced. ACG Exchange Company is
Advanced's unlimited liability company subsidiary formed under the laws of Nova
Scotia to allow stockholders of YPtel who are Canadian residents under the
federal income tax laws to obtain their ownership interests in Advanced on a
tax-deferred basis. The Class A Special Shares will be exchangeable on a
one-for-one basis for shares of Advanced common stock. Although the Class A
Special Shares have no voting rights, the holders of the Class A Special Shares
will become parties to a voting trust pursuant to which a bank or trust company,
as trustee, will hold one share of Class B Preferred Stock of Advanced. This
share of Advanced Class B Preferred Stock will have as many votes in Advanced as
the number of Class A Special Shares outstanding at the time of the vote,
excluding any Class A Special Shares held by Advanced or its subsidiaries. A
holder of Class A Special Shares will have the right to direct the voting
trustee how to vote the Class B Preferred Stock to the extent of the Class A
Special Shares then owned by that holder. If no instructions are received from a
holder of Class A Special Shares, the trustee will vote the Class A Special
Shares in the same manner as are voted the majority of the other Class A Special
Shares.
THE MAILING ADDRESS AND TELEPHONE NUMBER OF THE PRINCIPAL EXECUTIVE OFFICES OF
ADVANCED, YPTEL, WEB YP AND BIG STUFF ARE:
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ADVANCED YPTEL WEB YP AND BIG STUFF
- -------- ----- --------------------
<S> <C> <C>
390 South Woods Mill Road 1 First Canadian Place 291 Geary Street
Suite 260 Suite 5102 San Francisco, California 94102
St. Louis, Missouri 63017 100 King Street West (415) 782-6800
(314) 205-8668 P.O. Box 438
Toronto, Ontario, Canada MSXIE3
(416) 362-3658
</TABLE>
APPROVAL OF ECONOMIC BENEFITS ACCRUING TO MR. O'NEAL
Advanced stockholders will also vote upon the approval of the economic
benefits accruing to Mr. Richard O'Neal, Advanced's chairman of the board and
chief executive officer. Under Delaware law, when a director or officer, such as
Mr. O'Neal, has an interest in a contract or transaction to which the
corporation is also a party, if the material facts as to the director's or
officer's interest and as to the
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contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders, the contract or transaction is not void
or voidable solely because of the officer's or director's interest. As a result,
Advanced is seeking stockholder approval of the economic benefits accruing to
Mr. O'Neal. The number of shares of Advanced common stock Mr. O'Neal will
receive if Proposal 2 is approved and the transactions close, the reasons
Advanced has agreed to issue the shares to him and the assumed value of the
shares is described in more detail in "Proposal 3--Approval of Benefits Accruing
to Mr. O'Neal." Based on the market price of Advanced common stock of $13.00 per
share as of the close of business on December 30, 1999, these shares have a
total market value of approximately $54.9 million. The economic benefit accruing
to Mr. O'Neal could be greater or less than $54.9 million, depending on the
value of Advanced common stock at the time the acquisitions are closed.
NO DISSENTERS' RIGHTS
Advanced stockholders will not be entitled to dissenters' rights, appraisal
rights or other rights to demand fair value for their shares in cash by reason
of the acquisitions or the other matters to be considered and voted on at the
Special Meeting.
INTERESTS OF OFFICERS AND DIRECTORS OF ADVANCED IN THE ACQUISITIONS
In connection with the change in the business focus, strategy and direction
of Advanced, certain officers, employee directors and management of Advanced
have received or will receive various severance payments and incentive
compensation. The amount and timing of these payments were subject to the
individuals' achieving certain performance objectives and remaining in their
respective current employment capacities for specified time periods. These
compensation arrangements were established to retain key individuals and to
ensure satisfactory execution of the proposed acquisitions, the sale of the
telecommunications operations and the related transactions.
CONDITIONS OF THE ACQUISITIONS
The consummation of the acquisitions depends upon satisfaction of a number
of conditions, including, among other items:
- the absence of legal restraints to consummation of the transactions;
- approval by Advanced stockholders;
- refinancing YPtel's and Advanced's existing indebtedness;
- receipt of opinions with respect to the tax-deferred nature of certain
aspects of the YPtel transaction under Canadian tax law; and
- receipt of opinions with respect to the tax-free nature of the Web YP and
Big Stuff acquisitions under U.S. tax law.
VOTE REQUIRED TO APPROVE THE ACQUISITIONS; STOCK CONTROLLED BY THE DIRECTORS,
OFFICERS AND AFFILIATES OF ADVANCED, YPTEL, WEB YP AND BIG STUFF
ADVANCED
The acquisitions of YPtel, Web YP and Big Stuff comprise a portion of the
matters to be voted on by Advanced stockholders in Proposal 2. Passage of
Proposal 2 requires the affirmative vote of a majority of the Advanced common
stock outstanding on the record date for the Special Meeting. On the record
date, 20,386,260 shares of Advanced common stock were outstanding. Of that
number, 6,211,482 shares, or 30.5% of the total number of shares of Advanced
common stock outstanding, were owned by the directors, executive officers of
Advanced and their affiliates.
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YPTEL
Under the Amended and Restated YPtel Agreement, each stockholder of YPtel
will exchange all of the shares of common stock of YPtel which the stockholder
owns as of closing, for shares of common stock of Advanced or a wholly-owned
subsidiary of Advanced, which shares will be exchangeable for shares of Advanced
common stock. It is not anticipated that there will be a vote on Advanced's
acquisition of YPtel by the YPtel stockholders. Each of the stockholders of
YPtel, either directly or through the stockholder's representative, executed the
Amended and Restated YPtel Agreement dated as of October 26, 1999.
WEB YP AND BIG STUFF
The acquisitions of Web YP and Big Stuff must be approved by at least
two-thirds of the outstanding shares of Web YP and Big Stuff entitled to vote.
At the date of this proxy statement, two individuals, Mr. Richard O'Neal and
Mr. Dick Reid, who are directors and executive officers of both Web YP and Big
Stuff, hold all of the issued and outstanding common stock of Web YP and Big
Stuff. Both of these individuals executed the Amended and Restated Web YP
Agreement and the Amended and Restated Big Stuff Agreement dated as of October
26, 1999. Even if individuals holding currently outstanding options and warrants
to purchase common stock of Web YP were to exercise their options or warrants
and acquire Web YP common stock, Messrs. O'Neal and Reid would own approximately
61% of the common stock of Web YP. There are no other options, warrants or other
securities convertible into securities of Web YP or Big Stuff.
TERMINATION OF THE AMENDED AND RESTATED YPTEL, WEB YP AND BIG STUFF AGREEMENTS
Either Advanced on the one hand, or YPtel, Web YP or Big Stuff, as the case
may be, on the other hand, may terminate the applicable acquisition agreement to
which it is a party if:
- both parties to the applicable agreement consent in writing;
- the acquisitions of YPtel, Web YP and Big Stuff are not consummated by
March 1, 2000 through no fault of the party seeking to terminate the
acquisition agreement;
- the other party breaches in a material way its representations,
warranties, covenants or agreements;
- there exists a legal restraint to the acquisitions;
- the Advanced stockholders do not approve the transactions; or
- the acquisitions of the other companies are not consummated.
OPINION OF ADVANCED'S FINANCIAL ADVISOR
One of Advanced's financial advisors, PaineWebber Incorporated, has given an
opinion to the board of directors of Advanced as to whether, as of October 20,
1999, the consideration to be paid, in the aggregate, by Advanced in connection
with the acquisitions of YPtel, Web YP and Big Stuff, as contemplated by the
Amended and Restated YPtel Agreement, the Amended and Restated Web YP Agreement
and the Amended and Restated Big Stuff Agreement, and the redemption of the
promissory notes as contemplated by the redemption agreements, was fair to
Advanced from a financial point of view. The full text of the written opinion of
PaineWebber dated October 26, 1999, is attached to the back of this document as
Annex D and should be read carefully in its entirety. THE OPINION OF PAINEWEBBER
INCORPORATED IS DIRECTED TO, AND WAS PREPARED AT THE REQUEST OF AND FOR THE
INFORMATION OF, THE BOARD OF DIRECTORS OF ADVANCED AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER REGARDING HOW TO
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<PAGE>
VOTE ON THE ACQUISITIONS AND THE NOTE REDEMPTION COMPRISING A PORTION OF THE
MATTERS TO BE VOTED ON IN PROPOSAL 2.
STOCK EXCHANGE LISTING; CHANGE OF TRADING SYMBOL TO "WPZ"
Advanced's common stock is listed on the New York Stock Exchange under the
symbol "ADG." Advanced intends to file a supplemental listing application with
the New York Stock Exchange to list for trading shares of Advanced common stock
that will or may be issued in connection with the transactions described in this
proxy statement and more particularly identified under "Proposal 2--The
Acquisitions--Approval of Issuance of Securities by Advanced and its
Subsidiaries."
Advanced has notified the NYSE that if the acquisitions are consummated and
the name under which Advanced is incorporated is changed to "WorldPages.com,
Inc.," it intends to change the symbol under which the Advanced common stock
trades to "WPZ" from the current "ADG." The NYSE has given its preliminary
approval to the change in the trading symbol, subject to notification of the
completion of the acquisitions.
EXCHANGE RATE INFORMATION
In this proxy statement, dollar amounts are expressed in U.S. dollars unless
otherwise expressly noted. The following table reflects the rate of exchange for
Canadian dollar per U.S. $1.00 in effect at the end of the following periods and
high and low rates of exchange during such periods, based on the Bank of Canada
official rate of exchange.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(CANADIAN DOLLARS)
<S> <C> <C> <C>
Low...................................................... $1.4040 $1.3345 $1.3287
High..................................................... $1.5845 $1.4399 $1.3869
End of Period............................................ $1.5333 $1.4305 $1.3706
</TABLE>
On December 31, 1999, the official rate in U.S. dollars reported by the Bank
of Canada was U.S. $1.00 = Cdn $1.4433.
COMPARATIVE PER SHARE DATA
The following tables present certain unaudited historical and pro forma per
share data that reflect the completion of the acquisitions based upon the
historical financial statements of the respective companies. The pro forma data
does not purport to be indicative of the results of future operations or the
actual results that would have occurred had the acquisitions been consummated at
the beginning of the periods presented. The data presented below should be read
in conjunction with, and are qualified in their entirety by, the historical
financial statements, including applicable notes, of Advanced and the respective
companies included elsewhere in this proxy statement and the Unaudited Pro Forma
Combined Financial Statements, and notes thereto, appearing elsewhere herein.
The first row for each company in the tables below presents certain
historical per share amounts for each of the companies in the proposed
transaction. The second row for each company sets forth certain pro forma
equivalent amounts based on Advanced's pro forma combined amounts and multiplied
by the exchange ratio from the number of Advanced shares that will be issued in
the acquisitions for the existing shares of each company.
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<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
BOOK VALUE CASH DIVIDENDS NET INCOME FROM
PER COMMON PER COMMON CONTINUING OPERATIONS
SHARE SHARE PER COMMON SHARE
----------- -------------- ---------------------
<S> <C> <C> <C>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999:
Advanced:
As reported....................................... $ 3.60 $ -0- $ (0.12)
Pro forma combined................................ $ 5.29 $ -0- $ (0.19)
YPtel:
As reported....................................... $ 1.10 $ -0- $ 0.09
Pro forma equivalent.............................. $ 5.88 $ -0- $ (0.21)
Web YP:
As reported....................................... $ (377.49) $ -0- $(503.04)
Pro forma equivalent.............................. $2,686.64 $ -0- $ (96.50)
Big Stuff:
As reported....................................... $ (179.23) $ -0- $(125.61)
Pro forma equivalent.............................. $2,198.44 $ -0- $ (78.96)
FOR THE YEAR
ENDED DECEMBER 31, 1998:
Advanced:
As reported....................................... $ 6.68 $ -0- $ (0.15)
Pro forma combined................................ $ 5.41 $ -0- $ (0.26)
YPtel:
As reported....................................... $ 1.01 $ -0- $ 0.38
Pro forma equivalent.............................. $ 6.01 $ -0- $ (0.29)
Web YP:
As reported....................................... $ (22.84) $ -0- $(271.47)
Pro forma equivalent.............................. $2,747.59 $ -0- $(132.05)
Big Stuff:
As reported....................................... $ 211.44 $ -0- $ (5.33)
Pro forma equivalent.............................. $2,248.31 $ -0- $(108.05)
</TABLE>
Pro forma equivalent amounts for YPtel, Web YP and Big Stuff are determined
by multiplying the Advanced pro forma combined amounts by the exchange ratio of
1.11 for YPtel, 507.87 for Web YP and 415.58 for Big Stuff. The exchange ratio
is the number of shares of Advanced common stock to be received for each share
of YPtel stock, Web YP stock or Big Stuff stock. For purposes of this
calculation, the Web YP exchange ratio includes only issued and outstanding
shares of Web YP common stock, whereas the agreed upon exchange ratio is on a
fully-diluted basis.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the acquisitions are
expected to be treated as a purchase under generally accepted accounting
principles. Under the purchase method of accounting, the assets and liabilities
of the acquired companies are, as of the date of the transaction, recorded at
their respective fair market values and added to those of the acquiring company.
Financial statements of the acquiring company issued after the transaction
reflect such values and are not restated retroactively to include the historical
financial position or results of operations of the acquired company. The
unaudited pro forma combined financial statements included in this proxy
statement have been prepared using the purchase method of accounting. See
"Unaudited Pro Forma Combined Financial Statements."
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<PAGE>
RISK FACTORS TO BE CONSIDERED BY ADVANCED STOCKHOLDERS
IN CONNECTION WITH PROPOSAL 2 AND PROPOSAL 3
You should carefully consider the risks and uncertainties described below in
conjunction with the other information contained in this proxy statement and the
annexes hereto before voting on Proposal 2 and Proposal 3.
IF ADVANCED IS UNABLE TO FIND ADDITIONAL SOURCES OF FINANCING, IT WILL BE UNABLE
TO IMPLEMENT ITS STRATEGIC PLAN.
Advanced will need additional sources of financing in order to refinance the
existing indebtedness of YPtel and Great Western. Further, Advanced will need
additional capital to implement both its plans to acquire other yellow pages
publishers and to implement its Internet directory strategy.
ADVANCED MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY.
Although Advanced's and YPtel's print yellow pages businesses are
profitable, Advanced expects to generate losses in the Internet operations while
it further develops that business. There can be no assurance that Advanced will
be able to sufficiently increase its revenue base or achieve and sustain
profitability and generate sufficient cash flow to meet its working capital,
capital expenditure and debt service requirements. The inability to increase
revenue and generate sufficient cash flow may have a material adverse effect on
Advanced. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ADVANCED'S LARGE DEBT LOAD COULD SIGNIFICANTLY AND MATERIALLY AFFECT ADVANCED'S
PLANS TO IMPLEMENT ITS NEW BUSINESS FOCUS, STRATEGY AND DIRECTIONS.
This large debt load could:
- limit the ability of Advanced to obtain additional financing for its
working capital, capital expenditure and debt service requirements or
other purposes;
- require that a substantial portion of Advanced's cash flow from
operations, if any, be dedicated to the payment of principal of and
interest on its indebtedness;
- limit its flexibility in planning, or reacting to, changes in its
business;
- make Advanced's debt load higher than some of its competitors, which may
place it at a competitive disadvantage;
- make it more difficult for Advanced to meet its obligations; and
- make Advanced more vulnerable to a downturn in its business or in the
markets in which it operates.
ADVANCED'S STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE AND INVESTORS
MAY LOSE A SIGNIFICANT PORTION OF THEIR VALUE IN THEIR INVESTMENT IN ADVANCED'S
COMMON STOCK.
Advanced's stock price could be subject to wide fluctuations in response to
factors such as the following:
- the addition or loss of affiliates or content providers;
- conditions or trends in the Internet and e-commerce industries; and
- changes in the market valuations of other Internet, online service or
software companies.
In addition, the market for Internet and technology company stocks has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating
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<PAGE>
performance of these companies. These broad market and industry factors may
materially and adversely affect Advanced's stock price, regardless of its
operating performance. The trading prices of the stocks of many technology
companies are at or near historical highs and reflect price-earnings ratios
substantially above historical levels. These trading prices and price-earnings
ratios may not be sustained.
THE PRACTICAL EFFECT OF THE REDEMPTION AND CANCELLATION OF THE 5% SUBORDINATED
NOTES IS THAT AT THE APPROXIMATE TIME THE NOTES WOULD OTHERWISE BECOME DUE AND
PAYABLE, ADVANCED MAY BE COMPELLED TO ISSUE ITS COMMON STOCK HAVING A MARKET
VALUE FAR IN EXCESS OF THE OBLIGATION BEING CANCELLED.
If Proposal 2 and Proposal 3 are adopted, it is contemplated that the 5%
Subordinated Notes will be redeemed at the closing of the acquisitions, assumed
for this purpose to be on February 15, 2000. At that date, approximately
2,863,637 shares of Advanced common stock will be issued to redeem and cancel
the principal and the then accrued but unpaid interest on the 5% Subordinated
Notes which would total approximately $15.8 million. The obligations represented
by the 5% Subordinated Notes would otherwise become due and payable on
February 18, 2000.
At the close of business on December 30, 1999, the closing per share price
of Advanced common stock as reported by the New York Stock Exchange was $13.00.
Assuming the closing price of Advanced common stock at the date of the
redemption is the same as it was on December 30, 1999 and the issuance of the
2,863,637 shares of Advanced common stock at the closing of the acquisitions,
Advanced would effectively be issuing its stock having a market value of
$36.9 million to repay an obligation of $15.8 million.
A CONFLICT OF INTEREST EXISTS BETWEEN RICHARD O'NEAL, ADVANCED'S CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER, AND THE OTHER STOCKHOLDERS OF ADVANCED.
Other stockholders of Advanced will not receive any consideration if
Proposal 2 is adopted. Mr. Richard O'Neal, however, will receive
4,226,018 shares of Advanced common stock if Proposal 2 is adopted and the
acquisitions which are the subject of this proxy statement close. Accordingly,
Mr. O'Neal has a vested interest in the closing of the acquisitions which are
the subject of the proxy statement above and beyond that of Advanced's other
common stockholders.
Advanced issued $2.0 million in promissory notes paying interest at the rate
of 10% in connection with the acquisition of the telecommunications operations
Advanced acquired in February 1998. The 10% promissory notes are convertible
into Advanced common stock at $14.00 per share, Advanced's IPO price. Advanced
has entered into redemption agreements with Mr. O'Neal and the other former
stockholders of Great Western to redeem the principal and accrued interest on
the 5% Subordinated Notes at closing into 2,863,637 shares of Advanced common
stock at an agreed upon redemption price of $5.50 per share. However, Advanced
has not offered to enter into a similar redemption agreement with the holders of
the 10% promissory notes to reduce the conversion price to $5.50 per share.
THE PRICE OF YOUR ADVANCED COMMON STOCK COULD DECLINE SUBSTANTIALLY DUE TO THE
REGISTRATION AND SALE OF ADVANCED COMMON STOCK BY STOCKHOLDERS WHO HAVE
REGISTRATION RIGHTS WHICH ADVANCED IS HONORING.
If all of these shares were to be sold at the same time as the sale of the
Advanced shares to be issued pursuant to the redemption of the 5% Subordinated
Note, conversion of the Web YP and Big Stuff note, and the shares issued as
consideration for the acquisition of YPtel, Web YP and Big Stuff, the price of
Advanced common stock could be depressed due to the increased selling activity.
These shares will represent, in the aggregate, approximately 66% of the issued
and outstanding common stock of Advanced after the consummation of the
transactions which are the subject of this proxy statement.
THE EQUITY OWNERSHIP OF EXISTING ADVANCED STOCKHOLDERS WILL BE ECONOMICALLY
DILUTED.
Dilution of existing stockholders will occur due to the issuance of
23,500,000 shares of Advanced common stock as consideration for the acquisitions
of YPtel, Web YP and Big Stuff, the redemption of
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<PAGE>
the 5% Subordinated Notes and the issuance of Advanced common stock in exchange
for the cancellation of up to $6.0 million in principal amount of indebtedness
of Web YP and Big Stuff. This is exclusive of the 351,281 shares of Advanced
that will become issuable upon exercise of the options and warrants granted to
officers, directors and employees of YPtel and to the two current non-employee
directors and one former non-employee director of Advanced as compensation for
their efforts in negotiating the acquisition agreements. Further dilution could
occur, if Advanced issues additional equity to fund future capital requirements
or issues additional shares in connection with future acquisitions.
EXPECTED BENEFITS OF COMBINING THE COMPANIES MAY NOT BE REALIZED WHICH
MAY ADVERSELY AFFECT EXPECTED EARNINGS AND THE MARKET PRICE OF ADVANCED'S COMMON
STOCK.
If Advanced is not able to effectively integrate its technology, operations
and personnel in a timely and efficient manner with those of the companies being
acquired, then the benefits of combining Advanced, YPtel, Web YP and Big Stuff
will not be realized. In particular, if the integration is not successful:
- Advanced may not achieve the expected results of combining YPtel, Web YP
and Big Stuff with Advanced;
- Advanced may lose key personnel; and
- Advanced may not be able to retain key business relationships.
The expected benefits of the combination may not be realized to the extent
and within the time frame expected by investors or financial analysts and thus
may adversely affect expected earnings and the market price of Advanced's common
stock.
ADVANCED RELIES HEAVILY ON ONE OR TWO KEY INDIVIDUALS TO CONDUCT DAY-TO-DAY
OPERATIONS AND TO COMPLETE THE ACQUISITIONS OF YPTEL, WEB YP AND BIG STUFF
The loss of any one of these individuals would make it difficult for the
remaining individuals to continue operating Advanced. The loss of the chief
executive officer or chief financial officer would seriously jeopardize
Advanced's ability to close the acquisitions of YPtel, Web YP and Big Stuff,
given the tasks that must be completed. Further, the loss of a key individual
would make it difficult for Advanced to maintain its banking relationships,
obtain the financing it will need to implement its plans and to supply the
investing public with timely financial information. Given Advanced's current
financial condition and current state of affairs, including liquidity issues,
attracting, recruiting and retaining the caliber of individuals with the breadth
and depth of experience needed to operate Advanced is extremely difficult.
THE ARRANGEMENTS REQUIRED TO PERMIT THE STOCKHOLDERS OF YPTEL WHO ARE CANADIAN
RESIDENTS TO TRANSFER THEIR YPTEL STOCK TO ADVANCED ON A TAX-DEFERRED BASIS
COULD RESULT IN SUBSTANTIAL RESTRICTIONS ON ADVANCED'S ABILITY TO EXECUTE
TRANSACTIONS THAT MIGHT OTHERWISE BE IN THE BEST INTERESTS OF ADVANCED'S OTHER
STOCKHOLDERS.
As described below, the terms of the Exchange and Voting Trust Agreement,
the Class A Special Shares and the related Support Agreement contain numerous
restrictions.
THE EXCHANGEABLE SHARE STRUCTURE REPRESENTS A SIGNIFICANT RESTRICTION ON
ADVANCED'S FUTURE ABILITY TO PAY CASH OR STOCK DIVIDENDS ON ADVANCED
COMMON STOCK.
Under the terms of the Support Agreement and the share provisions by which
the Class A Special Shares are created, if Advanced wishes to issue either a
cash dividend or a stock dividend on shares of Advanced common stock, it is
required to cause ACG Exchange Company to issue an economically equivalent
dividend to the holders of the Class A Special Shares. The negative Canadian tax
15
<PAGE>
consequences could have the effect of making the whole dividend transaction cost
prohibitive to Advanced.
THE EXCHANGEABLE SHARE STRUCTURE REPRESENTS A SIGNIFICANT RESTRICTION ON
ADVANCED'S FUTURE ABILITY TO ENGAGE IN A TRANSACTION INVOLVING THE SALE
OF ITS SHARES AND ASSETS. EVEN IF ADVANCED IS ABLE TO ENGAGE IN THE
TRANSACTIONS, THE COMPLICATED STRUCTURE OF THE CLASS A SPECIAL SHARES
COULD RESULT IN A POTENTIAL PURCHASER DECREASING THE AMOUNT PER ADVANCED
SHARE IT WOULD BE WILLING TO PAY FOR ADVANCED.
MERGERS. The terms of the Exchange and Voting Trust Agreement and the
Support Agreement also restrict the ability of Advanced to engage in merger
transactions with other companies unless the Advanced board of directors has
used its best efforts to provide comparable treatment between the holders of
Advanced common stock and the holders of Class A Special Shares, taking into
account the general tax effect of such merger upon such holders, respectively,
and economic equivalency.
A merger partner or acquirer willing to agree to continue the tax deferral
arrangement of the Class A Special Shares for the balance of the 5-year period
may offer a lower price or value for that reason. Advanced believes that
potential acquirors or merger partners will be reluctant to agree to the
restrictions referenced above and the other restrictions contained in the
Exchange and Voting Trust Agreement, the Support Agreement and the Class A
Special Shares provisions.
- In a merger involving the exchange of other stock for Advanced common
stock, if the merger partner or acquirer is unwilling to continue the tax
deferral arrangement provided by the ACG Exchange Company/Class A Special
Share structure, this could result in holders of Class A Special Shares
being allocated a higher per share consideration than holders of Advanced
common stock in the merger.
- If the merger consideration is all cash to both holders of Advanced common
stock and holders of Class A Special Shares, however, the same per share
cash consideration will be applicable to both groups.
SPINOFFS. It may be impossible to structure a stock spin-off to
stockholders of Advanced during the time the Class A Special Shares are
outstanding.
THE EXCHANGEABLE SHARE STRUCTURE COULD RESULT IN A SIGNIFICANT COST IN
OBTAINING CONSENTS FROM THE HOLDERS OF CLASS A SPECIAL SHARES.
Most of the restrictions noted above are not applicable if Advanced is able
to obtain the consent of the requisite majority of holders of the Class A
Special Shares to the actions Advanced desires to take, but in many cases
obtaining such consent may not be easy or itself may require costly payments and
the need for significant tax and legal advice to determine how or if the
transaction can be structured and the applicable tax consequences to the various
parties.
ADVANCED MAY BE UNABLE TO INCLUDE THE VALUE OF CERTAIN SIGNIFICANT ASSETS IN ITS
BORROWING BASE FOR FINANCING PURPOSES WHICH MAY DECREASE THE AMOUNT OF MONEY
ADVANCED MAY BE ABLE TO BORROW.
After closing of the acquisition of YPtel, a large portion of the value of
the YPtel operating subsidiary will be represented by YPtel, Inc. preferred
shares held in the Canadian entity structure. It may be difficult for Advanced
to borrow against the full value of this asset because of concerns of a large
Canadian tax liability connected to these preferred shares. This tax liability
would be incurred by YPtel, and thereby also ACG Exchange Company and Advanced,
if such preferred shares are sold, foreclosed or otherwise liquidated. In a
lender foreclosure sale situation, Advanced may not receive any cash to pay the
large tax liability.
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<PAGE>
WEB YP HAS A LIMITED OPERATING HISTORY UPON WHICH ADVANCED STOCKHOLDERS CAN
EVALUATE ITS PERFORMANCE AND IT HAS A HISTORY OF LOSSES SO THAT IT MAY BE
DIFFICULT FOR ADVANCED STOCKHOLDERS TO DETERMINE WHETHER THE ACQUISITION OF WEB
YP IS IN THE BEST INTERESTS OF ADVANCED'S STOCKHOLDERS.
Web YP has had a very limited operating history, which makes it difficult to
evaluate its business and prospects. Web YP has incurred net losses since
inception of operations in January 1998. At September 30, 1999, Web YP had an
accumulated deficit of approximately $4.7 million. Web YP expects to incur
significant operating losses on a quarterly basis in the future. Web YP may
never be profitable. Advanced's prospects after completion of the acquisitions
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as Internet services.
THE INTERNET BUSINESS MODEL IS EVOLVING AND UNPROVEN AND MAY NOT BE SUCCESSFUL,
IN WHICH CASE ADVANCED'S STOCK PRICE MAY BE DEPRESSED.
Advanced's contemplated Internet business strategy is to facilitate
transactions through advertising, website production and design, and e-commerce
between buyers and sellers worldwide by establishing a premier Internet yellow
pages network that is integrated with local print yellow pages directories.
Advanced's business model is relatively new to the Internet, is unproven and is
likely to continue to evolve. Accordingly, Advanced's business model may not be
successful and Advanced may need to change it. Advanced's ability to generate
significant advertising and e-commerce revenues by promoting its advertisers'
business through its yellow pages website will depend, in part, on its ability
to attract site traffic and provide its advertisers with the necessary tools to
transact commerce on the Internet. Advanced intends to continue to develop its
business model as it explores opportunities internationally and in new and
unproven areas such as e-commerce and to provide content and e-commerce
solutions for emerging Internet applications. If, after completion of the
acquisition, Advanced does not effectively execute its strategy, Advanced's
business will suffer and may never achieve or sustain profitability.
IF THE COMMERCIAL USE OF THE INTERNET DOES NOT DEVELOP, OR IF THE INTERNET DOES
NOT DEVELOP AS AN EFFECTIVE AND MEASURABLE MEDIUM FOR ADVERTISING, ADVANCED'S
BUSINESS WILL SUFFER.
Most advertising agencies and potential advertisers, particularly local
advertisers, have only limited experience advertising on the Internet and have
not devoted a significant portion of their advertising expenditures to Internet
advertising. As the Internet evolves, advertisers may find Internet advertising
to be a less effective means of promoting their products and services relative
to traditional methods of advertising and may not continue to allocate funds for
Internet advertising. Fluid and intense competition in the sale of advertising
on the Internet has led different vendors to quote a wide range of rates and to
offer a variety of pricing models for various advertising services. As a result,
Advanced may have difficulty projecting future advertising revenues and
predicting which pricing models advertisers will adopt. In addition, if a large
number of consumers use "filter" software programs that limit or remove
advertising from the Internet, advertisers may choose not to advertise on the
Internet.
TO THE EXTENT THAT THE PRINT YELLOW PAGES BUSINESS MAY NOT BE AS PROFITABLE AS
IT HAS BEEN HISTORICALLY, NET INCOME MAY BE ADVERSELY AFFECTED.
The print yellow pages business will be the platform for growth for the
combined companies. The expansion of business will depend upon the ability of
management to successfully implement its strategy. A substantial portion of
historical growth has resulted from the introduction of new directories.
Although one of the strategies for achieving its financial objectives is
increasing the number of its directories and the local markets which they serve,
there can be no assurance that historical success in establishing new
directories will continue. Management intends to continue to seek out
17
<PAGE>
opportunities for future expansion through the acquisition of yellow pages
businesses, but there can be no assurance that Advanced will be able to
identify, negotiate and consummate acquisitions on satisfactory terms, if at
all. There is no assurance that new acquisitions or new directories can be
operated profitably or integrated successfully into Advanced's operations.
Furthermore, start-ups and acquisitions require substantial attention from and
place substantial demands upon senior management, which may divert attention
from and adversely impact their ability to manage existing businesses.
CHANGING TECHNOLOGY AND NEW PRODUCT DEVELOPMENT MAY CAUSE A REDUCTION IN THE USE
OF ADVANCED'S PRODUCTS AND SERVICES. THIS WOULD NEGATIVELY IMPACT NET PROFITS OR
MAY RESULT IN LOSSES.
The yellow pages directory business is subject to changes arising from
developments in technology, including information distribution methods, and
users' technological preferences. As a result of these factors, Advanced's
growth and future financial performance may depend upon its ability to develop
and market new products and services and create new distribution channels, while
enhancing existing products, services and distribution channels, in order to
accommodate the latest technological advances and user preferences. After the
acquisitions, Advanced intends to use the Internet as a distribution channel for
its products and services and expects that, over the long-term, the use of the
Internet will be at least as important to the combined companies as print
directories. The increasing use of the Internet by consumers as a means to
transact commerce may result in new technologies being developed and services
provided that could compete with Advanced's products and services. There can be
no assurance that Advanced will be successful in any attempt to provide its
services over the Internet. A failure by Advanced to anticipate or respond
adequately to changes in technology and user preferences, or an inability to
finance the necessary capital expenditures, could have a material adverse effect
on Advanced's business, operating results and financial condition.
MANY OF ADVANCED'S COMPETITORS HAVE GREATER FINANCIAL RESOURCES THAN ADVANCED,
WHICH MAY LIMIT ADVANCED'S ABILITY TO COMPETE EFFECTIVELY FOR ADVERTISING AND
FUTURE ACQUISITIONS AND ADVERSELY AFFECT ITS NET INCOME.
The yellow pages directory industry is competitive. Advanced competes with
large telephone utilities and to a lesser extent with independent yellow pages
publishers. There are over 225 independent yellow pages publishers operating in
competition with telephone utilities throughout the United States. Telephone
utility competitors are larger and have greater financial resources than
Advanced. Other media in competition with yellow pages for local business and
professional advertising include newspapers, radio, television, billboards and
direct mail. There can be no assurance that Advanced will be able to compete
effectively with these other firms for advertising or acquisitions in the
future.
IF ADVANCED FAILS TO ENTER INTO AND MAINTAIN SATISFACTORY ARRANGEMENTS WITH
CONTENT PROVIDERS, ADVANCED'S BUSINESS WILL SUFFER.
Web YP typically licenses content under short-term arrangements that do not
require royalties or other fees for the use of the content. However, Web YP may
enter into revenue-sharing arrangements with certain content providers, and it
pays certain content providers a one-time fee and/or a fee for each query from
Web users. Advanced expects that, in the future, certain of Web YP's content
providers will likely demand a greater portion of advertising revenues or will
increase the fees that they charge for their content.
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<PAGE>
THE PRINT AND INTERNET YELLOW PAGES INDUSTRIES ARE EXPERIENCING CONSOLIDATION,
WHICH COULD LIMIT ACCESS TO CONTENT, REDUCE ADVERTISING, REDUCE THE CUSTOMER
BASE OR HARM THE BUSINESS.
The print and Internet yellow pages industries have recently experienced
consolidation. This consolidation is expected to continue. Industry
consolidation could affect the combined companies in a number of ways,
including:
- companies from whom the combined companies intend to acquire content could
be acquired by one of their competitors and stop selling content to the
combined companies;
- the combined companies' customers could be acquired by one or more of
their competitors and stop buying advertising from the combined companies;
and
- the combined companies' customers could merge with other customers, which
could reduce the size of the combined companies' customer base.
This consolidation in both the print and Internet industries could harm the
combined companies' business.
IF THE ACQUISITIONS OF YPTEL, WEB YP AND BIG STUFF ARE CLOSED, ADVANCED MAY
BECOME A TARGET OF AN ACQUIROR THAT COULD RESULT IN YOUR INVESTMENT IN ADVANCED
BEING CONVERTED INTO AN INVESTMENT IN ANOTHER COMPANY.
Advanced has from time to time held, and continues to hold, discussions with
potential strategic investors who have expressed an interest in making an
investment in, or in acquiring Advanced. Advanced has no current agreements to
be acquired by another company. However, given the dynamic nature of the print
and internet yellow pages industry, and the strategic alliances which have
occurred to date, Advanced believes that after the acquisitions of YPtel, Web YP
and Big Stuff, it may become an attractive acquisition candidate. Because of the
way such acquisitions are often structured, stockholders of Advanced could find
themselves being offered and potentially having to accept stock of the acquiror
in exchange for their shares of Advanced. Even in a strategic joint venture
arrangement, stockholders of Advanced could find that the value of their
investment in Advanced may depend on the operational ability of Advanced's
venture partner.
ADVANCED'S SUCCESSFUL IMPLEMENTATION OF ITS NEW BUSINESS FOCUS, STRATEGY AND
DIRECTION MAY BE NEGATIVELY AFFECTED AS NEW MANAGEMENT DEVOTES TIME AND
ATTENTION TO LEARNING ABOUT ADVANCED AND AS IT ATTEMPTS TO INTEGRATE THE
COMBINED COMPANIES.
Much of the management of Advanced after the acquisitions will be new to the
company. Although this new management personnel will be experienced executives
in the yellow pages publishing and Internet directory industries, they will have
little employment experience with and only a limited background knowledge of
Advanced. This limited experience with the company could divert their attention
from implementing Advanced's new business focus, strategy and direction as they
spend time learning about the company, and becoming acquainted with and learning
to work with the other new members of the management team as well as with
existing management. Also many of the employees will be new to Advanced and the
management team will have to become acquainted with and integrate the new
employees into the company.
In addition to personnel changes, the attention of the new management team
may be diverted as it learns and tries to integrate the policies, procedures and
processes of the companies to be combined. Each has its own accounting systems,
information systems, credit policies, billing policies, collection policies and
other policies that management will have to integrate to make the combined
companies operate smoothly and efficiently.
A less tangible, but not less important, issue will be integrating the
cultures of the combining companies, including the expectations and desires of
management and employees alike. Human
19
<PAGE>
resource policies and other policies affecting the employees will have to be
melded to help create a productive working environment. The integration
described in this paragraph and in the immediately preceding one, if not
implemented properly, could seriously and adversely impact the operations of the
combined companies and their ability to realize the profit potential each
envisions by combining.
IF THE ACQUISITIONS OCCUR, ADVANCED WILL BECOME INCREASINGLY RELIANT UPON
INTERNALLY DEVELOPED SOFTWARE AND SYSTEMS WHICH MAY CONTAIN ERRORS AND WHICH
MUST BE EXPANDED AND UPGRADED. ADVANCED'S INABILITY TO CORRECT ANY ERRORS OR TO
EXPAND OR UPGRADE ITS SOFTWARE AND SYSTEMS COULD AFFECT ITS ABILITY TO COMPETE.
Advanced must expand and upgrade its technology, transaction-processing
systems and network infrastructure if the volume of traffic on its website or
its affiliates' websites increases substantially. In addition, as Advanced
expands into e-commerce, it may have to significantly modify its systems.
Advanced could experience periodic temporary capacity constraints, which may
cause unanticipated system disruptions, slower response times and lower levels
of customer service. Advanced may be unable to accurately project the rate or
timing of increases, if any, in the use of its content services or expand and
upgrade its systems and infrastructure to accommodate these increases in a
timely manner. Any inability to do so could harm Advanced's business.
IF THE PERFORMANCE AND RELIABILITY OF THE INTERNET DIMINISHES, ADVANCED COULD
LOSE ADVERTISING AND E-COMMERCE REVENUES.
The success of the combined companies will depend, in large part, on other
companies maintaining the Internet infrastructure. In particular, it will rely
on the ability of other companies to maintain a reliable network backbone that
provides adequate speed, data capacity and security and to develop products that
enable reliable Internet access and services. If the Internet continues to
experience significant growth in the number of users, frequency of use and
amount of data transmitted, the Internet infrastructure may be unable to support
the demands placed on it, and the Internet's performance or reliability may
suffer as a result of this continued growth. In addition, the Internet could
lose its commercial viability as a form of media due to delays in the
development or adoption of new standards and protocols to process increased
levels of Internet activity. Any such degradation of Internet performance or
reliability could cause advertisers to reduce their Internet expenditures. If
other companies do not develop the infrastructure or complementary products and
services necessary to establish and maintain the Internet as a viable commercial
medium, or if the Internet does not become a viable commercial medium or
platform for advertising, promotions and electronic commerce, the business of
the combined companies would suffer.
BREACHES IN THE SECURITY OF WEB YP'S NETWORK COULD DAMAGE WEB YP'S REPUTATION
AND SUBJECT WEB YP TO LIABILITY AND BUSINESS LOSSES.
Web YP's networks may be vulnerable to unauthorized access by hackers or
others, computer viruses and other disruptive problems. Someone who is able to
circumvent security measures could misappropriate Web YP's proprietary
information or cause interruptions in its Internet operations which could harm
its business. Web YP may need to expend significant capital or other resources
protecting against the threat of security breaches or alleviating problems
caused by breaches. Persons may be able to circumvent the measures that Web YP
implements in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
users accessing web pages that deliver Web YP's content services, any of which
would harm its business.
Users of online commerce services are highly concerned about the security of
transmissions over public networks. Concerns over security and the privacy of
users may inhibit the growth of the Internet and other online services
generally, and the web in particular, especially as a means of conducting
commercial transactions. Users could possibly circumvent the measures that
Web YP takes to protect
20
<PAGE>
customer transaction data. To the extent that Web YP's activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage Web YP's reputation and expose it to a
risk of loss or litigation and possible liability. Any compromise of Web YP's
security could harm its business.
ADVANCED MAY BE SUBJECT TO LIABILITY FOR INFORMATION CONTAINED IN ITS PRINT AND
INTERNET DIRECTORIES.
Web YP obtains content from third parties. When it aggregates, syndicates
and distributes this content over the Internet, Web YP may be liable for the
information that is contained in that content. This could subject Web YP to
legal claims for such things as defamation, negligence, intellectual property
infringement and product or service liability. Many of the agreements by which
Web YP obtains content do not contain indemnity provisions in its favor. Even if
a given contract does contain indemnity provisions, these provisions may not
cover a particular claim. While Web YP and Advanced carry general business
insurance, this coverage may be inadequate in amount or may not cover asserted
claims. Even if an asserted claim is defeated, Web YP and Advanced may incur
substantial legal fees and expenses and diversion of management time and
attention.
In addition, individuals whose names appear in the Advanced's yellow pages
and white pages directories have occasionally contacted Advanced. These
individuals believed that their phone numbers and addresses were unlisted, and
Advanced's directories are not always updated to delete phone numbers or
addresses when they are changed from listed to unlisted. While Advanced has not
received any claims from these individuals, it may receive claims in the future.
Any liability that Advanced incurs as a result of content that it receives from
third parties could harm its financial results.
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING INFORMATION; ACTUAL RESULTS MAY
TURN OUT TO BE MATERIALLY AND ADVERSELY DIFFERENT THAN THE FORWARD-LOOKING
INFORMATION.
Forward-looking statements in this proxy statement include "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. All
statements other than statements of historical facts included in this proxy
statement, including without limitation, certain statements under "Summary,"
"Advanced Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business of Advanced," "YPtel Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business of
YPtel," "Web YP Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business of Web YP and Big Stuff," and "Big Stuff
Management's Discussion and Analysis of Financial Condition and Results of
Operations" located elsewhere herein regarding Advanced's, YPtel's, Web YP's and
Big Stuff's financial conditions and business strategies may constitute
forward-looking statements. In addition, forward-looking terminology such as
"may," "will," "expect," "intend," "estimate," "anticipate," "believe," or
"continue" or the negative thereof or variations thereon or similar terminology
are intended to identify forward-looking statements. Although Advanced believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from Advanced's expectations are disclosed in this proxy statement,
including without limitation in conjunction with the forward-looking statements
included in this proxy statement under "Risk Factors to be Considered by
Advanced Stockholders in Connection with Proposal 2 and Proposal 3." All
subsequent written and oral forward-looking statements attributable to Advanced
or persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained within this proxy statement regarding factors
that could cause actual results to differ materially from Advanced's
expectations.
21
<PAGE>
ADVANCED
SPECIAL MEETING
GENERAL
The enclosed proxy is solicited on behalf of the board of directors of
Advanced for use at the Special Meeting described in the Notice. If the voting
form is executed and returned to Advanced, it nevertheless may be revoked at any
time before it is exercised:
- by written notice to the secretary of Advanced at Advanced's principal
executive offices, 390 South Woods Mill Road, Suite 260, St. Louis,
Missouri 63017;
- by properly submitting to Advanced a duly executed voting form bearing a
later date; or
- by attending the meeting and voting in person.
This proxy statement and the accompanying voting form are first being sent
to stockholders on or about January 24, 2000.
ADVANCED'S BOARD HAS APPROVED THE MATTERS BEING BROUGHT BEFORE THE
STOCKHOLDERS AND HAS DIRECTED THAT THEY BE BROUGHT BEFORE THE STOCKHOLDERS FOR
THEIR CONSIDERATION AND APPROVAL. ADVANCED'S BOARD RECOMMENDS A VOTE FOR EACH OF
THE PROPOSALS.
SOLICITATION OF PROXIES
The solicitation of the enclosed proxies from Advanced's stockholders is
made on behalf of the board of directors of Advanced. The expenses of the
solicitation of proxies, including preparing, handling, printing and mailing the
proxy soliciting material, will be borne by Advanced. Solicitation will be made
by mail, by electronic telecommunications or in person. Advanced has retained
the services of a proxy solicitor, Georgeson Shareholder Communications, to
assist in the solicitation of proxies for a fee estimated at $7,000 plus
out-of-pocket expenses. Management of Advanced may also use the services of its
directors, officers and employees in soliciting proxies, who will not receive
any additional compensation therefor, but who will be reimbursed for their
out-of-pocket expenses. Advanced will reimburse banks, brokers, nominees,
custodians and fiduciaries for their expenses in forwarding copies of the proxy
soliciting material to the beneficial owners of the stock held by such persons
and in requesting authority for the execution of proxies.
RECORD DATE, QUORUM AND VOTING REQUIREMENTS
The close of business on December 23, 1999 has been fixed as the record date
for determining the holders of shares of Advanced common stock entitled to
notice of and to vote at the Special Meeting. At the close of business on the
record date, there were 20,386,260 shares of Advanced common stock outstanding
held of record by approximately 153 stockholders. The presence at the meeting,
in person or by a proxy relating to any matter to be acted upon at the meeting,
of a majority of the outstanding shares, or 10,193,131 shares, is necessary to
constitute a quorum for the meeting. Each outstanding share is entitled to one
vote on all matters. For purposes of the quorum and the discussion below
regarding the vote necessary to take stockholder action, stockholders of record
who are present at the meeting in person or by proxy and who abstain, including
brokers holding customers' shares of record who cause abstentions to be recorded
at the meeting, are considered stockholders who are present and entitled to vote
and their shares count toward the quorum.
The shares represented by the voting forms received, dated, signed and not
revoked will be voted at the Special Meeting. Where these voting forms specify a
choice with respect to any matter to be acted upon, the shares will be voted in
accordance with the specifications made. Any proxy in the enclosed voting form
which is returned but is not marked will be voted FOR the election of each of
the two nominees named below; FOR the change in business focus, strategy and
direction of Advanced
22
<PAGE>
as set forth in Proposal 2 and described in this proxy statement; and FOR the
proposal to approve the benefits accruing to Mr. Richard O'Neal, the chairman of
the board and chief executive officer of Advanced, as set forth in Proposal 3
and described in this proxy statement.
Brokers holding shares of record for customers generally are not entitled to
vote on certain matters unless they receive voting instructions from their
customers. As used in this proxy statement, "uninstructed shares" means shares
held by a broker who has not received instructions from its customers on such
matters and the broker has so notified Advanced on a proxy form in accordance
with industry practice or has otherwise advised Advanced that it lacks voting
authority. As used herein, "broker non-votes" means the votes that could have
been cast on the matter in question by brokers with respect to uninstructed
shares if the brokers had received their customers' instructions. Although
Advanced is unaware of any controlling precedents under Delaware law regarding
the treatment of broker non-votes in certain circumstances, Advanced intends to
apply the principles set forth below.
ELECTION OF DIRECTORS: Directors are elected by a plurality and the two
nominees who receive the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
APPROVAL OF PROPOSAL 2: To be adopted, Proposal 2 must receive the
affirmative vote of a majority of the shares of Advanced common stock issued and
outstanding and entitled to vote. Uninstructed shares may not be voted on this
matter. For purposes of this matter, abstentions and broker non-votes have the
effect of votes against Proposal 2.
APPROVAL OF PROPOSAL 3: To be adopted, Proposal 2 must be adopted by the
Advanced common stockholders and Proposal 3 must receive the affirmative vote of
a majority of the disinterested shares present in person or by proxy at the
Special Meeting and entitled to vote. Uninstructed shares are not entitled to
vote on this matter, and, therefore, broker non-votes do not affect the outcome.
Abstentions have the effect of votes against Proposal 3.
Advanced stockholders should note that if Proposal 2 is adopted but
Proposal 3 is not, Advanced would not be precluded from closing the acquisitions
merely because Proposal 3 did not pass. Advanced's board would reconsider the
transactions in Proposal 2 in light of the stockholders' failure to approve
Proposal 3.
INFORMATION FOR PARTICIPANTS IN THE ADVANCED COMMUNICATIONS GROUP, INC. 401(K)
RETIREMENT SAVINGS PLAN
Advanced maintains the Advanced Communications Group, Inc. 401(k) Retirement
Savings Plan. One of the investment alternatives for participants in the plan is
the Advanced Stock Fund. Plan participants may direct the plan trustee how to
vote the shares of Advanced common stock that are credited to their accounts. A
participant's voting direction card serves as a voting instruction to the
trustee of the plan and should be mailed to the trustee at the address shown on
the card. The trustee will vote shares for which no instructions are received
and unallocated shares in the same proportion as the shares for which
participants have provided voting instructions, unless doing so would be
inconsistent with the trustee's duties.
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<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
Advanced's Restated Certificate of Incorporation, as amended, and its
Bylaws, as amended, provide that Advanced's board shall consist of not less than
three and not more than fourteen directors, the exact number of directors to be
determined from time to time exclusively by resolution of the board. By
resolution, the Advanced board has currently set the number of directors at
seven. The Restated Certificate also provides for a classified board divided
into three classes whose terms expire at different times. Two members are to be
elected to the Advanced board at the Special Meeting, each to serve for a term
expiring at the 2002 Annual Meeting of Stockholders. The board has nominated
Messrs. O'Neal and Feist for election at the Special Meeting and both of them
are currently directors of Advanced.
At the 1998 Annual Meeting of Stockholders, the Advanced board consisted of
nine members. On November 10, 1998, the Advanced board increased the size to
twelve members and appointed Mr. Rod K. Cutsinger to fill the vacancy.
Mr. Cutsinger had founded Advanced and had been a director from the date of
Advanced's incorporation in September 1997 through May 1998. In December 1998,
Messrs. Richard P. Anthony and E. Clarke Garnett resigned from the Advanced
board and in April 1999, Mr. Reginald J. Hollinger resigned from the Advanced
board. Effective June 30, 1999 and September 30, 1999, Mr. James F. Cragg and
Mr. William H. Zimmer III, respectively, resigned their positions as employees
and directors, in accordance with the letter agreement each had signed which
outlined their severance arrangements, equity awards and the terms of their
resignations as employees and directors. See "Corporate Information About
Advanced and its Management--Employment Agreements." Further, in October 1999,
Marvin C. Moses resigned from the Advanced board.
The resignations described above left six current directors. One class
consists of Mr. O'Neal and Mr. Todd J. Feist, whose terms effectively expire at
the Special Meeting. The second class consists of Mr. Rod Cutsinger and
Mr. Fred Thurman, whose terms expire at the 2000 Annual Meeting. The third class
consists of Mr. Robert F. Benton and Mr. David M. Mitchell, whose terms expire
at the 2001 Annual Meeting.
The resignation of Mr. Moses resulted in a vacancy in the class of directors
whose terms expire at the 2000 Annual Meeting. Advanced's Restated Certificate
of Incorporation, as amended, provides that the number of directors in each
class shall be as nearly equal as possible. The Advanced board does not intend
to nominate a person to fill the vacancy because of the plan to reconstitute the
entire board if Proposal 2 is adopted. Advanced stockholders should note that
they may not vote their shares for a greater number of persons than the number
of nominees named.
The Advanced board is aware that if Proposal 2 is adopted, the Amended and
Restated YPtel Agreement, the Amended and Restated Web YP Agreement and the
Amended and Restated Big Stuff Agreement contemplate that after closing, the
Advanced board will be reconstituted. To implement the plans for reconstructing
the Advanced board, immediately prior to closing, the Advanced directors will
take the following actions. All of the Advanced directors except for
Messrs. Cutsinger, Mitchell and O'Neal, assuming Mr. O'Neal is reelected
pursuant to Proposal 1, will execute resignations to be effective immediately
after closing of the acquisitions. Next, the Advanced board will also appoint
the persons to fill the vacancies created by their resignations. As
restructured, after closing, the Advanced board will consist of three directors
to be designated by the current Advanced board, Messrs. Cutsinger, Mitchell and
O'Neal, as well as the individuals listed in, or selected as described in,
Proposal 2. See "Proposal 2--Restructuring of the Advanced Board of Directors
and Appointment of Directors to Fill Vacancies." After two experienced Internet
executives are identified, the board will increase its size to eight members and
appoint the two individuals to the classes identified in "Proposal 2--The
Acquisitions and Related Matters--Restructuring of the Advanced Board of
Directors and Appointment of Directors to Fill Vacancies."
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<PAGE>
In preparing for the election of directors at the Special Meeting, the
Advanced board had one primary goal. To the extent possible, it wanted to
provide the current Advanced stockholders with the opportunity to elect the
directors to the terms that the current board intends to designate that they
serve after the acquisitions close, assuming adoption of Proposal 2. See
"Proposal 2--Restructuring of the Advanced Board of Directors and Appointment of
Directors to Fill Vacancies." The current composition of the Advanced board
allows for the achievement of the goal without realignment of the board.
Mr. O'Neal's term, if he is elected at the Special Meeting, will expire at
the Annual Meeting in 2002, which is when it is to expire under the arrangements
contemplated among the current Advanced board, Imperial Capital and the
stockholders of Web YP and Big Stuff. Similarly, Mr. Cutsinger's and
Mr. Mitchell's current terms expire at the 2000 and 2001 Annual Meeting,
respectively, which is when they are to expire under the same arrangements among
the current Advanced board, Imperial Capital and the stockholders of Web YP and
Big Stuff.
Accordingly, the board of directors' slate of nominees at the Special
Meeting will consist of Messrs. Richard O'Neal and Todd Feist. Like Mr. Benton
and Mr. Thurman, Mr. Feist will also resign from the Advanced board even if he
is elected at the Special Meeting, in order to implement the arrangements among
the current Advanced board, Imperial Capital and the stockholders of Web YP and
Big Stuff.
The persons named in the enclosed voting form intend to vote such proxy for
the election of Messrs. O'Neal and Feist as directors of Advanced, unless the
stockholder indicates on the voting form that the vote should be withheld or
contrary directions are indicated. If the voting form is signed and returned
without any direction given, stock represented by the voting form will be voted
FOR the election of the two nominees named herein.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS AT THE
SPECIAL MEETING FOR TERMS TO EXPIRE AT THE ANNUAL MEETING IN 2002
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- ------------------------------------------------------------
<S> <C> <C>
Todd J. Feist 35 Director of Advanced. Vice President--Chief Operating
Officer, Central Region from February 1998 until
November 1999; President of Feist Long Distance from
February 1996 until November 1999; Network Manager for
Feist Long Distance from April 1994 to February 1996;
Distribution Manager of Feist Publications from 1987 to
1994.
Richard O'Neal 58 Chairman and Chief Executive Officer of Advanced since
November 9, 1998 and Director and President--Directory
Services Group of Advanced, since February 18, 1998;
founder of Great Western Directories in 1984 and President
of Great Western from 1984 to present.
</TABLE>
As indicated above, if Proposal 2 is adopted and the acquisitions are
completed, Messrs. Benton, Feist and Thurman intend to resign effective after
closing of the acquisitions, leaving Messrs. Cutsinger, Mitchell and O'Neal. For
information regarding the individuals to serve as directors whom Imperial
Capital intends to designate, see "Proposal 2--Restructuring of the Advanced
Board of Directors and Appointment of Directors to Fill Vacancies." Therefore,
the information set forth below regarding the directors whose terms continue
beyond the Special Meeting will be inapplicable if Proposal 2 is approved, and
may be inapplicable even if Proposal 2 is not adopted, given that Advanced does
not know of the current plans of its directors to continue on the board in such
case.
25
<PAGE>
INFORMATION REGARDING THE DIRECTORS WHOSE TERMS EXPIRE AT THE
2000 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- ------------------------------------------------------------
<S> <C> <C>
Rod K. Cutsinger 56 Founder of Advanced; Director of Advanced since
November 1998 and from its inception in September 1997
until May 1998; Chairman of the board of directors and
equity interest owner of CPFF and Consolidation Partners;
prior to founding Advanced, Mr. Cutsinger has been an
investor in other businesses since 1970.
Fred L. Thurman 49 Director of Advanced since February 1998. Vice President
Corporate Development of Advanced until November 1999.
President of FirsTel, Inc., formerly one of Advanced's
telecommunications operations, from April 1994 to February
1998.
</TABLE>
INFORMATION REGARDING THE DIRECTORS WHOSE TERMS EXPIRE AT THE
2001 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- ------------------------------------------------------------
<S> <C> <C>
Robert F. Benton 69 Director of Advanced since July 1998; Chairman of Orion
Systems, Inc., an Internet services provider and systems
integration company, since January 1998; Chairman of
Intermedia Communications, Inc. from 1987 to May 1994.
David M. Mitchell 51 Director of Advanced since February 1998; investor in
telephone businesses since 1982 when he founded National
Telephone Exchange which he sold, along with two other
telephone companies, to U.S. Long Distance in 1991; 50%
owner of Valu-Line of Longview, Inc., one of Advanced's
telecommunications subsidiaries, until it was acquired by
Advanced in February 1998.
</TABLE>
APPOINTMENT OF DIRECTORS AFTER CLOSING
The current Advanced board recognizes that its common stockholders are being
asked to approve its slate of two nominees, one of whom will resign effective
after Advanced closes the acquisitions if Proposal 2 is adopted. The intent to
restructure Advanced's board is not a reflection on the capabilities or
experience of the current Advanced directors including the nominee who will
resign from the Advanced board if he is nevertheless elected at the Special
Meeting. Rather, the current board believes that if Proposal 2 is adopted, a new
board must be put in place which consists in part of business persons with
experience in the yellow pages publishing, Internet directory and e-commerce
industries to oversee and implement Advanced's new strategy, focus and
direction. The installation of the new board is also required by the terms of
the amended and restated YPtel, Web YP and Big Stuff acquisition agreements. For
a description of the new board, see "Proposal 2--Restructuring of the Advanced
Board of Directors and Appointment of Directors to Fill Vacancies."
The current Advanced directors are experienced telecommunications
professionals who have done their best to lead and guide Advanced as it tried to
implement its strategy as a telecommunications company. It is the current board
that recognized that the best long term strategy to enhance stockholder value
would be to exit the telecommunications industry in favor of the new course.
However, the current board recognizes that if Advanced's common stockholders
reject the recommendation of the board to adopt Proposal 2, Advanced will
require the experience and dedication of its existing board, including the
current nominees, to determine other strategic alternatives to preserve, to the
extent possible, stockholder value.
TO ENSURE THAT ADVANCED HAS THE BENEFIT OF THE BEST AVAILABLE BOARD,
REGARDLESS OF THE OUTCOME OF THE VOTE ON PROPOSAL 2, YOUR BOARD RECOMMENDS THAT
YOU VOTE FOR MESSRS. FEIST AND O'NEAL.
26
<PAGE>
PROPOSAL 2--THE ACQUISITIONS AND RELATED MATTERS
The various matters that are the subject of Proposal 2 are listed in the
Notice of Special Meeting, which follows the Letter to Advanced Stockholders at
the beginning of this proxy statement. General information about each of the
matters comprising Proposal 2 is set forth below. The explanations of the
various matters refer you to other sections of the proxy statement that contain
additional and more detailed information that Advanced believes may be
particularly relevant to your voting decision.
ACQUISITION OF YPTEL
In the Amended and Restated YPtel Agreement dated October 26, 1999 among
Advanced, YPtel, Imperial Capital and the stockholders of YPtel, Advanced agreed
to acquire all of the issued and outstanding capital stock of YPtel outstanding
at the date of closing. In exchange for all of the YPtel capital stock, Advanced
agreed to issue to YPtel stockholders 15,000,000 shares of Advanced common
stock. At the time Advanced, YPtel, Imperial Capital and the stockholders of
YPtel agreed on the transactions, the parties agreed upon a price of $5.50 per
share of Advanced common stock, which results in an assumed value of YPtel of
approximately $82.5 million.
ACQUISITION OF WEB YP
In the Amended and Restated Web YP Agreement dated October 26, 1999 among
Advanced, ACG Acquisition VI Corp., Web YP and the stockholders of Web YP,
Advanced agreed to acquire all of the common stock of Web YP issued and
outstanding at the date of closing. The acquisition will be effected pursuant to
the merger of a wholly-owned subsidiary of Advanced with and into Web YP with
Web YP as the survivor of the merger. In the merger, Advanced will issue
3,090,909 shares in exchange for all of the common stock of Web YP, expected to
be 10,000 shares at the date of closing. At the time Advanced, Web YP and the
stockholders of Web YP agreed on the transactions, the parties agreed upon a
price of $5.50 per share of Advanced common stock, which results in an assumed
value of Web YP equity of approximately $17.0 million.
ACQUISITION OF BIG STUFF
In the Amended and Restated Big Stuff Agreement dated October 26, 1999 among
Advanced, ACG Acquisition VII Corp., Big Stuff and the stockholders of Big
Stuff, Advanced agreed to acquire all of the common stock of Big Stuff issued
and outstanding at the date of closing. The acquisition will be effected
pursuant to the merger of a wholly-owned subsidiary of Advanced with and into
Big Stuff with Big Stuff being the survivor of the merger. In the merger,
Advanced will issue 1,454,545 shares of Advanced common stock in exchange for
all of the 3,500 authorized, issued and outstanding shares of common stock of
Big Stuff. At the time Advanced, Big Stuff and the stockholders of Big Stuff
agreed on the transactions, the parties agreed upon a price of $5.50 per share
of Advanced common stock, which results in an assumed value of Big Stuff equity
of approximately $8.0 million.
A VOTE IN FAVOR OF PROPOSAL 2 IS A VOTE IN FAVOR OF THE ACQUISITION OF
YPTEL, WEB YP AND BIG STUFF, AND THE RELATED ACQUISITION AGREEMENTS.
AMENDMENT OF ADVANCED'S CERTIFICATE OF INCORPORATION TO CHANGE THE NAME UNDER
WHICH ADVANCED IS INCORPORATED
As part of Advanced's change in business focus, strategy and direction, the
board of directors believes it to be in Advanced's best interest to amend its
Restated Certificate of Incorporation to change the name under which Advanced is
incorporated to "WorldPages.com, Inc."
A VOTE IN FAVOR OF PROPOSAL 2 IS EFFECTIVELY A VOTE IN FAVOR OF THE
AMENDMENT TO CHANGE THE NAME UNDER WHICH ADVANCED IS INCORPORATED TO
"WORLDPAGES.COM, INC."
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<PAGE>
APPROVAL OF ISSUANCE OF SECURITIES BY ADVANCED AND ITS SUBSIDIARIES
The Amended and Restated YPtel Agreement, the Amended and Restated Web YP
Agreement, the Amended and Restated Big Stuff Agreement and the note redemption
agreements call for the issuance of up to 23,851,281 shares of Advanced common
stock. Of this amount, 19,545,454 shares are to be issued or reserved for
issuance as acquisition consideration, as described above under "--Acquisition
of YPtel," "--Acquisition of Web YP," and "--Acquisition of Big Stuff."
Approximately 2,863,637 shares are to be issued upon the redemption of the 5%
Subordinated Notes and up to 1,090,909 shares are to be issued in exchange for
the cancellation of up to $6.0 million in principal amount of indebtedness of
Web YP and Big Stuff. Additionally, the Amended and Restated YPtel Agreement
calls for the issuance of 351,281 shares of common stock issuable upon the
exercise of warrants and options granted to officers, directors and employees of
YPtel and to three current and former non-employee directors of Advanced. The
securities to be issued by Advanced or its subsidiaries in connection with the
acquisitions, the note redemption and the note conversion, which are the subject
of this proxy statement, are described in the chart below.
<TABLE>
<CAPTION>
SECURITIES TO BE IDENTITY OF PERSONS OR ENTITIES TO WHOM
ISSUED PURPOSE OF ISSUANCE SECURITIES ARE TO BE ISSUED
- ---------------- ------------------------------------- ---------------------------------------
<C> <S> <C>
15,000,000 Shares of Advanced common stock to be Some of these shares will be issued to
Shares of issued in connection with the YPtel stockholders directly. At the
Advanced Common acquisition of YPtel, having an option of YPtel stockholders who are
Stock agreed upon value of $5.50 per share Canadian residents under the Canadian
federal income tax laws, other shares
may be issued to such stockholders upon
exchange of Class A Special Shares of
ACG Exchange Company.
3,090,909 Shares Shares of Advanced common stock to be Richard O'Neal(1) and Dick Reid, who
of Advanced issued in connection with the are the current shareholders of Web YP,
Common Stock acquisition of Web YP, having an and those persons and entities who hold
agreed upon value of $5.50 per share options and warrants to purchase common
stock of Web YP who exercise their
options and warrants prior to closing.
If all of the Web YP employees and the
warrant holders exercise their options
and warrants prior to the acquisition
of Web YP by Advanced, each of Messrs.
O'Neal and Reid will receive
approximately 940,564 shares or
approximately 3.9% of the 23,851,281
shares of Advanced common stock to be
issued.
1,454,545 Shares Shares of Advanced common stock to be Richard O'Neal(1) and Dick Reid, the
of Advanced issued in connection with the shareholders of Big Stuff, will each
Common Stock acquisition of Big Stuff, having an receive approximately 727,273 shares or
agreed upon value of $5.50 per share approximately 3.1% of the 23,851,281
shares of Advanced common stock to be
issued
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SECURITIES TO BE IDENTITY OF PERSONS OR ENTITIES TO WHOM
ISSUED PURPOSE OF ISSUANCE SECURITIES ARE TO BE ISSUED
- ---------------- ------------------------------------- ---------------------------------------
<C> <S> <C>
2,863,637 Shares Shares of Advanced common stock to be Richard O'Neal(1) and four other former
of Advanced issued in redemption of principal and stockholders of Great Western who
Common Stock interest on indebtedness owed by received notes as partial consideration
Advanced, having an agreed upon value for their shares of Great Western. If
of $5.50 per share the closing occurs February 15, 2000,
the percentage of indebtedness owed to
Mr. O'Neal will be redeemed for
1,603,636 or approximately 6.7% of the
shares of Advanced common stock to be
issued.
1,090,909 Shares Shares of Advanced common stock to be Richard O'Neal(1) and Dick Reid. Based
of Advanced issued in exchange for the on the loans made to Web YP and Big
Common Stock cancellation of indebtedness owed by Stuff as of the date of this proxy
Web YP and Big Stuff, having an statement, and assuming the remainder
agreed upon value of $5.50 per share of the loans up to $6.0 million are
made by Mr. O'Neal, at closing, the
indebtedness (including the principal
amount loaned and to be loaned by
Mr. O'Neal) would be exchanged for
954,545 shares or 4.0% of Advanced
common stock to be issued
75,000 Warrants Replace warrants to purchase YPtel Wilmot Matthews(2)(3)--30,000;
to Purchase common shares granted to current Nicholas J. Ross(2)(3)--10,000; George
Advanced Common directors and a current officer of Anderson(2)(3)--10,000; Max
Stock YPtel Gotlieb(2)(3)--20,000; Robert
Flynn(2)(3)--5,000
186,281 Options Replace director and employee stock Douglas McIntyre(2)(3)(4)--103,781;
to Purchase options to purchase YPtel common John Woodall(3)(4)--40,000; Jay
Advanced Common shares Cramer(3)(4)--15,000; Wes Rice(3)(4)--
Stock 15,000; Don Russell(3)(4)--12,500
90,000 Warrants Compensation to two current and one Robert F. Benton(3)(5)--30,000; Rod K.
to Purchase former non-employee directors of Cutsinger(3)(5)--30,000; Marvin C.
Advanced Common Advanced for negotiating the YPtel, Moses(3)--30,000
Stock Web YP and Big Stuff acquisition
agreements
351,281 Shares Shares of Advanced common stock
of Advanced issuable upon exercise of the above
Common Stock options and warrants which replaced
warrants to purchase common shares
granted to the directors, officers
and employees of YPtel and two
current and one former non-employee
directors of Advanced, all of whom
are identified in the three rows
immediately above, with reference to
footnotes (2), (4) and (5)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SECURITIES TO BE IDENTITY OF PERSONS OR ENTITIES TO WHOM
ISSUED PURPOSE OF ISSUANCE SECURITIES ARE TO BE ISSUED
- ---------------- ------------------------------------- ---------------------------------------
<C> <S> <C>
1 Share Share issued to provide YPtel Trustee under the Exchange and Voting
of Advanced stockholders who are Canadian Trust Agreement. See "Amended and
Class B residents under the Canadian federal Restated YPtel Agreement and Related
Preferred Stock income tax laws holding Class A Agreements--Exchange and Voting Trust
Special Shares the right to vote Agreement."
their indirect holdings in Advanced
ACG Exchange Allow YPtel stockholders who are YPtel stockholders who are residents
Company Class A residents under the Canadian federal under the Canadian federal income tax
Special Shares income tax laws to defer taxes on laws and who seek tax deferral
exchange of their shares of YPtel
common stock
Advanced Common Shares of Advanced common stock YPtel stockholders who are residents
Stock having an agreed upon value of $5.50 under the Canadian federal income tax
per share issuable upon exchange of laws and who take Class A Special
Class A Special Shares of ACG Shares of ACG Exchange Company for tax
Exchange Company (See above) deferral purposes and who subsequently
exchange them for Advanced common
stock.
ACG Holding Allow Advanced to own ACG Holding Advanced
Company(6) Company
Common Shares
ACG Exchange Allow ACG Holding Company (7) to own ACG Holding Company
Company Common ACG Exchange Company
Shares
YPtel, Inc. Tax reasons YPtel
Preferred Stock
</TABLE>
- --------------------------
(1) The economic benefits represented by the securities that Mr. O'Neal is
receiving are described in "Proposal 3--Approval of Benefits Accruing to
Mr. Richard O'Neal."
(2) These individuals are directors or officers of YPtel.
(3) Less than one percent of the shares of Advanced common stock to be issued.
(4) These individuals are employees of YPtel.
(5) Messrs. Benton and Cutsinger are non-employee directors of Advanced. Mr.
Moses is a former non-employee director of Advanced.
(6) ACG Holding Company is Advanced's direct, wholly-owned unlimited liability
company subsidiary formed under the laws of Nova Scotia to hold the shares
of ACG Exchange Company, ACG Holding Company's direct, wholly-owned
unlimited liability company subsidiary formed under the laws of Nova Scotia
to issue the Class A Special Shares.
(7) For tax reasons, ACG Holding Company will own 99% of ACG Exchange Company
and 1 + USA V Acquisition Corp., a wholly-owned subsidiary of Advanced, will
own the remaining 1% of ACG Exchange Company.
30
<PAGE>
ADDITIONAL INFORMATION ABOUT WARRANTS
In consideration for their work on the proposed acquisitions, including
extensive negotiation of the terms and conditions of the transactions, certain
current and former members of Advanced's board of directors have been granted
warrants, conditioned upon stockholder approval pursuant to Proposal 2. Subject
to stockholder approval, each of Messrs. Benton, Cutsinger and Moses has been
granted 30,000 warrants to purchase Advanced common stock at an exercise price
of $6.96 per share, the average exercise price of all Advanced stock options and
warrants outstanding at December 31, 1998. Upon stockholder approval of the
issuance of the shares underlying these warrants pursuant to Proposal 2, the
warrants will be immediately exercisable and will expire 10 years from the date
of the grant. These warrants are considered a cost of executing the transactions
and, accordingly, the estimated value of the warrants of $335,400, as determined
by the Black-Scholes option pricing model, is included in the purchase price of
the companies to be acquired for accounting purposes.
A VOTE IN FAVOR OF PROPOSAL 2 IS EFFECTIVELY A VOTE IN FAVOR OF THE ISSUANCE
OF AT LEAST 23,851,281 SHARES OF ADVANCED COMMON STOCK. A VOTE IN FAVOR OF
PROPOSAL 2 IS ALSO EFFECTIVELY A VOTE IN FAVOR OF THE ISSUANCE OF THE OTHER
SECURITIES OF ADVANCED AND ITS SUBSIDIARIES ENUMERATED IN THE CHART.
RESTRUCTURING OF THE ADVANCED BOARD OF DIRECTORS AND APPOINTMENT OF DIRECTORS TO
FILL VACANCIES
Under the terms of the Amended and Restated YPtel, Web YP and Big Stuff
agreements, the size of the Advanced board will ultimately be increased to eight
members. The acquisition agreements provide that of the eight positions, three
are to be filled by persons designated by the Advanced board and three are to be
persons designated by Imperial Capital. The other two positions are to be filled
by persons who are experienced Internet executives and who are to be appointed
by the Advanced board, and approved by Imperial Capital, Web YP and Big Stuff if
appointed prior to the close of the acquisitions. If the two board positions are
filled after the close of the acquisitions, the positions will be appointed by
the board of directors as described below. The persons designated by Advanced to
be its designated board members are Mr. Richard O'Neal, Advanced's chairman and
chief executive officer, and Messrs. Rod K. Cutsinger and David M. Mitchell,
both of whom are also current directors of Advanced. The persons designated by
YPtel to be its designated board members are Messrs. George Anderson, Wilmot
Matthews and Robert Flynn.
To implement the plans for reconstituting the Advanced board, immediately
prior to closing, the Advanced directors will take the following actions. All of
the Advanced directors except for Messrs. Cutsinger, Mitchell and O'Neal,
assuming Mr. O'Neal is reelected pursuant to Proposal 1, will execute
resignations to be effective immediately after closing of the acquisitions. The
Advanced board will then appoint the persons named below to fill the vacancies
created by their resignations. After two experienced Internet executives are
identified, the board will increase its size to eight members and appoint the
two experienced Internet executives to the classes identified below.
<TABLE>
<CAPTION>
IMPERIAL CAPITAL ADVANCED/YPTEL/
ADVANCED DESIGNEE DESIGNEE WEB YP/BIG STUFF DESIGNEE
----------------- ---------------- -------------------------
<S> <C> <C> <C>
Term Expiring at Annual Meeting in 2000 Rod K. Cutsinger George Anderson To Be Determined
Term Expiring at Annual Meeting in 2001 David M. Mitchell Robert Flynn To Be Determined
Term Expiring at Annual Meeting in 2002 Richard O'Neal Wilmot Matthews
</TABLE>
31
<PAGE>
Below is information about the Imperial Capital designees to the Advanced
board if Proposal 2 is adopted.
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- -------- ------------------------------------------------------------
<S> <C> <C>
George Anderson 61 Director of YPtel since November 1998; Managing Director of
Country Club Stock LLC, a gold products promotion company,
since 1995; prior thereto, Mr. Anderson held various
positions with NYNEX Information Resources Co. since 1965,
most recently as Vice President of Sales and President of
National Marketing Services.
Robert Flynn 66 Director of YPtel since November 1998; retired; from 1996 to
1997 Senior Advisor for CSC Index, a management consulting
firm; from June 1990 to December 1995, Chairman and Chief
Executive Officer of Nutrasweet Company. Director of
Northwestern University, STANTEC and Applied Microbiology,
Inc.
Wilmot Matthews 63 Chairman of the Board of YPtel since November 1998;
President of Marjad Inc., a personal investment company;
Director of Renaissance Energy Ltd., Denbury Resources Inc.;
Vice Chairman of the Board of Nesbitt Burns Inc. from 1994
until 1996.
</TABLE>
A vote in favor of Proposal 2 is effectively a vote FOR their appointment to
the board for the terms opposite their names. The Advanced board believes that
Messrs. Cutsinger, Mitchell, O'Neal, Anderson, Flynn and Matthews are well
qualified to serve as directors of a public yellow pages publishing and Internet
directory company.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2, WHICH
INCLUDES THE PROPOSED ACQUISITIONS OF YPTEL, WEB YP AND BIG STUFF, THE ISSUANCE
OF ADVANCED COMMON STOCK AND OTHER SECURITIES AS DESCRIBED IN THIS PROXY
STATEMENT, AND THE AMENDMENTS TO ADVANCED'S RESTATED CERTIFICATE OF
INCORPORATION RELATING TO ADVANCED'S NAME CHANGE.
PROPOSAL 3--APPROVAL OF BENEFITS ACCRUING TO MR. RICHARD O'NEAL
Mr. Richard O'Neal, Advanced's chairman of the board and chief executive
officer, is also a stockholder, director and officer of Web YP and Big Stuff. If
Proposal 2 is adopted by Advanced's stockholders and Advanced completes all of
the transactions contemplated by Proposal 2, Mr. O'Neal will receive the
following at closing, which for the purpose of the proxy statement is assumed to
be February 15, 2000.
<TABLE>
<CAPTION>
ADVANCED PERCENTAGE OF PRO FORMA
SOURCE OF ADVANCED COMMON STOCK COMMON STOCK SHARES OUTSTANDING
- ------------------------------- ------------ -----------------------
<S> <C> <C>
Web YP Acquisition......................... 940,564 2.2%
Big Stuff Acquisition...................... 727,273 1.7%
5% Subordinated Note Redemption............ 1,603,636 3.6%
Exchange of Web YP and Big Stuff
Indebtedness............................. 954,545 2.2%
--------- ----
Total.................................... 4,226,018 9.7%
========= ====
</TABLE>
Mr. O'Neal will receive shares of Advanced common stock in exchange for
cancellation of indebtedness of Web YP and Big Stuff to Mr. O'Neal. Since the
beginning of 1999, Web YP and Big Stuff have required capital to take advantage
of certain opportunities and to fund operations. After the letter of intent was
signed, Web YP and Big Stuff informed Advanced that more capital would be needed
and that the current stockholders of Web YP and Big Stuff, including
Mr. O'Neal, would be
32
<PAGE>
willing to lend additional amounts to those companies if Advanced would cause to
be made available to them Advanced common stock at $5.50 per share in lieu of
repayment of their loans if the acquisitions of those companies by Advanced
closed. Advanced agreed, on the condition that the principal amount of
indebtedness to be exchanged and cancelled in consideration for the Advanced
common stock would be limited to $6.0 million and that the loan proceeds be
used:
- to consummate Web YP's contemplated contractual arrangements with Excite
and to fulfill its obligations thereunder;
- to pay for extraordinary capital expenditures, including consummation of
contractual arrangements with other entities similar to those with Excite
if approved in advance by a disinterested majority of the board of
directors of Advanced; or
- for working capital purposes, including ordinary capital expenditures.
As of the date of this proxy statement, Messrs. O'Neal and Reid had lent Web
YP and Big Stuff, collectively, $5,410,000. Of that amount, Mr. O'Neal had lent
$4,660,000 and Mr. Reid had lent $750,000. If Mr. Reid does not loan any
additional money, and Advanced's board approves the lending by Mr. O'Neal of up
to the full $6.0 million, Mr. O'Neal would be issued 954,545 shares of Advanced
common stock in exchange for the cancellation of the principal amount of
indebtedness owed to him.
In negotiating the terms of the acquisition of Web YP and Big Stuff,
Advanced, YPtel, Web YP and Big Stuff agreed that the enterprise value of Web YP
and Big Stuff were $17.0 million and $8.0 million, respectively. Advanced agreed
to issue 3,090,909 and 1,454,545 shares of Advanced common stock having an
agreed upon value of $5.50 per share to the stockholders of Web YP and Big
Stuff, respectively, in exchange for all of the issued and outstanding capital
stock of those companies. Mr. O'Neal is one of the two stockholders and
currently owns one-half of the issued and outstanding capital stock of Web YP.
If the Web YP optionees and warrant holders exercise all of their options and
warrants to purchase Web YP common stock prior to the acquisition of Web YP by
Advanced, his ownership will fall to 30.4%. This will entitle Mr. O'Neal to
receive from Advanced 940,563 shares of Advanced common stock at the assumed
value of $5.50 per share, for a total assumed value of $5.2 million. As a
one-half owner of Big Stuff, Mr. O'Neal will be entitled to 727,273 shares of
Advanced common stock at the assumed value of $5.50 per share for a total
assumed value of $4.0 million.
In negotiating the terms of the redemption of the 5% Subordinated Notes,
Advanced and the holders of the notes agreed that the principal and all accrued
interest were to be redeemed at closing in exchange for the issuance of Advanced
common stock using an agreed upon price of $5.50 per share. The portion of the
5% Subordinated Notes which Mr. O'Neal owns is $8.4 million principal amount.
Assuming accrued but unpaid interest on the portion of the 5% Subordinated Notes
held by Mr. O'Neal will be approximately $420,000 at closing, Advanced will
issue to Mr. O'Neal 1,603,636 shares of Advanced common stock using the agreed
upon price of $5.50 per share in exchange for a total of approximately
$8.8 million of indebtedness.
In short, if the closing price per share of Advanced common stock of $13.00,
as reported in the Wall Street Journal for the New York Stock Exchange at the
close of business on December 30, 1999, is the same as it is on the actual
closing date, assumed for the purposes of this proxy statement to be
February 15, 2000, Mr. O'Neal would receive approximately 4,226,018 shares of
Advanced common stock having an actual market value of approximately
$54.9 million.
While the above indicates an economic benefit of $31.7 million to
Mr. O'Neal based on the excess of the $13.00 per share market price over the
$5.50 per share agreed upon price, Mr. O'Neal would suffer an economic loss if
and to the extent the value of Advanced common stock declined below $5.50 per
share at closing.
Advanced issued $2.0 million in promissory notes paying interest at the rate
of 10% in connection with the acquisition of the telecommunications operations
Advanced acquired in February 1998. The 10% promissory notes are convertible
into Advanced common stock at $14.00 per share, Advanced's
33
<PAGE>
IPO price. While Advanced has entered into redemption agreements with
Mr. O'Neal and the other former stockholders of Great Western to redeem the
principal and accrued interest on the 5% Subordinated Notes at closing, Advanced
has not offered to enter into a similar redemption agreement with the holders of
the 10% promissory notes to reduce the conversion price to $5.50 per share.
Advanced has received correspondence from two holders of the 10% promissory
notes contending that under the terms of the notes, the $14.00 per share
conversion price should be reduced. Advanced does not believe that any events
have transpired which, under the terms of the notes, would automatically require
a reduction in the conversion price. Nevertheless, Advanced acknowledges that it
has agreed to redeem the 5% Subordinated Notes without reducing the conversion
price of the 10% promissory notes. For the reasons set forth in this Proposal 3,
the Advanced board believes that it is fair to Advanced's stockholders and in
the best interest of Advanced to redeem the 5% Subordinated Notes.
Due to Mr. O'Neal's involvement with Advanced, Web YP and Big Stuff and his
efforts to consummate the transactions that are the subject of this proxy
statement, Advanced acknowledges that the transactions may be viewed as not
having been negotiated on an arm's length basis. In reaching the conclusion that
the $5.50 per share redemption price is fair to Advanced, the Advanced board
recognized that the $5.50 per share value was negotiated by the Advanced board
and is the same as the per share value placed on the Advanced shares to be
issued to the YPtel stockholders, who are unrelated to Advanced or any of its
affiliates.
Advanced's board believes that the terms of the issuance of the Advanced
common stock described in this Proposal 3 are fair to both Advanced and Mr.
O'Neal. The board takes note of the opinion of PaineWebber, one of its financial
advisors, that, as of October 20, 1999, the consideration to be paid, in the
aggregate, by Advanced in connection with the acquisitions of YPtel, Web YP and
Big Stuff and the redemption of the 5% Subordinated Notes was fair to Advanced
from a financial point of view. See "Opinion of Advanced's Financial Advisor."
The board acknowledges that because of the date of the redemption of the 5%
Subordinated Notes, Advanced may find itself issuing shares having a market
value in excess of the debt being extinguished. However, at the time Advanced
agreed upon the arrangement with Mr. O'Neal, Advanced contemplated that the
redemption and cancellation of the indebtedness would occur sooner than Advanced
now knows that it will, assuming Proposals 2 is adopted. The Advanced board also
recognizes that at the time the redemption was agreed upon, Mr. O'Neal assumed
the risk that the value of the Advanced common stock to be received in exchange
for the redemption and cancellation of the 5% Subordinated Notes could decrease.
If that were to occur, Mr. O'Neal would have effectively traded the right to
receive cash in payment of a debt in exchange for equity that could ultimately
wind up being worth less than the debt. Further, Mr. O'Neal was trading his
position as a creditor of Advanced for that of a stockholder. In terms of
priority, stockholders are behind creditors of a company with respect to
distribution of assets in the event of bankruptcy or liquidation.
The Advanced board also notes that the $5.50 per share agreed upon value for
the exchange of up to $6.0 million in principal amount of indebtedness is the
same as the agreed upon value of the Advanced common stock Advanced is paying to
the stockholders of YPtel for their stock. YPtel is neither an affiliate of
Advanced nor does Mr. O'Neal have any financial interest in YPtel.
Mr. O'Neal and the Advanced board believe that Mr. O'Neal's willingness to
sell companies in which he has a substantial ownership interest for Advanced
common stock and his agreement to the redemption and cancellation of
indebtedness owed to him by Advanced in exchange for Advanced common stock,
clearly demonstrates his commitment to the strategy which is the subject of
Proposal 2.
RECOMMENDATION OF ADVANCED'S BOARD OF DIRECTORS
ADVANCED'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF
PROPOSAL 3.
34
<PAGE>
CORPORATE INFORMATION ABOUT ADVANCED AND ITS MANAGEMENT
EMPLOYEES
At December 31, 1998, Advanced had 1,020 employees. Of these, 348 were in
its yellow pages publishing operations and 672 were in its telecommunications
operations. As one of the first steps taken to implement Advanced's change in
its business focus, strategy and direction, on May 19, 1999, Advanced announced
its program to move leadership of its telecommunications operations that had
been centralized in St. Louis, Missouri, closer to the regions served. Advanced
believed that moving business functions back to the regional operating
subsidiaries would eliminate corporate positions that most likely would be
provided by the acquiring company. Advanced announced that only those performing
corporate functions that could not be decentralized would remain and that other
selective reductions in force would occur. The intent of these actions was to
reduce payroll costs as much as possible while continuing to operate the
telecommunications operations in such a manner that they would be as attractive
as possible to a potential purchaser.
By October 31, 1999, Advanced had 573 employees. Of these, 348 were in its
yellow pages publishing operations and 225 were in its telecommunications
operations.
PROPERTIES
Advanced owns an office building in Amarillo, Texas, and 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. Advanced may lease or purchase additional
space for general office use.
LEGAL PROCEEDINGS
DISPUTE WITH MCI WORLDCOM
In August 1996, one of Advanced's subsidiaries, Valu-Line entered into a
written agreement with MCI Communications Corporation under which, for a fee,
MCI would provide access to Valu-Line so that Valu-Line could provide services
as a long distance carrier. After execution of the written agreement, service
failures by MCI occurred. To address the service failures and MCI relocation of
circuits serving Valu-Line, representatives of Valu-Line and MCI agreed upon a
reduced fee structure and revised network architecture in order to provide
restitution to Valu-Line and to address the service quality issues. The
resulting agreement reflecting the reduced fee structure was never set forth in
writing.
Both before and after Advanced acquired Valu-Line, the payments made under
the Valu-Line contract with MCI were in accordance with the modified agreement.
In April-May 1999, after the acquisition of MCI by WorldCom, Inc., MCI WorldCom,
Inc., as the owner of the successor-in-interest to MCI, took the position that
Advanced owed $2.9 million in delinquent amounts under the original written
contract, ignoring the modification to the contract between the parties. MCI
WorldCom has not taken any legal action against Advanced or Valu-Line. If this
matter is not resolved through discussions, management's response to this claim
is to actively pursue Advanced's rights and defenses in arbitration.
LORETTA R. CROSS, CHAPTER 7 TRUSTEE FOR TOTAL NATIONAL TELECOMMUNICATIONS,
INC. V. LOU ZANT & TELECOM RESOURCES, INC.
Loretta R. Cross, Chapter 7 Trustee for Total National Telecommunications,
Inc., filed an Adversary Proceeding July 15, 1999 against Lou Zant and Telecom
Resources, Inc., in the United States Bankruptcy Court for the Southern District
of Texas. Telecom Resources is a wholly-owned subsidiary of Advanced and is one
of the telecommunications operations to be sold to Ionex
35
<PAGE>
Telecommunications. See "Sale of Advanced's Telecommunications Operations to
Ionex Telecommunications."
The trustee's complaint seeks recovery of $2.6 million from Telecom
Resources as a fraudulent conveyance under the Bankruptcy Code. The complaint is
based on an October 1, 1996 stock purchase agreement in which Total World
Telecommunications, Inc., the parent of Total National Telecommunications,
agreed to purchase all the stock of NETTouch Communications, Inc., from Telecom
Resources and Mr. Zant. The trustee's complaint alleges that Total National
Telecommunications provided the funds to Total World Telecommunications to
complete and close the stock purchase and that Total National Communications
never received any consideration for its funds. Telecom Resources intends to
vigorously defend the action.
As a telecommunications services provider, Advanced and the subsidiaries
through which Advanced offered telecommunications services were subject to
claims and lawsuits arising in the ordinary course of business and typical of
businesses operating in the telecommunications services industry. According to
the terms of the stock purchase agreement, as amended, between Advanced and
Ionex Telecommunications, Advanced has agreed to remain liable and to indemnify
Ionex Telecommunications for any losses, costs, and expenses arising out of any
of these claims or lawsuits which Advanced either knew or should have known
existed prior to the closing of the sale of the telecommunications subsidiaries.
Advanced is presently defending, investigating and resolving several claims and
lawsuits. Advanced believes that its liability, if any, under these claims and
lawsuits, in the aggregate, is not material. For additional information
regarding the stock purchase agreement and the sale of the telecommunications
operations, see the section of this proxy statement entitled "Sale of Advanced's
Telecommunications Operations to Ionex Telecommunications."
In addition, as is the case with many companies, Advanced faces exposure to
actual or potential claims and lawsuits involving its business and assets.
Advanced is currently party to a number of lawsuits consisting of ordinary,
routine litigation incidental to the business of Advanced. Advanced believes
that any liabilities resulting from such claims should not have a material
adverse effect on Advanced's financial position, liquidity or results of
operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the only executive officer of Advanced who is not a
director of Advanced is set forth below:
Michael A. Pruss, age 34, is currently Vice President, Chief Financial
Officer and Secretary since October 1, 1999. Prior to that he was Vice President
and Controller since joining Advanced in April 1998. Prior to joining Advanced
he was the Corporate Controller for Falcon Products, Inc. from January 1996 to
April 1998. Prior thereto, Mr. Pruss held various positions with Argosy Gaming
Company from April 1993 to January 1996, most recently as Director of Financial
Reporting. Prior thereto, Mr. Pruss was an auditor with Arthur Andersen LLP from
July 1987 to April 1993.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Advanced's common stock as of October 31, 1999, except
as noted below, by:
- each director of Advanced, including the two nominees for election as
directors;
- each of Advanced's executive officers and former executive officers named
in the Summary Compensation Table, and
- all directors and executive officers of Advanced as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------------------
PERCENT OF ADVANCED
NUMBER OF SHARES COMMON STOCK
OF ADVANCED CURRENTLY
NAME COMMON STOCK OUTSTANDING
- ---- ---------------- -------------------
<S> <C> <C>
Richard P. Anthony....................................... 323,922(2) 1.6%
Robert F. Benton......................................... 7,000(3) *
James F. Cragg........................................... 281,089(4) 1.4
Rod K. Cutsinger......................................... 5,196,664(5) 26.2
Todd J. Feist............................................ 321,429(6) 1.6
David M. Mitchell........................................ 193,811(7) 1.0
Marvin C. Moses.......................................... 5,000(8) *
Richard O'Neal........................................... 887,770(9) 4.4
Fred L. Thurman.......................................... 265,413(10) 1.3
William H. Zimmer III.................................... 84,334(11) *
Executive officers and directors as a group
(10 individuals)....................................... 7,571,432(12) 35.7
</TABLE>
- ------------------------
* Percentage of shares beneficially owned is less than 1.0%.
(1) Beneficial ownership includes shares of Advanced 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 of Advanced common
stock beneficially owned by such stockholder.
(2) Includes 266,667 shares of common stock subject to stock options that are
immediately exercisable. Mr. Anthony left Advanced's employment in December
1998; the number of shares reported as owned is based on information known
to Advanced when he terminated his employment.
(3) Includes 5,000 shares of common stock subject to stock options that are
immediately exercisable.
(4) Includes 195,834 shares of common stock subject to stock options that are
immediately exercisable.
(5) Includes 4,867,921 shares of common stock owned by Consolidation Partners
L.L.C., a limited liability company in which Mr. 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 over which Rod K. Cutsinger has sole voting and dispositive power.
(6) Includes 250,000 shares of common stock subject to stock options that are
immediately exercisable.
(7) Includes 6,000 shares of common stock issuable upon exercise of a warrant at
$14.00 per share and 6,667 shares of common stock subject to stock options
that are currently exercisable.
(8) Includes 5,000 shares of common stock subject to stock options that are
immediately exercisable.
(9) Includes warrants to purchase 469,020 shares of common stock. A trustee for
Mr. O'Neal's children owns 189,020 of these non-transferable, ten-year
warrants. Also includes 18,750 shares of common stock subject to stock
options that are immediately exercisable.
(10) 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 Advanced, convertible at
$14.00 per share. Also includes 21,667 shares of common stock subject to
stock options that are immediately exercisable.
(11) Includes 58,334 shares of common stock subject to stock options that are
immediately exercisable.
(12) Includes 1,355,950 shares of common stock which such persons have the right
to acquire upon the exercise of options and warrants that are immediately
exercisable.
37
<PAGE>
The following table sets forth information regarding all persons known to
Advanced to be the beneficial owner of more than five percent of the common
stock of Advanced as of October 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NUMBER PERCENTAGE AFTER GIVING EFFECT
NAME AND ADDRESS OF SHARES OF CLASS TO THE TRANSACTIONS
- ---------------- --------- ---------- -------------------
<S> <C> <C> <C>
Rod K. Cutsinger......................... 5,196,664(1) 26.2% 11.9%
3355 West Alabama, Suite 580
Houston, Texas 77098
Consolidation Partners L.L.C............. 4,867,921 24.5% 11.2%
3355 West Alabama, Suite 580
Houston, Texas 77098
FMR Corp.(2)............................. 1,341,400 14.8% 3.1%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(1) Includes 4,867,921 shares of common stock owned by Consolidation Partners
LLC, a limited liability company in which Mr. 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, over which Mr. Rod Cutsinger has sole voting and dispositive
power.
(2) The information in this footnote is provided pursuant to Schedule 13G dated
February 1, 1999 filed with the SEC by FMR Corp., Edward C. Johnson 3d,
Abigail P. Johnson and Fidelity Management and Research Company, a
wholly-owned subsidiary of FMR and an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940. Fidelity Management
reports the beneficial ownership of the 1,341,400 shares of Advanced common
stock as a result of acting as investment adviser to various investment
companies registered under Section 8 of the Investment Company Act of 1940.
The investment company which owns the 1,341,400 shares of Advanced common
stock is Fidelity Capital Appreciation Fund.
The Schedule 13G reports that "Edward C. Johnson 3d, FMR Corp., through its
control of Fidelity and the funds each has sole power to dispose of the
1,341,400 shares owned by the Funds. Neither FMR nor Edward C. Johnson 3d,
Chairman of FMR Corp., has the sole power to vote or direct the voting of
the shares owned directly by the Fidelity Funds, which power resides with
the Funds' Boards of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the Funds' Boards of Trustees."
The Schedule 13G also reports that through the ownership of voting stock of
FMR and the execution of a voting trust agreement among the members of the
Johnson family who own FMR voting stock, those family members, including
Mr. Edward C. Johnson and Ms. Abigail P. Johnson who is a director of FMR,
may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR.
The business address of Fidelity Management, Fidelity Capital, Edward C.
Johnson and Abigail P. Johnson is 82 Devonshire Street, Boston,
Massachusetts 02109.
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
BOARD OF DIRECTORS
Advanced held five regular meetings and eight special meetings of the board
during the 1998 fiscal year.
Advanced's Bylaws provide for the establishment of committees of the board
to have, with certain exceptions, such powers and authority of the board in the
management of Advanced as are set forth in the resolution creating that
committee. The board established an executive committee, an audit committee, a
nominating committee, a governance committee, and a compensation committee
during 1998 having responsibility in specific areas of board activity, the
duties and responsibilities of which are described below. Members were appointed
to those committees, but during 1998, due to a number of changes in the make-up
of the board, the full board retained the responsibilities of all such
committees, except for the executive committee and the compensation committee.
As such, there were no formal meetings of the audit committee, governance
committee or nominating committee. During the 1998
38
<PAGE>
fiscal year, each of the incumbent directors attended 75% or more of the board
meetings. Additionally, Advanced believes that each of Messrs. O'Neal, Benton
and Cutsinger attended 75% or more of the aggregate number of meetings of the
board and of the committees on which he served and which met during the 1998
fiscal year.
EXECUTIVE COMMITTEE
Members: Messrs. Richard O'Neal, Robert F. Benton and Rod K. Cutsinger.
The executive committee acts for the board as a whole, when the board is
between meetings, when the board cannot be called into meeting in a timely
fashion, or upon such other matters that require immediate action.
AUDIT COMMITTEE
Member: Mr. Robert F. Benton.
Advanced anticipates that the audit committee will determine the scope of
and the plans for the annual audit of the books and records of Advanced and will
review, evaluate and advise the board with respect to the engagement of
independent public accountants. Advanced intends that the audit committee will
also review the results of the annual audit and the audit report and that it
will meet periodically with the independent public accountants to review the
adequacy of Advanced's internal accounting procedures. When circumstances
dictate, the audit committee will review and make recommendations to the board
with respect to the propriety of any contemplated transactions between Advanced
and its officers, directors and entities controlled by them.
NOMINATING COMMITTEE
The Advanced board anticipates that the nominating committee will identify
prospective new directors and nominate candidates to stand for election to the
board at each Annual Meeting of Stockholders.
GOVERNANCE COMMITTEE
The Advanced board anticipates that the governance committee will
investigate and recommend a governance model for the board, recommend such
committees as it deems necessary to carry out the recommended governance model,
draft such charters for all standing committees of the board as it deems
necessary to carry out the recommended governance model and investigate the
alternatives to resolve the independence of the audit, compensation and
nominating committees.
COMPENSATION COMMITTEE
Members: Messrs. Robert F. Benton and David M. Mitchell.
The compensation committee met five times during 1998. The compensation
committee consults with the chief executive officer of Advanced. This committee
also recommends to the board the compensation of the chief executive officer and
determines the compensation and remuneration of the other executive officers and
makes awards to executive officers and others under Advanced's employee
incentive plans.
DIRECTOR COMPENSATION
Directors of Advanced who are also employees of Advanced receive no
directors' fees but are eligible to receive, and have received, grants of stock
options under Advanced's 1997 Stock Awards Plan. Non-employee directors receive
fees of $1,000 for each board meeting in which they participate in person, and
are reimbursed for expenditures incurred in attending and returning from board
meetings.
Non-employee directors also receive options to purchase shares of Advanced
common stock pursuant to the 1997 Nonqualified Stock Option Plan for
Non-Employee Directors. Non-employee directors elected or appointed to the board
will receive options to acquire 15,000 shares of Advanced
39
<PAGE>
common stock on the date of their initial election or appointment. Additional
non-qualified stock options to acquire 5,000 shares of Advanced 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. In both cases, the exercise price of the stock options granted is the fair
market value on the date of the grant.
Upon their election to the Advanced board as non-employee directors at the
1998 Annual Meeting of Stockholders, both Messrs. Benton and Moses received
options to purchase 15,000 shares of Advanced common stock at an exercise price
of $10.50 per share in accordance with the provisions of the Non-Employee
Director Plan. Mr. David M. Mitchell, who was reelected to the board at the 1998
Annual Meeting, received options to purchase 5,000 shares of Advanced common
stock at $10.50 per share in accordance with the terms of the Non-Employee
Director Plan.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
SEC regulations require that proxy statements prepared by public companies
in connection with stockholder meetings at which directors are to be elected
contain a report that summarizes the bases on which remuneration paid to the
chief executive officer and the other executive officers during the prior fiscal
year was determined. The report is to appear over the names of the entire board
of directors or the compensation committee of the board. This report attempts to
fulfill that requirement, but readers must note that at the time much of the
remuneration reported on was determined, Advanced was a private company in its
infancy, attempting to complete a roll-up of nine telecommunications operations
and an initial public offering. Only one director who was on Advanced's board at
that time, Mr. Rod K. Cutsinger, remains a director today and he is not a
current member of the compensation committee. In fact, from May 19, 1998 until
November 9, 1998, Mr. Cutsinger did not serve on Advanced's board. The board
appointed the compensation committee that was in place for the last five months
of 1998 and into 1999 following the election of Messrs. Benton and Moses to the
board on July 29, 1998. Mr. Reginald Hollinger chaired the compensation
committee until his resignation from the board on April 30, 1999. Mr. Moses
resigned from the board, and therefore from the compensation committee, in
October 1999. Accordingly, this report represents the best effort of Advanced's
current board to explain the bases of the remuneration packages for executive
officers during fiscal 1998.
Reports such as this generally focus upon the compensation decisions made
with respect to the chief executive officer separately and apart from those made
with respect to executive officers as a group. The Advanced board does not
believe it is appropriate to do so in this instance, given the circumstances
under which the executive officers and the two chief executive officers during
the period covered by this report, entered into their employment relationships
with Advanced or its telecommunications operations, all of which were private
companies when their compensation was determined.
Recruiting the best managerial talent available and retaining that talent
required Advanced to continuously review and change its remuneration packages
for its key executives. Therefore, the discussion below is organized:
- by the manner in which the executive was hired, i.e., whether the
individual was an executive of one of the companies acquired in the
roll-up or recruited from the outside;
- by the type of compensation paid, i.e., base salary, bonus and equity
awards; and
- chronologically.
40
<PAGE>
DETERMINATION OF FISCAL 1998 BASE SALARY AND STOCK OPTION AWARDS TO
MESSRS. O'NEAL, FEIST AND THURMAN IN CONNECTION WITH THE ACQUISITION OF
THEIR COMPANIES
The determination of the compensation to be paid to Messrs. O'Neal, Feist
and Thurman for Fiscal 1998 and beyond and the non-qualified stock options to be
awarded to them was tied to the negotiations for the acquisitions of the
companies of which they were significant stockholders. Messsrs. O'Neal, Feist
and Thurman were significant stockholders of Great Western Directories, Feist
Long Distance Management, Inc. and Firstel, Inc., respectively. Mr. Cutsinger
and the Advanced board that was in place during 1996 and 1997 determined that
the acquisition of these companies was integral to the roll-up and the IPO.
Each of Messrs. O'Neal, Feist and Thurman supported the roll-up and the IPO,
ultimately concluding that as combined, all of the companies involved in the
roll-up would be part of a far stronger entity than any of them would be
individually. However, in agreeing to the sale of their companies to Advanced,
Messrs. O'Neal, Feist and Thurman considered it important that they be involved
in an employment capacity, either with their companies or with the company that
was acquiring them. As part of the negotiations for the sale of their companies,
each required employment agreements.
Advanced also concluded that the involvement of Messrs. O'Neal, Feist and
Thurman was important, not only to implement Advanced's strategy of becoming a
regional competitive local exchange carrier, but also to induce them to sell
their companies to Advanced, and it agreed to and did enter into employment
agreements with these individuals. The terms of their employment agreements are
not repeated in this report but are described under the caption "Employment
Agreements." Their respective base salaries and stock option awards are included
in the Summary Compensation Table.
The base salary arrangements and the non-qualified stock options awarded to
them in February 1998 when Advanced acquired their companies, were the result of
intense negotiations between Advanced and each of Messrs. O'Neal, Feist and
Thurman. Although the amount of their base salaries, the number of stock options
awarded to each and their respective terms were determined subjectively and were
not tied to salary surveys or other independent criteria, the employment
arrangements were nevertheless based on arm's length negotiations. The board of
Advanced at the time the contracts were executed intended that the stock options
and terms of the bonus arrangements contained in each employment contract would
serve as an incentive to each of the individuals to be actively and vigorously
involved in continuing to run the company each was selling to Advanced and to
help integrate the companies acquired by Advanced.
APPOINTMENT OF MR. O'NEAL AS CHAIRMAN AND ACTING CHIEF EXECUTIVE OFFICER;
MR. ANTHONY'S SEVERANCE ARRANGEMENTS
The IPO and the roll-up were completed on February 18, 1998. Advanced
immediately began attempting to implement its strategy and growth plans, but
these efforts were stymied by the inability to raise the capital Advanced
believed it needed, which it estimated to be approximately $200 million. Through
the summer of 1998 and continuing into the fall, Advanced found itself unable to
access the private equity or debt markets to fund telecommunications operating
losses, working capital requirements and the construction of its local switching
network, a key component of its strategic business plan. The inability to
implement its strategy and growth plans coupled with the issues involved in
trying to integrate nine separate companies and unanticipated operational
problems led to ongoing, unexpected losses of significant proportion.
By November 1998, Advanced's board decided a change in the position of
chairman of the board and chief executive officer was necessary. At a board
meeting held on November 9, 1998, Mr. Richard O'Neal was appointed acting chief
executive officer, replacing Mr. Anthony. The replacement of Mr. Anthony was a
result of the mounting operating losses and the inability of Advanced to raise
41
<PAGE>
capital and improve results, and thereby to instill investor confidence.
Mr. O'Neal was selected because of his success in managing Advanced's yellow
pages publishing division.
Mr. O'Neal accepted the position of chairman of the board and agreed to
serve as chief executive officer on an interim basis only, indicating to the
Advanced board that it would need to begin a search for a permanent chief
executive officer. Given the financial condition of Advanced, Mr. O'Neal also
agreed to take on the new responsibilities without an increase in the salary due
him under his employment contract. He also agreed to forego any additional stock
options or bonus.
The Board determined that it would be appropriate to enter into severance
arrangements with Mr. Anthony consistent with the terms of his employment
contract. The board charged a special committee, consisting of Messrs. O'Neal,
Hollinger and Moses, to negotiate a settlement with Mr. Anthony and his counsel.
The terms of the settlement agreement, which was executed on December 16, 1998,
are described under the caption "Employment Agreements" and the amount is
included under "All Other Compensation" in the Summary Compensation Table.
BONUSES AWARDED FOR FISCAL 1998
The employment contracts of Messrs. Cragg and Zimmer provided for the
potential of earning cash bonuses of up to 100% and 50% of their base salaries,
respectively. At numerous meetings during early 1999, the board evaluated the
performance of Advanced since the IPO and it assessed the performance of
Messrs. Cragg and Zimmer. The Advanced board concluded that for many reasons,
including primarily Advanced's inability to access the private debt and equity
markets, Advanced had been unable to implement its strategy and faced an
uncertain future. However, the Advanced board recognized the many and
significant efforts of Messrs. Cragg and Zimmer to preserve as much stockholder
value as possible and concluded that but for their efforts, Advanced's financial
condition might have been worse. Nevertheless, Advanced's 1998 results had been
disappointing and the Advanced board did not believe it appropriate that either
Messrs. Cragg or Zimmer should receive the entire bonuses they could have earned
under their contracts. Therefore, exercising the discretion contemplated under
their respective employment contracts, the compensation committee, after
consulting with Advanced's board, awarded Mr. Cragg a bonus for 1998 of $87,500,
representing 50% of his base salary, and awarded Mr. Zimmer a cash bonus of
$47,500, representing 27% of his 1998 base salary. These amounts, although paid
in 1999, were for fiscal 1998 performance and are contained in the Summary
Compensation Table. Although their respective employment contracts called for
the award of performance bonuses as determined by the compensation committee,
the compensation committee did not award bonuses to Messrs. O'Neal, Feist or
Thurman for fiscal 1998.
EQUITY COMPENSATION FOR FISCAL 1998
The employment agreements of Messrs. Cragg and Zimmer provide for the
discretionary award of stock options if certain performance goals are met. Given
the fact that Advanced was new and that the compensation committee as it existed
during the last five months of 1998 was not put in place until the third quarter
of the year with the election of Messrs. Benton and Moses to the board on
July 29, 1998, the performance goals under their respective contracts were not
set. However, based on the same rationale the compensation committee used for
the award of the cash bonuses for fiscal 1998, the compensation committee
awarded non-qualified stock options to purchase 50,000 shares of Advanced common
stock at an exercise price of $5.87 per share to each of Messrs. Cragg and
Zimmer under the Advanced Communications Group, Inc. 1997 Stock Awards Plan.
Although their respective employment contracts called for the award of stock
options as determined by the compensation committee, the compensation committee
did not award any stock options to Messrs. O'Neal, Feist or Thurman.
42
<PAGE>
REPLACEMENT OF STOCK OPTIONS
The stated purpose of the 1997 Stock Awards Plan is to provide a means
through which Advanced and its subsidiaries may attract able employees and to
provide a means for those key employees upon whom the responsibilities of the
successful administration and management of Advanced rest, and whose present and
potential contributions to the welfare of Advanced are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of Advanced and their desire to remain in its employ. A further
purpose of the 1997 Stock Awards Plan is to provide such key employees with
additional incentive and reward opportunities designed to enhance the profitable
growth of Advanced. Accordingly, the 1997 Stock Awards Plan provides for
granting Incentive Stock Options, options which do not constitute Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance
Awards, Phantom Stock Awards, or any combination of the foregoing, as is best
suited to the circumstances of the particular employee as provided therein.
Prior to December 13, 1998, non-qualified options to purchase shares of
Advanced common stock had been awarded to key managerial employees including the
executive officers named in the Summary Compensation Table. At a meeting of the
board held on December 13, 1998, the Advanced board concluded that the
outstanding options to purchase Advanced common stock held by Advanced's
employees with exercise prices of $10.50 per share or higher, were not providing
the intended incentive to the key managers and officers. The closing market
price for Advanced's common stock on the immediately preceding business day was
$4.75 per share and the exercise prices of virtually all of the stock options
had been above the market value since July 31, 1998.
In order to restore the incentive value to such options, the Advanced board
decided to replace unexercised non-qualified stock options with a strike price
equaling or exceeding $10.50 per share, referred to in this report as the "Price
Eligible Options", for the grant of non-qualified stock options to purchase
one-half the number of shares of stock represented by each optionee's Price
Eligible Options, referred to in this report as the "New Options." The exercise
price per share of the New Options was $4.50, which was equal to the per share
closing price of Advanced's common stock as reported by the New York Stock
Exchange on Monday, December 14, 1998. The New Options had the same vesting
schedule as the Price Eligible Options, but were not exercisable for six months
after December 13, 1998, the date of grant.
As a result, there are currently non-qualified stock options outstanding to
purchase 982,250 shares at an exercise price of $4.50 per share. Additional
non-qualified stock options held by current and former employees are outstanding
to purchase an additional 1,412,397 shares at various prices ranging from $2.50
to $14.00 per share.
No non-qualified stock options granted under the Directors Plan were
replaced.
LIMITATIONS ON TAX DEDUCTIONS FOR EXECUTIVE COMPENSATION
The Internal Revenue Code, and the regulations promulgated thereunder, limit
the tax deduction Advanced may recognize for compensation paid to the executive
officers whose compensation is listed in this proxy statement, to $1.0 million
for any person, per year. This deduction limit does not apply to compensation
that complies with applicable provisions of such regulations. Because the
compensation paid to such persons did not exceed $1.0 million for any person in
1998, the compensation committee did not need to take any action prior to or
during 1998 which would have been required to comply with these regulations. The
compensation committee will continue to evaluate the other components of
Advanced's executive compensation program and will take the necessary actions
with respect to such regulations if it is deemed appropriate to do so with
respect to compensation to be paid to executive officers in future years.
ROBERT F. BENTON DAVID M. MITCHELL
ROD K. CUTSINGER RICHARD O'NEAL
TODD J. FEIST FRED L. THURMAN
Being all the Members of the Board of Directors
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS($)
ANNUAL COMPENSATION ----------------------- ----------
---------------------------------------------- (F) (G)
(E) RESTRICTED SECURITIES (H) (I)
(A) OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND (B) (C) (D) COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($) ($) ($) ($)
- -------------------------- -------- --------- -------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard O'Neal 1998 300,000 -0- -0- -0- 225,000(1) -0- -0-
Chairman, Chief 1997 -0- -0- -0- -0- -0- -0- -0-
Executive Officer
and President-Directory
Services Group
Richard P. Anthony 1998 211,218 -0- -0- -0- -0- -0- 354,125(4)
Chief Executive 1997 -0- -0- -0- -0- 500,000 -0- -0-
Officer(4)
James F. Cragg 1998 175,000 87,500 -0- -0- 137,500(2) -0- 808
President and Chief 1997 -0- 100,000 -0- -0- 425,000(3) -0- -0-
Operating Officer(5)
William H. Zimmer III 1998 185,000 47,500 -0- -0- 175,000(2) -0- 427
Executive Vice 1997 -0- 50,000 -0- -0- 350,000(3) -0- -0-
President and
Chief Financial
Officer(6)
Fred L. Thurman 1998 175,000 -0- -0- -0- 150,000(1) -0- 424
Senior Vice President 1997 -0- -0- -0- -0- -0- -0- -0-
Corporate Development
Todd J. Feist 1998 99,124 50,000 -0- -0- -0- -0- -0-
Vice President-Business 1997 -0- -0- -0- -0- 250,000 -0- -0-
Markets Central Region
</TABLE>
- --------------------------
(1) Includes original stock option awards for 150,000 shares to Mr. O'Neal and
100,000 shares to Mr. Thurman which were cancelled and replaced with new
options in connection with Advanced's repricing on December 13, 1998. The
replacement options for 75,000 shares to Mr. O'Neal and 50,000 shares to
Mr. Thurman are also included in the total 1998 option awards.
(2) These options were awarded on December 13, 1998, to replace non-qualified
stock options to purchase twice as many shares originally granted to the
named executive officer.
(3) Stock option awards for 275,000 shares to Mr. Cragg and for 350,000 shares
to Mr. Zimmer granted in 1997 were cancelled and replaced by the options
described in footnote 2 above.
(4) Mr. Anthony ceased employment with Advanced in November 1998. The amount
under "All Other Compensation" represents Mr. Anthony's severance payout
upon the termination of his employment agreement.
(5) Mr. Cragg was promoted from executive vice president sales and marketing to
president and chief operating officer in November 1998 and subsequently
resigned from those positions and from the Advanced board effective
June 30, 1999.
(6) Mr. Zimmer resigned from his position and from the Advanced board effective
September 30, 1999.
44
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information as to options grants in fiscal 1998
to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
(B) (C) ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS (D) OPTION TERM(3)
UNDERLYING GRANTED TO EXERCISE OR (E) ----------------------
(A) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION (F) (G)
NAME GRANTED # FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard O'Neal............... 225,000(1) 2.4 4.50 12/14/08 212,252 537,888
Richard P. Anthony........... -0- N/A N/A N/A N/A N/A
James F. Cragg............... 137,500(2) 1.6 4.50 12/14/08 389,128 986,128
William H. Zimmer III........ 175,000(2) 1.6 4.50 12/14/08 495,254 1,255,072
Fred L. Thurman.............. 150,000(1) 1.6 4.50 12/14/08 141,501 358,592
Todd J. Feist................ -0- N/A N/A N/A N/A N/A
</TABLE>
- ------------------------
(1) Includes original stock option awards for 150,000 shares to Mr. O'Neal and
100,000 shares to Mr. Thurman which were cancelled and replaced with new
options on December 13, 1998. The replacement options for 75,000 shares to
Mr. O'Neal and 50,000 shares to Mr. Thurman are also included in the total
1998 options granted. The potential realizable value does not include values
related to original awards which were subsequently cancelled and replaced.
(2) These options, were awarded on December 13, 1998, to replace non-qualified
stock options to purchase twice as many shares as were originally granted to
the named executive officers.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC and therefore are not intended to forecast
future appreciation, if any, of the stock price of Advanced. Advanced did
not use an alternative formula for a grant date valuation, as Advanced is
not aware of any formula that will determine with reasonable accuracy a
present value based on future unknown factors.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
The following table provides information on the number and value of each
such executive's unexercised options to acquire Advanced common stock at
December 31, 1998.
<TABLE>
<CAPTION>
(B)
NUMBER OF (C)
SECURITIES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END($)(1)
--------------------- ------------------------
(A) EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- --------------------- ------------------------
<S> <C> <C>
Richard O'Neal...................................... 0/75,000 0/0
Richard P. Anthony.................................. 266,667/233,333 253,500/0
James F. Cragg...................................... 150,000/137,500 253,500/0
William H. Zimmer III............................... 0/175,000 0/0
Fred Thurman........................................ 0/50,000 0/0
Todd J. Feist....................................... 250,000/0 422,500/0
</TABLE>
- ------------------------
(1) Based on the New York Stock Exchange consolidated trading closing price of
Advanced common stock on December 31, 1998 of $4.19.
45
<PAGE>
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
(G)
(C) LENGTH OF
NUMBER OF (D) (E) ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT (F) REMAINING AT
OPTIONS/SARS TIME OF TIME OF NEW DATE OF
(A) (B) REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT($) PRICE ($) AMENDMENT
---- -------- ------------ ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard O'Neal........... 12/13/98 75,000 $4.50 $14.00 $4.50 9 years
Richard P. Anthony....... N/A N/A N/A N/A N/A N/A
James F. Cragg........... 12/13/98 137,500 $4.50 $14.00 $4.50 9 years
William H. Zimmer III.... 12/13/98 175,000 $4.50 $14.00 $4.50 9 years
Fred Thurman............. 12/13/98 50,000 $4.50 $14.00 $4.50 9 years
Todd J. Feist............ N/A N/A N/A N/A N/A N/A
</TABLE>
EMPLOYMENT AGREEMENTS
Upon their employment with Advanced in December 1997, Messrs. Cragg and
Zimmer entered into six year long employment agreements with Advanced providing
for their employment at annual base salaries of $175,000 and $185,000,
respectively. The agreements provided for a bonus potential equal to 100% of
base salary for Mr. Cragg and 50% of base salary for Mr. Zimmer. The agreements
also provided for the annual grant of options to purchase up to 50,000 shares of
Advanced common stock each at the current market price on the date of grant, if
certain targets set by the compensation committee were met.
Under the terms of their respective agreements, Messrs. Cragg and Zimmer
would be entitled to their base salaries for a period of two years if either
were to resign after a change in the ownership or management of Advanced that
significantly altered their job responsibilities or compensation. Further, under
the terms of the 1997 Stock Awards Plan under which their options were granted,
their options would vest immediately upon their resignation following a change
of control or the termination of their employment other than "with cause" as
defined.
In November 1998, after the resignation of Mr. Anthony from his position as
president and chief executive officer, Mr. Cragg was appointed president and
chief operating officer and his salary was raised to $200,000 per year. In all
other respects, his employment contract remained the same.
When the Advanced board decided to change its business focus, strategy and
direction, the compensation committee determined that the employment
arrangements of Messrs. Cragg and Zimmer would need to be revised. The
compensation committee recognized that while both might desire to resign given
the restructuring of Advanced's operations, it was important to provide each of
them with an incentive to remain with the company at least in the short term.
The compensation committee and ultimately the board concluded that the efforts
of Messrs. Cragg and Zimmer would be required until an agreement for the
acquisition of YPtel had been executed and interim financing intended to provide
working capital sufficient until the closing of the acquisitions had been
obtained.
In late April 1999, both Messrs. Cragg and Zimmer executed severance
agreements related to the termination of their employment and their resignations
as directors of Advanced. The agreements that each entered were similar and
provided that:
- their new employment terms would terminate on the later to occur of:
- June 30, 1999; or
- the signing of the agreement providing for the acquisition of YPtel
by Advanced.
46
<PAGE>
- the options each had received upon their initial employment with
Advanced and the performance options which had been awarded to each of
them would vest upon the termination of their employment;
- each had received performance options to purchase 50,000 shares of
Advanced common stock for 1998.
- upon execution of their respective letter agreements, each would
receive restricted common stock of Advanced that would be forfeited if:
- the individual did not remain with Advanced and fulfill his
employment obligations through the end of the new term; or
- the individual did not sign a mutual release and settlement
agreement with Advanced.
- Mr. Cragg was awarded 38,000 shares of restricted stock.
- Mr. Zimmer was awarded 20,000 shares of restricted stock.
- the exercise period of their respective options would extend until one
year from the date of the termination of their respective employment,
but no shares purchased upon exercise could be sold within ninety days
of their respective terminations;
- each would receive two years' base salary from the date of their
respective termination of employment with Advanced; and
- each would be entitled to a performance bonus for the 1999 fiscal year
as approved by Advanced's board of directors, on a pro-rata basis based
on the effective date of their respective terminations of employment.
Although the interim financing with the subsidiary of Bank of America
Corporation closed May 14, 1999 and the acquisition agreements were executed
effective June 3, 1999, Mr. Cragg remained with Advanced through June 30, 1999,
at which time he resigned as president, chief operating officer and as a
director of Advanced. Mr. Zimmer remained with Advanced through September 30,
1999, at which time he resigned as executive vice president, chief financial
officer, secretary and treasurer and as a director of Advanced.
Mr. Anthony G. Capers entered into a five-year employment agreement with
Advanced on March 31, 1998, which was amended in December 1998, providing for an
annual base salary of $160,000. Under the terms of the agreement, Mr. Capers was
appointed to the position of senior vice president/business markets and was
eligible for a cash bonus of up to $50,000. The agreement also provided for the
grant of options to purchase up to 70,000 shares of Advanced common stock at the
IPO price of $14.00 per share. The options had terms of ten years and were to
become exercisable in one-third increments on each anniversary of the date of
grant. The options were subsequently replaced with options to purchase 35,000
shares at an exercise price of $4.50 per share in December 1998.
After the announcement of the change in Advanced's business focus, strategy
and direction in April 1999 and in connection with the contemplated resignation
of Mr. Cragg, Advanced management determined that the services of Mr. Capers
would be essential to run Advanced's telecommunications operations until they
could be sold. To retain Mr. Capers, management negotiated a letter agreement
amendment to Mr. Capers' employment agreement dated May 5, 1999, naming
Mr. Capers the president and chief operating officer, which became effective
June 30, 1999, the official termination date of Mr. Cragg. In accordance with
his employment agreement, as amended, Mr. Capers received a bonus of $250,000
upon the sale of Advanced's telecommunications operations and received $100,000
as severance as called for in his employment agreement.
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,
47
<PAGE>
and a bonus potential ranging from 50% to 63% of base salary. If Advanced
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 Advanced, Mr. O'Neal shall be entitled to continue to
receive his base salary until the scheduled expiration date of his employment
agreement.
In connection with the sale of FirsTel and Feist Long Distance, Advanced
paid Messrs. Thurman and Feist $319,217 and $133,407, respectively, in
settlement of Advanced's obligations to them under their respective employment
agreements.
In December 1998, Advanced replaced unexercised non-qualified stock options
with a strike price equaling or exceeding $10.50 per share for the grant of
non-qualified stock options to purchase one-half the number of shares of
Advanced common stock at $4.50 per share. Messrs. Cragg, Zimmer and Thurman each
received replacement options. See "Corporate Information about Advanced and its
Management--Report of the Board of Directors on Executive Compensation," and
"--Ten Year Option/SAR Repricings."
On December 16, 1998, a Severance Agreement by and between Advanced and
Richard P. Anthony was executed in connection with the termination of his
employment with Advanced. 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 obligations under his employment agreement and $104,125 in
severance pay. Mr. Anthony was also given the right to exercise, through
November 8, 2001, all of the non-qualified stock options to purchase 500,000
shares of Advanced's common stock that had been previously awarded to him. Of
those stock options, 350,000 are exercisable at $14.00 a share and 150,000 are
exercisable at $2.50 per share. Advanced also agreed to pay Mr. Anthony's health
insurance through November 8, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Reginald Hollinger, a former managing director and group head of the
Telecommunications Investment Banking Group at PaineWebber Incorporated and a
former member of the Investment Banking Division's Management Committee, was
also a member of the board's compensation committee from February 1998 until his
resignation from the board effective April 30, 1999. PaineWebber is one of
Advanced's investment banking firms and served as the lead manager in Advanced's
IPO. Neither the board nor Mr. Hollinger, during the time he served on the
Advanced board, believe these relationships affected in any manner his ability
to serve on, or fulfill his obligations to Advanced and its stockholders as a
member of the compensation committee of the board. To date, Advanced has
incurred liabilities to PaineWebber of $1,828,000 for investment banking
services rendered to it in 1999, including $750,000 in connection with the
fairness opinion rendered to Advanced described under the caption "Opinion of
Advanced's Financial Advisor," a copy of which is attached hereto as Annex D.
Advanced does not anticipate engaging PaineWebber for investment banking
services during the remainder of fiscal 1999. Mr. Hollinger resigned from
PaineWebber on April 30, 1999 to take a position with another firm, at which
time he also resigned from Advanced's board.
Messrs. Richard P. Anthony, James F. Cragg and William H. Zimmer III, each
of whom were executive officers and directors of Advanced in Fiscal 1998, served
on the board of directors of KINNET until December 30, 1998. Mr. E. Clarke
Garnett, a director of Advanced until December 30, 1998, was an executive
officer of KINNET during Fiscal 1998. Advanced does not believe that this
relationship constituted a compensation committee interlock, inasmuch as
Mr. Garnett did not sit on Advanced's compensation committee nor did he
participate in the decisions on the remuneration to be paid by Advanced to its
executive officers.
48
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total stockholder returns for
Advanced with the cumulative total return of the S&P 500 Stock Index and the
cumulative total return of a peer group of public companies that sells services
similar to Advanced's telecommunications operations. The companies included in
the index in addition to Advanced are e.spire Communications, Inc.; GST
Telecommunications, Inc.; Hyperion Communications, Inc.; ICG Communications,
Inc.; ITC-DeltaCom, Inc.; McLeodUSA, Inc.; and US LEC Corp.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ADVANCED COMMUNICATIONS GROUP, INC. S & P 500 PEER GROUP
2/18/98 100 100 100
2/98 110 102 115
3/98 114 108 128
4/98 102 109 130
5/98 64 107 120
6/98 50 111 129
7/98 67 110 120
8/98 43 94 85
9/98 44 100 71
10/98 26 108 92
11/98 37 115 84
12/98 30 122 87
1/99 43 127 96
2/99 34 123 91
3/99 35 128 114
4/99 50 133 136
5/99 72 129 130
6/99 71 137 138
</TABLE>
<TABLE>
<CAPTION>
2/18/98 3/31/98 6/30/98 9/30/98 12/31/98 1/31/99 2/28/99 3/31/99 4/30/99
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advanced $100 $114 $ 50 $ 44 $ 30 $ 43 $ 34 $ 35 $ 50
S&P 500 $100 $108 $111 $100 $122 $127 $123 $128 $133
Peer Group Index $100 $128 $129 $ 71 $ 87 $ 96 $ 91 $114 $136
<CAPTION>
5/31/99 6/30/99
-------- --------
<S> <C> <C>
Advanced $ 72 $ 71
S&P 500 $129 $137
Peer Group Index $130 $138
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Richard A. O'Neal is an officer, director and owner of 50% of the
outstanding voting securities of Big Stuff. During the fiscal year ended
December 31, 1998, Advanced paid Big Stuff approximately $1.3 million for yellow
pages colorizing services. Advanced believes that the amount paid to Big Stuff
for colorizing services is equivalent to amounts that it would have paid an
unrelated third party for similar services. Great Western and Big Stuff have
entered into a sales agreement pursuant to which Big Stuff expects to continue
to render the foregoing services to Great Western upon terms and conditions that
Advanced considers reasonable under the circumstances. Big Stuff has also agreed
to give Great Western the exclusive right to market WorldPages in its service
areas.
The 5% Subordinated Notes were issued by Advanced to the former stockholders
of Great Western, including Mr. O'Neal. The principal amount outstanding under
the 5% Subordinated Notes held by Mr. O'Neal is $8.4 million. The interest
incurred on the 5% Subordinated Notes held by Mr. O'Neal during the fiscal year
ended December 31, 1998 was $0.4 million. The principal and accrued interest are
to be redeemed for Advanced common stock at a redemption price of $5.50 per
share if the Advanced common stockholders approve Proposal 2. See "Proposal
2--The Acquisitions
49
<PAGE>
and Related Matters--Approval of Issuance of Securities by Advanced and its
Subsidiaries" and "Proposal 3--Approval of Benefits Accruing to Mr. O'Neal."
Until the IPO, Advanced's activities had been financed through a loan from
Consolidation Partners Founding Fund. In February 1998, the $3.2 million balance
of the loan was paid. During 1998, Advanced incurred interest expense of
$149,000 relating to the loan.
Advanced and Mr. Rod K. Cutsinger, a director of Advanced, are parties to an
agreement pursuant to which Mr. Cutsinger, among other things, has agreed that
he will not:
- acquire any voting securities of Advanced other than Advanced common stock
issuable as stock dividends or splits or upon exercise of his options
under the Advanced Nonqualified Stock Option Plan for Non-employee
Directors;
- sponsor or participate in any proxy solicitations;
- enter into or form voting trusts, pooling agreements or groups;
- vote any of his shares of Advanced common stock in opposition to the
recommendation of the disinterested members of the Advanced board of
directors regarding the election or removal of directors and matters
relating to a possible change in control of Advanced; or
- directly or indirectly assist, encourage or induce any person to bid or
acquire any class of securities that is entitled to vote for the election
of directors.
The agreement with Mr. Cutsinger expires if he resigns or is otherwise removed
from the board of directors of Advanced.
Mr. Cutsinger has expressed his intent to vote all of his shares of Advanced
common stock in favor of Proposals 1, 2 and 3. The Advanced board has
effectively amended the agreement between Advanced and Mr. Cutsinger on a
one-time basis only, to allow him to receive warrants to purchase 30,000 shares
of Advanced common stock in compensation for his efforts in negotiating the
terms of the YPtel, Web YP and Big Stuff acquisitions. Further, or prior to
closing, ACG and Mr. Cutsinger intend to execute an amendment to the agreement
that will have the effect that upon the acquisitions of YPtel, Web YP and Big
Stuff, Mr. Cutsinger's obligations under the Agreement will terminate.
In the acquisition agreement by which Advanced acquired Valu-Line, one of
Advanced's telecommunications subsidiaries, Advanced agreed to place David M.
Mitchell on the Advanced board. The agreement also obligated Advanced's board to
place Mr. Mitchell on its slate of nominees for election by the Advanced common
stockholders prior to the expiration of his then existing term, so long as
Mr. Mitchell owns at least 100,000 shares of common stock at the time of
renomination. The Advanced board last nominated Mr. Mitchell and he was last
elected to a three year term as a director at the 1998 Annual Meeting.
Through November 19, 1999, Advanced had a strategic relationship with Feist
Publications, Inc., a publisher of yellow page directories in 15 markets in
Kansas, Texas and Oklahoma, through which Advanced's telecommunications sales
force had access to Feist Publications' 29,000 yellow page advertisers. Feist
Publications agreed to provide Advanced with access to its advertising customers
and to provide eight information pages in the front of its directories with
instructions on how to subscribe to Advanced's services as well as free
advertising in each of Feist Publications' white pages directories that are
currently in publication. Feist Publications reserved the right to terminate
this agreement if Advanced commenced the publication of a yellow pages directory
in any market served by Feist Publications. On November 19, pursuant to the
stock purchase agreement, as amended, this contract was assigned to Feist Long
Distance Service, Inc.
On December 30, 1998, Advanced entered into a stock purchase agreement with
Liberty Cellular, Inc. and KIN Network, Inc. Under the agreement, Advanced sold
all of the 201,988 shares of common stock of KINNET which it owned, to Liberty,
the other shareholder of KINNET. The shares represent 49% of the total issued
and outstanding common stock of KINNET. Upon Liberty's acquisition of the
50
<PAGE>
shares, it became the sole shareholder of KINNET. At the time of the sale,
KINNET was the owner and operator of an approximately 1,400 route-mile fiber
optic network, utilizing a Nortel DMS-500-TM- switch, that served a 26-county
area in Kansas. Advanced's purpose in entering into the transaction with Liberty
and KINNET was to provide itself with additional capital to invest in its
network while retaining access to KINNET's fiber optic network in the key
serving areas in Kansas. As partial consideration for Advanced's sale of the
KINNET stock to Liberty, Liberty paid Advanced $10.0 million in cash and
returned 225,000 shares of Advanced common stock to Advanced.
Under the agreement by which Advanced had initially acquired its
stockholdings in KINNET, Liberty had the right to designate one individual to
serve on Advanced's board and Advanced's board was obligated to nominate
Liberty's designee. Liberty's designee at the time Advanced agreed to sell the
KINNET shares back to Liberty was E. Clarke Garnett. Mr. Rod K. Cutsinger, also
a director of Advanced, was obligated to vote the shares of Advanced common
stock owned by him for Liberty's designee pursuant to a letter agreement between
Mr. Cutsinger and Liberty. As part of the agreement by which Advanced sold its
KINNET stock back to Liberty, Liberty's right to designate a director and
Advanced's obligation were terminated. Accordingly, Mr. Garnett resigned from
Advanced's board effective December 30, 1998. Mr. Cutsinger's obligation was
also terminated pursuant to the terms of the stock purchase agreement.
AUTHORIZED AND OUTSTANDING ADVANCED CAPITAL STOCK
At the date of this proxy statement, the authorized capital stock of
Advanced is 200,000,000 shares, consisting of 180,000,000 shares of common stock
and 20,000,000 shares of preferred stock.
COMMON STOCK. The holders of common stock are entitled to dividends in such
amounts and at such times as may be declared by the board of directors out of
funds legally available. Holders of the common stock are entitled to one vote
per share for the election of directors and other corporate matters. In the
event of liquidation, dissolution or winding up of Advanced, holders of common
stock would be entitled to share ratably in all assets of Advanced available for
distribution to the holders of common stock. The common stock carries no
preemptive rights. As of the close of business on December 23, 1999,
20,386,260 shares of common stock were outstanding.
PREFERRED STOCK. Advanced's board is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, 20,000,000
shares of preferred stock with such dividend, redemption, conversion and
exchange provisions as are provided in the particular series. Except as by law
expressly provided, or except as may be provided by resolution of the Board, the
preferred stock shall have no right or power to vote on any question or in any
proceeding or to be represented at, or to receive notice of, any meeting of
stockholders of Advanced. The issuance of preferred stock, or the perception
that such an issuance might occur, could have the effect of delaying or
preventing a change in control of Advanced.
Effective August 18, 1999, the holder of 142,857 shares of Series A
Redeemable Cumulative Preferred Stock converted those shares into a like number
of shares of Advanced common stock. No other shares of preferred stock are
issued or outstanding and the Board of Directors has no present plans to issue
any of the preferred stock other than the Class B Voting Preferred Stock to be
issued to the trustee under the Voting and Exchange Trust Agreement. Advanced
will issue to the trustee one share of Class B Voting Preferred Stock having an
aggregate liquidation preference of $1.00 before any distribution is made on the
common stock or on any other Advanced stock ranking junior to the Class B Voting
Preferred Stock as to distribution of assets on liquidation, dissolution or
winding up. The Class B Voting Preferred Stock will be senior to the common
stock as to liquidation and:
- will have super majority voting rights so that the one share of Class B
Voting Preferred Stock will have that number of votes equal to the number
of outstanding Class A Special Shares; and
- will not be entitled to receive dividends.
51
<PAGE>
MARKET FOR ADVANCED'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advanced's common stock is traded on the New York Stock Exchange under the
symbol "ADG".
Set forth below is the high and low closing sale prices of Advanced common
stock as reported by the New York Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
MARKET PRICE
------------------- DIVIDENDS
YEAR END DECEMBER 31, 1998 HIGH LOW PER SHARE
-------------------------- -------- -------- ---------
<S> <C> <C> <C>
1st Quarter (from February 18, 1998)........................ $17.50 $12.69 $0.00
2nd Quarter................................................. 16.00 6.63 0.00
3rd Quarter................................................. 12.94 4.88 0.00
4th Quarter................................................. 7.19 3.00 0.00
<CAPTION>
MARKET PRICE
------------------- DIVIDENDS
YEAR END DECEMBER 31, 1999 HIGH LOW PER SHARE
-------------------------- -------- -------- ---------
1st Quarter. .00 7 .94 3 $ 0.00
<S> <C> <C> <C>
2nd Quarter................................................. 13.00 4.75 0.00
3rd Quarter................................................. 9.50 6.63 0.00
4th Quarter................................................. 13.625 6.00 0.00
</TABLE>
No dividends have been paid on the common stock since Advanced's inception.
Great Western's revolving credit facility prohibits cash dividend payments and
any new credit facility that Advanced may obtain for working capital
requirements in the foreseeable future may also place a prohibition or
limitations on the payment of cash dividends.
Further, it is unlikely that the Advanced board would declare a dividend
during the time the Class A Special Shares are owned by a party other than
Advanced or any of its subsidiaries. Under the terms of the Support Agreement
and the share provisions by which the Class A Special Shares are created, if
Advanced wishes to declare a cash dividend on shares of Advanced common stock,
it is required to cause ACG Exchange Company to issue an economically equivalent
dividend to the holders of the Class A Special Shares. Declaring such dividends
may subject ACG Exchange Company to a 66 2/3% Canadian tax on the amount so
distributed to the holders of the Class A Special Shares on dividends in excess
of an aggregate amount of $500,000 (Canadian) per year. This could have the
effect of making the whole dividend transaction cost prohibitive to Advanced.
Finally, even if Advanced were able to pay cash dividends and were willing
to incur tax liability, it is Advanced's current intention to retain its
earnings, if any, to finance the change in its business focus, strategy and
direction including the expansion of its yellow pages publishing and internet
directory business and for general corporate purposes. Accordingly, Advanced
does not anticipate that it will pay cash dividends for the foreseeable future.
Advanced is not prohibited from declaring dividends on its common stock or
preferred stock payable in its capital stock, but the tax liability discussed
above with respect to cash dividends applies to stock dividends, as well. This
tax liability may make it unlikely that Advanced would declare a stock dividend
either.
As of December 23, 1999, there were 153 owners of record of the common
stock. On that date, the closing price of the common stock on the NYSE was
$11.00.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Advanced has not submitted any matters to a vote of its stockholders since
its 1998 Annual Meeting of Stockholders held on July 29, 1998.
52
<PAGE>
BUSINESS OF ADVANCED AND GREAT WESTERN
YELLOW PAGES PUBLISHING
Advanced is one of the ten largest independent yellow pages publishers in
the United States. Through its wholly-owned subsidiary, Great Western, Advanced
publishes and distributes approximately 3.8 million yellow pages directories
annually in 23 markets in Texas, Oklahoma and California. Great Western, founded
in 1984 and headquartered in Amarillo, Texas, entered the Austin, Texas market
in 1999. Great Western's revenues are derived from advertising space sold in its
directories which are produced and distributed annually in each market. Great
Western's annual revenues have increased from $29.4 million in 1995 to
$47.3 million in 1998. Advanced's EBITDA from continuing operations for the
fiscal year ended December 31, 1998 was $8.2 million. Great Western has
historically increased revenues by increasing the number and size of
advertisements in recurring directories and by introducing new directories in
new markets. Great Western has targeted new directories and markets that are
contiguous to its existing markets in order to utilize its established sales
infrastructure and Great Western Directories' brand name recognition. Through a
contractual relationship with Big Stuff and Web YP, companies owned in part by
Advanced's chairman and acting chief executive officer, Mr. Richard O'Neal,
Great Western currently markets WorldPages, a yellow pages Internet directory
website service operated by Web YP, to its yellow pages customers in its target
markets. Advanced has found that this service provides an opportunity not only
to provide customers with web page design and support, but also to expand into
web based advertising and electronic commerce. Advanced will also consider
growth through acquisitions of other independent yellow pages publishers that
fit into its strategic plans.
Advanced, through Great Western, utilizes commissioned employee sales
personnel of approximately 180 people and 20 telemarketing representatives to
sell its advertising space to small and medium sized businesses in its markets.
Advanced sells advertising to approximately 52,000 customers in its directories.
When Advanced, through Great Western, expands into a new market, it
typically seeks to attract targeted customers by producing and publishing a
complete directory in which it gives away advertising space to customers which
is referred to as a prototype directory. After the advertisers have had an
opportunity to experience the reception of the new directory and the response to
their advertisements in the marketplace, Advanced will sell the advertising in
the second and subsequent years. Because of this strategy, Advanced may have
substantial expenses relating to its first directory in a new market with no
corresponding revenues. In 1998, Advanced had $.4 million of costs related to
the prototype directory in one market and expects to incur expenses of
$3.0 million relating to another prototype directory in 1999. Advanced believes
that this strategy improves the success of launching a new directory and builds
stronger customer relationships and customer loyalty than it could otherwise
achieve by selling the advertising for a new directory.
DISCONTINUED BUSINESS OF ADVANCED AND DISPOSAL OF TELECOMMUNICATIONS OPERATIONS
Advanced completed its initial public offering in February 1998, at which
time it acquired eight telecommunications service providers and a yellow pages
publisher. Advanced established a regional competitive local exchange carrier
that provided integrated communications services to business and residential
customers located in the Midwestern region of the United States. Advanced's
integrated communications services included local, long distance, Internet
access, cellular and enhanced voice and data services. Advanced's
telecommunications operations focused primarily on small and medium size
businesses in Kansas, Minnesota, Nebraska, North Dakota, Oklahoma, South Dakota
and Texas. As of December 31, 1998, Advanced had over 125,000 local access lines
in service and provided integrated communications services to over 60,000
customers.
Prior to the sale of its telecommunications services operations on November
19, 1999, Advanced owned and operated telecommunications networks that included
six digital switches in Kansas, Oklahoma, South Dakota and Texas. Advanced
installed its first Class 5 switch in Wichita, Kansas.
53
<PAGE>
Advanced had planned to install three additional switches in Texas, Minnesota
and Kansas in 1999 prior to pursuing its change in strategy toward its yellow
pages business. Advanced's local exchange network architecture was designed to
allow it or any purchaser of Advanced's telecommunications operations, to
provide services to customers within a targeted 350-mile radius of each switch
location. Advanced selected a number of central office locations of the
incumbent local exchange carriers for interconnection with its local exchange
switches through physical collocation of its transmission electronics in the
ILEC central offices and at Advanced's own interconnection locations, or points
of presence. In areas in which Advanced's telecommunications operations did not
have network equipment, its telecommunications operations resold the
communications services of providers such as Southwestern Bell Telephone
Company, U S West Communications, Inc. and others. Advanced entered into
comprehensive local exchange resale agreements with Southwestern Bell,
U S West, affiliates of GTE Corporation and Sprint Corporation covering each of
the states in which a significant number of the customers of its
telecommunications operations were located. Advanced also entered into
agreements with several interexchange carriers to provide switching and network
transmission services for its long distance traffic and had agreements to resell
cellular service in selected markets. These agreements allowed Advanced, and
will allow the purchaser of Advanced's telecommunications operations, to offer
bundled local and long distance telecommunications services without incurring
substantial expenditures for the construction of network facilities.
Before restatement to reflect its telecommunications segment as discontinued
operations, Advanced had pro forma revenues of $114.2 million and pro forma
earnings before interest, taxes, depreciation, amortization and stock-based
compensation of $.4 million for the year ended December 31, 1998.
Advanced's telecommunications operations were operated primarily through
four subsidiaries. In addition, Advanced employed assets in the
telecommunications business that it held directly.
Advanced was required to abandon its plans when Advanced found itself unable
to access the private equity or debt markets to fund its telecommunications
operating losses, working capital requirements and the construction of its local
switching network, a key component of its strategic business plan. In April
1999, after considering the alternatives available to it, Advanced embarked on
its strategy to reengineer itself into a yellow pages publisher and Internet
directory company and to divest itself of its telecommunications operations.
In connection with the proposed acquisitions and the sale of Advanced's
telecommunications operations, certain officers, employee directors and
management of Advanced have received or will receive various severance payments
and incentive compensation. The amount and timing of these payments are subject
to the persons achieving certain performance objectives and remaining in their
current employment capacities for a specified time period. These compensation
arrangements were established to retain key individuals to ensure satisfactory
execution of the proposed acquisitions, the sale of the telecommunications
operations and their related transitions. Additionally, 35 other key managers
and key employees of Advanced have been granted retention packages in order to
ensure that adequate human resources remained available until such time that the
telecommunications operations transition to Ionex Telecommunications. Under the
retention program, each individual will receive additional compensation
equivalent to their existing base salaries and wages for each day worked from
the commencement of the retention program in May 1999 through the date of their
release, provided that the individual performs their assigned responsibilities
through that date. The aggregate amount of these severance payments was
approximately $1.9 million. Advanced is also contractually obligated to pay
$400,000 to Mr. Cragg and $370,000 to Mr. Zimmer pursuant to their employment
agreements. In addition, Advanced expects to pay approximately $490,000 in the
aggregate to Messrs. Feist and Thurman pursuant to their employment agreements
as severance payments.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF ADVANCED
The following tables present selected historical financial information for
Advanced which should be read in conjunction with the historical financial
statements, and the related notes thereto, of Advanced, Advanced Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other financial data included elsewhere in this proxy statement. The selected
historical financial data of Advanced for each of the three fiscal years in the
period ended December 31, 1998 and 1997 and for the period from inception to
December 31, 1996 have been derived from its audited consolidated financial
statements included elsewhere in this proxy statement. The selected financial
data for each of the nine months ended September 30, 1999 and 1998 were derived
from the unaudited consolidated financial statements of Advanced for the nine
months ended September 30, 1999, and are not necessarily indicative of results
for a full year. All adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results of the unaudited
historical interim periods have been included. See "Advanced Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Index to Financial Statements."
The interim operating results of Advanced reflect its historical seasonality
from quarter to quarter and between periods due to the timing of production and
distribution of directories. As a result, the interim results are not indicative
of the results of operations for a full year. Advanced does not recognize net
revenues with respect to bookings or cash receipts for any given directory or
the costs directly related to sales, production, printing and distribution of
that directory until the month in which it is printed and distributed. The sizes
of directories distributed in a particular market and the corresponding revenues
recognized vary significantly from quarter to quarter. Further, the actual
production and distribution dates of individual directories are not consistent
and are subject to change, and it is possible that individual directories will
not be produced during the same month each year, which may result in significant
monthly and quarterly fluctuation.
Prior to February 1998, Advanced had not conducted any operations other than
those relating to its IPO and the acquisitions of Great Western and its
telecommunications operations. Consequently, the actual financial statements
included herein relate only to the parent company prior to February 18, 1998,
and do not include the results of Great Western until after February 18, 1998.
Pro forma operating information is presented for comparative purposes as if the
IPO and the acquisition of Great Western had occurred on January 1, 1998. The
pro forma financial information does not purport to represent Advanced's results
of operations that would have actually occurred if the IPO and the acquisition
of Great Western had in fact occurred on that date. 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 statement of operations reflects the historical results
of operations of Great Western and was derived from Great Western's financial
statements.
55
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ADVANCED COMMUNICATIONS GROUP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL
NINE MONTHS ENDED PRO FORMA --------------------------------------
SEPTEMBER 30, -------------
------------------------------------ YEAR ENDED
YEAR ENDED DECEMBER 31, INCEPTION TO
ACTUAL PRO FORMA ACTUAL DECEMBER 31, ---------------------- DECEMBER 31,
1999 1998 1998 1998 1998 1997 1996
---------- ---------- ---------- ------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................ $ 42,337 $ 39,493 $ 30,247 $ 47,336 $ 38,090 $ -- $ --
Expenses:
Printing, distribution and
listings...................... 11,946 9,366 6,729 11,307 8,670 -- --
Sales and marketing............. 9,755 8,679 6,849 10,806 8,976 -- --
General and administrative...... 15,386 14,296 11,736 19,249 16,689 2,071 649
Depreciation and amortization... 3,522 3,790 3,229 4,751 4,190 3 --
Stock-based compensation........ -- 1,760 1,760 1,760 1,760 870 --
---------- ---------- ---------- ---------- ---------- --------- ---------
Income (loss) from operations..... 1,728 1,602 (56) (537) (2,195) (2,944) (649)
Other income (expense):
Interest expense................ (3,517) (1,029) (919) (1,955) (1,845) (256) (10)
Other........................... 1 (34) (47) 190 177 -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Income (loss) from continuing
operations before income
taxes........................... (1,788) 539 (1,022) (2,302) (3,863) (3,200) (659)
Income tax expense (benefit)...... 612 1,349 588 670 (91) -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income (loss) from continuing
operations...................... (2,400) (810) (1,610) (2,972) (3,772) (3,200) (659)
Loss from discontinued operations,
net of tax benefit of $506;
$5,196; $648; $6,236; and
$6,368, respectively............ (6,189) (4,433) (4,236) (7,704) (7,507) -- --
Loss on discontinued operations,
net of tax benefit of $4,363.... (51,800) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Net loss.......................... $ (60,389) $ (5,243) $ (5,846) $ (10,676) $ (11,279) $ (3,200) $ (659)
========== ========== ========== ========== ========== ========= =========
Basic and diluted loss per share
from:
Continuing operations........... $ (.12) $ (.04) $ (.09) $ (.15) $ (.20) $ (.39) $ (.08)
Discontinued operations......... (.31) (.23) (.23) (.39) (.41) -- --
Sale of discontinued
operations.................... (2.60) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income (loss) per share..... $ (3.03) $ (.27) $ (.32) $ (.54) $ (.61) $ (.39) $ (.08)
========== ========== ========== ========== ========== ========= =========
Weighted average common shares
outstanding..................... 19,896,067 19,615,865 18,179,968 19,646,001 18,593,947 8,232,276 8,227,736
========== ========== ========== ========== ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1999 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets............................................ $ 25,396 $ 34,431 $ --
Working capital (deficit)................................. (38,999) 9,453 (5,239)
Total assets.............................................. 146,380 185,113 2,695
Short-term borrowings..................................... 55,000 17,117 3,141
Long-term debt............................................ -- 17,233 --
Stockholders' equity (deficit)............................ 71,281 131,584 (2,544)
</TABLE>
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ADVANCED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The following table sets forth, for the periods presented, certain actual
and pro forma information relating to the continuing operations of Advanced,
expressed as a percentage of revenues, excluding prototype directories and
stock-based compensation expense:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
----------------------- -------------------
<S> <C> <C> <C> <C>
ACTUAL PRO FORMA PRO PRO
SEPTEMBER SEPTEMBER FORMA FORMA
30, 30, DEC. 31, DEC. 31,
1999 1998 1998 1997
----- ----- ----- -----
Directory revenues............................. 100.0% 100.0% 100.0% 100.0%
Cost of services:
Printing, distribution and listings.......... 22.1 23.3 23.9 23.4
Sales and marketing.......................... 21.7 22.0 22.8 24.1
General and administrative................... 36.1 36.4 40.7 42.2
Depreciation and amortization................ 8.5 9.6 10.0 10.3
----- ----- ----- -----
Income (loss) from continuing operations....... 11.6% 8.7% 2.6% 0%
===== ===== ===== =====
</TABLE>
Prior to February 1998, Advanced had not conducted any operations other than
those relating to the IPO, the acquisition of Great Western and the
telecommunications operations. Consequently, the actual financial statements
included herein relate only to Advanced prior to February 18, 1998, but include
the results of Great Western and the telecommunications operations only for the
period after February 18, 1998. Certain pro forma operating information is
presented for comparative purposes as if the IPO, the acquisition of Great
Western and the telecommunications subsidiaries had occurred on January 1, 1998.
The pro forma operating information does not purport to represent the results of
operations of Advanced that would have actually occurred if the IPO, the
acquisition of Great Western and the acquisition of the telecommunications
subsidiaries had in fact occurred on the date stated above. Since Great Western
and the telecommunications subsidiaries 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 Great Western and the
telecommunications subsidiaries and were derived from the respective financial
statements of Great Western and the telecommunications operations.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED
TO THE PRO FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues from continuing operations, for the nine months ended
September 30, 1999, increased 7.2% to $42.3 million from pro forma $39.5 million
in 1998. Approximately $.8 million of the increase is due to Advanced's
introduction of a prototype directory in the Austin, Texas market in the second
quarter of 1999 and approximately $.4 million of the increase is due to the
first sold year publication of a directory in the Channelview, Texas market.
Excluding new and prototype directories, revenues increased 5.6% to $41.5
million. The increase in revenue from recurring directories is due to a
combination of increased advertising revenue from existing customers and
incremental sales from new customers.
Printing, distribution and listing costs increased $2.6 million to $11.9
million from pro forma $9.4 million in the nine months of 1998. The increase is
due to $2.8 million of costs related to the Austin prototype directory incurred
during the second quarter of 1999. Excluding prototype directories, printing,
distribution, and listing costs increased .4% to $9.1 million. As a percent of
sales, printing,
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distribution and listing costs of recurring directories decreased to 22.1% of
sales in 1999 from 23.3% in 1998. The decrease is due to negotiating lower costs
from printers and outside service providers for certain directories offset
partially by higher costs on certain other directories.
Sales and marketing costs increased to $9.8 million from pro forma $8.7
million in the comparable period of 1998. The increase is principally due to $.7
million of costs related to the Austin prototype directory. Excluding prototype
directories, sales and marketing costs increased 4.2% to $9.1 million. As a
percent of sales, sales and marketing costs decreased to 21.7% of sales in 1999
from 22.0% in 1998. The decrease in the expense rate is due lower incentive
compensation and trade expenses resulting from restructured incentive
compensation and trade programs.
General and administrative expenses increased $1.1 million, or 7.6%, to
$15.4 million for the nine months ended September 30, 1999, from pro forma $14.3
million in 1998. The increase is partially due to $.4 million of expenses
related to the Austin prototype directory. Excluding prototype directories,
general and administrative expenses increased 4.8% to $15.0 million. As a
percentage of revenues, general and administrative expenses were 36.1% of sales
in the nine months ended September 30, 1999, and 36.4% of pro forma sales in the
nine months ended September 30, 1998. The decrease in the expense rate is due to
operating efficiencies which are partially offset by higher salaries and wages.
Depreciation and amortization was approximately $3.5 million in the nine
months ended September 30, 1999 and $3.8 million in pro forma 1998. Depreciation
and amortization is principally amortization of goodwill and customer lists
resulting from the acquisition of Great Western.
Interest expense for the nine months of 1999 was approximately $3.5 million,
an increase of $2.5 million from interest expense of pro forma $1.0 million in
the comparable period of 1998. The increase is due to higher debt from
borrowings under Great Western's revolving credit facility used to finance
Advanced's operating losses and historical growth in the telecommunications
segment.
Income tax expense of $.6 million was recognized in the nine months ended
September 30, 1999, compared to pro forma income tax expense of $1.3 million in
1998. The decrease is due to lower taxable income in 1999 than in 1998.
Advanced's effective tax rate is substantially higher than statutory tax rates
principally because amortization of certain intangible assets is not deductible
for tax purposes.
Net loss from continuing operations was $2.4 million, or $.12 per share, in
the nine months ended September 30, 1999, compared to pro forma net loss from
continuing operations of $.8 million, or $.04 per share in the comparable period
of 1998. The increase in net loss was primarily due to increased interest
expense and the introduction of a new directory in the second quarter of 1999.
EBITDA decreased to $5.3 million for the nine months ended September 30,
1999, from pro forma EBITDA of $7.2 million in the comparable period of 1998,
due to the previously mentioned Austin prototype directory. Excluding net
prototype costs of $3.1 million associated with the Austin directory, EBITDA
increased to $8.4 million for the first nine months of 1999, an increase of
16.7%.
DISCONTINUED OPERATIONS
Net loss from discontinued operations was $23.4 million for the nine months
ended September 30, 1999 compared to pro forma loss from discontinued operations
of $4.4 million in 1998. Approximately $16.9 million of these net losses were
included in the estimated loss on sale and were charged against the reserve
established in the first quarter of 1999. Revenues from discontinued
telecommunications services increased 58.0% to $72.5 million in the first nine
months of 1999 compared to pro forma $45.9 million in the comparable period of
1998. The increase in telecommunications revenue is due to increased local
service revenue as Advanced implemented aggressive sales and marketing of local
services in addition to long-distance services. Advanced's local service
revenues in the first nine months of 1999 was $38.8 million compared to the same
period of 1998 local service revenues of $10.6 million. At September 30, 1999,
Advanced had approximately 132,000 local access lines in service.
Cost of discontinued services for the nine months ended September 30, 1999,
increased to $65.8 million, or 90.8% of telecommunications revenues, from pro
forma $32.4 million, or 70.6% of sales, in
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<PAGE>
the comparable period of 1998. The higher cost of providing telecommunications
service in gross dollars is due to the increase in local service revenue. The
increase in operating costs of the telecommunications segment as a percentage of
telecommunications revenues in 1999 is due to a higher volume of lower margin
local service. Local service accounted for 53.6% of total telecommunications
revenues in the first nine months of 1999 compared to 24.0% in the first nine
months of 1998. Also contributing to the higher rate for costs of
telecommunications service is a reduction in pricing for long distance services.
In response to competition for long distance service, Advanced reduced prices
thereby increasing the expense rate on long distance service. Advanced's
telecommunications strategy was to deploy its own local switching facilities and
transition its resale customers to its own switch-based facilities. Advanced
believed that it would be able to achieve higher gross margins by providing
telecommunications services on its own network than it could obtain by reselling
the services of the incumbent providers; however, due to Advanced's change is
strategic focus and direction, the investments to improve operating margins have
not been pursued.
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED 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. Advanced 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 in 1998. This decrease in revenue was offset by $2.6 million of
revenue from another directory that was recognized in 1998 but not in 1997
because the timing of distribution resulted in Advanced recognizing no revenue
in 1997 pursuant to its revenue recognition policy. Advanced 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 printing, distribution and listing costs increased $1.2 million,
or 11.9%, to $11.3 million from $10.1 million in 1997. As a percent of sales,
pro forma printing, distribution and listing costs increased to 23.9% of sales
in 1998 from 23.4% in 1997. The increase is due to increased costs from printers
and outside service providers.
Pro forma sales and marketing costs increased to $10.8 million from $10.4
million in 1997. As a percent of sales, pro forma sales and marketing costs
decreased to 22.8% of sales in 1998 from 24.1% in 1997. The decrease is due to
higher pro forma directory revenues in 1998.
Pro forma general and administrative expenses for the year ended
December 31, 1998, increased to $19.2 million from $18.3 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 general
and administrative costs were 40.7% in 1998, and 42.2% in 1997. The decrease in
the expense rate in 1998 is due to economies of scale realized from the higher
sales volume.
Pro forma depreciation and amortization was approximately $4.8 million in
1998 and $4.5 million in 1997. Pro forma depreciation and amortization includes
approximately $4.2 million of amortization in both periods relating to
intangible assets resulting from the acquisition of Great Western.
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 Advanced's revolving credit agreement used for general corporate purposes
including financing the telecommunications operations and 1998 capital
expenditures.
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<PAGE>
Pro forma income tax expense was $.7 million in 1998 compared to
$1.0 million income tax expense in 1997. The decrease in income tax expense is
due to higher operating losses in 1998 than in 1997.
Pro forma net loss from continuing operations was $3.0 million, or $.15 per
share, in 1998, compared to pro forma net loss of $2.6 million, or $.13 per
share, in 1997. The increase in net loss was primarily due to the afformentioned
increase in stock-based compensation expense.
Pro forma EBITDA was $6.0 million for the year ended December 31, 1998, an
increase from $4.5 million in 1997. The increase is primarily due to higher pro
forma directory revenues in 1998.
Advanced did not complete the acquisition of Great Western and the
telecommunications subsidiaries until February 18, 1998; therefore, actual
results include only the activity of Great Western from February 18, 1998 to
December 31, 1998. For the year ended December 31, 1998, actual loss from
operations was $2.2 million and net loss from continuing operations was
$3.8 million, or $.20 per share. Advanced had no operating revenues in 1997 and
was engaged principally in activities relating to the IPO.
LIQUIDITY AND CAPITAL RESOURCES
Advanced's working capital at September 30, 1999 was negative $39.0 million
and its ratio of current assets to current liabilities was .39. These amounts
include current maturities of long-term debt of $17.0 million and short-term
borrowings under Great Western's revolving credit facility of $38.0 million. In
connection with the planned acquisitions of YPtel, Web YP and Big Stuff,
$15.0 million of the current maturities due in February 2000 are expected to be
converted into approximately 2,840,909 shares of common stock. Further, Advanced
is expecting to refinance its existing revolving credit facility prior to its
expiration in May 2000. Excluding both the $15.0 million in notes which are
expected to be converted to equity and the $38.0 million credit facility which
is expected to be refinanced, Advanced's working capital at September 30, 1999
was positive $14.0 million. If Advanced is unable to close the acquisitions,
refinance its existing revolving facility or obtain alternative debt or equity
financing, it will be unable to meet its current obligations.
On February 18, 1998, Advanced completed its IPO and simultaneously acquired
Great Western and the telecommunications operations and a 49% interest in
another company, KIN Network, Inc., sometimes referred to in this proxy
statement as "KINNET". Cash proceeds from the offering, net of offering costs,
were $99.9 million. Of this amount, $83.2 million was used to pay the cash
portion of the purchase price of the acquired companies, $4.2 million was used
to retire debt of Advanced and of Great Western and the telecommunications
operations, and $1.75 million was paid to a stockholder and current director of
Advanced for a five-year non-compete agreement. Consequently, available cash
remaining from the offering was approximately $10.5 million.
When the IPO occurred Advanced was engaged in negotiating a line of credit
facility for $25.0 million with a financial institution. The amount of such a
facility, combined with the residual cash from the offering, was considered
adequate to cover the costs of integrating Advanced's operations and providing
for its initial working capital needs. In August 1998, Advanced finalized its
arrangements with the financial institution for a $25.0 million, one-year
revolving credit facility.
From January 1, 1998 through September 30, 1999, Advanced used
$39.0 million in cash for operating activities. This is due primarily to its
telecommunication operations and start-up costs included in selling, general and
administrative expenses and line acquisition costs related to Advanced's growing
local access business. During this period, Advanced also invested $20.3 million
in capital expenditures for its telecommunication operations, including a switch
in Wichita, Kansas, 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 for operations, Advanced used additional borrowing under its
credit facility of $38.0 million to finance these additions to property and
equipment.
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<PAGE>
In conjunction with a review of its financing options, management evaluated
the utility value of Advanced's assets and explored 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 Advanced's
interest. In December 1998, Advanced sold this interest back to its original
owner for $10.0 million in cash, 225,000 shares of Advanced'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 had considered
various possibilities for the sale of certain assets or businesses and proposals
for raising private equity as alternatives for generating sufficient liquidity.
In April 1999, Advanced was approached by certain directors of YPtel regarding a
strategic acquisition of YPtel, Web YP and Big Stuff. YPtel proposed that
Advanced acquire YPtel, Web YP and Big Stuff to form the fourth largest
independent yellow pages publisher in North America with an opportunity to
create a premier Internet directory and print yellow pages company. On
April 11, 1999, Advanced entered into a letter of intent with YPtel and
representatives of certain of its stockholders and with Web YP and Big Stuff and
their respective stockholders. As of June 3, 1999, Advanced entered into
agreements with YPtel and its stockholders and with Web YP, Big Stuff and their
respective stockholders.
In anticipation of the proposed acquisition of YPtel, Web YP and Big Stuff,
and to provide working capital to finance the telecommunications subsidiaries
until their planned sale, on May 14, 1999, Great Western, the wholly-owned
yellow pages publishing subsidiary of Advanced, entered into a $40.0 million
revolving loan agreement with Bank of America National Trust and Savings
Association, now known as Bank of America, N.A. Great Western used a portion of
the new credit facility to retire Advanced's existing $25.0 million credit
facility. The balance of the new credit facility was, subject to various
restrictions, for the general working capital needs and other corporate purposes
of Advanced and Great Western and for the working capital needs of the
telecommunications operations prior to their contemplated sale. Interest on this
facility is LIBOR, adjusted by the Eurodollar reserve percentage, plus 2.75% or
Bank of America's prime or base rate plus .75%. The loan facility requires a
commitment fee of .5% on the unused balance and is subject to various
restrictions and the maintenance of certain financial ratios. The facility
expires on May 13, 2000. Advanced and its telecommunications subsidiaries
guaranteed Great Western's obligations with respect to the loan facility.
Advanced secured its guarantee by pledging to Bank of America substantially all
of its assets, including the capital stock of its telecommunications operations,
and the telecommunications operations secured their guarantees by pledging to
Bank of America substantially all of their respective assets. At September 30,
1999, Advanced had borrowed $38.0 million under this facility.
On November 19, 1999 Advanced Communications Group, Inc. ("Advanced
Communications") closed the sale of its telecommunications operations. Advanced
Communications sold, in a stock sale, its four wholly-owned subsidiaries which
provided telecommunications services to Ionex Telecommunications, Inc., formerly
known as Compass Telecommunications, Inc. Those four wholly-owned subsidiaries
were Feist Long Distance, Inc., FirsTel, Inc., Telecom Resources, Inc., and
Valu-Line of Longview, Inc. In addition, prior to the sale of the wholly-owned
subsidiaries, Advanced Communications transferred its telecommunications
operations related assets and liabilities to those subsidiaries. Also on
November 19, 1999, but prior to the closing, Advanced Communications executed a
First Amendment to the Stock Purchase Agreement entered into between it, its
telecommunications subsidiaries, and Ionex. The First Amendment, among other
things, addressed issues which arose since the signing of the Stock Purchase
Agreement and permitted the waiving of certain closing conditions. Advanced
Communications received cash consideration in the amount of $49.8 million less
preliminary working capital, closing plant, property and equipment and other
adjustments, in the amount of $7.2 million, or approximately $42.6 million.
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Also on November 19, 1999, the net sale proceeds from the sale of the
telecommunications subsidiaries were used to reduce the balance of the credit
facility and to pay certain outstanding liabilities of Advanced. In addition,
the revolving loan agreement was amended by Great Western, Advanced and Bank of
America to reduce the credit facility to $15 million. At November 22, 1999,
Advanced had borrowed $8 million under this facility. The amended credit
facility, subject to various restrictions, is for the general working capital
needs of Advanced and Great Western and up to $2.0 million may be loaned to
Web YP and Big Stuff.
Advanced management believes that its cash flows from its yellow pages
business and the remaining cash available under its line of credit, as amended,
will be sufficient to fund its current operations. In order to close the
acquisition of YPtel, Web YP and Big Stuff, however, Advanced will need to
refinance the existing debt of YPtel, which may require the amendment or
refinancing of the Bank of America facility as well.
In addition to additional capital required to refinance existing
indebtedness of YPtel and Great Western, Advanced will also need capital to
implement both its plans to acquire other yellow pages publishers and to execute
its Internet directory strategy. Advanced is currently negotiating terms of
senior and subordinated debt facilities that will allow Advanced to fund its
growth strategy and to refinance the existing indebtedness of Great Western and
YPtel. Although no definitive financing agreements have been reached, Advanced
expects that the debt facilities will have fees, terms and other conditions
customary for such secured and unsecured credit agreements, including the
maintenance of certain ratios, limitations on the use of proceeds and warrants.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Advanced is exposed to minimal market risks based on its current holdings
and use of financial instruments. Advanced does not hold or issue any financial
instruments for trading, hedging or speculative purposes. Financial instruments
held for other than trading purposes do not impose a material market risk.
Advanced is exposed to interest rate risk, as additional financing is
periodically needed due to the operating losses and capital expenditures
associated with establishing and expanding Advanced's business. The interest
rate that Advanced will be able to obtain on debt financing will depend on
market conditions at that time, and may differ from the rates Advanced has
secured on its current debt. Additionally, Advanced is exposed to interest rate
risk on amounts borrowed against its credit facility as of September 30, 1999.
Advances against the facility periodically renew, at which point the borrowings
are subject to the then current market interest rates, which may differ from the
rates Advanced is currently paying on its borrowings. There is no cap on the
interest rate payable on Advanced's revolving credit facility. If the interest
rates on Advanced's revolving credit facility were to increase by 10% over
September 30, 1999 levels, Advanced's annual interest expense would increase by
approximately $380,000.
Advanced's business and operations are also exposed to market risks
resulting from changes in commodity prices for paper, Advanced's principal raw
material. Certain commodity grades of paper, including the grade Advanced uses
for its yellow pages directories, may be volatile. A 10% increase in the cost of
directory grade paper used by Advanced over September 30, 1999 levels, would
result in an increase in Advanced's annual operating costs of approximately
$476,000.
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BUSINESS OF YPTEL
OVERVIEW
YPtel, through Pacific Coast Publishing, Ltd., a wholly-owned subsidiary of
YPtel, Inc., which is a wholly-owned subsidiary of YPtel, is one of the ten
largest independent publishers of yellow pages directories in the United States,
producing 17 directories in four states under its "Regional Telephone Directory"
brand. It is a leading independent publisher in Washington, Oregon, Utah and
Arizona. YPtel's revenues are derived from the sale of advertising to over
30,000 small to medium size local businesses.
Pacific Coast Publishing, Inc., which operated this business prior to its
acquisition by YPtel on November 1, 1998, was established in 1984. Pacific Coast
Publishing, Inc.'s first independent yellow pages directory was published in
1985 in the Tacoma-Pierce County, Washington market and was a consolidated
directory for a market area with similar buying patterns which had been served
by two separate utility directories. Pacific Coast Publishing, Inc. initially
expanded its business within Washington and subsequently introduced directories
in Utah, Oregon and Arizona. In general, YPtel has continued the strategy
initiated by Pacific Coast Publishing, Inc. That strategy is to enter markets
being serviced by one telephone utility with little or no competition from
independent yellow pages publishers. YPtel then scopes the market differently
than the local telephone utility by providing one directory for areas that would
be covered by multiple telephone utility directories, offers advertising at
significantly lower prices to local businesses and offers features not included
in the telephone utility's directory, including color maps, coupons,
neighborhood and community guides, emergency listings and government listings.
For example, in the Salt Lake City market, YPtel produces one directory that
provides the same market coverage as four directories distributed by the local
telephone service provider, U S West Corporation. YPtel includes white
pages listings for local businesses and residences in its directories.
CURRENT DIRECTORIES AND MARKETS
In 1998, YPtel produced 16 regional directories generating revenues of
$33.0 million with a total circulation of more than 2.4 million, as well as four
since-discontinued community directories in Salt Lake City, Utah, which had
generated 1998 revenues of $0.2 million. Of YPtel's 16 regional directories,
nine were in Washington, three were in Oregon, three were in Utah and one was in
Arizona. YPtel distributed its first directory in the Portland, Oregon market in
May 1999 with a circulation of approximately 400,000. YPtel has recently
commenced canvassing the Seattle, Washington market and plans to distribute its
first directory in that market with an anticipated circulation of approximately
750,000 in 2000.
SALES AND MARKETING
Yellow pages marketing is a direct sales business which requires both
servicing of existing accounts and developing new customers. Repeat customers
comprise YPtel's core account base and a number of these customers have
advertised in YPtel's directories for many years. On average, since 1988,
accounts representing 82.7% of the prior year's local advertising revenues have
renewed their advertising program in the current edition of each directory.
YPtel employs two regional sales managers who, together with specific book
managers, are responsible for supervising the activities of YPtel's account
executives. Account executives generate all of YPtel's revenues and are
responsible for servicing existing advertising accounts and developing new
accounts within their assigned areas. Revenue is primarily derived from local
and regional advertisers. A smaller amount of revenue is derived from national
accounts.
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The following table outlines certain sales and marketing statistics relating
to YPtel:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Number of Accounts.......................................... 29,065 26,210 25,095
Circulation................................................. 2,400,000 2,216,000 2,005,000
</TABLE>
COPYRIGHT, TRADEMARK AND INTELLECTUAL PROPERTY
YPtel enjoys copyright protection with respect to the compilation of each of
its directories. This copyright protection is registered when the directories
are produced. In addition, YPtel has registered trademark protection for "The
Only Book" in the United States and is in the process of registering trademark
protection for YPtel Corporation and the respective logo in the United States
and Canada. YPtel has registered the trade name "Regional Telephone Directory"
in the jurisdictions in which it operates. YPtel has also registered a number of
Internet domain names including: yptel.com, yptel.net, and yptel.org.
FACILITIES
YPtel's day-to-day operations, including all order processing, art
production, credit and collections and management training functions, are
conducted at its 16,700 square foot leased facility in Tacoma, Washington. In
addition to its corporate head office in Toronto, Ontario and its Tacoma
facility, YPtel operates 17 leased satellite sales offices throughout
Washington, Oregon, Utah and Arizona.
YPtel's production facilities currently produce 17 regional directories.
Management estimates that the facilities can increase production volume by two
to three times by adding additional shifts to the existing facilities. YPtel
contracts with third party vendors to print its directory and to distribute
directories to each business and residence in its market.
EMPLOYEES AND LABOR RELATIONS
As of April 30, 1999 YPtel had 369 employees, of which 221 are involved in
the sales function as account executives. In June 1998, union certification was
granted to sales personnel at three of YPtel's offices in Washington. YPtel is
currently negotiating a collective bargaining agreement with the Communication
Workers of America for these employees. Management believes that relations with
YPtel's employees are good.
COMPETITION
YPtel competes largely with telephone utilities and, to a lesser extent,
other independent yellow pages publishers. YPtel's largest competitors in its
markets are US West and GTE Corporation. There are no significant independent
publishers in YPtel's current markets.
Competitive local exchange carriers are telecommunications companies that
compete with local telephone utilities. Some competitive local exchange carriers
compete with YPtel by partnering with or acquiring independent publishers to
allow their existing sales force to market a more complete complement of
telecommunication services and to create or strengthen their brand name. One
such carrier, McLeod USA Publishing Company, has recently acquired independent
publishers within its service areas. YPtel believes that as competition to
provide local telephone service in the United States matures, the presence of
competitive local exchange carriers in the yellow pages directory business will
increase.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF YPTEL
The following tables present selected historical financial information of
YPtel and YPtel's predecessor, Pacific Coast Publishing, Inc., which should be
read in conjunction with the historical financial statements, and the related
notes thereto, of YPtel and its predecessor's management's discussion and
analysis of financial condition and results of operations and other financial
data included elsewhere in this proxy statement. The selected historical
financial data of Pacific Coast Publishing, Inc. for each of the three fiscal
years in the period ended October 31, 1998 have been derived from Pacific Coast
Publishing, Inc.'s audited consolidated financial statements included elsewhere
in this proxy statement. The selected financial data for the year ended
October 31, 1999, was derived from the unaudited consolidated financial
statements of YPtel and its predecessor. All adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of results of
the unaudited historical interim periods have been included. See "YPtel
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Index to Financial Statements."
YPtel does not recognize net revenues with respect to bookings or cash
receipts for any given directory or the costs directly related to sales,
production, printing and distribution of that directory until the month in which
it is printed and distributed. The sizes of directories distributed in a
particular market and the corresponding revenues recognized vary significantly
from quarter to quarter. Further, the actual production and distribution dates
of individual directories are not consistent and are subject to change and it is
possible that individual directories will not be produced during the same month
each year, which may result in significant monthly and quarterly fluctuation.
YPtel was incorporated in Canada on July 22, 1998. On November 1, 1998,
YPtel, through an indirect subsidiary, completed the acquisition of Pacific
Coast Publishing, Inc., an independent yellow pages directory business. The
operating information of YPtel's predecessor is presented for comparative
purposes and does not purport to represent YPtel's results of operations that
would have actually occurred if the acquisition of Pacific Coast Publishing,
Inc. had occurred prior to the periods presented.
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YPTEL CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
YPTEL ------------------------------------------------------
-------------- YEARS ENDED OCTOBER 31,
YEAR ENDED ------------------------------------------------------
OCT. 31, 1999 1998 1997 1996 1995 1994
-------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $41,162 $33,165 $28,204 $24,550 $15,481 $14,322
------- ------- ------- ------- ------- -------
Printing, distribution and
listings..................... 9,482 8,001 6,644 6,985 4,027 3,660
Sales and marketing............ 8,421 7,301 5,700 5,613 3,265 3,353
General and administrative..... 14,510 10,521 9,313 7,887 5,291 4,807
Depreciation and
amortization................. 2,607 170 249 335 328 308
Stockholder remuneration....... 225 1,646 1,718 1,834 1,765 1,612
------- ------- ------- ------- ------- -------
35,245 27,639 23,624 22,654 14,676 13,740
------- ------- ------- ------- ------- -------
5,526 4,580 1,896 805 582
Interest expense (income),
net.......................... 3,600 100 308 375 197 116
Other expense (income)......... 296 (339) (187) (191) (218) (142)
------- ------- ------- ------- ------- -------
Earnings before income taxes... 2,021 5,765 4,459 1,712 826 608
Provision for income taxes..... 791 86 54 266 298 217
------- ------- ------- ------- ------- -------
Net earnings................... $ 1,230 $ 5,679 $ 4,405 $ 1,446 $ 528 $ 391
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets................... $21,470 $14,712 $12,343 $10,433 $ 8,978 $6,002
Working capital.................. 10,061 9,189 6,462 3,254 1,809 1,385
Total assets..................... 62,290 15,534 12,981 11,305 10,025 6,920
Short-term borrowings............ 1,841 95 586 2,488 2,328 170
Long-term debt................... 35,784 276 261 389 555 445
Stockholders' equity............. 14,950 9,735 6,840 3,737 2,300 1,858
</TABLE>
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YPTEL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999 COMPARED TO THE YEAR ENDED OCTOBER 31, 1998
Revenues increased $8.0 million, or 24.1%, from $33.2 million for the year
ended October 31, 1998 to $41.2 million for the year ended October 31, 1999.
This increase primarily resulted from new revenues of $4.2 million related to
introduction of the Portland, Oregon directory; $1.4 million related to strong
growth in the second year Spokane, Washington and Beaverton, Oregon directories.
The remaining revenue increase was attributable to growth in revenues in the
remaining markets.
Printing, distribution and listing expenses increased by $1.5 million or
18.5% from $8.0 million for the year ended October 31, 1998 to $9.5 million for
the year ended October 31, 1999. The change was primarily due to printing and
distribution costs related to the new Portland, Oregon directory.
Sales and marketing expense increased by approximately $1.7 million or 25.0%
from $6.7 million for the year ended October 31, 1998 to $8.4 million for the
year ended October 31, 1999. This increase is generally attributable to new
sales in the first year Portland, Oregon directory and the commissions related
to higher national advertising sales. This increase is partially offset by
decreased commissions in the second year Spokane, Washington and Beaverton,
Oregon directories due to lower commissions on renewal sales than new sales.
General and administrative expenses increased $2.0 million or 15.6% from
$12.7 million for the year ended October 31, 1998 to $14.7 million for the year
ended October 31, 1999. The increase is due to a general increase in general and
administrative expenses associated with the infrastructure increases to support
the new Portland, Oregon directory and an increase in corporate costs due to
YPtel's new ownership. The increased costs are partially offset by a decrease in
salaries of the former stockholders of $1.6 million, which were incurred during
the year ended October 31, 1998.
YEAR ENDED OCTOBER 31, 1998 COMPARED TO THE YEAR ENDED OCTOBER 31, 1997
Revenues increased by $5.0 million, or 17.6%, from $28.2 million for the
fiscal year ended October 31, 1997 to $33.2 million for the fiscal year ended
October 31, 1998. This increase primarily resulted from $2.2 million in revenues
related to the new Spokane, Washington directory, $1.4 million in revenues
related to the new Beaverton, Oregon directory and $0.2 million related to new
"community-type" directories in the Salt Lake City, Utah market, which have
since been discontinued. The remaining $1.2 million in revenue increase was
derived from $1.5 million of revenue increase in existing books, partially
offset by the revenue decrease associated with the discontinuation of the South
East Arizona directory, which accounted for $0.3 million in fiscal 1997.
Printing, distribution and listings expenses increased by $1.4 million, or
20.4%, from $6.6 million for the fiscal year ended October 31, 1997 to
$8.0 million for the fiscal year ended October 31, 1998. This increase was
primarily due to the addition of two new regional directories and two new
community directories during fiscal 1998, and was somewhat offset by the
elimination of the South East Arizona directory. As a percentage of revenues,
printing, distribution and listings expenses increased by 0.5%, from 23.6% in
fiscal 1997 to 24.1% in fiscal 1998. The relative increase reflected the high
ratio of printing, distribution and listings costs to revenues attributable to
the two new regional directories distributed in fiscal 1998, which historically
declines in the second year of operations.
Sales and marketing expenses increased by $1.6 million, or 28.0%, from
$5.7 million for the fiscal year ended October 31, 1997 to $7.3 million for the
fiscal year ended October 31, 1998. As a percentage of revenues, sales and
marketing expenses increased from 20.2% for the fiscal year ended
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<PAGE>
October 31, 1997 to 22.0% for the fiscal year ended October 31, 1998. The
increase related to the relatively high commission rates associated with the new
Spokane, Washington and Beaverton, Oregon directories, which generated sales and
marketing expenses representing approximately 30% of those directories'
revenues.
General and administrative expenses increased by $1.2 million, or 13.0%,
from $9.3 million for the fiscal year ended October 31, 1997 to $10.5 million
for the fiscal year ended October 31, 1998. As a percentage of revenues, general
and administrative expenses decreased from 33.0% to 31.7% during the same
period, which reflected the economies of scale associated with the head office
production functions that were realized as YPtel further expanded its
operations.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO THE YEAR ENDED OCTOBER 31, 1996
Revenues increased by $3.6 million, or 14.9%, from $24.6 million for the
fiscal year ended October 31, 1996 to $28.2 million for the fiscal year ended
October 31, 1997. Aside from two new community directories in the Salt Lake City
market, which generated nominal revenues, and which directories have since been
discontinued, YPtel did not produce any new directories in fiscal 1997. The
revenue increase primarily resulted from strong increases in the: Tacoma,
Washington; Vancouver, Washington; Salt Lake City, Utah; South King County,
Washington; and Tucson, Arizona directories, as well as from more modest
increases across all other directories.
Printing, distribution and listing expenses decreased by $0.4 million, or
4.9%, from $7.0 million for the fiscal year ended October 31, 1996 to
$6.6 million for the fiscal year ended October 31, 1997. As a percentage of
revenues, printing, distribution and listing expenses decreased by 4.9% from
28.5% in fiscal 1996 to 23.6% in fiscal 1997. Both the relative decrease and the
absolute dollar decrease was due primarily to:
- the overall decrease in the price of paper during fiscal 1997 from record
high levels experienced in fiscal 1996; and
- the first full year of operations under the printing contract with
Quebecor Printing.
These factors were slightly offset by the introduction of the two Salt Lake City
community directories in fiscal 1997.
Sales and marketing expenses increased $0.1 million, or 1.6%, from
$5.6 million for the fiscal year ended October 31, 1996 to $5.7 million for the
fiscal year ended October 31, 1997. As a percentage of revenues, sales and
marketing expenses decreased 2.7% from 22.9% for the fiscal year ended
October 31, 1996 to 20.2% for the fiscal year ended October 31, 1997. The
relative decrease was related to the fact that the four directories that were
introduced in fiscal 1996 paid lower commission rates in 1997 than those
provided in the first year of the directories due to the fact that a majority of
those directories' second year sales were renewals.
General and administrative expenses increased $1.4 million, or 18.1%, from
$7.9 million for the fiscal year ended October 31, 1996 to $9.3 million for the
fiscal year ended October 31, 1997. As a percentage of revenues, general and
administrative expenses increased 0.9% during the same period from 32.1% to
33.0%. The majority of the absolute dollar increase in general and
administrative expenses related to:
- additional advertising expenditures of $0.3 million relating to radio,
television and other advertising expenditures which were intended to
create awareness for the brand and the directories; and
- additional wages, salaries and benefits of $1.0 million related to both
management and production in order to grow, support and manage a larger
organization and a higher volume of advertising.
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LIQUIDITY AND CAPITAL RESOURCES
Effective November 1, 1998, YPtel, through its subsidiary, Pacific Coast
Publishing, Ltd., acquired the yellow pages publishing business of Pacific Coast
Publishing, Inc. for a $2.0 million promissory note and the issuance of its
voting Class A preferred shares, which shares were later redeemed for $47.8
million in cash. The promissory note accrues interest at the rate of 7%, is
payable on maturity, and is due October 31, 2001. The promissory note may be
extended at the option of YPtel to October 31, 2006, on certain terms and
conditions. The redemption of the Class A preferred shares of Pacific Coast
Publishing, Ltd. was financed by the following capital structure, which is
currently in place at Pacific Coast Publishing, Ltd.
SENIOR TERM A NOTES AND SENIOR TERM B NOTES
Under its Senior Term Note Purchase Agreement, Pacific Coast Publishing,
Ltd. has drawn down an aggregate of $25.5 million, of which $11 million
aggregate principal amount is in the form of Senior Term A Notes and $14.5
million aggregate principal amount is in the form of Series B Senior Term Notes,
in both cases issued to a syndicate of commercial lenders.
The Senior Term A Notes bear interest with reference to the prime commercial
rate plus 3.0% or the London Interbank Offered Rate at Pacific Coast Publishing,
Ltd.'s option, plus 2.0%. The Senior Term B Notes bear interest at prime plus
3.75% or at the London Interbank Offered Rate plus 2.75%. Currently, the Senior
Term A and B Notes bear interest with reference to the LIBOR at a combined
effective rate of approximately 8.5% per annum. To date, Pacific Coast
Publishing, Ltd. has made all payments under the Senior Notes when due.
REVOLVING CREDIT NOTES
The holders of the Senior A and B Term Notes have also provided a revolving
credit facility in favor of Pacific Coast Publishing, Ltd. under the terms of
its Revolving Credit Agreement in the amount of up to $8.5 million at a rate of
interest that reflects the prevailing prime rate or LIBOR, at Pacific Coast
Publishing, Ltd.'s option, plus an applicable margin. Pacific Coast Publishing,
Ltd. is permitted to draw under the Revolving Credit Agreement up to 85% of
Pacific Coast Publishing, Ltd.'s eligible accounts receivable by the issuance of
revolving credit notes. The revolving credit notes are repayable on demand. The
Revolving Credit Agreement contains customary aging and concentration exclusions
for eligible accounts. At July 31, 1999, Pacific Coast Publishing, Ltd. had
borrowed $1.6 million under the Revolving Credit Agreement.
SUBORDINATED NOTES
Pursuant to its Subordinated Loan Agreement, Pacific Coast Publishing, Ltd.
has drawn down an aggregate of $11 million and issued $11 million in aggregate
principal amount of subordinated notes due May 1, 2006 to a syndicate of
commercial lenders. The Subordinated Loan Agreement contains provisions by which
the subordinated noteholders have subordinated their claims against Pacific
Coast Publishing, Ltd. under the subordinated notes to the claims of the holders
of the Senior Term A and B Notes and the Revolving Credit Notes.
The subordinated notes bear interest at 12% per annum, which is payable
semi-annually in arrears on May 1 and November 1 in each year during the term of
the subordinated notes. Subject to the restrictions in the Senior Term Note
Purchase Agreement, the subordinated notes may be repaid in whole or in part,
subject to a minimum principal prepayment of $100,000, in any multiple of
$100,000 at any time and from time to time without notice or bonus.
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In conjunction with the issue of the Subordinated Notes, YPtel issued
warrants to the subordinated noteholders to acquire an aggregate of 1,841,000
shares of its Class C Special Shares at an exercise price of Cdn $0.01 per Class
C Special Share. Upon repayment of the Subordinated Notes, such shares will
convert into a number of YPtel common stock to be calculated based on a
predetermined formula as follows:
- If the Subordinated Notes are repaid after November 20, 1999, but before
May 20, 2000, the Subordinated Notes will be converted into that number of
common shares representing 8% in the aggregate of the issued and
outstanding common shares of YPtel Corporation;
- If the Subordinated Notes are repaid after May 20, 2000, but before
November 20, 2000, the Subordinated Notes will be converted into that
number of common shares representing 10% in the aggregate of the issued
and outstanding common shares of YPtel Corporation; and
- If the Subordinated Notes are repaid any time after November 20, 2000, the
Subordinated Notes will be converted into that number of common shares
representing 12% in the aggregate of the issued and outstanding common
shares of YPtel Corporation.
All of Pacific Coast Publishing, Ltd.'s debt facilities are to be refinanced
as a condition of closing of the YPtel Agreement.
STOCKHOLDERS' EQUITY
YPtel issued 13,500,000 common shares for net cash proceeds of $13.23
million, after deducting share issuance expenses of $0.4 million. The YPtel
common shares were purchased by a syndicate of investors through a fund managed
by Imperial Capital.
The warrants provided to the subordinated noteholders have a book value of
$500,000, which represents an allocation of the $11.0 million face value of the
subordinated note.
INFORMATION REGARDING MARKET RISK
YPtel's business and operations are exposed to market risks, including risks
relating to changes in interest rates and commodity prices.
The interest rates on YPtel's Senior Notes and on its revolving credit
facility are floating and will fluctuate based on changes in the prevailing
prime rate or LIBOR. These interest rates change usually monthly or bi-monthly.
The interest rate on the Senior Notes, which is currently approximately 8.5%, is
not capped. To mitigate the risks related to fluctuation in interest rates,
YPtel has entered into an interest rate cap program with Dresdner Bank. This
program caps at 7.0% the base LIBOR rate on 50% of the principal amount of the
Senior Notes. The interest YPtel pays on the Senior Notes consists of the base
LIBOR rate, which is currently 5.3%, plus a variable margin. There is no cap on
the interest rate payable on YPtel's revolving credit facility. If the interest
rates on the Senior Notes were to change by 10% from April 30, 1999 levels,
YPtel's annual interest expense would change by approximately $211,000 with
respect to the Senior Notes and approximately $15,400 with respect to the
revolving credit facility.
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YPtel does not use derivative financial instruments for hedging, speculative
or trading purposes. YPtel is dependent upon outside suppliers for all of its
raw material costs associated with publishing the printed yellow page
directories. YPtel's principal raw material is paper, which YPtel purchases
either through a broker or directly from its printer. YPtel does not purchase
paper directly from the paper mills. Certain commodity grades of paper,
including the directory-grade paper YPtel uses, have shown considerable price
volatility since 1989. For example, paper prices rose sharply in 1995, from
approximately $530 per ton on January 1, 1995 to approximately $930 per cwt on
December 31, 1995, an increase of 75%, and then fell by 14% to $800 per ton at
December 31, 1996. Paper prices continued to decrease in 1997, with most of
YPtel's purchases being between $700 per ton to $750 per ton. In 1998, prices
dropped further, with most YPtel purchases being in the range of $640 per ton to
$730 per ton. Prices to date in 1999 have been primarily in the range of $680
per ton to $700 per ton. YPtel does not enter into forward purchase contracts to
hedge its exposure to changes in the price of paper. A 10% increase in
directory-grade paper would result in an increase of approximately $361,500 in
YPtel's raw material costs, based upon the amount of paper YPtel purchased
during the year ended January 31, 1999.
YPtel's sales, expenditures, debt servicing and capital purchasing are
transacted in U.S. dollars, with an insignificant portion of expenses being
transacted in Canadian dollars. Accordingly, YPtel is not significantly exposed
to foreign currency risk.
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BUSINESS OF WEB YP AND BIG STUFF
DESCRIPTION OF BUSINESSES
Web YP and Big Stuff are affiliated companies sharing common ownership,
management, marketing and administrative staffing. Big Stuff designs and
produces the websites, which are marketed to Web YP's network of yellow and
white pages publishers. The websites are subsequently hosted by Web YP. Web YP
then features the customer in the WorldPages.com directory and promotes the
websites to many of the major search engines.
The mission of Web YP is to facilitate transactions between buyers and
sellers worldwide by establishing a premier Internet, print and telephony-based
yellow pages. To accomplish this objective, Web YP has established
WorldPages.com, a website intended to bring buyers and sellers together to
transact business. WorldPages.com intends to capitalize on the competitive
advantage of having its dedicated sales agents assisting their advertisers' move
into e-commerce and related web-hosted products.
Web YP, through its Worldpages.com website, hosts and promotes branded
websites and an on-line internet directory search engine for consumers and
business users. The WorldPages.com on-line search engine has the white and
yellow pages directory content at its core. Users can search for basic name,
address and telephone numbers for U.S. and Canadian white and yellow pages
listings, plus related content such as location mapping and driving directions.
The website also includes weather forecasts, directories of toll free numbers,
e-mail address directories, international directories, government information
directories and related yellow pages guidelines for categories including
restaurants, computers, attorneys, entertainment, travel and automotive. The
website also contains links to sites containing news, stock quotes, auctions and
newspaper style classified advertisements. PC MAGAZINE named WorldPages.com one
of the top 100 websites in January 1999. Web YP also hosts more than 125,000
websites. Web YP also has established a series of partnerships with independent
yellow pages publishers to re-sell advertising services to small and
medium-sized businesses.
Web YP provides Internet advertising products and website hosting services
to small businesses and national advertisers. Web YP's services include domain
name registration and assisting its customers with branding their products and
services.
Big Stuff creates custom business websites for advertisers, including
graphics, animations, sound, video, web-based catalogues and brochures, and
electronic commerce capabilities. Big Stuff designed and built the website for
the Association of Directory Publishers which includes most independent print
yellow and white pages directory publishers in the United States. Big Stuff
produces websites for professional sports teams and for several chambers of
commerce. Earlier in 1999, the website produced by Big Stuff for the Amarillo
Rattlers of the World Professional Hockey League was recently named the best
hockey website by on-line hockey magazine IN THE CREASE.
Big Stuff also services traditional print yellow pages publishers through
its pre-press operations including coloring of print ads and designing full
color speculative advertisements for sales canvasses.
WorldPages' primary sales channel is through relationships with independent
print yellow pages publishers. The indirect sales force strategy leverages an
established sales force from these reseller publishers. Yellow pages publishers
have a proven ability to sell and have broader advertiser category coverage and
advertiser penetration compared with alternative sales channels such as
newspapers or magazines. Web YP has developed an extensive network of resellers
who publish directories that are distributed to homes and businesses.
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STRATEGIC RELATIONSHIPS
In June 1999, Web YP entered into an agreement with Excite, Inc., a
wholly-owned subsidiary of At Home Corporation, to provide yellow pages
directories to Excite's users and for Web YP to maintain a co-branded website.
Excite's position as one of the leading internet search engines has increased
the amount of traffic on the WorldPages.com website.
In April 1999, Web YP announced a strategic alliance with Microsoft
Corporation designed to integrate the WorldPages.com directory into the
Microsoft Internet Explorer search capabilities. The directory is intended to
enable users of Microsoft Internet Explorer version 5.0, as well as older
versions 3.0 and 4.0, to access WorldPages.com to search for business, people
and government listings throughout the U.S. and around the world by clicking on
"yellow pages." The user is then able to choose WorldPages.com from among other
sites. The Microsoft alliance is not exclusive but allows users of Microsoft
Internet Explorer to have convenient access to the WorldPages.com website to
conduct searches.
Web YP and Big Stuff have expanded the WorldPages.com brand through these
strategic relationships, as well as some content and distribution deals that
have increased traffic to the website and provided WorldPages.com users a
broader range of content and services. Specifically, through an agreement with
Net2Phone, a user can place a telephone call over the Internet to any listed
phone number found in the Worldpages.com directory from their computer after
downloading Net2Phone's enabling software. No additional hardware is required.
Also in April 1999, WorldPages.com became a member of SignalSoft's
local.info-TM- Content Alliance. This marked WorldPages.com's entry into the
wireless communications arena. The content provider program combines
SignalSoft's location-based software with a range of localized information
provided by the numerous alliance members. These pre-packaged services allow
cellular and PCS network operators to provide a variety of local information
services to their subscribers. It is intended that as part of the Content
Alliance, WorldPages.com will be able to offer wireless subscribers access to an
abundance of white and yellow pages listings, e-mail addresses, maps, weather
and news locally, regionally, nationally and internationally.
Web YP and Big Stuff do not receive any revenues through these strategic
relationships; rather, these relationships are intended to build the
WorldPages.com brand and increase traffic to the website by linking the website
to high profile business partners like Microsoft, Excite and Net2Phone.
ASSET PURCHASE AND LICENSE AGREEMENT BETWEEN WEB YP AND WORLD PAGES, INC.
Web YP, as assignee of Fredrick Klein, is party to an Asset Purchase and
License Agreement dated as of September 19, 1997 with World Pages, Inc. pursuant
to which Web YP purchased certain tangible personal property, contracts, the
domain name "www.worldpages.com" and the seller's common law rights to the
trademarks "WorldPages," "Find the World Here!," and related logos and marks.
Pursuant to this agreement, Web YP licenses from World Pages, Inc., under an
irrevocable, non-exclusive, perpetual, worldwide, fully-paid and royalty-free
license, the directory site software originally used for the development,
operation and maintenance of the WorldPages.com website. Web YP also licenses
graphical site elements of the website from World Pages, Inc., on an exclusive
basis, even as to WorldPages, Inc. Web YP has all right, title and interest to
all modifications and derivative works it creates. Pursuant to this agreement,
Web YP licenses back to World Pages, Inc. the "buyer improvements," which means
any enhancements, improvements, error corrections or derivative works based upon
or made using the directory site software that were created by or for Web YP
within one year of the closing date, i.e., on or before September 18, 1998.
World Pages, Inc. has all right, title and interest in all modifications and
derivative works it creates from the buyer improvements.
In September 1999, World Pages, Inc. requested a copy of the buyer
improvements from Web YP. Web YP has complied with this request. Web YP is not
required to license to World Pages, Inc. the
73
<PAGE>
derivatives and modifications of the directory site software developed by Web YP
after the one-year anniversary of the closing date, i.e. after September 19,
1998. The directory site software used to develop, operate and maintain the
WorldPages.com website as it exists today was primarily developed by Web YP
after September 18, 1998. World Pages, Inc. has offered to sell Web YP the
software that Web YP currently licenses from World Pages, Inc., and Web YP has
declined. World Pages, Inc. has indicated that it may seek to sell this software
to a third party, including competitors of Web YP.
Pursuant to the World Pages, Inc. agreement, Web YP acquired the seller's
common law rights to the trademark, WorldPages. Prior to the date of this
agreement, the seller had applied for registration of the trademark, WorldPages,
with the U.S. Patent and Trademark Office. Its application was rejected. In
April 1999, Web YP applied for registration of the service mark WorldPages with
the U.S. Patent and Trademark Office. On October 4, 1999 Web YP received notice
of an office action dated September 30, 1999 from the U.S. Patent and Trademark
Office stating that, while the examining attorney has found no similar
registered mark which would bar registration, Web YP's application might be
barred because there is a pending, previously filed application for a similar
mark. Web YP has subsequently discovered that the cited pending application has
been abandoned and has requested that the U.S. Patent and Trademark Office pass
Web YP's application to publication. There can be no assurance, however, that
Web YP will be issued the registration for the WorldPages mark. Web YP has
recently applied for registration of the WorldPages mark in Canada and the
European Community.
As part of the World Pages, Inc. transaction, Web YP issued World
Pages, Inc. a warrant to purchase 7.5% of the common stock of Web YP, calculated
on a fully diluted basis, for an exercise price of $1,000. The warrant is
ordinarily not yet exercisable, but, if the acquisition of Web YP by Advanced or
another transaction involving a change of control, merger or sale of all or
substantially all the assets of Web YP occurs, the warrant would become
exercisable as a result. World Pages, Inc. has expressed to Web YP and Big Stuff
its dissatisfaction with the terms of the acquisitions of Web YP and Big Stuff
by ACG. World Pages, Inc. has asserted that Mr. O'Neal's interests as an
executive officer, director and shareholder of ACG conflict with his interests
with respect to WebYP and Big Stuff, to the detriment of the rights of World
Pages, Inc. as the holder of a warrant to purchase common stock of WebYP. WebYP
and Big Stuff have informed World Pages, Inc. of their belief that this
transaction is in the best interests of all parties, including the stockholders,
warrant holders and optionees of WebYP, and that Messrs. O'Neal and Reid have
fulfilled all duties they may owe to WebYP and its stockholders, warrant holders
and optionees. WorldPages, Inc. has stated that it might take unspecified action
with respect to these transactions, but, to the knowledge of WebYP, Big Stuff
and Messrs. O'Neal and Reid, it has not done so as of the date of this proxy
statement.
The number of shares of Web YP currently outstanding is 6,086 so that the
ratio of the number of shares of Advanced common stock to be issued in the
acquisition of Web YP is 507.872 shares of common stock of Advanced for each
share of Web YP. However, to the extent the warrant referenced in the
immediately preceding paragraph is exercised immediately prior to closing, the
exchange ratio will be reduced, because the total number of Advanced shares to
be issued to Web YP stockholders will remain constant at 3,090,909. If all of
the warrants and options to purchase 3,914 shares of Web YP are exercised prior
to closing, the exchange ratio will be reduced to 309.09 shares of Advanced
common stock for each share of Web YP. See "Description of the Amended and
Restated Web YP Agreement and the Amended and Restated Big Stuff Agreement."
74
<PAGE>
FACILITIES
Web YP is headquartered in San Francisco, California and conducts the
front-end executive functions associated with internet directory sales,
promotions and strategic relationships.
Big Stuff is headquartered in Amarillo, Texas and supports the
Worldpages.com print and online directories, and conducts the back-end functions
associated with the operation of the Worldpages.com website including all
aspects of website design and production.
EMPLOYEES AND LABOR RELATIONS
As of July 31, 1999, Web YP had 18 employees and Big Stuff had 31 employees.
Of these, a combined total of 13 are involved in sales and marketing, executive
and administrative functions, and 35 are involved in website design and
production. None of Web YP's or Big Stuff's employees is represented by a union.
Management of each company believes that relations with their respective
employees are good.
75
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF WEB YP
The following tables present selected historical financial information for
Web YP which should be read in conjunction with the historical financial
statements, and the related notes thereto, of Web YP, Web YP Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other financial data included elsewhere in this proxy statement. Web YP was
founded as an operating company in January 1998. The selected historical
financial data of Web YP for the fiscal year ended December 31, 1998 have been
derived from its audited financial statements included elsewhere in this proxy
statement. The selected financial data for each of the nine months ended
September 30, 1999 and 1998 were derived from its unaudited financial statements
and are not necessarily indicative of results for a full year. All adjustments
necessary for a fair presentation of results of the unaudited historical interim
periods have been included. See "Web YP Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Index to Financial
Statements."
WEB YP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ------------
<S> <C> <C> <C>
1999 1998 1998
------- ------- -------
Statement of Operations Data:
Revenues................................................. $ 611 $ 298 $ 384
Operating costs:
Selling and Internet expenses.......................... 2,562 503 753
General and administrative expenses.................... 1,036 907 1,232
Depreciation and amortization.......................... 74 37 51
------- ------- -------
Loss from operations................................... (3,061) (1,149) (1,652)
Other income (expense):
Interest expense....................................... -- -- --
------- ------- -------
Loss before income taxes................................. (3,061) (1,149) (1,652)
Income tax expense (benefit)............................. -- -- --
------- ------- -------
Net loss................................................. $(3,061) $(1,149) $(1,652)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Balance Sheet Data:
Current assets............................................ $1,748 $ 307
Working capital........................................... (2,510) (176)
Total assets.............................................. 1,961 344
Notes payable to shareholders............................. 3,510 --
Stockholders' equity (deficit)............................ (2,297) (139)
</TABLE>
76
<PAGE>
WEB YP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue increased $313,000, or 105.0%, to $611,000 during the nine months
ended September 30, 1999 from $298,000 during the nine months ended
September 30, 1998. The increase is the result of the addition of new resellers
to the sales channel and increased penetration of sales to customers from
existing resellers since the first nine months of operations.
Selling and Internet expenses increased as a percentage of revenues to 419%
for the nine months ended September 30, 1999 from 169% for the nine months ended
September 30, 1998. The increased percentage is primarily due to increased
advertising expense, development costs to improve functionality of the website
and costs associated with a new portal agreement.
General and administrative expenses decreased as a percentage of revenues to
169% during the nine months ended September 30, 1999 from 304% during the nine
months ended September 30, 1998. The decreased percentage is primarily due to
decreases in costs typically incurred by start-up companies, such as advertising
and promotion, legal fees, office supplies, trade shows and conventions, and
travel and entertainment.
Web YP's net loss increased 166% to $3,061,000 during the nine months ended
September 30, 1999 from $1,149,000 in the corresponding period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Web YP's primary funding requirements are to finance operating losses,
working capital and the continued growth of the business. This includes
primarily the development of strategic alliances with internet related
companies. Web YP's primary source of liquidity is capital contributions from
its stockholders. During the year ended December 31, 1998, the Web YP
stockholders contributed $1,388,000 of additional capital.
Net cash used by operations during the nine months ended September 30, 1999
was $4,422,000. This amount is primarily made up of cash used to fund net
losses.
DISCLOSURES ABOUT MARKET RISK
Web YP is exposed to minimal market risks based on its business and use of
financial instruments. Web YP does not hold or issue any financial instruments
for trading, hedging or speculative purposes. Financial instruments held for
other than trading purposes do not impose a material market risk. Web YP may be
exposed to interest rate risk, as additional financing is periodically needed
due to the operating losses and capital expenditures associated with
establishing and expanding Web YP's business. The interest rate that Web YP will
be able to obtain on debt financing will depend on market conditions at that
time.
77
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF BIG STUFF
The following tables present selected historical financial information for
Big Stuff which should be read in conjunction with the historical financial
statements, and the related notes thereto, of Big Stuff, Big Stuff Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other financial data included elsewhere in this proxy statement. The selected
historical financial data of Big Stuff for each of the three fiscal years in the
periods ended December 31, 1998, 1997 and 1996, and each of the nine months
ended September 30, 1999 and 1998, have been derived from its unaudited
financial statements included elsewhere in this proxy statement. All historical
and pro forma financial statements of Big Stuff contained in this proxy
statement have been prepared and restated by Advanced based on information
supplied by Big Stuff. The information supplied by Big Stuff did not conform to
generally accepted accounting principles. The selected financial data for the
nine months ended September 30, 1999 and 1998 are not necessarily indicative of
results for a full year. All adjustments necessary for a fair presentation of
results of the unaudited historical interim periods have been included. See "Big
Stuff Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Index to Financial Statements."
BIG STUFF, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................. $ 757 $1,324 $1,648 $2,526 $2,311
Operating costs:
Cost of services................... 653 817 1,049 1,857 1,140
Selling, general and administrative
expenses......................... 334 229 257 609 191
Depreciation and amortization...... 143 214 301 149 120
----- ------ ------ ------ ------
Income (loss) from operations...... (373) 64 41 (89) 860
Other income (expense):
Interest expense................... (67) (48) (60) -- --
----- ------ ------ ------ ------
Income (loss) before income taxes.... (440) 16 (19) (89) 860
Income tax expense................... -- -- -- -- --
----- ------ ------ ------ ------
Net income (loss)................ $(440) $ 16 $ (19) $ (89) $ 860
===== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------
1999 1998 1997 1996
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets.......................... $ 268 $277 $ 747 $1,446
Working capital......................... (1,088) 202 722 1,440
Total assets............................ 729 815 1,621 1,661
Short-term borrowings................... 64 43 -- --
Notes due to shareholders............... 1,200 -- -- --
Stockholders' equity.................... (627) 740 1,597 1,656
</TABLE>
78
<PAGE>
BIG STUFF MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue decreased $567,000, or 42.8%, to $757,000 during the nine months
ended September 30, 1999 from $1,324,000 during the nine months ended
September 30, 1998. The decrease is primarily due to a shift in business focus
from ad layout, design and colorization services to the development of internet
related services, including website design.
Cost of services increased as a percentage of revenues to 86.3% during the
nine months ended September 30, 1999 from 61.7% during the nine months ended
September 30, 1998. The increased percentage is primarily due to an increase in
direct labor costs resulting from the addition of staff with Internet expertise.
The cost of direct materials decreased in relation to revenues. More competitive
pricing of ad-related services has also contributed to the increase.
General and administrative expenses increased as a percentage of revenues to
44.1% during the nine months ended September 30, 1999 from 17.3% during the nine
months ended September 30, 1998. The increase in the expense rate is primarily
due to additional travel and entertainment costs necessary to promote Internet
related services.
Big Stuff's net loss was $440,000 for the nine months ended September 30,
1999 compared to net income of $16,000 in the corresponding period of 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenue decreased $878,000, or 34.8%, to $1,648,000 in 1998 from $2,526,000
in 1997. The decrease is primarily due to a shift in business focus from ad
layout, design and colorization services to the development of Internet related
services, including website design as well as speculative advertising artwork
design services for independent yellow pages publishers. Also, demand has
decreased for colorization services as improvements in technology have allowed
some customers to perform the same functions internally without significant
investment.
Cost of services decreased as a percentage of revenues to 63.7% during 1998
from 73.5% during 1997. The decreased percentage is primarily due to a decrease
in direct labor costs resulting from staff reductions in anticipation of Big
Stuff's shift in business focus to Internet related services. The cost of direct
materials decreased in relation to revenues.
General and administrative expenses decreased as a percentage of revenues to
15.6% during 1998 from 24.1% during 1997. The decreased percentage is due
primarily to decreases in costs associated with the development of Big Stuff's
ad-related services such as training, advertising and promotion, and travel and
lodging, resulting from Big Stuff's decision to shift its focus to Internet
related activities.
Big Stuff's net loss decreased to $19,000 in 1998 from $89,000 in 1997. As a
percentage of revenues, net loss decreased to 1.2% in 1998 from 3.5% in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenue increased $215,000, or 9.3%, to $2,526,000 in 1997 from $2,311,000
in 1996. The increase is primarily due to an increased customer base. Also, Big
Stuff increased revenue by providing additional services, such as speculative
advertising artwork design, to existing customers and other independent yellow
pages publishers.
79
<PAGE>
Cost of services increased as a percentage of revenues to 73.5% during 1998
from 49.3% during 1997. The increased percentage is primarily due to an increase
in direct labor costs resulting from the addition of staff necessary to service
a growing customer base and to provide additional services to existing
customers.
General and administrative expenses increased as a percentage of revenues to
24.1% during 1997 from 8.2% during 1996. The increased percentage is due
primarily to increases in costs associated with the development of Big Stuff's
ad-related services such as training, advertising and promotion, and travel and
lodging, resulting from Big Stuff's increased customer base and new services.
Big Stuff's net loss was $89,000 in 1997 compared to net income of $860,000
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Big Stuff's primary funding requirements are to finance working capital and
capital expenditures for website design equipment. Its sources of liquidity are
cash from operations and capital contributions or loans from stockholders. At
September 30, 1999, working capital was $(1,088,000).
Net cash used in operating activities for the nine months ended
September 30, 1999 was $39,000. Net cash used in investing activities was
$66,000, principally for purchases of equipment. Net cash provided by financing
activities was $106,000, representing $1,033,000 of borrowings from stockholders
offset by $927,000 of distributions to stockholders.
Net cash provided by operating activities in 1998 was $700,000. Net cash
used in financing activities in 1998 was $795,000, representing $393,000 of
capital contributions from stockholders offset by $1,188,000 of distributions to
stockholders.
Net cash provided by operating activities in 1997 was $265,000. Net cash
used in investing activities was $808,000, principally for purchases of
equipment. Net cash provided by financing activities was $30,000, representing
net capital contributions from stockholders.
DISCLOSURES ABOUT MARKET RISK
Big Stuff is exposed to minimal market risks based on its business and use
of financial instruments. Big Stuff does not hold or issue any financial
instruments for trading, hedging or speculative purposes. Financial instruments
held for other than trading purposes do not impose a material market risk. Big
Stuff may be exposed to interest rate risk, as additional financing is
periodically needed due to the operating losses and capital expenditures
associated with establishing and expanding Big Stuff's business. The interest
rate that Big Stuff will be able to obtain on debt financing will depend on
market conditions at that time.
80
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been
derived from the application of pro forma adjustments to the historical
financial statements of YPtel and its predecessor, Pacific Coast Publishing,
Inc., Web YP and Big Stuff and the pro forma financial statements of Advanced,
which are included in this proxy statement. The unaudited pro forma combined
financial statements give effect to the acquisitions of YPtel, Web YP and Big
Stuff as if they had occurred on (1) September 30, 1999 for purposes of the
unaudited pro forma combined balance sheet and (2) January 1, 1998 for purposes
of the unaudited pro forma combined statements of operations for the year ended
December 31, 1998 and the nine months ended September 30, 1999. The financial
data for the nine months ended September 30, 1999 are not necessarily indicative
of results for a full year due to timing associated with revenue recognition.
The unaudited pro forma combined financial statements should be read in
conjunction with the financial statements of Advanced, YPtel, Web YP and Big
Stuff which are included in this proxy statement. All historical and pro forma
financial statements of Big Stuff contained in this proxy statement have been
prepared and restated by Advanced based on information supplied by Big Stuff.
The information supplied by Big Stuff did not conform to generally accepted
accounting principles.
The pro forma adjustments are described in the notes to the unaudited pro
forma combined financial statements and are based on available information and
assumptions that management believes are reasonable. The unaudited pro forma
combined financial statements do not purport to present the financial position
or results of operations of Advanced had the acquisitions occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma combined financial
statements do not reflect any adjustments for the benefits that management
expects to realize in connection with the acquisitions. No assurances can be
made as to the amount or timing of such benefits, if any, that may be realized.
The acquisitions will be accounted for using the purchase method of
accounting. Under this method, tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their estimated fair values.
The excess of the purchase price, including estimated fees and expenses related
to the acquisitions, over the fair value of the assets acquired is classified
with intangible and other assets on the accompanying unaudited pro forma balance
sheet. The estimated fair values and useful lives of assets acquired and
liabilities assumed are based upon a preliminary valuation and are subject to
final valuation adjustments. Final allocation of the purchase price to the fair
value of the assets acquired could vary the related amortization period of the
excess of cost over the fair value of net assets acquired.
81
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADVANCED YPTEL WEB YP BIG STUFF PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $42,337 $31,940 $ 611 $ 757 $ (703)(a) $74,942
------- ------- ------- ----- ------- -------
Operating costs:
Printing, distribution and
listings.......................... 11,946 7,501 -- -- $ (703)(a) 18,744
Sales and marketing................. 9,755 6,325 2,562 653 19,295
General and administrative.......... 15,386 11,330 1,036 334 28,086
Depreciation and amortization....... 3,522 1,838 74 143 5,135 (b) 10,712
------- ------- ------- ----- ------- -------
Total operating costs................. 40,609 26,994 3,672 1,130 4,432 76,837
------- ------- ------- ----- ------- -------
Operating margin...................... 1,728 4,946 (3,061) (373) (5,135) (1,895)
Other income (expense):
Other income and expense, net....... 1 (332) -- -- (331)
Interest expense.................... (3,517) (2,692) -- (67) 563 (c) (5,713)
------- ------- ------- ----- ------- -------
Income (loss) from continuing
operations before income taxes....... (1,788) 1,922 (3,061) (440) (4,572) (7,939)
Income tax expense (benefit).......... 612 672 -- -- (1,058)(d) 226
------- ------- ------- ----- ------- -------
Net income (loss) from continuing
operations........................... $(2,400) $ 1,250 $(3,061) $(440) $(3,514) $(8,165)
======= ======= ======= ===== ======= =======
Net income (loss) per share from
continuing operations................ $ (.12) $ (.19)
======= =======
Weighted average shares outstanding... 19,896 23,243 (e) 43,139
======= ======= =======
</TABLE>
- ------------------------
(a) Reflects the elimination of revenue and cost of sales for services provided
to Advanced by Big Stuff and Web YP.
(b) Reflects the amortization of goodwill resultant from the acquisitions over
periods ranging from
10 to 30 years, as follows:
<TABLE>
<CAPTION>
AMORTIZATION PERIOD
(IN THOUSANDS) ------------ --------
<S> <C> <C>
YPtel................................................... $2,327 30 years
Web YP.................................................. 2,034 10 years
Big Stuff............................................... 774 10 years
------
$5,135
======
</TABLE>
(c) Reflects the elimination of interest expense incurred on the $15.0 million
5% Subordinated Notes payable, which will be converted to common stock in
connection with the acquisitions.
(d) Reflects the incremental provision for federal and state income taxes at an
effective tax rate of 38% for the applicable pro forma adjustments and for
income taxes on S-corporation income.
(e) Reflects the issuance of 19,545,454 shares issued for the purchase of the
acquired companies; 2,840,909 shares issued for the conversion of the 5%
Subordinated Notes payable; and 856,364 shares issued in exchange for
cancellation of indebtedness of $4.7 million to stockholders of Web YP and
Big Stuff.
82
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADVANCED YPTEL WEB YP BIG STUFF PRO FORMA PRO FORMA
PRO FORMA(A) HISTORICAL(B) HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $47,336 $34,408 $ 384 $ 1,648 $ (1,252)(c) $ 82,524
------- ------- ------- ------- -------- --------
Operating costs:
Printing, distribution and
listings.................. 11,307 8,165 -- -- (1,252)(c) 18,220
Sales and marketing......... 10,806 6,857 753 1,049 19,465
General and
administrative............ 19,249 12,103 1,232 257 32,841
Depreciation and
amortization.............. 4,751 662 51 301 8,893 (d) 14,658
Other compensation.......... 1,760 1,381 -- -- 3,141 (h)
------- ------- ------- ------- -------- --------
Total operating costs......... 47,873 29,168 2,036 1,607 7,641 88,325
------- ------- ------- ------- -------- --------
Operating margin.............. (537) 5,240 (1,652) 41 (8,893) (5,801)
Other income (expense):
Other income and expense,
net....................... 190 495 -- -- 685
Interest expense............ (1,955) (568) -- (60) (2,156)(e) (4,739)
------- ------- ------- ------- -------- --------
Income (loss) from continuing
operations before income
taxes........................ (2,302) 5,167 (1,652) (19) (11,049) (9,855)
Income tax expense
(benefit).................... 670 -- -- -- 724 (f) 1,394
------- ------- ------- ------- -------- --------
Net income (loss) from
continuing operations........ $(2,972) $ 5,167 $(1,652) $ (19) $(11,773) $(11,249)
======= ======= ======= ======= ======== ========
Net income (loss) per share
from continuing operations... $ (0.15) $ (0.26)
======= ========
Weighted average shares
outstanding.................. 19,646 23,243 (g) 42,889
======= ======== ========
</TABLE>
- ------------------------
(a) Advanced acquired Great Western on February 18, 1998. The pro forma results
of Advanced were prepared as if the acquisition occured on January 1, 1998.
As a result, revenue of $9.2 million and net income of $.3 million of Great
Western for the period January 1, 1998 to February 18, 1998 has been
combined with the historical results of Advanced.
(b) YPtel historical results of operations for the year ended December 31, 1998
include the results of its predecessor for the period January 1, 1998
through October 31, 1998 and the results of YPtel Corporation for the period
November 1, 1998 through December 31, 1998. The results of YPtel Corporation
include the results of operations of its predecessor.
(c) Reflects the elimination of revenue and cost of sales for services provided
to Advanced by Big Stuff and Web YP.
(d) Reflects the amortization of the goodwill resultant from the acquisitions,
over periods ranging from 10 to 30 years, as follows:
<TABLE>
<CAPTION>
AMORTIZATION PERIOD
(IN THOUSANDS) ------------ --------
<S> <C> <C>
YPtel................................................... $3,102 30 years
Web YP.................................................. 2,712 10 years
Big Stuff............................................... 1,032 10 years
YPtel's Acquisition of Pacific Coast Publishing......... 2,047 30 years
------
$8,893
======
</TABLE>
83
<PAGE>
(e) Reflects the addition of $2.9 million interest expense relating to YPtel
debt as a result of its acquisition of Pacific Coast Publishing. This amount
is partially offset by the elimination of $750,000 interest expense incurred
on the $15.0 million 5% Subordinated Notes, which will be redeemed for
Advanced common stock in connection with the acquisitions.
(f) Reflects the incremental provision for federal and state income taxes at an
effective tax rate of 38% for the applicable pro forma adjustments and for
income taxes on S-corporation income.
(g) Reflects the issuance of 19,545,454 shares issued for the purchase of the
acquired companies; 2,840,909 shares issued for the conversion of the 5%
Subordinated Notes payable; and 856,364 shares issued in exchange for the
principal amount of indebtedness of $4.7 million issued by Web YP and Big
Stuff to stockholders of Web YP and Big Stuff.
(h) Represents stock-based compensation of Advanced and shareholder remuneration
of YPtel.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADVANCED YPTEL WEB YP BIG STUFF PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 1,408 $ 207 $ 15 $ 1 $ $ 1,631
Accounts receivable, net...... 17,681 11,366 199 82 29,328
Deferred costs................ 2,236 7,462 -- -- 9,698
Prepaid expenses and other.... 289 1,992 1,534 185 4,000
Deferred taxes................ 3,782 -- -- -- 3,782
-------- ------- ------ ------ -------- --------
Total current assets........ 25,396 21,027 1,748 268 48,439
-------- ------- ------ ------ -------- --------
Property, plant and equipment,
net............................ 957 652 213 339 2,161
Intangible assets, net.......... 76,546 40,376 -- 122 130,511 (a) 247,555
Other assets.................... 2,259 -- -- -- 2,259
Net assets held for sale........ 41,222 -- -- -- 41,222
-------- ------- ------ ------ -------- --------
Total other assets.......... 120,984 41,028 213 461 130,511 293,197
-------- ------- ------ ------ -------- --------
Total assets................ $146,380 $62,055 $1,961 $ 729 $130,511 $341,636
======== ======= ====== ====== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.................... $ 6,704 $ 5,700 $ 123 $ 92 $ 6,000 (a) $ 17,994
(625)(b)
Short-term debt and current
maturities of long-term
debt........................ 55,000 3,882 -- 64 (15,000)(b) 43,946
Deferred revenue.............. -- 1,660 459 -- 2,119
Notes due to shareholders..... -- -- 3,510 1,200 (4,710)(a) --
Other current liabilities..... 2,691 -- 166 -- 2,857
-------- ------- ------ ------ -------- --------
Total current liabilities... 64,395 11,242 4,258 1,356 (14,335) 66,916
Long-term liabilities:
Long-term debt................ -- 35,786 -- -- 35,786
Deferred taxes................ 10,704 134 -- -- 10,838
-------- ------- ------ ------ -------- --------
Total liabilities........... 75,099 47,162 4,258 1,356 (14,335) 113,540
-------- ------- ------ ------ -------- --------
Stockholders' equity:
Preferred stock............... -- -- -- -- --
Common stock.................. 2 13,720 -- -- 2 (a) 4
(13,720)(c)
Treasury stock................ (938) -- -- -- (938)
Additional paid-in capital.... 147,744 -- 2,432 1,523 156,551 (d) 308,250
Retained earnings (deficit)... (75,527) 1,173 (4,729) (2,150) (3,693)(b) (79,220)
5,706 (c)
-------- ------- ------ ------ -------- --------
Total stockholders'
equity.................... 71,281 14,893 (2,297) (627) 144,846 228,096
-------- ------- ------ ------ -------- --------
Total liabilities and
stockholders' equity...... $146,380 $62,055 $1,961 $ 729 $130,511 $341,636
======== ======= ====== ====== ======== ========
</TABLE>
- ------------------------
SEE NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET ON FOLLOWING PAGE
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NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Records the purchase of YPtel, Web YP and Big Stuff for approximately $147.2
million, composed of the following:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------ --------------------------------- TOTAL
(IN THOUSANDS) STOCK COMMON STOCK TRANSACTION PURCHASE
COMMON STOCK OPTIONS STOCK OPTIONS COSTS PRICE
------------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
YPtel................ 15,000,000(1) 351,281 $102,000 $1,964 $4,000 $107,964
Web YP............... 4,020,000(2) -- 27,336 -- 1,000 28,336
Big Stuff............ 1,454,545 -- 9,891 -- 1,000 10,891
---------- ------- -------- ------ ------ --------
20,474,545 351,281 $139,227 $1,964 $6,000 $147,191
========== ======= ======== ====== ====== ========
</TABLE>
For financial reporting purposes, the Advanced common stock was valued at
$6.80 per share (the average closing price for the five days before and
after the announcement of the acquisitions). The stock options were valued
using the Black-Scholes option pricing model. Transaction costs consist
primarily of legal, accounting, tax and financial advisory costs associated
with the acquisitions.
The purchase price was preliminarily allocated to the fair value of the net
assets acquired as summarized below:
<TABLE>
<CAPTION>
YPTEL WEB YP BIG STUFF TOTAL
(IN THOUSANDS) -------- -------- --------- --------
<S> <C> <C> <C> <C>
Net working capital................... $ 9,785 $ 1,000 $ 112 $ 10,897
Property and equipment................ 652 213 339 1,204
Long-term debt........................ (35,786) -- -- (35,786)
Deferred taxes........................ (134) -- -- (134)
Intangible assets..................... 133,447 27,123 10,440 171,010
-------- ------- ------- --------
Total purchase price.............. $107,964 $28,336 $10,891 $147,191
======== ======= ======= ========
</TABLE>
----------------------------
(1) Included in the shares issued as consideration for YPtel are all shares
of Advanced common stock expected to be issued either directly and or
indirectly through exchange of Class A Special Shares. The Class A
Special Shares may be issued in lieu of Advanced common stock for
Canadian tax reasons but are exchangeable into a like number of Advanced
common stock.
(2) Included in the shares issued as consideration for the Web YP
acquisition are 929,091 shares assumed to be issued in exchange for
estimated indebtedness in the aggregate principal amount of $5.1 million
which have been made to finance operations of Web YP and Big Stuff until
the transaction closes. According to the terms of the acquisition
agreements, up to $6.0 million of such loans may be made to Web YP and
Big Stuff which will be exchanged for Advanced common stock based on the
agreed upon price of $5.50 per share. If the entire $6.0 million were
loaned, 1,090,909 shares of Advanced common stock would be issued.
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(b) Reflects the conversion of the $15.0 million 5% subordinated notes payable
and $625,000 accrued interest owed by Advanced into 2,840,909 shares of
common stock and the resultant loss from the conversion. For financial
reporting purposes the stock was valued at $6.80 per share and will result
in an extraordinary loss of $3.7 million as a loss on early extinguishment
of debt. This extraordinary loss is not reflected in the pro forma financial
statements.
(c) Records the elimination of YPtel, Web YP and Big Stuff's historical retained
earnings (deficit) and common stock.
(d) Records the net effect of the following adjustments on capital in excess of
par value:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Issuance of shares and stock options for acquisitions....... $141,188
Issuance of shares for 5% Subordinated Notes payable........ 19,318
Elimination of YPtel, Web YP and Big Stuff's historical
paid-in capital........................................... (3,955)
--------
$156,551
========
</TABLE>
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BACKGROUND OF THE ACQUISITIONS
The provisions of the acquisition agreements between Advanced, YPtel, Web YP
and Big Stuff are the result of arm's length negotiations conducted among
representatives of all parties and their legal and financial advisors. The
following is a brief summary of the process by which the parties reached
agreement on the proposed transactions.
Advanced planned to complete a high-yield offering of debt securities during
the third quarter of 1998 to fund telecommunications operating losses, working
capital requirements and the construction of its local switching network, a key
component of its strategic business plan. Indeed, Advanced was working with
investment bankers at that time to effect such a transaction.
During September 1998, management concluded that it would not be possible to
complete a high-yield offering due to market conditions resulting from the
worldwide contraction of liquidity that occurred during the second half of 1998.
Consequently, during early October 1998, Advanced engaged PaineWebber
Incorporated to locate sources of capital, including private equity investors,
and to advise Advanced on potential merger or sale transactions. In addition,
management met with a number of potential financing sources during the fourth
quarter of 1998 but was unsuccessful in securing financing.
Subsequently, PaineWebber presented to Advanced a private equity proposal
that involved merging with National Wireless Holdings, Inc. In December 1998,
Advanced entered into an agreement to negotiate exclusively with National
Wireless for the purpose of merging the two companies and executing the
strategic business plan of becoming a facilities-based competitive local
exchange carrier.
Advanced continued to explore potential sources of capital to fund
telecommunications operating losses and working capital requirements but was
unsuccessful in reaching acceptable terms. Advanced and National Wireless
negotiated extensively but unsuccessfully in attempts to achieve a merger
agreement from December 1998 through March 1999 when the exclusivity agreement
expired.
During mid-March 1999, Richard O'Neal, chairman and chief executive officer
of Advanced, received a letter of invitation from YPtel to discuss the possible
merger of Advanced and YPtel and Advanced's divestiture of its
telecommunications operations. Mr. O'Neal presented the letter of invitation at
a board meeting on March 24, 1999, but it was the consensus of the board that
while the merger appeared to have merit, Advanced was bound by its agreement of
exclusivity with National Wireless through March 31, 1999.
Previously, during late January 1999, at the invitation of YPtel's board of
directors, Dick Reid, president and chief executive officer of Big Stuff and
chief executive officer of Web YP, presented the strategy of WorldPages and
informed the YPtel board of the opportunities available with respect to yellow
pages on the Internet. The next day, Stephen Lister, a director of YPtel, met
with Dick Reid and Richard O'Neal in their capacities as directors, executive
officers and stockholders of both Web YP and Big Stuff, and discussed the
possibility of merging Web YP and Big Stuff with YPtel after YPtel's
contemplated initial public offering.
In February 1999, YPtel, Web YP and Big Stuff entered into a "standstill"
agreement in which the parties agreed to negotiate exclusively with each other
for a limited period of time to pursue a merger which would be consummated after
YPtel's contemplated initial public offering in Canada with the securities to be
listed on the Toronto Stock Exchange. On March 29, 1999, YPtel's board of
directors decided to withdraw the initial public offering of YPtel due to
unfavorable market conditions.
On April 1, 1999, Advanced executives and representatives of YPtel met to
discuss the merits of a possible combination among Advanced, YPtel, Web YP and
Big Stuff. Because the group believed the proposal warranted further
investigation, they held a conference call with an investment bank to get
professional advice concerning the proposed combination and the likelihood of
securing financing. In
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the days following that conference call, the companies' representatives analyzed
business strategies, valuations and financing alternatives for the combined
companies.
During the week beginning April 5, 1999, Advanced's executive committee of
the board met on several occasions to discuss the proposed combination among
Advanced, YPtel, Web YP and Big Stuff. On April 7, 1999, Advanced management met
with representatives of a major bank who expressed a willingness to finance the
combined companies once the related transaction was closed.
On April 11, 1999, Stephen Lister, along with YPtel's legal counsel, a
select committee of Advanced's board and its legal counsel held a conference
call to further discuss the terms associated with the combination proposal and
to draft a letter of intent. By the end of the conference call, a proposed
letter of intent had been drafted and was distributed to the boards of the
various companies for their review and approval.
On April 11, 1999, the companies planning to combine signed a non-binding
letter of intent to pursue the proposed acquisitions of YPtel, Web YP and Big
Stuff and the sale of Advanced's telecommunications operations. Later that
month, representatives of the companies to be combined met to discuss the letter
of intent and the business reasons supporting the proposed acquisitions.
Subsequently, Advanced management presented to the board the history of the
organization and management's attempts to secure debt or equity financing on
reasonable terms.
On April 27, 1999, representatives of YPtel and members of Advanced's
executive committee met to discuss a first draft of the definitive agreements
and commence negotiations concerning certain elements of the draft of the
definitive agreements.
Advanced announced that Bank of America Corporation agreed to provide
$40 million in bridge and working capital financing on May 6, 1999.
The next day, representatives of YPtel visited Advanced's headquarters to
perform due diligence on its telecommunications operations. In connection with
the evaluation, the management of Advanced's telecommunications operations
presented a plan to reduce the negative cash flows generated by those
operations. Similarly, on May 11 and 12, 1999, certain management of Advanced
and its auditors met with YPtel's management and accountants as part of
Advanced's due diligence of YPtel's operations.
On May 12, 1999, management of Advanced, YPtel, Web YP and Big Stuff met to
discuss the strategy associated with integrating the combined companies and
establish a team to prepare a new business plan for Advanced. Later that day and
during the next day, management of YPtel met with management of Advanced to
review due diligence materials associated with its yellow pages operations.
On May 14, 1999, Advanced announced that it had engaged Banc of America
Securities, LLC, formerly NationsBanc Montgomery Securities, as investment
advisor in connection with the planned sale of its telecommunications
operations. On that same day and on May 28, 1999, certain officers and directors
of YPtel and board members of Advanced's executive committee discussed
outstanding issues with respect to definitive agreements and commenced
additional negotiations via conference calls. Also on May 14, 1999, Advanced
closed a $40 million credit agreement with a subsidiary of Bank of America
Corporation and repaid in full its $25.0 million indebtedness with another
commercial bank lender.
On May 19, 1999, Advanced initiated and announced a program to move
telecommunications operations functions back to regional operating subsidiaries
and thus eliminate corporate positions that would most likely be provided by an
acquiring company. The 40 member staff of the St. Louis headquarters was the
first affected by the program. By July 18, 1999, only those performing corporate
functions that could not be decentralized remained in St. Louis.
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On June 2, 1999, representatives of PaineWebber made a presentation to the
Advanced board. PaineWebber had been retained to give its opinion regarding
whether the consideration to be paid, in the aggregate, by Advanced in
connection with the acquisitions of YPtel, Web YP and Big Stuff and the
redemption of the 5% Subordinated Notes was fair to Advanced from a financial
point of view. After listening to PaineWebber's oral opinion that the
consideration to be paid, in the aggregate, was fair to Advanced from a
financial point of view and after thorough discussion of the potential
transactions, the Advanced board voted to approve the execution of the YPtel,
Web YP and Big Stuff acquisition agreements and the redemption agreements. The
YPtel Agreement, the Web YP Agreement and the Big Stuff Agreement were executed
as of June 3, 1999.
As a result of timing delays beyond Advanced's control, it became evident
that the acquisitions contemplated under the YPtel Agreement, the Web YP
Agreement and the Big Stuff Agreement would not close on or before October 31,
1999, the termination date under each acquisition agreement. Accordingly, on
September 21, 1999, Advanced's board requested an extension of each of the
acquisition agreements. Imperial Capital, as a representative of a majority of
the YPtel shareholders, indicated that it was not willing to extend the YPtel
Agreement.
Advanced's board of directors inquired regarding the terms under which
Imperial Capital would agree to extend the YPtel Agreement beyond its
October 31, 1999 termination date. Between September 21 and October 7, 1999,
certain Imperial Capital representatives and certain directors of Advanced had
numerous discussions concerning various alternatives and terms of extension.
On October 7 and 8, 1999, Mr. Lister, one of the Imperial Capital
principals, met with Mr. O'Neal, one of Advanced's directors, to outline and
discuss the general terms under which Imperial Capital would be willing to
extend the YPtel Agreement. On October 8, 1999, Messrs. Lister and O'Neal
reached an agreement regarding the basic terms of an extension of the YPtel
Agreement under revised terms. Imperial Capital and Advanced each called a board
meeting to present the terms of extension discussed by Messrs. Lister and
O'Neal. Later that day, both boards agreed, in principle, to the revised terms
that Messrs. O'Neal and Lister had negotiated.
On October 8, 1999, management of Advanced contacted PaineWebber to inform
it of the change in the terms of the YPtel Agreement and to solicit an opinion
from PaineWebber regarding whether the consideration to be paid, in the
aggregate, by Advanced in connection with the acquisitions of YPtel, Web YP and
Big Stuff and the redemption of the 5% Subordinated Notes was fair to Advanced
from a financial point of view. On October 20, 1999, PaineWebber delivered to
the Advanced board its oral opinion that the consideration to be paid, in the
aggregate, was fair to Advanced from a financial point of view.
Between October 9, 1999 and October 26, 1999, Imperial Capital
representatives and Advanced board members discussed and documented the detail
of the new terms in the form of the Amended and Restated YPtel Agreement which
was executed October 26, 1999.
The basic terms under the Amended and Restated YPtel Agreement are as
follows:
- the aggregate consideration to be received by the YPtel shareholders was
increased to 15,000,000 shares of Advanced common stock from 7,545,454
shares;
- a termination date of March 1, 2000;
- contingent consideration, based upon the net sale proceeds from the sale
of the telecommunications operations, was eliminated;
- escrow of and transfer restrictions on Advanced shares received by YPtel
shareholders was eliminated;
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- options to purchase Advanced common stock intended to be granted to the
Imperial Capital principals were eliminated; and
- the amount which could be lent by Messrs. O'Neal and Reid to Web YP and
Big Stuff prior to closing was reduced from $10 million to $6 million.
The basic terms of the Web YP Agreement and the Big Stuff Agreement were
modified in the same manner as those described above relating to the YPtel
Agreement, however, the aggregate consideration to be received by the Web YP and
Big Stuff stockholders was not modified. Therefore, under the Amended and
Restated Web YP and Big Stuff Agreements, the Web YP stockholders would receive
an aggregate of 3,090,909 shares of Advanced common stock for their Web YP stock
and the Big Stuff stockholders would receive an aggregate of 1,454,545 shares of
Advanced common stock for their Big Stuff stock, as was the case under the
original Web YP and Big Stuff Agreements.
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REASONS FOR THE PROPOSED ACQUISITIONS
The boards of directors and management of Advanced, YPtel, Web YP and Big
Stuff, as well as Imperial Capital, believe that the proposed transactions
present an opportunity to integrate four highly complementary companies to
achieve a leadership position in the Internet and print yellow pages business.
This belief is due to a number of strategic and market factors. The boards of
directors and management of Advanced, YPtel, Web YP and Big Stuff, as well as
Imperial Capital, believe that the proposed transaction is in the best interests
of the respective companies' stockholders, both now and over the long term.
Management and the boards of directors, as well as Imperial Capital, believe
that the proposed acquisitions will allow Advanced to:
- create a worldwide-integrated network of Internet and print yellow
pages directories under the "Worldpages.com" brand, serving primarily
local advertisers, but also national and international advertisers. There
has been rapid acceptance of the Internet as a medium for accessing yellow
pages information. While a number of companies are attempting to provide
Internet yellow pages information services, no one firm has yet
established market dominance. Without sales networks in place, these firms
do not have access to local advertisers, which presently account for 88%
of yellow pages advertising. To date, the revenue source of these
electronic yellow pages companies has primarily been from banner
advertising.
- become a consolidator of print yellow pages companies to expand Internet
and print yellow pages revenues, improve earnings and generate greater
cash flows.
- create a larger combined entity that will be in a stronger financial
position to take advantage of the many internal and external growth
opportunities. The proposed transaction is a way to obtain access in the
short term to public capital markets to finance this growth. Both the
internet and print segments of the yellow pages business have been growing
rapidly and have also been subject to merger and acquisition activity.
Advanced will have an improved capital structure which will give it the
opportunity to raise additional capital.
- take advantage of Great Western's extensive in-house sales force and
network of owned and affiliated, through strategic partnerships, print
yellow pages directories to grow revenues rapidly.
- utilize Great Western's print and Internet yellow pages expertise to
enable the combined companies to enter the electronic commerce business
with a similar model and economics as the print yellow pages business.
- create value for stockholders by providing a platform for continued
growth.
- improve the profitability of the combined companies through centralized
directory operations and back office administration, by establishing and
migrating best practices throughout the combined operations, including
sales training, recruiting, centralized procurement, and by overhead cost
reduction.
Advanced, YPtel, Web YP and Big Stuff have devoted substantial time and
resources to reviewing the advisability and expected benefits of the
transaction. In addition to the benefits described above, each company adds
strength to the management team of the resulting company. Management believes
that each company brings complementary employee cultures to WorldPages.com and
that the respective operations can be effectively integrated.
At a special board meeting on October 25, 1999, the Advanced board of
directors determined that the proposed acquisitions of YPtel, Web YP and Big
Stuff and the redemption of the 5% Subordinated Notes in exchange for Advanced
common stock are fair to and in the best interests of Advanced and the Advanced
stockholders.
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In the course of making its decision, the Advanced board:
- reviewed several available alternatives to the proposed transactions,
including the offer from National Wireless, which was materially lower in
value than the proposed transactions. Additionally, the board considered
the limitations on Advanced's ability to obtain the financing required to
continue operations and execute its strategy to grow as a strong regional
competitive local exchange carrier and to improve cash flow.
- considered that typical price-to-earnings ratios of successful Internet
companies were substantially higher than those of competitive local
exchange carriers. The Advanced board also considered that the proposed
combination of the companies would give Advanced certain characteristics
similar to those Internet companies and could result in a comparable
valuation resulting in significant enhancement of value to stockholders.
The Advanced board recognized, however, that there could be no assurance
that a similar valuation would be realized or that the high
price-to-earnings ratios of Internet companies would remain high.
- considered the analysis and presentation prepared by PaineWebber and its
oral opinion, which was subsequently confirmed in writing, that, as of
October 20, 1999, and subject to assumptions made, matters considered and
limitations on their review, the consideration to be paid, in the
aggregate, in connection with the acquisitions and the redemption of the
5% Subordinated Notes was fair to Advanced from a financial point of view.
- considered the financial condition and operations of YPtel, Web YP and Big
Stuff, the viability of the print and Internet yellow pages strategy and
the Internet market opportunity. The Advanced board also considered the
market opportunities for competitive local exchange carriers.
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OPINION OF ADVANCED'S FINANCIAL ADVISOR
PaineWebber Incorporated, as part of its engagement by Advanced, was
retained to render an opinion as to whether the consideration to be paid, in the
aggregate, by Advanced pursuant to the acquisitions of YPtel, Web YP and Big
Stuff and the redemption of its $15 million principal amount of 5% Subordinated
Notes is fair to Advanced from a financial point of view.
The following is a summary of the discussion materials presented on
October 20, 1999 by PaineWebber to the Advanced board in connection with the
rendering of its opinion.
THE FULL TEXT OF THE PAINEWEBBER OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX D TO THIS DOCUMENT. YOU SHOULD READ THE
PAINEWEBBER OPINION CAREFULLY AND IN ITS ENTIRETY. THIS SECTION IS ONLY A
SUMMARY OF THE WRITTEN OPINION AND AS A SUMMARY IS QUALIFIED BY AND IS NOT A
SUBSTITUTE FOR, THE WRITTEN OPINION.
In connection with the consideration by the Advanced board of the
acquisition agreements between Advanced and each of YPtel, Web YP and Big Stuff
and the note redemption agreements between Advanced and the holders of the
$15 million principal amount of 5% Subordinated Notes, PaineWebber delivered its
opinion on October 20, 1999, which was later confirmed in writing, to the effect
that, as of October 20, 1999 and based upon its review and assumptions and
subject to the limitations summarized below, the consideration to be paid, in
the aggregate, by Advanced was fair to Advanced from a financial point of view.
The PaineWebber opinion was directed to, and prepared at the request and for the
information of, the Advanced board and does not constitute a recommendation to
any holder of Advanced stock as to how any such stockholder should vote with
respect to the acquisitions and the redemption of the 5% Subordinated Notes. No
opinion was expressed by PaineWebber as to any acquisition or the note
redemption taken individually.
In arriving at its opinion, PaineWebber, among other things:
- reviewed YPtel's Amended and Restated Preliminary Prospectus dated
February 15, 1999 which includes related pro forma financial information
for YPtel for the fiscal year ended October 31, 1998 and related audited
financial information for Pacific Coast Publishing, Inc., a wholly-owned
subsidiary of YPtel, for the three fiscal years ended October 31, 1998 and
YPtel's internal, unaudited income statement, cash flow statement and
balance sheet information for the eight months ended June 30, 1999;
- reviewed Web YP's audited financial information for the fiscal year ended
December 31, 1998 and internal, unaudited income statement, cash flow
statement and balance sheet information for the fiscal year ended
December 31, 1998 and the six months ended June 30, 1999;
- reviewed Big Stuff's internal, unaudited income statement, cash flow
statement and balance sheet information for the three fiscal years ended
December 31, 1998 and the six months ended June 30, 1999;
- reviewed the 5% Subordinated Note Agreements dated February 18, 1998;
- reviewed Advanced's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended December 31, 1998, Advanced's
Registration Statement on Form S-1 and related Prospectus each dated
February 12, 1998 and Advanced's Form 10-Q and the related unaudited
financial information for the six months ended June 30, 1999;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of YPtel, Web YP
and Big Stuff individually and Advanced, furnished to PaineWebber by
YPtel, Web YP and Big Stuff and Advanced, respectively, as well as a
consolidated financial forecast of YPtel, Web YP and Big Stuff and
Advanced on a
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combined basis, relating to the business, earnings, cash flow, assets and
prospects of YPtel, Web YP and Big Stuff and Advanced on a combined basis,
furnished to PaineWebber jointly by YPtel, Web YP and Big Stuff and
Advanced;
- conducted discussions with members of senior management of each of YPtel,
Web YP and Big Stuff and Advanced concerning their respective businesses
and prospects;
- reviewed the historical market prices and trading activity for Advanced
common stock and compared them with those of certain publicly traded
companies which PaineWebber deemed to be relevant;
- compared the results of operations of YPtel, Web YP and Big Stuff and
Advanced with those of certain companies which PaineWebber deemed to be
relevant;
- compared the proposed financial terms of the acquisitions of YPtel,
Web YP and Big Stuff with the financial terms of certain other mergers and
acquisitions which PaineWebber deemed to be relevant;
- considered the pro forma effect of the acquisitions of YPtel, Web YP and
Big Stuff and the note redemption on Advanced's earnings, cash flow and
capitalization;
- reviewed draft amended acquisition agreements relating to YPtel, Web YP
and Big Stuff available as of October 20, 1999, and the note redemption
agreements each dated as of June 3, 1999; and
- reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as
PaineWebber deemed necessary, including PaineWebber's assessment of
general economic, market and monetary conditions.
PaineWebber has advised Advanced that the validity of the conclusions
reached in the PaineWebber opinion was not impacted by any differences between
the draft amended acquisition agreements reviewed by PaineWebber and the
executed versions of such acquisition agreements, each of which was subsequently
reviewed by PaineWebber.
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
each of YPtel, Web YP and Big Stuff and Advanced, and PaineWebber did not assume
any responsibility to independently verify such information. With respect to the
financial forecasts examined by PaineWebber, PaineWebber assumed that they were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of the respective managements of YPtel, Web YP and Big
Stuff and Advanced as to the future performance of the respective companies.
PaineWebber also relied upon assurances of the respective managements of YPtel,
Web YP, Big Stuff and Advanced that they were unaware of any facts that would
make the information or financial forecasts provided to PaineWebber incomplete
or misleading. PaineWebber did not make any independent evaluation or appraisal
of the assets or liabilities, contingent or otherwise, of YPtel, Web YP and Big
Stuff and Advanced or of the $15 million principal amount of 5% Subordinated
Notes nor was PaineWebber furnished with any such evaluations or appraisals.
PaineWebber also limited, with the consent of Advanced, its analysis to
information furnished to it on or prior to October 20, 1999. PaineWebber also
assumed with the consent of Advanced that:
- the acquisitions will be accounted for under the purchase method of
accounting;
- the acquisitions will be tax-free reorganizations to Advanced; and
- any material liabilities, contingent or otherwise, known or unknown, of
YPtel, Web YP and Big Stuff and Advanced were as set forth in the
financial information provided by such companies.
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In addition, Advanced instructed PaineWebber to assume that:
- the accrued interest on the $15.0 million principal amount of 5%
Subordinated Notes at the date of the closing will be $593,750, resulting
in the issuance, pursuant to the terms of the note redemption agreements,
of 107,955 additional shares of Advanced common stock to the holders of
the $15 million principal amount of 5% Subordinated Notes at the date of
the closing; and
- Web YP and/or Big Stuff will receive additional cash loans from their
existing stockholders of an aggregate of $6.0 million from January 1, 1999
to the date of the closing, resulting in the issuance, pursuant to the
terms of the acquisition agreements relating to Web YP and Big Stuff, of
1,090,909 additional shares of Advanced common stock to such stockholders
upon conversion of such loans by such stockholders on the date of the
closing.
No opinion was expressed by PaineWebber as to the price at which Advanced
common stock may trade at any time. PaineWebber's opinion was based on economic,
monetary and market conditions existing as of October 20, 1999.
The following paragraphs summarize the significant analyses reviewed by
PaineWebber in arriving at the PaineWebber opinion.
ADVANCED
HISTORICAL STOCK TRADING PERFORMANCE. PaineWebber reviewed trading prices
for the common stock of Advanced. This stock performance review indicated that
Advanced's all-time low and high closing prices were $3.31 and $16.75,
respectively. PaineWebber also reviewed Advanced's common stock prices at times
and for periods prior to the public announcement on April 12, 1999, of the
execution of the letter of intent relating to the proposed transactions, as set
forth in the following table. The table also includes the implied value at the
stock prices shown of the consideration to be paid, in the aggregate, by
Advanced pursuant to the acquisitions of YPtel, Web YP and Big Stuff and the
redemption of its $15 million principal amount of 5% Subordinated Notes.
<TABLE>
<CAPTION>
IMPLIED VALUE OF
AGGREGATE CONSIDERATION
TRADING PERIOD PRICE TO BE PAID (IN MILLIONS)
- -------------- -------- ------------------------
<S> <C> <C>
One Business Day Prior to Announcement
(4/9/99)....................................... $7.44 $ 175.1
One Week Prior to Announcement (4/5/99).......... $5.50 $ 129.3
One Month Prior to Announcement (3/12/99)........ $4.75 $ 111.5
30-Day Average Prior to Announcement............. $5.11 $ 120.0
90-Day Average Prior to Announcement............. $5.06 $ 118.9
</TABLE>
In its presentation to the Advanced board, PaineWebber emphasized Advanced's
common stock prices in the period preceding the April 12, 1999 public
announcement, rather than the common stock prices since the public announcement
or in the period immediately preceding its board presentation, since PaineWebber
believed that Advanced's post-announcement stock prices reflected the impact on
Advanced of the proposed transactions. In addition, PaineWebber explained that
it believed that Advanced's stock price on April 9, 1999, the day prior to the
public announcement, seemed to reflect an impending announcement, given the
significant increase in Advanced's stock price and trading volume in the five
trading days prior to April 12, 1999.
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, PaineWebber reviewed and compared certain financial information
relating to Advanced's continuing operations, consisting primarily of a yellow
pages directory business, to the corresponding financial information, ratios and
public market multiples for three groups of comparable companies that
PaineWebber
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deemed to be relevant to Advanced. These three groups of comparable companies
were selected direct marketers, selected newspaper publishers and selected
outdoor advertisers and are listed below:
<TABLE>
<CAPTION>
SELECTED DIRECT MARKETERS SELECTED NEWSPAPER PUBLISHERS SELECTED OUTDOOR ADVERTISERS
- ------------------------- ----------------------------- -----------------------------
<S> <C> <C>
ADVO, Inc. Central Newspapers Ackerley Group
Catalina Marketing Daily Journal Corporation Lamar Advertising
Harte-Hanks, Inc. Gannett, Inc. OBIE Media
Valassis Communications Journal Register Company Outdoor Systems, Inc.
Knight-Ridder, Inc.
Lee Enterprises Inc.
McClatchy Co.
The New York Times Company
The Times Mirror Company
</TABLE>
PaineWebber reviewed, for each of such companies, among other information,
multiples of total enterprise value, which consisted of market values as of
October 19, 1999 plus net debt, as of the latest required public filing period,
to:
- latest twelve months revenue and
- latest twelve months earnings before interest, taxes, depreciation and
amortization, or "EBITDA."
Total enterprise value multiples represent the value of a particular
company's operating statistics compared to its total enterprise value. These
operating statistics include revenue and EBITDA, as described above. Based on
the total enterprise value multiples derived from the comparable public
companies, PaineWebber determined relevant ranges of total enterprise value
multiples and applied them to Advanced's latest twelve months ended June 30,
1999 operating statistics to imply total enterprise values for Advanced.
PaineWebber then adjusted the implied total enterprise values by subtracting net
debt as of September 30, 1999, the latest date available, and adding the
proceeds resulting from the assumed exercise of stock options and Advanced's
estimated sale price for its telecommunications operations to imply equity
values for Advanced. These equity values were then divided by diluted shares
outstanding as of September 10, 1999 to imply per share equity values for
Advanced. The following table outlines the relevant total enterprise value
multiple ranges and the corresponding Advanced equity values per share:
<TABLE>
<CAPTION>
IMPLIED
ADVANCED EQUITY
ANALYSIS RELEVANT MULTIPLE RANGE VALUE PER SHARE
- -------- ----------------------- ---------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue............................ 2.40x - 2.90x $5.07 - $6.20
Total Enterprise Value /
Latest Twelve Months EBITDA............................. 10.0x - 12.5x $1.49 - $1.95
</TABLE>
YPTEL
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information and information furnished by YPtel, PaineWebber reviewed and
compared certain financial information relating to YPtel to the corresponding
financial information, ratios and public market multiples for three groups of
comparable companies that PaineWebber deemed to be relevant to YPtel. These
three groups of comparable companies were the same as those used in
PaineWebber's analysis of Advanced. PaineWebber reviewed for each of such
companies, among other information, multiples of total
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enterprise value, which consisted of market values as of October 19, 1999 plus
net debt, as of the latest required public filing period, to:
- latest twelve months revenue and
- latest twelve months EBITDA, as described above.
Based on the total enterprise value multiples derived from the comparable
public companies, PaineWebber determined relevant ranges of total enterprise
value multiples and applied them to YPtel's latest twelve months ended June 30,
1999 operating statistics to imply total enterprise values for YPtel.
PaineWebber then adjusted the implied total enterprise values by subtracting net
debt as of August 31, 1999, the latest date available, and adding the proceeds
resulting from the assumed exercise of stock options to imply equity values for
YPtel. The following table outlines the relevant total enterprise value multiple
ranges and the corresponding YPtel equity values:
<TABLE>
<CAPTION>
ANALYSIS RELEVANT MULTIPLE RANGE IMPLIED YPTEL EQUITY VALUE
- -------- ----------------------- --------------------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue.................... 2.40x - 2.90x $57.8 - $78.2 million
Total Enterprise Value /
Latest Twelve Months EBITDA..................... 10.0x - 12.5x $50.9 - $73.6 million
</TABLE>
SELECTED COMPARABLE TRANSACTION ANALYSIS. PaineWebber reviewed publicly
available financial information for selected mergers and acquisitions involving
companies in the yellow pages directories publishing business. The selected
mergers and acquisitions PaineWebber analyzed included the following:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------- --------------------------------------------
<S> <C>
TransWestern................................ Alliance Media, Inc.
McLeod...................................... Telecom USA
McLeodUSA................................... CDPS (26 books), Frontier (6 books)
McLeodUSA................................... Indiana Directories, Inc.
Advanced Communications Group............... Great Western Directories
Thomas H. Lee Company....................... TransWestern
Yellow Book USA............................. R.H. Donnelley (43 books)
TransWestern................................ Mast Advertising and Publishing, Inc.
Locator..................................... New Directory Publishers
TransWestern................................ Target Directories of Michigan, Inc.
McLeodUSA................................... ADCO Publishing Co.
TransWestern................................ Universal Phone Books
YPtel....................................... Pacific Coast Publishing
TransWestern................................ United Directories Services
TransWestern................................ Lambert Publishing
TransWestern................................ Southern Directories Publishing
McLeodUSA................................... Talking Directories and Info America
British Telecommunications.................. Yellow Book USA
</TABLE>
PaineWebber reviewed the consideration paid in the comparable transactions
and calculated the multiples of total enterprise value to the target's latest
twelve months revenue and EBITDA, as described above, at the time of its
acquisition. Based on the total enterprise value multiples derived from the
comparable transactions, PaineWebber determined relevant ranges of total
enterprise value multiples and applied them to YPtel's latest twelve months
ended June 30, 1999 operating statistics to imply total enterprise values for
YPtel. PaineWebber then adjusted the implied total enterprise values by
subtracting net debt as of August 31, 1999, the latest date available, and
adding the proceeds
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resulting from the assumed exercise of stock options to imply equity values for
YPtel. The following table outlines the relevant total enterprise value multiple
ranges and the corresponding YPtel equity values:
<TABLE>
<CAPTION>
ANALYSIS RELEVANT MULTIPLE RANGE IMPLIED YPTEL EQUITY VALUE
- -------- ----------------------- --------------------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue.................... 2.50x - 3.00x $61.9 - $82.2 million
Total Enterprise Value /
Latest Twelve Months EBITDA..................... 11.5x - 13.5x $64.5 - $82.5 million
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. PaineWebber analyzed YPtel based on an
unleveraged discounted cash flow analysis based on financial projections through
2004 prepared by YPtel management. The discounted cash flow analysis determined
the discounted present value of the unleveraged after-tax cash flows generated
over the projection period and then added a terminal value based upon ranges of
multiples of revenue and EBITDA, as described above, and discount rates
PaineWebber deemed appropriate.
WEB YP
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information and information furnished by Web YP, PaineWebber reviewed and
compared certain financial information relating to Web YP to the corresponding
financial information, ratios and public market multiples for three groups of
comparable companies that PaineWebber deemed to be relevant to Web YP. These
three groups of comparable companies were selected outsourced Internet services
companies, selected portal sites and selected digital media companies and are
listed below:
<TABLE>
<CAPTION>
SELECTED OUTSOURCED INTERNET SERVICES
COMPANIES SELECTED PORTAL SITES SELECTED DIGITAL MEDIA COMPANIES
- ------------------------------------- --------------------- -------------------------------------
<S> <C> <C>
24/7 Media, Inc. Ask Jeeves, Inc. About.com, Inc.
Critical Path, Inc. GoTo.com, Inc. CNET, Inc.
CyberSource Corporation InfoSeek Corporation EarthWeb, Inc.
Digital River, Inc. LookSmart Ltd. InfoSpace.com, Inc.
DoubleClick, Inc. Lycos, Inc. iVillage Inc.
Entrust Technologies, Inc. Yahoo! Inc. MarketWatch.com, Inc.
Inktomi Corporation SportsLine USA, Inc.
Network Solutions, Inc. theglobe.com, inc.
pcOrder.com, Inc. TheStreet.com, Inc.
VeriSign, Inc. Ticketmaster Online - CitySearch Inc.
</TABLE>
PaineWebber reviewed for each of such companies, among other information,
multiples of total enterprise value, which consisted of market values as of
October 19, 1999 plus net debt, as of the latest required public filing period,
to:
- estimated revenue for the year ending December 31, 1999; and
- estimated revenue for the year ending December 31, 2000.
All calendar year 1999 and 2000 revenue estimates for the comparable public
companies were third-party compiled consensus estimates. Based on the total
enterprise value multiples derived from the comparable public companies,
PaineWebber determined relevant ranges of total enterprise value multiples and
applied them to Web YP's projected revenue, as projected by Web YP management,
for the fiscal years ending December 31, 1999 and 2000, to imply total
enterprise values for Web YP. PaineWebber then adjusted the implied total
enterprise values by subtracting net debt as of June 30, 1999, the latest date
available, to imply equity values for Web YP. This adjustment excluded notes due
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to Web YP stockholders which are convertible into Advanced common shares on the
closing date of the transactions. The following table outlines the relevant
total enterprise value multiple ranges and the corresponding Web YP equity
values:
<TABLE>
<CAPTION>
ANALYSIS RELEVANT MULTIPLE RANGE IMPLIED WEB YP EQUITY VALUE
- -------- ----------------------- ---------------------------
<S> <C> <C>
Total Enterprise Value /
1999 Projected Revenue......................... 20.00x - 30.00x $24.4 - $36.5 million
Total Enterprise Value /
2000 Projected Revenue......................... 12.00x - 18.00x $55.2 - $82.8 million
</TABLE>
SELECTED COMPARABLE TRANSACTION ANALYSIS. PaineWebber reviewed publicly
available financial information for selected mergers and acquisitions involving
companies in the Internet sector. The selected mergers and acquisitions
PaineWebber analyzed included:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------- --------------------------------------------
<S> <C>
Walt Disney Co. ............................ InfoSeek Corporation
Yahoo! Inc.................................. GeoCities
At Home Corp................................ Excite, Inc.
Lycos, Inc.................................. WhoWhere?, Inc.
Lycos, Inc.................................. Tripod, Inc.
Yahoo! Inc.................................. Four11 Corp.
</TABLE>
PaineWebber reviewed the consideration paid in the comparable transactions
and calculated the multiples of total enterprise value to the target's latest
twelve months revenue and one-year forward estimated revenue at the time of its
acquisition. All forward revenue estimates were third-party compiled consensus
estimates or derived from selected research reports on the acquired companies.
Based on the total enterprise value multiples derived from the comparable
transactions, PaineWebber determined relevant ranges of total enterprise value
multiples and applied them to Web YP's latest twelve months ended June 30, 1999
revenue and Web YP's projected revenue, as projected by Web YP management, for
the fiscal year ending December 31, 1999, to imply total enterprise values for
Web YP. PaineWebber then adjusted the implied total enterprise values by
subtracting net debt as of June 30, 1999, the latest date available, to imply
equity values for Web YP. This adjustment excluded notes due to Web YP
stockholders which are convertible into Advanced common shares on the closing
date of the transactions. The following table outlines the relevant total
enterprise value multiple ranges and the corresponding Web YP equity values:
<TABLE>
<CAPTION>
ANALYSIS RELEVANT MULTIPLE RANGE IMPLIED WEB YP EQUITY VALUE
- -------- ----------------------- ---------------------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue................... 40.00x - 48.00x $22.5 - $27.0 million
Total Enterprise Value /
1999 Projected Revenue......................... 25.00x - 30.00x $30.4 - $36.5 million
</TABLE>
BIG STUFF
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information and information furnished by Big Stuff, PaineWebber reviewed and
compared certain financial information relating to Big Stuff to the
corresponding financial information, ratios and public market multiples for
selected printing-related comparable companies that PaineWebber deemed to be
relevant to Big Stuff. These companies are listed below:
<TABLE>
<CAPTION>
SELECTED PRINTING-RELATED COMPANIES
- -----------------------------------
<S> <C>
Applied Graphics Technology
Schawk Incorporated
Unidigital
</TABLE>
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PaineWebber reviewed for each of such companies, among other information,
multiples of total enterprise value, which consisted of market values as of
October 19, 1999 plus net debt, as of the latest required public filing period,
to:
- latest twelve months revenue and
- latest twelve months EBITDA, as described above.
Based on the total enterprise value multiples derived from the comparable
public companies, PaineWebber determined relevant ranges of total enterprise
value multiples and applied them to Big Stuff's latest twelve months ended
June 30, 1999 operating statistics to imply total enterprise values for Big
Stuff. PaineWebber then adjusted the implied total enterprise values by
subtracting net debt as of June 30, 1999, the latest date available, to imply
equity values for Big Stuff. This adjustment excluded notes due to Big Stuff
stockholders which are convertible into Advanced common shares on the closing
date of the transactions. The following table outlines the relevant total
enterprise value multiple ranges and the corresponding Big Stuff equity values:
<TABLE>
<CAPTION>
IMPLIED BIG STUFF
ANALYSIS RELEVANT MULTIPLE RANGE EQUITY VALUE
- -------- ----------------------- -------------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue........................ 1.30x - 1.70x $1.7 - $2.2 million
Total Enterprise Value /
Latest Twelve Months EBITDA......................... 6.5x - 7.5x $0.5 - $0.5 million
</TABLE>
SELECTED COMPARABLE TRANSACTION ANALYSIS. PaineWebber reviewed publicly
available financial information for selected mergers and acquisitions involving
companies in printing-related businesses. The selected mergers and acquisitions
PaineWebber analyzed included:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------- --------------------------------------------
<S> <C>
DLJ Merchant Banking........................ Merrill Corp.
Quebecor Printing........................... World Color Press
Investor Group.............................. Big Flower Holdings, Inc.
Cadmus Communications....................... Mack Printing Company
Mack Printing............................... Port City Press
Applied Graphics Technologies............... Devon Group, Inc.
Wallace Computer Services................... Graphic Industries, Inc.
Big Flower Holdings......................... Printco Inc.
World Color Press........................... Ringier America Inc.
</TABLE>
PaineWebber reviewed the consideration paid in the comparable transactions
and calculated the multiples of total enterprise value to the target's latest
twelve months revenue and EBITDA, as described above, at the time of its
acquisition. Based on the total enterprise value multiples derived from the
comparable transactions, PaineWebber determined relevant ranges of total
enterprise value multiples and applied them to Big Stuff's latest twelve months
ended June 30, 1999 operating statistics to imply total enterprise values for
Big Stuff. PaineWebber then adjusted the implied total enterprise values by
subtracting net debt as of June 30, 1999, the latest date available, to imply
equity values for Big Stuff. This adjustment excluded notes due to Big Stuff
stockholders which are convertible into
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Advanced common shares on the closing date of the transactions. The following
table outlines the relevant total enterprise value multiple ranges and the
corresponding Big Stuff equity values:
<TABLE>
<CAPTION>
IMPLIED BIG STUFF
ANALYSIS RELEVANT MULTIPLE RANGE EQUITY VALUE
- -------- ----------------------- --------------------
<S> <C> <C>
Total Enterprise Value /
Latest Twelve Months Revenue.................... 1.00x - 1.50x $1.3 - $2.0 million
Total Enterprise Value /
Latest Twelve Months EBITDA..................... 7.5x - 9.5x $0.5 - $0.7 million
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. PaineWebber analyzed Big Stuff based on an
unleveraged discounted cash flow analysis based on financial projections through
2004 prepared by Big Stuff management. The discounted cash flow analysis
determined the discounted present value of the unleveraged after-tax cash flows
generated over the projection period and then added a terminal value based upon
ranges of multiples of revenue and EBITDA, as described above, and discount
rates PaineWebber deemed appropriate.
$15 MILLION PRINCIPAL AMOUNT OF 5% SUBORDINATED NOTES
PaineWebber reviewed the terms of the $15 million principal amount of 5%
Subordinated Notes, noting that these notes:
- have an aggregate principal amount of $15.0 million,
- have a maturity date of February 18, 2000,
- are prepayable for cash by Advanced at any time at par value,
- have a fixed annual interest rate of 5%, payable annually and
- are subordinated to Advanced's senior indebtedness.
OTHER ANALYSES
CONTRIBUTION ANALYSIS. PaineWebber analyzed the relative contributions of
Advanced on the one hand and YPtel, Web YP and Big Stuff on the other hand to
the combined entity for the following periods:
- latest twelve months ended June 30, 1999,
- projected fiscal year ending December 31, 1999 and
- projected fiscal year ending December 31, 2000.
<TABLE>
<CAPTION>
ADVANCED CONTRIBUTION TO
ANALYSIS COMBINED ENTITY
- -------- ------------------------
<S> <C>
Latest Twelve Months Revenue......... 53.8%
Latest Twelve Months EBITDA.......... 33.7
Latest Twelve Months EBIT............ NM
Fiscal Year 1999 Revenue............. 53.1
Fiscal Year 1999 EBITDA.............. 33.8
Fiscal Year 1999 EBIT................ NM
Fiscal Year 2000 Revenue............. 49.0
Fiscal Year 2000 EBITDA.............. 46.5
Fiscal Year 2000 EBIT................ 86.6
</TABLE>
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The contribution analysis for the fiscal years ending December 31, 1999 and
December 31, 2000 was based on projections provided by the respective
managements of Advanced, YPtel, Web YP and Big Stuff. The combined entity
consists of Advanced, adjusted to eliminate the contribution of its
telecommunications operations, YPtel, Web YP and Big Stuff, and also reflects
the redemption of the $15 million principal amount of 5% Subordinated Notes.
PaineWebber noted that holders of Advanced common stock prior to the closing
of the transactions will own approximately 46.1% of the basic shares outstanding
and approximately 48.1% of the diluted shares outstanding of the combined entity
after the transactions.
The results of this contribution analysis are not necessarily indicative of
the contribution that the respective businesses may have in the future.
PRO FORMA ANALYSIS. PaineWebber performed an analysis of the potential pro
forma effect of the transactions on Advanced's earnings per share for the fiscal
years ending December 31, 1999, December 31, 2000 and December 31, 2001.
PaineWebber combined the projected operating results of Advanced as provided by
Advanced management, including the elimination of the contribution of its
telecommunications operations, with the projected operating results of YPtel,
Web YP and Big Stuff as provided by the respective managements of YPtel, Web YP
and Big Stuff to arrive at the combined company projected net income without
giving effect to any synergies, other than the elimination of YPtel board fees,
executive deferred compensation expense and fees paid to Imperial Capital in the
fiscal year ending December 31, 1999, which may result from the transactions.
PaineWebber divided this result by the approximate number of diluted shares
outstanding following the transactions to arrive at a combined company diluted
earnings per share. PaineWebber then compared the combined company earnings per
share to Advanced's projected earnings per share on a stand-alone basis as
provided by Advanced management, including the elimination of the contribution
of its telecommunications operations, to determine the impact of the YPtel, Web
YP and Big Stuff acquisitions and the redemption of the $15 million principal
amount of 5% Subordinated Notes on Advanced's earnings per share.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the PaineWebber
opinion. In its analyses, PaineWebber made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Advanced and YPtel, Web YP and
Big Stuff. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses may actually be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty
and neither Advanced nor PaineWebber, YPtel, Web YP or Big Stuff assume
responsibility for the accuracy of such analyses and estimates.
Advanced selected PaineWebber to render a fairness opinion in connection
with the transactions because PaineWebber is a prominent and respected
investment banking and financial advisory firm with experience in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate purposes.
Pursuant to an engagement letter between Advanced and PaineWebber dated
October 7, 1998 and amended on May 26, 1999 and on October 14, 1999, PaineWebber
earned a fee of $750,000 for
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rendering the PaineWebber opinion, and will earn a fee of $500,000 upon the
closing of the YPtel, Web YP and Big Stuff acquisitions and the redemption of
the $15 million principal amount of 5% Subordinated Notes. In addition,
PaineWebber earned a fee of $400,000 for rendering an opinion in connection with
the transactions under the terms agreed to in the original acquisition
agreements. PaineWebber's compensation for services in rendering the opinions
was not contingent upon the results of the opinions. In addition, PaineWebber
will be reimbursed for certain of its related expenses. Advanced also agreed,
under separate agreement, to indemnify PaineWebber, its affiliates and each of
its directors, officers, agents and employees and each person, if any,
controlling PaineWebber or any of its affiliates against certain liabilities,
including liabilities under federal securities laws.
In the past, PaineWebber and/or its affiliates have provided investment
banking and other financial services to Advanced and have received fees for
rendering these services.
In the ordinary course of business, PaineWebber and its affiliates may trade
the securities of Advanced for their own accounts and for the accounts of their
customers and, accordingly, may at any time hold long or short positions in such
securities.
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AMENDED AND RESTATED YPTEL AGREEMENT AND RELATED AGREEMENTS
DESCRIPTION OF AMENDED AND RESTATED YPTEL AGREEMENT
Before Advanced acquires YPtel, both YPtel and Advanced will be
recapitalized and YPtel will be reorganized.
RECAPITALIZATION AND REORGANIZATION OF YPTEL
YPtel will be recapitalized so that its authorized capital stock will
consist only of common stock. YPtel's existing owners of special shares will
exchange each special share, regardless of class, for shares of YPtel common
stock.
YPtel will take such steps as may be necessary to discontinue its status as
a corporation governed by the Canada Business Corporation Act and to continue as
a corporation governed by the laws of Nova Scotia. After such continuance, YPtel
will amalgamate with an unlimited liability company incorporated by YPtel
stockholders under the laws of Nova Scotia so that immediately prior to the
closing of the acquisition of YPtel, YPtel will be a Nova Scotia unlimited
liability company.
In order to limit potential shareholder liability because of the unlimited
liability company status of ACG Exchange Company as well as of YPtel immediately
prior to closing, some YPtel stockholders may wish to transfer their YPtel stock
to entities with limited liability, such as corporations or limited partnerships
formed by individual YPtel stockholders to hold their stock. The Amended and
Restated YPtel Agreement permits such transfers provided there is a duly
executed assignment and assumption agreement reasonably acceptable to Advanced
pursuant to which the transferee becomes subject to the rights and obligations
of the transferor under the Amended and Restated YPtel Agreement.
RECAPITALIZATION OF ADVANCED AND FORMATION OF ACG HOLDING COMPANY AND ACG
EXCHANGE COMPANY
Advanced will be recapitalized so that the authorized capital stock of
Advanced consists of the following:
- existing common stock;
- one share of new Class B Voting Preferred Stock to be issued to a voting
trust.
Advanced has formed two new companies, ACG Holding Company and ACG Exchange
Company, to create a vehicle which would permit YPtel stockholders who are
Canadian residents for purposes of the income tax laws of Canada to participate
in the transactions on a tax-deferred basis. ACG Holding Company has only common
stock, all of which is to be issued and owned by Advanced. Both companies are
Nova Scotia unlimited liability companies, which means that in the event of a
bankruptcy or winding up of such companies, the shareholders of such companies
may be liable for unpaid debts of such companies.
The authorized capital stock of ACG Exchange Company consists of the
following:
- ACG Exchange Company common stock to be issued to and owned by ACG Holding
Company; and
- Class A Special Shares that will be issued to Canadian YPtel stockholders
that wish to complete the transaction on a tax deferred basis. The
Class A Special Shares are non-voting and will be exchangeable on a one
for one basis for Advanced common stock.
See "Summary--Summary of the Terms of the Class A Special Shares" for a
description of the Class A Special Shares.
Advanced will issue its Class B Voting Preferred Stock to a bank or trust
company, as trustee. The Class B Voting Preferred Stock will have certain
features that effectively allow the YPtel stockholders who complete the
transaction on a tax deferred basis as indicated above to vote the equivalent
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aggregate number of votes in Advanced that they would otherwise be entitled to
vote if they had acquired Advanced common stock directly.
TRANSACTIONS AT CLOSING
Upon an exchange of YPtel shares by a YPtel stockholder at the closing of
the acquisition of YPtel by Advanced, Advanced will transfer a sufficient number
of shares of its common stock to ACG Holding Company in return for additional
common shares of ACG Holding Company. ACG Holding Company will transfer the
Advanced common stock received above to ACG Exchange Company in return for
additional common shares of ACG Exchange Company.
YPtel stockholders will exchange their YPtel common stock for either:
- Advanced common stock; or
- ACG Exchange Company Class A Special Shares; or
- a combination thereof.
The ACG Exchange Company Class A Special Shares shares will be issued to the
YPtel stockholders wishing to complete the transaction, or a portion thereof, on
a tax-deferred basis pursuant to sub-section 85(l) of the Income Tax Act
(Canada).
YPtel will sell its YPtel, Inc. common stock to Advanced at fair market
value, estimated to be equal to YPtel's Canadian adjusted cost basis of
approximately Cdn $21.0 million. YPtel, Inc. and its subsidiary, Pacific Coast
Publishing, will join the U.S. consolidated income tax group of Advanced. See
"Business of YPtel--Overview" for a description of YPtel's current corporate
structure. After closing, YPtel will continue to have an ownership interest in
YPtel, Inc. through a dividend of YPtel, Inc. preferred stock declared and paid
to YPtel at or prior to closing.
After closing:
- ACG Exchange Company will own YPtel, but YPtel's only asset will be the
preferred stock of YPtel, Inc.
- Advanced will own YPtel, Inc. and its operating subsidiary, Pacific Coast
Publishing.
The acquisition by Advanced of YPtel, Inc. and its operating subsidiary,
Pacific Coast Publishing, will be structured to allow Advanced to file a
consolidated U.S. tax return after the acquisitions.
INDEMNIFICATION
The Amended and Restated YPtel Agreement provides that the Imperial Capital
principals will indemnify Advanced and its officers, directors, agents and
representatives against any and all losses resulting from any breaches of the
representations or warranties of YPtel and the Imperial Capital principals. The
maximum aggregate indemnification liability of the Imperial Capital principals
is limited to $4,125,000. Further, the Imperial Capital principals are not
liable unless and until the aggregate amount of losses suffered by Advanced
exceeds $100,000. Similarly, the Amended and Restated YPtel Agreement provides
that Advanced will indemnify YPtel, the Imperial Capital principals, Imperial
Capital and the YPtel shareholders against any and all losses resulting from any
breaches of the representations or warranties of Advanced. The maximum aggregate
indemnification liability of Advanced is limited to $4,125,000. Further,
Advanced is not liable unless and until the aggregate amount of losses suffered
by YPtel, the Imperial Capital principals, Imperial Capital and the YPtel
shareholders exceeds $100,000.
Each party's indemnification obligations terminate six months after the
closing. Although claims for indemnification may be resolved after this period,
all indemnification claims must be made prior to termination of the
indemnification obligations in order to be eligible for payment.
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MUTUAL RELEASE
In the Amended and Restated YPtel Agreement, Advanced, for itself and on
behalf of its officers, directors, stockholders and affiliates, agreed to
release YPtel, Imperial Capital, the Imperial Capital principals, and each of
their officers, directors, stockholders and affiliates, from any and all manner
of claims and causes of action arising from any fact, matter or circumstances
occurring or failing to occur in connection with the negotiation, execution and
performance of their obligations under the June 3, 1999 YPtel Agreement.
YPtel, Imperial Capital and the Imperial Capital principals, each for itself
and on behalf of its officers, directors, stockholders and affiliates, agreed to
release Advanced and its officers, directors, stockholders and affiliates, from
any and all manner of claims and causes of action arising from any fact, matter
or circumstances occurring or failing to occur in connection with the
negotiation, execution and performance of their obligations under the June 3,
1999 YPtel Agreement.
Each party agreed not to sue any other party for any claim for contractual
or implied indemnity arising out of the June 3, 1999 YPtel Agreement.
EXCHANGE AND VOTING TRUST AGREEMENT
GENERAL PROVISIONS
The Voting and Exchange Trust Agreement has two primary purposes. One of the
purposes is to provide a mechanism for the sale, exchange, retraction and
redemption of Class A Special Shares. The second purpose is to provide a
mechanism for the holders of Class A Special Shares to vote their interests in
Advanced common stock represented by these shares of ACG Exchange Company. The
holders will exercise their voting rights by directing the trustee with whom
Advanced will deposit the Class B Voting Preferred Stock how to vote their
interests on all matters brought to Advanced stockholders for a vote.
Advanced, ACG Exchange Company, the YPtel stockholders becoming the holders
of the Class A Special Shares and the bank or trust company that will hold the
Advanced Class B Voting Preferred Stock will enter into the Exchange and Voting
Trust Agreement in connection with the closing of the acquisition of YPtel.
VOTING PROVISIONS
One share of Advanced Class B Voting Preferred Stock will be issued by
Advanced and deposited with the trustee as holder of record thereof and shall
not be used or disposed of by the trustee for any purpose other than the
purposes of the Exchange and Voting Trust Agreement. The Exchange and Voting
Trust Agreement will provide that the trustee will hold the Advanced Class B
Voting Preferred Stock in order to enable the trustee to exercise the voting
rights as trustee for and on behalf of the registered holders of Class A Special
Shares, excluding any shares owned by Advanced or its subsidiaries.
The trustee will be entitled to all of the voting rights with respect to the
Advanced Class B Voting Preferred Stock on any matter, question or proposition
that may come before the common stockholders of Advanced. Such voting rights are
for the number of votes equal to the number of Class A Special Shares then held
by holders other than Advanced or its subsidiaries. The trustee is to exercise
such voting rights only on the basis of instructions received from the holders
of Class A Special Shares entitled to instruct the trustee as to the voting
thereof. If no such instructions are received from a holder, the trustee is to
vote such holder's voting rights in the same manner as are voted the majority of
the other Class A Special Shares. A holder of Class A Special Shares will also
have the right to receive a form of consent or proxy from the trustee so that
such holder may attend and vote at Advanced stockholder meetings.
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The trustee as holder of the share of Advanced Class B Voting Preferred
Stock and the holders of shares of Advanced common stock, shall vote or consent
as a single class in respect of each matter, question or proposition to be voted
on or consented to by Advanced common stockholders. In limited circumstances,
the trustee shall have a further vote as a separate class or series in respect
of any particular matter, question or proposition.
Advanced will deliver to the trustee copies of all proxy materials,
including notices of Advanced stockholder meetings, but excluding proxies to
vote shares of Advanced common stock, information statements, reports, including
interim and annual financial statements and other communications that are
distributed from time to time to holders of Advanced common stock, including
tender and exchange offer circulars, in sufficient time that the trustee can
send such materials to each holder of Class A Special Shares at or about the
same time as they are sent to holders of Advanced common stock. ACG Exchange
Company must provide to the trustee the names and addresses of the holders of
Class A Special Shares, if any, at relevant dates. The rights of the holders of
Class A Special Shares to direct votes shall cease upon the exchange, redemption
or retraction of the Class A Special Shares for shares of Advanced common stock.
RIGHTS OF HOLDERS OF CLASS A SPECIAL SHARES TO REQUIRE EXCHANGE OR
REDEMPTION
Each holder of Class A Special Shares has the right at any time to require
ACG Holding Company or Advanced to purchase all of the holder's shares or any
part of those shares comprising at least 1,000 shares. If a holder exercises
this right, either ACG Holding Company or Advanced must purchase such shares. In
either event, the holder of Class A Special Shares would receive shares of
Advanced common stock upon completion of the purchase. In addition, if
ACG Exchange Company becomes insolvent or is otherwise unable to pay its debts
generally or is unable to redeem the Class A Special Shares as set forth below,
the holders of Class A Special Shares may require Advanced to exchange those
shares for shares of Advanced common stock. ACG Exchange Company must provide
notice to holders of Class A Special Shares of when this right becomes available
to them.
As evidenced by the Appendix A that will be added by amendment to the
Articles of Association of ACG Exchange Company prior to closing the Class A
Special Shares provisions will provide that a holder of Class A Special Shares
may require ACG Exchange Company to redeem all of such holder's shares or any
part of such holder's shares comprising at least 1,000 shares. If a holder
exercises this right, ACG Holding Company may instead elect to purchase such
shares from the holder, as provided in the Exchange and Voting Trust Agreement.
In either event, the holder would receive shares of Advanced common stock upon
completion of the purchase or redemption.
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REDEMPTION OR EXCHANGE OF CLASS A SPECIAL SHARES UPON CERTAIN EVENTS
All outstanding Class A Special Shares, other than those held by Advanced
and its subsidiaries, are to be redeemed by ACG Exchange Company or purchased by
ACG Holding Company on the earlier of:
- the 5th anniversary of the first issuance of the Class A Special Shares;
- the date set by ACG Exchange Company or Advanced which is at least
30 days after the date when at least 90 percent of the Class A Special
Shares have previously been exchanged or redeemed for Advanced common
stock; or
- in connection with the completion of a proposed sale of substantially all
the stock or assets of Advanced if the board of directors of Advanced has
determined that the redemption by ACG Exchange Company or the purchase by
ACG Holding Company is necessary to complete the proposed sale.
Upon any redemption or purchase, the holders of the Class A Special Shares will
receive Advanced common stock as the redemption or purchase price.
Upon the liquidation or dissolution of ACG Exchange Company, holders of
Class A Special Shares have the right to have their shares redeemed by
ACG Exchange Company or purchased by ACG Holding Company, in either case in
exchange for shares of Advanced common stock.
The Class A Special Shares will automatically be exchanged for shares of
Advanced common stock immediately prior to the effectiveness of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of Advanced.
Advanced must provide notice to holders of Class A Special Shares of any
voluntary decision to initiate these proceedings or of any pending or threatened
involuntary proceedings.
If ACG Holding Company does not complete an applicable purchase of Class A
Special Shares and deliver the applicable Advanced common stock in accordance
with its obligations under the Exchange and Voting Trust Agreement, Advanced
must promptly complete the purchase and deliver the applicable Advanced common
stock. Similarly, if ACG Exchange Company does not carry out its obligations to
complete a redemption or liquidation in accordance with its obligations, a
holder of Class A Special Shares has the right to exercise its right to require
Advanced to purchase the holder's shares in exchange for Advanced common stock
as set forth above.
TRANSFER RESTRICTIONS
No holder of Class A Special Shares may transfer those shares except
pursuant to the laws of descent and distribution or in a distribution from a
trust to its beneficiaries or in certain non-arms length transfers, each of
which is subject to certain limitations. A pledge of shares to a financial
institution as collateral security for loans arranged by such holder or for
margining purposes is permitted as long as the financial institution agrees to
be bound by the restrictions on transfer. Class A Special Shares may be
exchanged for shares of Advanced common stock at any time without violating the
restrictions on transfer.
QUALIFICATION OF ADVANCED COMMON STOCK
Advanced must register, qualify or obtain required approvals for the
issuance of all Advanced common stock required to be issued to holders of
Class A Special Shares upon the exercise of their rights to exchange those
shares for shares of Advanced common stock. Advanced intends to take all actions
necessary to cause the shares of Advanced common stock that are issued and
delivered pursuant to the exchange rights to be immediately freely tradeable
thereafter, except as resale may be restricted by reason of a holder being an
"affiliate" of Advanced for purposes of U.S. securities laws.
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Advanced and ACG Exchange Company will in good faith expeditiously take all such
actions necessary to cause the shares of Advanced common stock to be delivered
pursuant to the exchange rights, to be listed, quoted or posted for trading on
all stock exchanges and quotation systems on which the shares of Advanced common
stock are listed, quoted or posted for trading at the time of exercise of such
exchange rights.
RESTRICTION ON ISSUANCE OF ADVANCED CLASS B VOTING PREFERRED STOCK
Advanced may not issue any shares of its Class B Voting Preferred Stock in
addition to that issued to the trustee without the consent of the holders of the
Class A Special Shares.
AMENDMENTS AND MODIFICATIONS
Except for ministerial amendmends, the Exchange and Voting Trust Agreement
may not be amended or modified except by an agreement in writing executed by ACG
Exchange Company, Advanced and the trustee and approved by the holders of the
Class A Special Shares.
TERM
The Exchange and Voting Trust Agreement shall continue until the earlier of
the date:
- there are no outstanding Class A Special Shares held by anyone other than
Advanced or its subsidiaries,
- ACG Exchange Company and Advanced elect to terminate the trust and such
termination is approved by the requisite majority of holders of Class A
Special Shares, and
- 5 years and 60 days after the closing on Advanced's acquisition of YPtel.
APPROVALS BY HOLDERS OF CLASS A SPECIAL SHARES
Many restrictions and other terms of the Exchange and Voting Trust Agreement
and Support Agreement may be waived or are conditioned upon the approval of the
holders of the Class A Special Shares. Under the terms of the Class A Special
Shares provisions, that approval means approval by more than 50 percent of the
votes cast at a meeting of the holders of the Class A Special Shares at which
there is a quorum. For such purposes, each Class A Special Share, excluding
shares held by Advanced or its subsidiaries, is entitled to one vote. Such
approval may also be evidenced by the written consent of such holders having
more than 50 percent of the total voting power.
SUPPORT AGREEMENT
GENERAL PROVISIONS
The Support Agreement is to be entered into among Advanced, ACG Holding
Company and the YPtel stockholders becoming the holders of the Class A Special
Shares. Under it, Advanced agrees that it will not declare or pay any dividends
on Advanced common stock unless ACG Exchange Company can legally pay an
equivalent dividend on the Class A Special Shares. Advanced also agrees to cause
ACG Exchange Company to declare and pay an equivalent dividend on Class A
Special Shares simultaneously with any dividend declared and paid on Advanced
common stock.
The Support Agreement requires Advanced and ACG Holding Company to take all
actions necessary to enable ACG Exchange Company to perform its obligations upon
any liquidation or dissolution of ACG Exchange Company or upon exercise by any
holder of Class A Special Shares of any right to exchange for shares of Advanced
common stock.
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RESERVATION OF SHARES OF ADVANCED COMMON STOCK
In the Support Agreement, Advanced agrees to reserve for issuance, out of
its authorized and unissued capital stock, the number of shares of its common
stock issuable upon the exchange of Class A Special Shares and to enable
Advanced to meet its obligations and the obligations of ACG Exchange Company
under the Exchange and Voting Trust Agreement, the Support Agreement, and the
Class A Special Shares provisions.
ECONOMIC EQUIVALENCE
Without the prior approval of the holders of Class A Special Shares,
Advanced may not issue or distribute to all or substantially all of its
stockholders shares of its common stock, rights to acquire its common stock or
other securities, rights to acquire other Advanced securities, Advanced debt
securities or assets of Advanced. This prohibition does not apply, however, if
ACG Exchange Company or Advanced simultaneously issues and distributes the
economic equivalent of the shares, rights, securities or assets to holders of
the Class A Special Shares.
In addition, Advanced may not subdivide, combine or otherwise change its
outstanding shares of common stock into a greater or lesser number of shares,
reclassify the shares of its common stock or engage in a merger, reorganization
or other transactions affecting its common stock unless ACG Exchange Company is
legally permitted to simultaneously make the same, or an economically
equivalent, change with respect to the Class A Special Shares. This prohibition
does not apply if the holders of the Class A Special Shares approve in advance
the change, reclassification or transaction in question.
SALE OF ADVANCED
If the Advanced board of directors desires to pursue or recommend a
transaction involving the sale of Advanced, whether by shareholder sale of
stock, sale of all or substantially all of its assets or by other means, the
Support Agreement sets forth certain provisions which are to apply to the
proposed sale.
- If the proposed sale involves the receipt by Advanced shareholders of all
cash, the holders of Class A Special Shares are to receive the same per
share cash consideration as the holders of Advanced common stock.
- If the consideration receivable by holders of Advanced common stock is
property other than cash, such as stock, or is partly cash and partly
property other than cash, then to the extent that the receipt of such
non-cash consideration is non-taxable generally to such holders of
Advanced common stock, Advanced must:
- use its best efforts to permit the holders of Class A Special Shares to
participate in the proposed sale on an equivalent per share basis;
- and use its best efforts to permit the holders of Class A Special
Shares to participate in the proposed sale without being required to
exchange their Class A Special Shares.
This would generally require a merger partner or acquirer to assume the exchange
and other obligations of Advanced under the Exchange and Voting Trust Agreement,
the Support Agreement and the Class A Special Shares provisions unless Advanced
is otherwise able to structure the transaction so as to continue the tax
deferral available to the holders of the Class A Special Shares.
- If in the situation described in the "bullet" immediately above and after
using its best efforts, the Advanced board of directors determines in good
faith that it is not practicable in the circumstances of the proposed sale
to provide for the continuation of the tax deferral to the holders of the
Class A Special Shares, whether pursuant to the ACG Exchange Company
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structure or otherwise, Advanced may nevertheless enter into the proposed
sale subject to certain conditions. Advanced:
- must ensure first that the consideration to be received by the holders
of the Class A Special Shares is equivalent on a per share pre-tax
basis to the consideration to be received by Advanced common
stockholders; and
- Advanced must use its best efforts to maintain the economic equivalency
of the proposed sale to such holders of Class A Special Shares
generally, compared to the situation of the Advanced common
stockholders, taking into account the loss of tax deferral by the
holders of Class A Special Shares for Canadian income tax purposes by:
- an adjustment upward of the economic consideration to be received
by the holders of the Class A Special Shares relative to the
consideration received by the Advanced common stockholders or
- compensating such holders by other means.
Economic equivalency for purposes of valuing the loss of tax deferral for
Canadian income tax purposes under the above provision is based on a formula.
The formula takes into account the time value of the early payment of the
applicable taxes caused by the loss of the tax deferral before the fifth
anniversary of the date of initial issuance of the Class A Special Shares. The
time value is determined based on the U.S. prime rate of interest per annum. Any
issues of economic equivalency are to be determined by the board of directors of
Advanced in good faith and in its sole discretion.
The Support Agreement also includes provisions to ensure that if the
Class A Special Shares will be required to be exchanged in connection with the
proposed sale, any consideration received shall not be subject to any escrow or
transfer restrictions which would prevent immediate liquidation of such
consideration to pay tax.
In the event of any dispute concerning the application of the provisions of
the Support Agreement in connection with a proposed sale of Advanced, the board
of directors of Advanced is to determine in good faith what is fair in the
circumstances to settle the matter.
The provisions of the Support Agreement with respect to a proposed sale of
Advanced as described above apply notwithstanding other provisions of the
Support Agreement, the Class A Special Shares, and the Exchange and Voting Trust
Agreement to the contrary. They are intended to provide the board of directors
of Advanced with the authority to take the actions reasonably necessary to
implement a proposed sale without the prior approval of the holders of Class A
Special Shares. This authority would, however, be subject nevertheless to any
required vote of shareholders, which right would include the right of Class A
Special Shares to vote at any stockholder meeting of Advanced with respect to
the proposed sale pursuant to the voting provisions contained in the Exchange
and Voting Trust Agreement.
OWNERSHIP OF OUTSTANDING SHARES OF ACG EXCHANGE COMPANY
Without the prior approval of ACG Exchange Company and the holders of the
Class A Special Shares, Advanced agrees that as long as any Class A Special
Shares are owned by any person or entity other than Advanced or any of its
subsidiaries, Advanced will be the direct or indirect beneficial owner of all
issued and outstanding shares of ACG Holding Company and ACG Holding Company
shall remain the direct or indirect beneficial owner of all issued and
outstanding common stock of ACG Exchange Company. This does not restrict the
pledging by Parent of such shares in connection with a loan to Parent or any of
its subsidiaries, provided that upon a foreclosure of any such shares, the
purchaser is bound by the covenants of Parent, ACG Holding Company and ACG
Exchange Company as applicable.
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OTHER RESTRICTIONS ON ACG HOLDING COMPANY AND ACG EXCHANGE COMPANY
Both ACG Holding Company and ACG Exchange Company are prohibited from
incurring indebtedness or other liabilities except as may be desirable for or
reasonably required or incidental to:
- performance of the Support Agreement;
- the Exchange and Voting Trust Agreement;
- or the Class A Special Shares provisions; or
- the rights and obligations of Advanced, ACG Holding Company or
ACG Exchange Company relating thereto.
There is an exception for guarantees by ACG Holding Company and ACG Exchange
Company when recourse on the guarantees is limited to the preferred shares of
YPtel, Inc., the dividends and other distributions and proceeds thereof, and any
dividends issued or other distributions made with respect to the common stock of
YPtel or ACG Exchange Company.
Both ACG Holding Company and ACG Exchange Company are prohibited from
entering into or operating any business other than:
- that of a holding company owning the shares of ACG Exchange Company and
YPtel, respectively;
- any business reasonably required to carry out its respective rights,
duties or obligations under the Support Agreement, the Exchange and Voting
Trust Agreement or the Class A Special Shares provisions; or
- in connection with the investment and distribution of any dividends of or
distributions by ACG Exchange Company or YPtel.
The above prohibitions do not apply if the applicable action has been
approved by the holders of the Class A Special Shares.
TERM
The Support Agreement will terminate when the Exchange and Voting Trust
Agreement terminates.
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DESCRIPTION OF THE AMENDED AND RESTATED WEB YP AGREEMENT AND
THE AMENDED AND RESTATED BIG STUFF AGREEMENT
The Amended and Restated Web YP Agreement and the Amended and Restated Big
Stuff Agreement, both of which are dated as of October 26, 1999, provide for the
merger of two wholly-owned subsidiaries of Advanced with and into Web YP and Big
Stuff, respectively, with Web YP and Big Stuff being the survivors as
wholly-owned subsidiaries of Advanced. The agreements provide that all of the
shares of Web YP and Big Stuff will be exchanged for common stock of Advanced.
Both transactions are intended to be tax-free reorganizations under the Internal
Revenue Code.
Because the stockholders of both Web YP and Big Stuff when the agreements
were executed were the same two individuals, and in both cases, the purchaser is
Advanced, the agreements are similar. The significant differences pertain to:
- the exchange ratio:
- the exchange ratio is 309.0909 shares of Advanced common stock for each
share of Web YP common stock, assuming all of the options and warrants
issued by Web YP are exercised prior to closing and are exchanged for
shares of Advanced common stock but would be 507.872 if none of the
options or warrants are exercised prior to closing;
- the exchange ratio is 415.584 shares of Advanced common stock for each
share of Big Stuff common stock; and
- the maximum aggregate indemnification liability to which Web YP and Big
Stuff may potentially be subject and the amount of any aggregate
indemnification award to which Big Stuff may potentially be entitled.
- The Amended and Restated Web YP Agreement limits the Web YP
stockholders' maximum aggregate indemnification liability to $850,000.
Further, the Web YP stockholders are not liable unless and until the
aggregate amount of losses exceeds $100,000, at which point the Web YP
stockholders would then be liable for the amount in excess of $75,000,
up to the $850,000 limit.
- The Amended and Restated Big Stuff Agreement limits the Big Stuff
stockholders' maximum aggregate indemnification liability to $400,000.
Further, the Big Stuff stockholders are not liable unless and until the
aggregate amount of losses exceeds $100,000, at which point the Big
Stuff stockholders would then be liable for the amount in excess of
$75,000, up to the $400,000 limit.
- The Amended and Restated Web YP Agreement limits Advanced's maximum
aggregate indemnification liability to $850,000. Further, Advanced is
not liable unless and until the aggregate amount of losses suffered by
the stockholders of Web YP exceeds $100,000, at which point Advanced
would then be liable for the amount in excess of $75,000, up to the
$850,000 limit.
- The Amended and Restated Big Stuff Agreement limits Advanced's maximum
aggregate indemnification liability to $400,000. Further, Advanced is
not liable unless and until the aggregate amount of losses suffered by
the stockholders of Big Stuff exceeds $100,000, at which point Advanced
would then be liable for the amount in excess of $75,000, up to the
$400,000 limit.
- except for matters related to the foregoing, in all other material
respects, the indemnification provisions of the Amended and Restated
Big Stuff Agreement are identical to the indemnification provisions of
the Amended and Restated Web YP Agreement.
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The following is a summary of the Amended and Restated Web YP Agreement and
the Amended and Restated Big Stuff Agreement. In the following summary, the term
"acquisition agreements" refers to both the Amended and Restated Web YP
Agreement and the Amended and Restated Big Stuff Agreement.
The acquisition agreements contain customary representations, warranties and
covenants of Advanced, on the one hand, and Web YP, Big Stuff and
Messrs. O'Neal and Reid, on the other hand. The obligations of the parties to
close each transaction are contingent on various conditions, including:
- the consummation of the corresponding acquisition agreements between:
- Advanced, Web YP or Big Stuff and their respective stockholders; and
- Advanced, YPtel and YPtel's stockholders;
- Advanced stockholder approval;
- eligibility of the transaction for tax-deferred treatment; and
- customary closing conditions.
Pursuant to the acquisition agreements, Advanced has agreed that
Messrs. O'Neal and Reid collectively may lend up to $6.0 million to Web YP
and/or Big Stuff in the aggregate, including amounts they have lent since
January 1, 1999, to fulfill Web YP's obligations under a co-branding website
agreement with Excite, Inc., for working capital purposes and for extraordinary
capital expenditures approved in advance by a disinterested majority of the
Advanced board of directors. It is currently anticipated that if the
acquisitions are consummated, the principal amount of the indebtedness, but not
accrued interest, will be exchanged at closing for Advanced common stock at a
price of $5.50 per share.
The acquisition agreements provide that, at or before the closing, Advanced
will enter into employment and noncompetition agreements with certain
individuals who are stockholders and/or employees of Web YP and Big Stuff. The
terms of these employment agreements have not yet been negotiated.
The acquisition agreements provide that the Web YP and Big Stuff
stockholders, as applicable, will indemnify Advanced and its officers,
directors, agents and representatives against any and all losses resulting from
any breaches of the representations or warranties of the Web YP and Big Stuff
stockholders, as applicable, contained in the acquisition agreements, or for any
other matters referred to in the Amended and Restated Web YP and Big Stuff
Agreements, with certain limitations and exceptions, as discussed above.
The indemnification obligations of the stockholders of Web YP and Big Stuff
under the acquisition agreements terminate 30 days after completion of
Advanced's audit report by Advanced's independent auditors for the fiscal year
ended December 31, 1999. As a result, although claims for indemnification may be
resolved after this period, all indemnification claims must be made prior to
termination of the stockholders' indemnification obligations in order to be
eligible for payment.
The stockholders of Web YP and Big Stuff appointed Mr. Reid as their
representative for the purpose of taking any and all actions permitted or
required by the acquisition agreements and for the purpose of compromising,
defending or otherwise acting in connection with indemnification claims arising
under the acquisition agreements and any third party indemnification claims.
Pursuant to the acquisition agreements, Advanced is required to indemnify
the stockholders of Web YP and Big Stuff against any and all losses resulting
from any breaches of Advanced's representations or warranties contained in the
acquisition agreements, or for any other matters referred to in the Amended and
Restated Web YP and Big Stuff Agreements. Advanced's indemnification
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obligations under the acquisition agreements terminate 30 days after completion
of Advanced's audit report by Advanced's independent auditors for the fiscal
year ended December 31, 1999. As is the case for Web YP and Big Stuff, although
claims for indemnification may be resolved after this period, all
indemnification claims must be made prior to termination of Advanced's
indemnification obligations in order to be eligible for payment.
In the acquisition agreements, Advanced, for itself and on behalf of its
officers, directors, stockholders and affiliates, agreed to release Web YP and
the Web YP stockholders, and Big Stuff and the Big Stuff stockholders, as
applicable, and each of their officers, directors, stockholders and affiliates,
from any and all manner of claims and causes of action in connection with the
negotiation, execution and performance of their obligations under the June 3,
1999 agreements.
Web YP, the Web YP stockholders, Big Stuff and the Big Stuff stockholders,
each for itself and on behalf of its officers, directors, stockholders and
affiliates, agreed to release Advanced and its officers, directors, stockholders
and affiliates, from any and all manner of claims and causes of action in
connection with the negotiation, execution and performance of their obligations
under the June 3, 1999 agreements.
Each party agreed not to sue any other party for any claim for contractual
or implied indemnity arising out of the June 3, 1999 Web YP Agreement and the
June 3, 1999 Big Stuff Agreement.
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SALE OF ADVANCED'S TELECOMMUNICATIONS OPERATIONS
TO IONEX TELECOMMUNICATIONS
In May 1999, Advanced engaged Banc of America Securities, LLC, formerly
NationsBanc Montgomery Securities, a subsidiary of Bank of America, as its
advisor to sell Advanced's telecommunications operations.
On July 14, 1999, Advanced entered into a stock purchase agreement with
Compass Telecommunications, Inc. which was subsequently amended on November 19,
1999, to sell all of the capital stock of Feist Long Distance Service, Inc.,
FirsTel, Inc., Valu-Line of Longview, Inc., and Telecom Resources, Inc. to
Compass. Subsequent to the execution of the stock purchase agreement, Compass
changed its name to Ionex Telecommunications. Prior to the sale of the capital
stock of Feist, FirsTel, Valu-Line and Telecom Resources to Ionex
Telecommunications, Advanced assigned to one or more of those subsidiaries,
those assets held by Advanced directly that were used in Advanced's
telecommunications operations. The closing date of the stock purchase agreement
was November 19, 1999.
As partial consideration for the sale of the telecommunications
subsidiaries' shares, Ionex Telecommunications paid Advanced $49.8 million in
cash. Ionex Telecommunications also assumed Advanced's liabilities incurred in
connection with its telecommunications operations.
The cash consideration was subject to a dollar-for-dollar reduction to the
extent current net assets were less than current net liabilities. In an attempt
to ensure that the purchase price adjustment was applied to reduce the amount
Ionex Telecommunications paid Advanced at closing, the agreement called for the
preparation of two balance sheets. A preliminary balance sheet was prepared as
of October 31, 1999. The cash consideration paid to Advanced by Ionex
Telecommunications at closing was reduced on a dollar-for-dollar basis, as
current net assets shown on the preliminary balance sheet were less than current
net liabilities by $7.2 million.
A final balance sheet as of the closing date is being prepared and audited.
Advanced will pay or receive the difference between the purchase price
adjustments determined from the preliminary balance sheet and the final balance
sheet.
As part of the stock purchase agreement, Advanced has entered into the
following agreements with Ionex Telecommunications:
- an advertising agreement;
- a transitional services agreement; and
- a directory sales agreement.
Under the advertising agreement, Advanced is to provide Ionex
Telecommunications with:
- a prominent banner advertisement on Great Western's Internet
homepage; and
- yellow pages advertising.
The foregoing is to be provided in every market where, as of the closing date,
there is overlap between where Great Western distributes print directories and
any market in which a telecommunications subsidiary has customers. Additional
markets may be added as agreed between Advanced and Ionex Telecommunications.
The Internet advertising and the yellow pages advertising shall contain
information describing the communications services provided by the
telecommunications operations being sold to Ionex Telecommunications, including
long distance telephone service, local telephone service, Internet access
services, conference calling services, fax services and cellular telephone
services as well as information
117
<PAGE>
on how to use and order such services. Ionex Telecommunications must obtain
prior approval from Advanced for all content to be placed in any Internet
advertising and on the yellow pages advertising.
Under the transitional services agreement, for a period of up to 30 days
which may be extended to an aggregate of 90 days, Advanced is to provide
accounting services, payroll services, employee benefit plan services and other
related ancillary services. Ionex Telecommunications shall pay all:
- reasonable expenses incurred by the personnel of Advanced in the provision
of the services under the agreement; and
- wages and the costs of benefits actually provided.
The terms of the directory sales agreement include requiring Advanced to
cause Great Western to provide Ionex Telecommunications services relating to:
- soliciting potential customers;
- marketing, promoting and selling Ionex Telecommunications products and
services; and
- related ancillary services.
Ionex Telecommunications will provide:
- all marketing;
- training; and
- order entry processing.
Ionex Telecommunications will pay a commission on aggregate revenues
collected that are attributable to billings made in the first five years, in
each case after the initial sale, for each of the Ionex Telecommunications
products and services sold that are the direct result of the sales services of
the sales agents. The term of the sales agency agreement will be five years,
with the option to extend for an additional five years.
According to the stock purchase agreement, Advanced has agreed to indemnify
Ionex Telecommunications under circumstances typical of transactions of this
type as well as under other circumstances. The length of the indemnification
obligations are subject to varying periods of time. The dollar exposure related
to various indemnification obligations also varies. Except for specific
indemnification obligations, all other indemnification obligations are subject
to the losses incurred exceeding $75,000 prior to Advanced's being obligated to
indemnify Ionex Telecommunications on a dollar-for-dollar basis for losses
greater than $75,000.
The provisions of the stock purchase agreement between Advanced and Ionex
Telecommunications are the result of arm's length negotiations conducted among
representatives of the parties and their legal and financial advisors.
REGULATORY APPROVALS
No state or federal regulatory approvals are required or will otherwise be
obtained relating to the Amended and Restated YPtel Agreement, the Amended and
Restated Web YP Agreement and the Amended and Restated Big Stuff Agreement, or
the transactions contemplated thereby other than:
- compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder, as
described below;
- the effectiveness of the Registration Statement of which this proxy
statement is a part;
- filings with the Committee on Foreign Investment in the United States for
a determination as to whether the transaction contemplated by the Amended
and Restated YPtel Agreement is
118
<PAGE>
permitted under the Exon-Florio Amendment (section 721) to the Defense
Production Act of 1950; and
- compliance with applicable state and Canadian and provincial securities
laws and other Canadian governmental regulations.
The YPtel acquisition and the issuance of Advanced stock to Mr. O'Neal in
connection with the Web YP and Big Stuff acquisitions are subject to the
requirements of the HSR Act and the rules and regulations thereunder, which
provide that certain transactions may not be consummated until certain required
information and materials have been furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and certain waiting
periods have expired or been terminated. Advanced filed its notification
pursuant to the HSR Act with respect to the YPtel acquisition in July 1999, and
the applicable waiting period was terminated in August 1999. Advanced filed its
notification with respect to the issuance of Advanced stock to Mr. O'Neal in
August 1999, and the applicable waiting period expired in September 1999. In
August 1999, Mr. O'Neal filed a notification with respect to his acquisition of
Advanced common stock pursuant to the Web YP and Big Stuff acquisitions and the
redemption of his portion of the 5% Subordinated Notes. The applicable waiting
period expired in September 1999.
Because of changes in the stock price of Advanced common stock, an HSR
filing has been or will be made with respect to the Big Stuff transaction.
Approval of the Antitrust Division and the FTL is a condition of the closing of
the acquisition of Big Stuff by Advanced.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the YPtel, Web YP and Big Stuff
acquisitions. The termination of the HSR Act waiting periods does not preclude
the Antitrust Division or the FTC from challenging the YPtel, Web YP or Big
Stuff acquisitions, or any part thereof, on antitrust grounds. Accordingly, at
any time before or after the closings under the acquisitions, either the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, or certain other
persons, including the attorney general of one or more states or private
parties, could take action under the antitrust laws, including seeking to enjoin
the YPtel acquisition and the Web YP and Big Stuff acquisitions, or any part
thereof.
The Exon-Florio Act applies to all acquisitions proposed or pending on or
after August 23, 1988, by or with foreign persons which could result in foreign
control of persons engaged in interstate commerce in the United States. The
Exon-Florio Act empowers the President of the United States to prohibit or
suspend mergers, acquisitions or takeovers by or with foreign persons if the
President finds, after investigation, credible evidence that the foreign person
might take action that threatens to impair the national security of the United
States and that other provisions of existing law do not provide adequate and
appropriate authority to protect the national security.
The President has designated the Committee on Foreign Investment in the
United States as the agency authorized under the Exon-Florio Act to receive
notices and other information and to conduct a review process which consists of
a determination whether an investigation should be undertaken and making any
such investigation. Any determination by CFIUS that an investigation is called
for must be made within thirty days after its acceptance of written notification
concerning a proposed transaction. If CFIUS determines to undertake an
investigation, it must be completed within forty-five days after such
determination. Upon completion or termination of the investigation, CFIUS must
report to the President and present its recommendation. The President then has
fifteen days in which to suspend or prohibit the proposed transaction or to seek
other appropriate relief. In order for the President to
119
<PAGE>
exercise his authority to suspend or prohibit a proposed transaction, the
President must make two findings:
- that there is credible evidence that leads the President to believe that
the foreign interest exercising control might take action that threatens
to impair national security; and
- that provisions of law other than the Exon-Florio Act and the
International Emergency Economic Powers Act do not in the President's
judgment provide adequate and appropriate authority for the President to
protect the national security in connection with the acquisition. These
findings are not subject to judicial review. If the President makes this
type of finding, he may take action for as long as he considers
appropriate to suspend or prohibit the relevant acquisition. The President
may direct the Attorney General to seek appropriate relief, including
divestment relief, in the District Courts of the United States in order to
implement and enforce the Exon-Florio Act. The Exon-Florio Act does not
obligate the parties to a proposed acquisition to notify CFIUS of a
proposed transaction. However, if notice of a proposed acquisition is not
submitted to CFIUS, then the transaction remains indefinitely subject to
review by the President under the Exon-Florio Act, unless it is determined
that CFIUS does not have jurisdiction over the transaction.
Advanced does not believe a filing with CFIUS is required for its
acquisition of YPtel. Nevertheless, Advanced and YPtel made a voluntary filing
under the Exon-Florio Act. The waiting period during which CFIUS determines
whether it will undertake an investigation has expired.
INDEPENDENT AUDITORS
Advanced is presently utilizing the services of KPMG LLP, who have been
Advanced's independent auditors since its inception in 1997. Representatives of
KPMG LLP will be present at the Special Meeting and will have an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
STOCKHOLDER NOMINATIONS AND PROPOSALS
No annual meeting was held in 1999. Advanced has not set the date for the
2000 Annual Meeting of Stockholders. Accordingly, Advanced intends to disclose,
on a Form 10-Q or, if necessary, a Form 8-K, the dates by which stockholder
proposals must be received for inclusion in the proxy statement for the 2000
Annual Meeting and the date by which written notice must be received if a
stockholder wishes to nominate directors or to propose proper business from the
floor for consideration at the 2000 Annual Meeting.
OTHER MATTERS
The board of directors of Advanced knows of no other matters to be presented
for consideration at the Special Meeting by the board or by stockholders who
have requested inclusion of proposals in the proxy statement.
January 24, 2000
120
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ADVANCED COMMUNICATIONS GROUP, INC.
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
PACIFIC COAST PUBLISHING, INC.
Report of Independent Auditors.............................. F-23
Balance Sheets.............................................. F-24
Statements of Operations.................................... F-25
Statements of Stockholders' Equity.......................... F-26
Statements of Cash Flows.................................... F-27
Notes to Financial Statements............................... F-28
YPtel CORPORATION
Unaudited Interim Consolidated Balance Sheet................ F-34
Unaudited Interim Consolidated Statement of Operations...... F-35
Unaudited Interim Consolidated Statement of Changes in
Stockholders' Equity...................................... F-36
Unaudited Interim Consolidated Statement of Cash Flows...... F-37
Notes to Unaudited Interim Financial Statements............. F-38
WEB YP, INC.
Independent Auditors' Report................................ F-42
Balance Sheets.............................................. F-43
Statements of Operations.................................... F-44
Statements of Stockholders' Deficit......................... F-45
Statements of Cash Flows.................................... F-46
Notes to Financial Statements............................... F-47
BIG STUFF, INC.
Unaudited Statements of Operations.......................... F-50
Unaudited Balance Sheets.................................... F-51
Unaudited Statements of Changes in Stockholders' Equity..... F-52
Unaudited Statements of Cash Flows.......................... F-53
Notes to Unaudited Financial Statements..................... F-54
</TABLE>
F-1
<PAGE>
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 statement 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
F-2
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
--------------------------------------
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, INCEPTION TO
----------------------- ---------------------- DECEMBER 31,
1999 1998 1998 1997 1996
---------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues........................................ $ 42,337 $ 30,247 $ 38,090 $ -- $ --
Expenses:
Printing, distribution and listings........... 11,946 6,729 8,670 -- --
Sales and marketing........................... 9,755 6,849 8,976 -- --
General and administrative.................... 15,386 11,736 16,689 2,071 649
Depreciation and amortization................. 3,522 3,229 4,190 3 --
Stock-based compensation...................... -- 1,760 1,760 870 --
---------- ---------- ---------- --------- ---------
Income (loss) from operations................... 1,728 (56) (2,195) (2,944) (649)
Other income (expense):
Interest expense.............................. (3,517) (919) (1,845) (256) (10)
Other......................................... 1 (47) 177 -- --
---------- ---------- ---------- --------- ---------
Income (loss) from continuing operations before
income taxes.................................. (1,788) (1,022) (3,863) (3,200) (659)
Income tax expense (benefit).................... 612 588 (91) -- --
---------- ---------- ---------- --------- ---------
Net income (loss) from continuing operations.... (2,400) (1,610) (3,772) (3,200) (659)
Loss from discontinued operations, net of tax
benefit of $5,196; $648; and $6,368,
respectively.................................. (6,189) (4,236) (7,507) -- --
Loss on sale of discontinued operations, net of
tax benefit of $4,363......................... (51,800) -- -- -- --
---------- ---------- ---------- --------- ---------
Net loss........................................ $ (60,389) $ (5,846) $ (11,279) $ (3,200) $ (659)
========== ========== ========== ========= =========
Basic and diluted income (loss) per share from:
Continuing operations......................... $ (.12) $ (.09) $ (.20) $ (.39) $ (.08)
Discontinued operations....................... (.31) (.23) (.41) -- --
Sale of discontinued operations............... (2.60) -- -- -- --
---------- ---------- ---------- --------- ---------
Net income (loss) per share................... $ (3.03) $ (.32) $ (.61) $ (.39) $ (.08)
========== ========== ========== ========= =========
Weighted average common shares outstanding...... 19,896,067 18,179,968 18,593,947 8,232,276 8,227,736
========== ========== ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1999 1998 1997
------------- -------- --------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents................................. $ 1,408 $ 13,734 $ --
Accounts receivable (net of allowance of $8,987 in 1999
and $8,884 in 1998)..................................... 17,681 13,317 --
Deferred costs............................................ 2,236 3,888 --
Prepaid expenses and other current assets................. 289 94 --
Deferred taxes............................................ 3,782 3,398 --
-------- -------- -------
Total current assets.................................... 25,396 34,431 --
-------- -------- -------
Property, plant and equipment, net.......................... 957 1,134 6
Intangible assets from business acquisitions, net........... 76,546 78,746 --
Other assets................................................ 2,259 1,022 2,689
Net assets held for sale.................................... 41,222 69,780 --
-------- -------- -------
Total other assets...................................... 120,984 150,682 2,695
-------- -------- -------
Total assets............................................ $146,380 $185,113 $ 2,695
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 6,704 $ 4,844 $ 2,098
Short-term debt and current maturities of long-term
debt.................................................... 55,000 17,117 3,141
Other current liabilities................................. 2,691 3,017 --
-------- -------- -------
Total current liabilities............................... 64,395 24,978 5,239
Long-term obligations:
Long-term debt............................................ -- 17,233 --
Deferred tax liabilities.................................. 10,704 11,318 --
-------- -------- -------
Total liabilities....................................... 75,099 53,529 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; 20,070,003; 19,859,262; and 8,232,276 shares
outstanding, respectively............................... 2 2 1
Additional paid-in capital................................ 147,744 146,611 1,314
Treasury stock, 168,257; 234,141; and 0 common shares,
respectively............................................ (938) (1,013) --
Retained earnings (accumulated deficit)................... (75,527) (15,138) (3,859)
-------- -------- -------
Total stockholders' equity (deficit).................... 71,281 131,584 (2,544)
-------- -------- -------
Total liabilities and stockholders' equity.............. $146,380 $185,113 $ 2,695
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS 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 $ -- $ -- $ 28
Net loss...................... -- -- -- -- -- (659) (659)
---------- --- ------ -------- ------- -------- --------
Balance, December 31, 1996.... 8,227,736 $ 1 $ -- $ 27 $ -- $ (659) $ (631)
Issuance of stock options and
warrants.................... -- -- -- 1,237 -- -- 1,237
Issuance of stock for services
performed................... 4,540 -- -- 50 -- -- 50
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
Stock option exercises........ 67,884 -- -- 11 75 86
Conversion of preferred
stock....................... 142,857 -- (1,122) 1,122 --
Net loss (unaudited).......... -- -- -- -- -- (60,389) (60,389)
---------- --- ------ -------- ------- -------- --------
Balance, September 30, 1999
(unaudited)................. 20,070,003 $ 2 -- $147,744 $ (938) $(75,527) $ 71,281
========== === ====== ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, INCEPTION TO
-------------------- ------------------- DECEMBER 31,
1999 1998 1998 1997 1996
--------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss....................................... $ (60,389) (5,846) $(11,279) $(3,200) $(659)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization................ 3,522 3,229 4,190 3 --
Stock-based compensation expense............. -- 1,760 1,760 870 --
Loss from discontinued operations............ 6,189 4,236 7,507 -- --
Loss on sale of discontinued operations...... 51,800 -- -- -- --
Deferred tax provision....................... (998) -- (6,459) -- --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net................. (4,364) (3,571) (184) 1 (1)
Deferred costs........................... 1,652 1,886 639 -- --
Prepaid expenses and other current
assets................................. (195) 636 581 -- --
Other assets, net........................ (2,280) (9,866) 1,667 -- --
Increase (decrease) in:
Accounts payable and accrued
liabilities............................ 1,860 (1,347) 836 1,950 148
Other current liabilities................ (326) 39 706 -- --
--------- -------- -------- ------- -----
Net cash provided by (used in) continuing
operating activities................... (3,529) (8,844) (36) (376) (512)
Net cash used in discontinued
operations............................. (26,624) (6,102) (8,812) -- --
--------- -------- -------- ------- -----
Net cash used in operating activities.... (30,153) (14,946) (8,848) (376) (512)
--------- -------- -------- ------- -----
Cash flows from investing activities:
Cash paid for businesses acquired, net of cash
acquired..................................... -- (83,277) (83,256) -- --
Additions to property, plant and equipment,
net.......................................... (3,524) (871) (16,738) -- (8)
Cash from sale of discontinued operations...... 500 -- 10,000 -- --
--------- -------- -------- ------- -----
Net cash used in investing activities.... (3,024) (84,148) (89,994) -- (8)
--------- -------- -------- ------- -----
Cash flows from financing activities:
Borrowings of long-term debt................... 45,883 10,000 17,000 2,566 574
Repayment of long-term debt.................... (25,118) (4,895) (4,197) -- --
Increase in deferred offering costs............ -- -- -- (2,223) (48)
Proceeds from stock option exercises........... 86 -- -- -- --
Proceeds from common stock issuance, net of
offering costs............................... -- 99,900 99,900 -- 27
Acquisition of treasury stock.................. -- -- (127) -- --
--------- -------- -------- ------- -----
Net cash provided by financing
activities............................. 20,851 105,005 112,576 343 553
--------- -------- -------- ------- -----
Net increase (decrease) in cash and cash
equivalents............................ (12,326) 5,911 13,734 (33) 33
Cash and cash equivalents--beginning of period... 13,734 -- -- 33 --
--------- -------- -------- ------- -----
Cash and cash equivalents--end of period......... $ 1,408 $ 5,911 $ 13,734 $ -- $ 33
========= ======== ======== ======= =====
Supplemental cash flows information:
Cash paid for interest......................... $ 2,240 $ 692 $ 739 $ -- $ --
========= ======== ======== ======= =====
Cash paid for income taxes..................... $ -- $ -- $ -- $ -- $ --
========= ======== ======== ======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), 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 (Advanced). 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.
Advanced 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 pages directories in selected markets. Advanced completed its initial
public offering (IPO) on February 18, 1998. In connection with the IPO, Advanced
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, Advanced 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 and for all later periods.
The interim financial statements for the nine months ended September 30,
1999 and 1998, are unaudited. These interim financial statements have been
prepared on the same basis as the annual financial statements included herewith.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the consolidated balance
sheets, results of operations and cash flows with respect to the interim
financial statements, have been included. The results of operations for the
interim period are not necessarily indicative of the results for the entire
fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--Advanced 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. 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.
F-7
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), 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. Advanced 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. Advanced 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 Advanced 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 anti-dilutive, 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--Advanced'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
F-8
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
values because of their short-term nature. Management believes the carrying
value of its notes payable and capital lease obligations approximate fair value.
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--Advanced 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 Advanced's net income or stockholders'
equity. For the years ended December 31, 1998 and 1997 and for the period ended
December 31, 1996, Advanced 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 Postretirement
Benefits." This statement requires expanded pension related disclosures.
Adoption of this statement will have no impact on Advanced's net income,
financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (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. Advanced 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. Advanced is in compliance
with this SOP.
3. DISCONTINUED OPERATIONS (UNAUDITED)
In April 1999, Advanced announced that it intends to divest its
telecommunications segment in connection with several strategic acquisitions
(see note 17). Accordingly, the results of all the telecommunications segment
through the date of the announcement are classified as discontinued operations
in the accompanying consolidated financial statements. Revenues from the
discontinued telecommunications segment were $72.5 million and $38.7 million in
the first nine months of 1999 and 1998, respectively. Net loss from discontinued
telecommunications operations were $23.4 million, net of a benefit income tax
benefit of $5.2 million in the first nine months of 1999, and $4.2 million, net
of income tax of $.6 million in the first nine months of 1998.
F-9
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
3. DISCONTINUED OPERATIONS (UNAUDITED) (CONTINUED)
Advanced has estimated the loss on the sale of the discontinued
telecommunications operations to be $51.8 million and has included this estimate
in the results of operations in the first quarter of 1999. The estimated loss on
the sale of the discontinued operations includes estimates for operating losses
expected to be incurred through the completion of the sale, transaction costs,
exit costs of leased facilities, employee severance and termination costs, and
estimated proceeds from the sale. The estimate is recorded net of an estimated
income tax benefit of $4.4 million.
The net assets and liabilities of the discontinued telecommunications
operations are classified on the accompanying balance sheet as net assets held
for sale. Net assets held for sale at September 30, 1999, are net of the
remaining reserve established for the estimated loss on the sale of
$41.2 million. No such loss reserve was recorded for the year ended
December 31, 1998.
4. ACQUISITIONS
In February 1998, Advanced completed its IPO. Concurrent with and as a
condition to the closing of the IPO, Advanced 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.
The following table sets forth for accounting purposes the fair value of
consideration paid with respect to the acquisition of Great Western and the
assets acquired:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------
<S> <C>
Consideration Paid for Acquired Companies:
Cash...................................................... $55,634
Common stock.............................................. 8,000
Notes payable............................................. 15,000
Options and warrants...................................... 3,125
-------
Total purchase price.................................... $81,759
=======
Assets Acquired:
Net working capital....................................... $ 6,160
Property and equipment.................................... 1,237
Customer lists............................................ 32,900
Goodwill.................................................. 50,921
Net deferred tax liability................................ (9,459)
-------
Total assets acquired................................... $81,759
=======
</TABLE>
In addition to the acquisition of Great Western, Advanced purchased the
other acquired companies for $62.6 million in cash, stock options and notes
payable. These acquisitions resulted in
F-10
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
4. ACQUISITIONS (CONTINUED)
$47.0 million goodwill, $14.9 in customer lists and $.7 million of net other
assets which have been classified as net assets held for sale.
The following pro forma information presents results of operations as if the
acquisition of Great Western 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.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Total revenues from continuing operations................... $47,336 $43,247 $44,324
Net income (loss) from continuing operations................ (2,972) (2,563) 1,263
Income (loss) per share from continuing operations.......... (.15) (.13) .06
</TABLE>
In November 1998, Advanced 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.
5. INVESTMENT IN KINNET
In connection with the IPO, Advanced purchased a 49% interest in KINNET, an
owner and operator of a fiber optic network in Kansas, for $18.0 million.
Advanced accounted for its investment in KINNET using the equity method.
In December 1998, Advanced sold its entire interest in KINNET back to the
original owner of KINNET for $10.0 million in cash, 225,000 shares of Advanced'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 Advanced to realize the benefit of net operating losses.
Advanced'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.
F-11
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
6. 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.......................................... $ 544 $ --
Leasehold improvements...................................... 388 --
Furniture and office equipment.............................. 1,443 8
------- ------
2,375 8
Less accumulated depreciation............................... (1,241) (2)
------- ------
$ 1,134 $ 6
======= ======
</TABLE>
7. 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 debt costs, net of $196 accumulated amortization in
1998...................................................... 1,022 --
Other....................................................... -- 3
------- ------
$ 1,022 $2,689
======= ======
</TABLE>
At December 31, 1997, Advanced had deferred certain legal, accounting,
appraisal and other costs incurred in connection with the Acquisitions and the
IPO. When the Acquisitions were completed, 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.
F-12
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
8. 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 --
------- -------
34,350 2,875
Less short-term borrowings and current maturities........... (17,117) (2,875)
------- -------
$17,233 $ --
======= =======
</TABLE>
Advanced has a $25.0 million revolving credit facility with a financial
institution that expires on August 6, 1999. At December 31, 1998, Advanced 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
Advanced 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, Advanced'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, Advanced 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, Advanced recognized interest expense of $709,000
relating to these notes.
The 5% Notes and 10% Convertible Notes may be prepaid at any time and are
subordinated to Advanced's senior debt as defined therein. The 10% Convertible
Notes are convertible into shares of Advanced's common stock at $14.00 per
share.
F-13
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
9. INCOME TAXES
The provision for income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- -------------- -------- --------
<S> <C> <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) --
-------- -------
Total net deferred tax asset (liability).................. (11,410) --
Net deferred tax liabilities included in Net Assets Held
for Sale................................................ 3,490 --
-------- -------
Net deferred tax asset (liability)........................ $ (7,920) $ --
======== =======
</TABLE>
F-14
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
9. 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 Advanced will generate sufficient taxable income to
absorb all net operating loss carryforwards and deductible temporary differences
prior to their expiration.
10. STOCK OPTIONS AND WARRANTS
In connection with the Acquisitions and IPO, Advanced 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.
Advanced has an employee incentive stock option plan which allows Advanced
to grant key employees incentive and non-qualified stock options to purchase up
to 3,500,000 shares of Advanced'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.
Advanced also has a Non-Employee Director stock option plan, approved by the
stockholders, under which Advanced grants an option to purchase 15,000 shares of
common stock to each director who is neither an officer of Advanced 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 Advanced'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.
F-15
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
10. 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 OUTSTANDING OPTIONS AND WARRANTS EXERCISABLE
----------------------------------------------- ---------------------------------
RANGE OF NUMBER OF REMAINING WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISE PRICE 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>
Advanced accounts for the option plans using the intrinsic value method of
APB No. 25. 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 Advanced 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 (in thousands).......................... $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, Advanced'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
F-16
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
options. The new options have an exercise price of $4.50 per share, which
represents the fair market value of Advanced's stock on December 14, 1998.
In connection with the Acquisitions, Advanced 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 Advanced as a component of the purchase price of
the Acquisitions.
During December 1997, Advanced awarded two of its officers 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,
Advanced 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, Advanced recognized $1,760,000 and $870,000
respectively of compensation expense related to these options and warrants.
11. BENEFIT PLANS
Advanced has a stock purchase plan whereby eligible employees may elect to
invest up to 10% of their salary and Advanced contributes an amount equal to 15%
of each participant's contribution. Advanced also has a 401(k) plan whereby
eligible employees may elect to contribute a portion of their salary and
Advanced contributes an amount equal to 50% of employee contributions up to 6%
of the employee's base salary. Advanced recognized expense of $395,000 in the
nine months ended September 30, 1999, $281,000 in 1998 and no expense in 1997 or
1996, relating to these plans.
12. 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, and $1,714,000 for the nine months ended September 30, 1999.
F-17
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
12. LEASES (CONTINUED)
At December 31, 1998, Advanced's future minimum rental payments due under
noncancelable leases were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---- -------- ---------
(IN THOUSANDS)
<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>
13. PREFERRED STOCK
In January 1998, Advanced 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, Advanced 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 thirteenth month after the IPO, Advanced may, at its option, redeem the
Preferred Stock for total proceeds of $1.25 million.
14. COMMITMENTS AND CONTINGENCIES
Advanced is party to various legal actions, proceedings and claims arising
in the normal course of business. Some of the foregoing involve, or may involve,
claims for 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
Advanced. Advanced's management believes that any resulting liability will not
materially affect Advanced's financial position, liquidity or results of
operations. See Note 17 for discussion of various legal matters that have arisen
subsequent to year end.
15. REPORTABLE SEGMENTS
Advanced has two reportable segments: yellow pages directory publishing
(directory) operations and telecommunications operations. The directory
operations publish and distribute yellow pages directories in various markets in
Oklahoma, Texas and California. The telecommunications operations
F-18
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
15. REPORTABLE SEGMENTS (CONTINUED)
provide local, long distance and other telecommunications services to customers
in service areas of Southwestern Bell and US West. The different
telecommunications services have been aggregated and classified as one
reportable segment because they are considered one segment in assessing
performance and allocation of resources.
The following summarizes key financial information regarding the operations
of each segment for nine months ended September 30, 1999 and the year ended
December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------------- -------------------------
DISCONTINUED DISCONTINUED
DIRECTORY TELECOM DIRECTORY TELECOM
(IN THOUSANDS) OPERATIONS OPERATIONS OPERATIONS OPERATIONS
- -------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 42,337 $ 72,456 $ 38,090 $ 59,638
Printing, distribution and listings......................... 11,946 -- 8,670 --
Cost of telecommunications services......................... -- 65,781 -- 46,538
Selling, marketing, general and administrative expenses..... 25,141 29,186 25,665 21,445
Depreciation and amortization............................... 3,522 6,284 4,190 5,530
Stock-based compensation.................................... -- -- 1,760 --
-------- -------- -------- --------
Income (loss) from operations............................... $ 1,728 $(28,795) $ (2,195) $(13,875)
======== ======== ======== ========
Total assets................................................ $105,158 $ 41,222 $115,333 $ 69,780
======== ======== ======== ========
Capital expenditures........................................ $ 2 $ 3,522 $ 285 $ 16,453
======== ======== ======== ========
Interest expense............................................ $ 3,517 $ 0 $ 1,845 $ 0
======== ======== ======== ========
</TABLE>
The costs associated with Advanced's corporate overhead including, but not
limited to, executive salaries, salaries of shared administrative personnel and
the direct costs of company-wide programs, have been allocated to the directory
operations segment based on management's estimate of those costs expected to be
continuing after the sale of the telecommunications operations. The
administrative costs that will not continue after the sale of the
telecommunications segment have been allocated to the telecommunications
operation. The directory operations total assets of $105,158 and $115,333,
respectively, are presented here net of the net assets held for sale, $41,222
and $69,780, respectively, from the consolidated balance sheets.
The telecommunications operations are presented as discontinued operations
in the financial statements. As such the amounts disclosed as telecommunications
operations here are netted and presented as a single line item in the balance
sheet and statement of operations. For the nine months ended September 30, 1999,
the loss from telecommunications operations is reflected in the statement of
operations as loss from discontinued operations of $6.2 million, net of tax
benefit of $5.2 million. The remainder of the net loss from telecommunications
operations of $17.4 million was charged against the reserve established for the
estimated loss on the sale of discontinued operations. For the year ended
December 31, 1998, the loss from telecommunications operations is included in
the statement of operations as loss from discontinued operations of
$7.5 million, net of tax benefit of $6.4 million. The loss from operations on
the discontinued telecommunications operations and the net loss from
F-19
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
15. REPORTABLE SEGMENTS (CONTINUED)
discontinued operations do not include the estimated loss on the sale of the
telecommunications operations of $51.8 million.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ACTUAL ACTUAL ACTUAL PRO FORMA
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
----------- ----------- ----------- ----------- ----------
(IN (IN (IN (IN (IN
THOUSANDS) THOUSANDS) THOUSANDS) THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998--Pro Forma
- ------------------------------------
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
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
----------- ----------- ----------- ----------- ----------
(IN (IN (IN (IN (IN
THOUSANDS) THOUSANDS) THOUSANDS) THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997--Pro Forma
- ------------------------------------
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>
17. SUBSEQUENT EVENTS (UNAUDITED)
In April 1999, Advanced's board of directors approved a letter of intent to
acquire all the outstanding stock of YPtel Corporation, Web YP, Inc. and a
related company, Big Stuff, Inc. for approximately 19.5 million newly issued
shares of common stock. The terms of the acquisitions are subject to negotiating
definitive agreements, stockholder approvals, and regulatory approvals and the
acquisitions are expected to be completed by December 31, 1999.
YPtel Corporation is the parent of Pacific Coast Publishing, Ltd. a leading
yellow pages publisher located in Tacoma, Washington. Web YP maintains a website
and operates an Internet yellow pages network that is integrated with Big
Stuff's local print yellow pages directories. By combining the yellow pages
customers of YPtel Corporation, Web YP, Big Stuff and Advanced, the new
operation will be vertically integrated with both Internet and print directories
in 41 markets in 7 states.
Advanced also announced that it will reorganize its board of directors and
senior management team upon the consummation of the transaction. Richard O'Neal
will continue as Chairman and CEO
F-20
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
17. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
of Advanced and Mr. O'Neal and the other 5% note holders have agreed to convert
a $15 million note and accrued interest owed by Advanced into common stock in
support of Advanced's strategy. Advanced will be re-named WorldPages.com, Inc.
and its stock will continue to be traded on the NYSE under a new symbol to be
released upon completion of the transactions.
On May 14, 1999, Great Western, the wholly-owned yellow pages publishing
subsidiary of Advanced, entered into a $40.0 million revolving loan agreement
with Bank of America National Trust and Savings Association. Great Western used
a portion of the new credit facility to retire Advanced's existing $25.0 million
credit facility. The balance of the new credit facility is, subject to various
restrictions, for the general working capital needs and other corporate purposes
of Advanced and Great Western and for the working capital needs of the
telecommunications operations prior to their contemplated sale. Interest on the
new facility is LIBOR (adjusted by the Eurodollar reserve percentage) plus 2.75%
or Bank of America's prime or base rate plus .75%. The new facility requires a
commitment fee of .5% on the unused balance and is subject to various
restrictions and the maintenance of certain financial ratios. The new facility
expires on May 13, 2000. Advanced and its telecommunications subsidiaries
guaranteed Great Western's obligations with respect to the loan facility.
Advanced secured its guarantee by pledging to Bank of America substantially all
of its assets, including the capital stock of its telecommunications operations,
and the telecommunications operations secured their guarantees by pledging to
Bank of America substantially all of their respective assets. It is intended
that the net sale proceeds of the sale of the telecommunications subsidiaries
will be used to repay the loan or reduce its balance. At September 30, 1999,
Advanced had borrowed $38.0 million under this facility, which was subsequently
reduced to $8.0 million in November upon the sale of Advanced's
telecommunications operations.
In July 1999, Advanced and four of its wholly-owned subsidiaries, Feist Long
Distance Services, Inc., FirsTel, Inc., Telecom Resources, Inc. and Valu-Line of
Longview, Inc., entered into a stock purchase agreement with Ionex
Telecommunications, Inc. under which Advanced agreed to sell all of the capital
stock of those wholly-owned subsidiaries to Ionex Telecommunications for $49.8
million, subject to a dollar-for-dollar reduction to the extent current assets
at the time of closing of the sale are less than current liabilities at the time
of closing and to the extent of any decrease in property, plant and equipment
from May 1, 1999 to the closing date. The sale was completed on November 19,
1999 and the Company received $42.6 million, representing the purchase price
less a preliminary working capital adjustment of $7,2 million. The Company used
the proceeds to repay a portion of its revolving crdit facility and for general
corporate purposes. In connection with the closing of the sale of the
telecommunications operations, the revolving credit facility was amended to
reduce the total available borrowings to $15.0 million.
In August 1996, one of Advanced's subsidiaries, Valu-Line of Longview, Inc.,
entered into a written agreement with MCI Communications Corporation under
which, for a fee, MCI would provide access to Valu-Line so that Valu-Line could
provide services as a long distance carrier. After execution of the written
agreement, service failures by MCI occurred. To address the service failures and
MCI relocation of circuits serving Valu-Line, representatives of Valu-Line and
MCI agreed upon a reduced fee structure and revised network architecture in
order to provide restitution to Valu-Line and to address the service quality
issues. The resulting agreement reflecting the reduced fee structure was never
set forth in writing. Both before and after Advanced acquired Valu-Line, the
payments made under the
F-21
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), THE YEARS
ENDED
DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER 31, 1996
17. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Valu-Line contract with MCI were in accordance with the modified agreement. In
April-May 1999, after the acquisition of MCI by WorldCom, Inc., MCI WorldCom,
Inc., as the owner of the successor-in-interest to MCI, took the position that
Advanced owed $2.9 million in delinquent amounts under the original written
contract, ignoring the modification to the contract between the parties. MCI
WorldCom has not taken any legal action against Advanced or Valu-Line. If this
matter is not resolved through discussions, management's response to this claim
is to actively pursue the Advanced's rights and defenses in arbitration.
In July 1999, Loretta R. Cross, Chapter 7 Trustee for Total National
Telecommunications, Inc., filed an Adversary Proceeding against Lou Zant and
Telecom Resources, Inc., in the United States Bankruptcy Court for the Southern
District of Texas. TRI is a wholly-owned subsidiary of Advanced and is one of
the telecommunications operations to be sold to Ionex Telecommunications.
The trustee's complaint seeks recovery of $2.6 million from Telecom
Resources as a fraudulent conveyance under the Bankruptcy Code. The complaint is
based on an October 1, 1996 stock purchase agreement in which Total World
Telecommunications, Inc., the parent of Total National Telecommunications,
agreed to purchase all the stock of NETTouch Communications, Inc., from Telecom
Resources and Mr. Zant. The trustee's complaint alleges that Total National
Telecommunications provided the funds to Total World Telecommunications to
complete and close the stock purchase and that Total National Communications
never received any consideration for its funds. Telecom Resources intends to
vigorously defend the action.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Pacific Coast Publishing, Inc.
We have audited the accompanying balance sheets of Pacific Coast
Publishing, Inc. (Pacific Coast) as of October 31, 1998 and 1997, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 1998. These financial
statements are the responsibility of Pacific Coast's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacific Coast as of
October 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1998, in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Seattle, Washington
December 22, 1998
F-23
<PAGE>
PACIFIC COAST PUBLISHING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------
<S> <C> <C>
1998 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents................................... $ 334,426 $ 17,922
Trade accounts receivable, net.............................. 6,275,722 4,999,533
Deferred costs.............................................. 7,271,961 6,892,487
Prepaid expenses and other.................................. 829,620 433,455
----------- -----------
Total current assets........................................ 14,711,729 12,343,397
Property, plant and equipment, net.......................... 508,463 505,579
Other assets................................................ 313,950 132,381
----------- -----------
Total assets................................................ $15,534,142 $12,981,357
=========== ===========
CURRENT LIABILITIES
Current portion of debt..................................... $ 95,382 $ 585,828
Accounts payable and accrued expenses....................... 1,574,604 1,362,253
Deferred revenue............................................ 2,683,854 2,913,231
Commissions payable......................................... 1,169,261 1,019,448
----------- -----------
Total current liabilities................................... 5,523,101 5,880,760
----------- -----------
Debt, less current portion.................................. 276,224 260,600
----------- -----------
Commitments and contingencies (NOTE 5)
----------- -----------
Total liabilities........................................... 5,799,325 6,141,360
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
Authorized shares--50,000
Issued and outstanding shares--20,000..................... 20,000 20,000
Additional paid-in capital.................................. 119,269 119,269
Retained earnings........................................... 9,595,548 6,700,728
----------- -----------
Total stockholders' equity.................................. 9,734,817 6,839,997
----------- -----------
Total liabilities and stockholders' equity.................. $15,534,142 $12,981,357
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Revenue............................................... $33,165,398 $28,203,972 $24,550,563
Expenses:
Printing, distribution, and listings................ 8,001,467 6,644,443 6,985,299
Sales and marketing................................. 7,301,381 5,700,232 5,612,647
General and administrative.......................... 10,520,963 9,312,433 7,887,227
Depreciation and amortization....................... 170,124 249,245 334,918
Stockholder remuneration............................ 1,646,092 1,717,614 1,834,726
----------- ----------- -----------
5,525,371 4,580,005 1,895,746
Interest (income) expense, net........................ (141,828) 94,625 247,211
Other (income) expense................................ (98,100) 26,113 (63,321)
----------- ----------- -----------
Earnings before income taxes.......................... 5,765,299 4,459,267 1,711,856
Provision for income taxes............................ 86,479 53,988 265,957
----------- ----------- -----------
Net income............................................ $ 5,678,820 $ 4,405,279 $ 1,445,899
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
------------------- PAID-IN LOSS ON RETAINED
SHARES AMOUNT CAPITAL INVESTMENTS EARNINGS TOTAL
-------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1995... 20,000 $20,000 $119,269 $(20,400) $ 2,181,550 $ 2,300,419
Net income................... -- -- -- -- 1,445,899 1,445,899
Change in unrealized loss on
investments................ -- -- -- (9,120) -- (9,120)
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1996... 20,000 20,000 119,269 (29,520) 3,627,449 3,737,198
Net income................... -- -- -- -- 4,405,279 4,405,279
Cash dividends paid.......... -- -- -- -- (1,332,000) (1,332,000)
Change in unrealized loss on
investments................ -- -- -- 29,520 -- 29,520
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1997... 20,000 20,000 119,269 0 6,700,728 6,839,997
Net income................... -- -- -- -- 5,678,820 5,678,820
Cash dividends paid.......... -- -- -- -- (2,784,000) (2,784,000)
------ ------- -------- -------- ----------- -----------
Balances at October 31, 1998... 20,000 $20,000 $119,269 $ 0 $ 9,595,548 $ 9,734,817
====== ======= ======== ======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
PACIFIC COAST PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
OPERATING ACTIVITIES
Cash received from customers........................ $ 32,154,531 $ 28,268,125 $ 23,373,735
Cash paid to suppliers and employees................ (28,307,682) (24,467,625) (22,820,826)
Investment income received.......................... 241,791 213,119 128,076
Interest paid....................................... (105,449) (333,989) (357,095)
Income taxes paid................................... (53,988) (176,756) (46,797)
------------ ------------ ------------
Net cash provided by operating activities........... 3,929,203 3,502,874 277,093
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (172,308) (100,876) (177,223)
Cash received on sale of property, plant and
equipment......................................... -- -- 500
Other activities.................................... (181,569) (21,728) (89,151)
------------ ------------ ------------
Net cash used in investing activities............... (353,877) (122,604) (265,874)
------------ ------------ ------------
FINANCING ACTIVITIES
Dividends to stockholders........................... (2,784,000) (1,332,000) --
Proceeds of debt borrowings......................... 125,134 240,736 197,536
Principal payments on debt.......................... (599,956) (2,271,084) (208,755)
------------ ------------ ------------
Net cash used in financing activities............... (3,258,822) (3,362,348) (11,219)
------------ ------------ ------------
Net increase in cash................................ 316,504 17,922 --
Cash at beginning of year........................... 17,922 -- --
------------ ------------ ------------
Cash at end of year................................. $ 334,426 $ 17,922 $ --
============ ============ ============
Reconciliations of net income to net cash provided
by operating activities:
Net income........................................ $ 5,678,820 $ 4,405,279 $ 1,445,899
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss on disposal of property, plant and
equipment..................................... (699) 136,830 3,854
Depreciation and amortization................... 170,123 249,245 334,918
Increase in trade accounts receivable........... (1,276,189) (765,394) (1,376,396)
Increase in prepaid and deferred costs, and
other assets.................................. (775,639) (1,126,807) (6,416)
Increase in accounts and commissions payable and
accrued expenses.............................. 362,164 225,813 171,409
Increase (decrease) in deferred revenue......... (229,377) 377,908 (296,175)
------------ ------------ ------------
Net cash provided by operating activities........... $ 3,929,203 $ 3,502,874 $ 277,093
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. NATURE OF BUSINESS
Pacific Coast Publishing, Inc. (Pacific Coast) is in the business of selling
yellow pages advertising and publishing and distributing telephone directories
in selected Arizona, Oregon, Utah, and Washington cities.
During 1998, Pacific Coast's stockholders entered into an agreement to sell
substantially all of the operating assets of Pacific Coast effective
November 1, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable are reflected net of an allowance for doubtful accounts
as of October 31, 1998 and 1997 of $738,230 and $578,030, respectively.
Advertising revenue is recognized when directories containing the customers
advertising are distributed. Advertising revenue billed on directories that have
not been distributed is reported as deferred revenue.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated or
amortized using accelerated methods over the shorter of the lease term or the
estimated useful lives of the assets. Amortization of equipment under capital
leases is included in depreciation.
DEFERRED COSTS
Costs to produce, distribute, and market the directories are initially
capitalized and are expensed only when the directories are distributed in order
to match related expenses with advertising revenue. Costs include all direct
material and commission costs and indirect costs related to production, such as
indirect labor, depreciation, rent, utilities, office expenses and business
taxes, and the portion of the bad debt expense allocated to undistributed
directories. Capitalized production, distribution, and marketing costs of
directories not yet distributed are reported as deferred costs. Deferred costs
consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
<S> <C> <C>
1998 1997
---------- ----------
Sales commissions.................................... $4,056,348 $3,798,699
Direct production costs.............................. 330,414 338,055
Indirect production costs............................ 2,885,199 2,755,733
---------- ----------
$7,271,961 $6,892,487
========== ==========
</TABLE>
ADVERTISING COSTS
Pacific Coast expenses advertising when the costs are incurred. Advertising
costs totaled $621,613 in 1998, $520,065 in 1997, and $244,740 in 1996.
F-28
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
Pacific Coast barters yellow pages advertising in exchange for goods and
services. Sales are recognized at the fair market value of the advertising sold.
Services received are recorded at the same value as the sale. There is no gain
or loss recognized on these trades. Recognition of the revenues and expenses
from trades is the same as for monetary revenues and expenses. Barter
transactions represented 3.4%, 2.9%, and 2.6%, of advertising fees in 1998,
1997, and 1996, respectively.
CONCENTRATION OF CREDIT RISK
Approximately 50% of Pacific Coast's business relates to sales in the state
of Washington. Pacific Coast performs periodic credit evaluations of its
potential customers prior to acceptance and publication and requires deposits by
customers. Pacific Coast provides an allowance for doubtful accounts sufficient
to cover estimated credit losses. Credit losses have consistently been within
management's expectation.
Under a long-term contract that expires in February 2001, Pacific Coast
utilizes one outside vendor to print its yellow pages publications. As security
for payment of production amounts owed under the contract, the vendor has a lien
on all property owned by the vendor in Pacific Coast's possession, including
work-in-process and undelivered work. Production delays or failure by this
vendor to otherwise perform could significantly impact Pacific Coast's
operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balance sheet amounts and statement of operations amounts
have been reclassified to conform to the October 31, 1998 presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
<S> <C> <C>
1998 1997
---------- ----------
Equipment............................................ $1,848,980 $1,724,150
Furniture and fixtures............................... 89,447 82,919
Vehicles............................................. 107,260 107,260
Leasehold improvements............................... 109,925 109,925
---------- ----------
2,155,612 2,024,254
Less amortization and accumulated depreciation....... 1,647,149 1,518,675
---------- ----------
$ 508,463 $ 505,579
========== ==========
</TABLE>
F-29
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Included in equipment are assets held under capital leases as of
October 31, 1998 and 1997 with a gross amount of $871,139 and $795,602,
respectively. Accumulated amortization as of October 31, 1998 and 1997 on the
capital lease assets totaled $715,247 and $683,286, respectively.
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
<S> <C> <C>
1998 1997
-------- --------
Line of credit.............................................. $ -- $460,546
Note payable to bank in monthly installments of $1,076,
including interest at 9.25% at October 31, 1998. The note
matures in August 2000 and is collateralized by a
vehicle................................................... 21,688 32,059
Notes payable to equipment vendors in aggregate monthly
installments from $1,655 to $4,698, including interest at
9.00% at October 31, 1998. There is one note outstanding
at October 31, 1998, which matures August 2002............ 182,208 230,744
Capital lease obligations................................... 167,710 123,079
-------- --------
371,606 846,428
Less current portion........................................ 95,382 585,828
-------- --------
$276,224 $260,600
======== ========
</TABLE>
Pacific Coast's line of credit agreement with a bank was renewed during 1998
for a two-year period. Pacific Coast is permitted to borrow up to $7,000,000
under the line. Borrowings on the line bear interest at 8.375% as of
October 31, 1998, which is payable monthly. All outstanding principal and unpaid
interest is due at the line's maturity in April 2000, unless the line is
extended.
Borrowings on the line are collateralized by all accounts receivable of
Pacific Coast. In addition, Pacific Coast's stockholders have personally
guaranteed the repayment of the line. The line requires Pacific Coast to meet
certain restrictive covenants, including minimum cash flow coverage and debt to
net worth ratio requirements. As of October 31, 1998, Pacific Coast had
satisfied the covenant requirements.
Future maturities of debt as of October 31, 1998, including capital lease
obligations (see Note 5), are as follows:
<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31
- -----------------------
<S> <C>
1999........................................................ $ 95,382
2000........................................................ 117,964
2001........................................................ 71,339
2002........................................................ 60,718
2003........................................................ 26,203
--------
$371,606
========
</TABLE>
F-30
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
4. DEBT (CONTINUED)
Interest (income) expense, net, consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest and other investment income........ $(241,791) $(213,119) $(128,076)
Interest expense............................ 99,963 307,744 375,287
--------- --------- ---------
$(141,828) $ 94,625 $ 247,211
========= ========= =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Pacific Coast leases equipment and office space, including its corporate
office space, from a related party (see Note 7). Certain of the leases require
Pacific Coast to pay a portion of the operating costs associated with the leased
property. Future minimum lease payments under capital and operating leases as of
October 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING OCTOBER 31, LEASES LEASES
- ------------------------ -------- ----------
<S> <C> <C>
1999.................................................. $ 62,996 $ 838,692
2000.................................................. 74,144 543,255
2001.................................................. 28,107 303,887
2002.................................................. 20,199 211,943
2003.................................................. 27,427 120,000
Thereafter............................................ -- 50,000
-------- ----------
212,873 $2,067,777
==========
Less amount representing interest payments............ 45,163
--------
167,710
Less current portion.................................. 42,336
--------
$125,374
========
</TABLE>
F-31
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future lease payments for operating leases include maintenance contract
payments. Rent expense, exclusive of maintenance agreement payments, was
$820,531 in 1998, $746,445 in 1997, and $601,334 in 1996.
As of October 31, 1998, certain asserted legal actions are outstanding
against Pacific Coast, which have arisen in the normal course of business. While
no estimate of loss, if any, which may occur from the settlement of these
actions can be made, it is the opinion of management that the settlement of the
asserted actions will not have a material adverse impact on Pacific Coast's
financial position, operations, or cash flows.
6. INCOME TAXES
Beginning with the year ended October 31, 1996, Pacific Coast elected S
corporation status for federal income tax reporting purposes. As a result,
Pacific Coast is generally not subject to federal income tax, and the
stockholders separately report their respective pro rata shares of Pacific
Coast's income, deductions, and losses on their personal income tax returns.
Pacific Coast remains subject to various state income taxes.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
<S> <C> <C> <C>
1998 1997 1996
------- -------- --------
Federal income taxes at statutory rates........ $ -- $ -- $ --
Internal Revenue Service audit assessment for
prior years.................................. -- -- 154,702
Various state income taxes payable............. 86,479 53,988 18,213
------- -------- --------
Current portion................................ 86,479 53,988 172,915
Deferred taxes................................. -- -- 93,042
------- -------- --------
$86,479 $ 53,988 $265,957
======= ======== ========
</TABLE>
Deferred taxes arose principally due to current temporary timing differences
related to the allowance for doubtful accounts and vacation accruals.
7. RELATED-PARTY TRANSACTIONS
Pacific Coast leases corporate office space in a building that is owned by a
corporation whose sole stockholders are Pacific Coast's two stockholders. Rents
paid to the related corporation were $412,688 in 1998, $402,144 in 1997, and
$382,289 in 1996. Pacific Coast, as well as the stockholders, is a guarantor for
a bank loan to the related corporation. As of October 31, 1998, the outstanding
balance on the guaranteed bank loan was $118,236.
F-32
<PAGE>
PACIFIC COAST PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Total stockholder remuneration was as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Salaries................................. $1,560,000 $1,600,000 $1,800,000
Bonuses.................................. 86,092 117,614 34,726
---------- ---------- ----------
$1,646,092 $1,717,614 $1,834,726
========== ========== ==========
</TABLE>
8. 401(K) PLAN
Pacific Coast has a 401(k) plan that covers substantially all employees
meeting certain requirements. Company contributions to the Plan are
discretionary and are determined by the Board of Directors. Contributions
totaled $134,000 in 1998, $112,000 in 1997, and $88,100 in 1996.
F-33
<PAGE>
YPTEL CORPORATION
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
OCT. 31, 1999
--------------
<S> <C>
ASSETS
CURRENT
Cash and cash equivalents................................... $ 80,965
Accounts receivable, net.................................... 11,736,552
Deferred costs.............................................. 7,585,613
Prepaid expenses and other.................................. 2,066,726
-----------
Total current assets........................................ 21,469,856
-----------
Property, plant and equipment, net.......................... 659,720
Goodwill and other intangibles, net......................... 40,160,025
-----------
40,819,745
-----------
Total assets................................................ $62,289,601
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses....................... $ 6,963,326
Deferred revenue............................................ 1,332,685
Commissions payable......................................... 1,272,581
Current portion of long-term debt........................... 1,840,883
-----------
Total current liabilities................................... 11,409,475
-----------
LONG-TERM
Long-term debt.............................................. 35,783,766
Deferred income taxes....................................... 146,346
-----------
35,930,112
-----------
Total liabilities........................................... 47,339,587
-----------
STOCKHOLDERS' EQUITY
Share capital............................................... 13,719,914
Retained earnings........................................... 1,230,100
-----------
Total stockholders' equity.................................. 14,950,014
-----------
Total liabilities and stockholders' equity.................. $62,289,601
===========
</TABLE>
See accompanying notes.
F-34
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED
OCT. 31, 1999
--------------
<S> <C>
Revenue..................................................... $41,162,210
Expenses:
Printing, distribution and listings....................... 9,481,559
Sales and marketing....................................... 8,421,454
General and administrative................................ 14,734,786
Depreciation and amortization............................. 2,607,468
-----------
5,916,943
Interest expense............................................ 3,599,466
Other expense............................................... 296,309
-----------
Earnings before income taxes................................ 2,021,168
Provision for income taxes.................................. 791,068
-----------
Net income.................................................. $ 1,230,100
===========
</TABLE>
See accompanying notes.
F-35
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1998......... -- $ -- $ -- $ -- $ --
Issuance of common stock.......... 13,500,000 13,219,914 -- -- 13,219,914
Issuance of stock warrants........ -- -- 500,000 -- 500,000
Net income........................ -- -- -- 1,230,100 1,230,100
---------- ----------- -------- ---------- -----------
Balance, October 31, 1999......... 13,500,000 $13,219,914 $500,000 $1,230,100 $14,950,014
========== =========== ======== ========== ===========
</TABLE>
See accompanying notes.
F-36
<PAGE>
YPTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED
OCT. 31, 1999
-------------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,230,100
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,607,468
Gain on disposal of property and equipment................ (7,887)
Increase in accounts receivable........................... (8,615,234)
Provision for bad debt expense............................ 1,228,693
Increase in prepaid and deferred costs, and other
assets.................................................. (1,798,850)
Increase in accounts and commissions payable and accrued
expenses................................................ 2,654,973
Original issue discount interest.......................... 63,588
Decrease in deferred revenue.............................. 95,959
------------
Net cash used in operating activities....................... (2,541,190)
------------
INVESTING ACTIVITIES
Cash received on sale of property, plant and equipment...... 7,876
Purchases of property, plant and equipment.................. (383,682)
------------
Net cash used in investing activities....................... (375,806)
------------
FINANCING ACTIVITIES
Proceeds of debt borrowings, net............................ 3,070,078
Principal payments on debt.................................. (820,438)
------------
Net cash provided by financing activities................... 2,249,640
------------
Net increase in cash........................................ (667,356)
Cash at beginning of period................................. 748,321
------------
Cash at end of period....................................... $ 80,965
============
</TABLE>
See accompanying notes.
F-37
<PAGE>
YPTEL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 1999
1. NATURE OF BUSINESS
YPtel Corporation (YPtel) is in the business of selling yellow pages
advertising and publishing and distributing telephone directories in selected
Arizona, Oregon, Utah, and Washington cities.
YPtel Corporation was incorporated on July 22, 1998 under the laws of Canada
and its wholly owned subsidiary companies, YPtel, Inc. and Pacific Coast
Publishing, Ltd. were incorporated under the laws of the state of Washington on
October 1, 1998 and September 1, 1998, respectively (collectively "YPtel"). All
of the companies had nominal assets and operations until November 1, 1998.
Effective November 1, 1998, Pacific Coast Publishing, Inc. transferred its
net assets relating to the yellow pages business to YPtel for consideration of a
$2,000,000 promissory note and preferred shares. Pursuant to the transfer, YPtel
redeemed the preferred shares on November 19, 1998. The redemption proceeds,
together with related costs of the transaction, amounted to $47,783,071.
These transactions were financed by the issuance of $13,500,000 of common
share equity, $11,000,000 of Senior A Term Notes, $14,500,000 of Senior B Term
Notes and $11,000,000 of Subordinated Notes. In addition, YPtel obtained a
revolving credit facility in the amount of up to $8,500,000 for working capital
requirements.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable are reflected net of an allowance for doubtful accounts
as of October 31, 1999 of $1,679,000 for published directories and $2,442,000
for unpublished directories.
Advertising revenue is recognized when directories containing the customers
advertising are distributed. Advertising revenue billed on directories that have
not been distributed is reported as deferred revenue.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated or
amortized using accelerated methods over the shorter of the lease term or the
estimated useful lives of the assets. Amortization of equipment under capital
leases is included in depreciation.
DEFERRED COSTS
Costs to produce, distribute, and market the directories are initially
capitalized and are expensed only when the directories are distributed in order
to match related expenses with advertising revenue. Costs include all direct
material and commission costs and indirect costs related to production, such as
indirect labor, depreciation, rent utilities, office expenses and business
taxes, and the portion of the bad debt expense allocated to undistributed
directories. Capitalized production, distribution, and marketing costs of
directories not yet distributed are reported as deferred costs.
BARTER TRANSACTIONS
YPtel barters yellow pages advertising in exchange for goods and services.
Sales are recognized at the fair market value of the advertising sold. Services
received are recorded at the same value as the
F-38
<PAGE>
YPTEL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sale. There is no gain or loss recognized on these trades. Recognition of the
revenues and expenses from trades is the same as for monetary revenues and
expenses.
CONCENTRATION OF CREDIT RISK
Approximately 50% of YPtel's business relates to sales in the state of
Washington. YPtel performs periodic credit evaluations of its potential
customers prior to acceptance and publication and requires deposits by
customers. YPtel provides an allowance for doubtful accounts sufficient to cover
estimated credit losses. Credit losses have consistently been within the
management's expectation.
Under a long-term contract that expires in February 2001, YPtel utilizes one
outside vendor to print its yellow pages publications. As security for payment
of production amounts owed under the contract, the vendor has a lien on all
property owned by the vendor in YPtel's possession, including work-in-process
and undelivered work. Production delays or failure by this vendor to otherwise
perform could significantly impact YPtel's operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTANGIBLE ASSETS
Intangible assets primarily represent acquired customer lists, covenants not
to compete, financing charges incurred as a result of the acquisition and the
excess acquisition cost over the fair value of tangible and intangible net
assets and liabilities acquired (goodwill). Accumulated amortization of
intangible assets as at October 31, 1999 was $2,454,687.
Intangible assets are being amortized utilizing the straight-line method
according to the following schedule:
<TABLE>
<CAPTION>
ACCUMULATED
ASSET DESCRIPTION COST AMORTIZATION NET AMORTIZATION PERIOD
- ----------------- ----------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Deferred Financing
Charges............ $ 2,003,989 $ 334,432 $ 1,669,557 Life of the related
debt facilities
Covenant Not to
Compete............ $ 1,000,000 $ 200,000 800,000 5 Years
Customer Lists....... $ 9,000,000 $ 900,000 8,100,000 10 Years
Goodwill............. $30,610,723 $1,020,255 29,590,468 30 years
----------- ---------- -----------
Total................ $42,614,712 $2,454,687 $40,160,025
=========== ========== ===========
</TABLE>
F-39
<PAGE>
YPTEL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
OCT. 31, 1999
---------------
<S> <C>
Equipment................................................... $570,553
Furniture and fixtures...................................... 120,217
Vehicles.................................................... 13,204
Leasehold improvements...................................... 107,941
--------
811,915
Less amortization and accumulated depreciation.............. 152,195
--------
$659,720
========
</TABLE>
4. ACQUISITION OF PACIFIC COAST PUBLISHING, INC. AND RECAPITALIZATION OF YPTEL
CORPORATION
Effective November 1, 1998, Yptel acquired the assets and liabilities of
Pacific Coast Publishing, Inc. in exchange for consideration of a $2,000,000
promissory note and voting Class A Preferred Shares which were convertible at
any time into Common Shares of YPtel. The acquisition was accounted for under
the purchase method of accounting. Accordingly, YPtel recorded the transfer of
the net assets of Pacific Coast Publishing, Inc. acquired at their fair market
value and recorded the excess purchase price of $40,610,723 as intangible
assets.
On November 19, 1998 YPtel issued 13,500,000 common shares for net proceeds
of $13,219,914 after deducting share issue expenses of $280,086. Concurrently,
YPtel established new long-term debt facilities of $36,000,000 and related share
purchase warrants of $500,000 and the incurrence of $2,017,126 of related
financing charges thereon.
As part of the recapitalization, YPtel redeemed all of the Class A Preferred
shares for cash consideration of $47,783,071.
5. DEBT
The Senior A and Senior B Term Notes bear interest at rates varying with
prime (or, at YPtel's option, with LIBOR), payable quarterly. The effective rate
of interest on these Notes on October 31, 1999 was 8.7%. The Senior A Term Notes
are repayable in quarterly principal payments on each January 31, April 30,
July 31 and October 31 of $188,000 for 1999, $438,000 for 2000, $500,000 for
2001, $625,000 for 2002 and $1,000,000 for 2003. The Senior B Term Notes are
repayable in quarterly principal payments on each January 31, April 30, July 31
and October 31 of $63,000 for 1999 and 2000, $125,000 for 2001, 2002 and 2003,
$1,188,000 for 2004 and $1,938,000 for 2005.
The Subordinated Notes bear interest at 12% per annum, payable semi-annually
on May 1 and November 1 and are due in full on May 1, 2006.
The revolving credit facility bears interest at rates varying with prime (or
at YPtel's option, with LIBOR) and is repayable on demand.
The $2,000,000 promissory note payable to Pacific Coast Publishing, Inc. is
due on October 31, 2001 and bears simple interest at 7% per annum, payable upon
maturity. This Note may be extended at the option of YPtel to October 31, 2006,
on certain terms and conditions.
F-40
<PAGE>
YPTEL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
6. SHARE CAPITAL
The authorized share capital consists of an unlimited number of common
shares. The issued share capital consists of 13,500,00 common shares for
$13,219,914 and 1,841,000 warrants for $500,000. The warrants entitle the
holders to purchase common shares on or before the earliest of (i) November 1,
2008 and (ii) the date which is six years following the date on which the
Subordinated Notes are repaid by YPtel. YPtel has also granted options to
purchase common shares subject to certain terms and conditions.
7. SUBSEQUENT EVENT
YPtel and its stockholders have entered into an agreement with Advanced
Communications Group, Inc. to sell all of the issued and outstanding common
shares of YPtel in exchange for shares, directly and indirectly, of common stock
of Advanced Communications Group, Inc.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Web YP, Inc.
We have audited the accompanying balance sheet of Web YP, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. These financial statements are
the responsibility of Web YP's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Web YP, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
KPMG LLP
September 21, 1999
Houston, Texas
F-42
<PAGE>
WEB YP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,411 $ 107,260
Accounts receivable....................................... 199,086 142,473
Prepaid expenses and other current assets................. 1,533,334 57,292
----------- -----------
Total current assets.................................... 1,747,831 307,025
Furniture and office equipment, net of accumulated
depreciation of $77,956 and $3,870, respectively.......... $ 212,781 36,934
----------- -----------
Total assets............................................ $ 1,960,612 $ 343,959
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................. $ 122,866 $ 15,256
Deferred revenues......................................... 458,616 467,713
Due to related parties.................................... 166,563 --
Notes payable to shareholders............................. 3,510,000 --
----------- -----------
Total current liabilities................................... 4,258,045 482,969
----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value: 10,000 shares authorized;
6,086 shares issued and outstanding..................... -- --
Additional paid-in capital................................ 2,431,950 1,528,850
Accumulated deficit....................................... (4,729,383) (1,667,860)
----------- -----------
Total stockholders' deficit............................. (2,297,433) (139,010)
----------- -----------
Total liabilities and stockholders' deficit............. $ 1,960,612 $ 343,959
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
WEB YP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------
1999 1998 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.............................................. $ 610,925 $ 298,334 $ 383,678
Operating costs:
Selling and Internet expenses....................... 2,562,283 503,484 753,202
Selling, general and administrative expenses........ 1,036,079 906,708 1,231,799
Depreciation and amortization....................... 74,086 37,431 50,870
----------- ------------ -----------
Loss from operations................................ (3,061,523) (1,149,289) (1,652,193)
Other income (expense):
Interest expense.................................... -- -- --
----------- ------------ -----------
Loss before income taxes.............................. (3,061,523) (1,149,289) (1,652,193)
Income tax expense (benefit).......................... -- -- --
----------- ------------ -----------
Net loss.............................................. $(3,061,523) $ (1,149,289) $(1,652,193)
=========== ============ ===========
Basic and diluted loss per share $ (503.04) $ (188.84) $ (271.47)
=========== ============ ===========
Weighted average common shares outstanding 6,086 6,086 6,086
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
WEB YP, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
-------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............... 6,086 $ -- $ 141,000 $ (15,667) $ 125,333
Net loss................................. -- -- -- (1,652,193) (1,652,193)
Capital contributions.................... -- -- 1,387,850 -- 1,387,850
----- ---- ---------- ----------- -----------
Balance, December 31, 1998............... 6,086 $ -- $1,528,850 $(1,667,860) $ (139,010)
Net loss (unaudited)..................... -- -- -- (3,061,523) (3,061,523)
Capital contributions.................... -- -- 903,100 -- 903,100
----- ---- ---------- ----------- -----------
Balance, September 30, 1999
(unaudited)............................ 6,086 $ -- $2,431,950 $(4,729,383) $(2,297,433)
===== ==== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
WEB YP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1999 1998 1998
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss............................................. $(3,061,523) $(1,149,289) $(1,652,193)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization...................... 74,086 37,431 50,870
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net....................... (56,613) (87,497) (142,473)
Prepaid expenses and other current assets...... (1,476,042) -- (1,736)
Increase (decrease) in:
Accounts payable and accrued liabilities....... 107,610 60,599 15,256
Deferred revenues.............................. (9,097) 321,453 467,713
----------- ----------- -----------
Net cash used in operating activities.......... (4,421,579) (817,303) (1,262,563)
----------- ----------- -----------
Cash flows from investing activities:
Additions to furniture and office equipment.......... (249,933) (65,110) (18,027)
----------- ----------- -----------
Net cash used in investing activities.......... (249,933) (65,110) (18,027)
----------- ----------- -----------
Cash flows from financing activities:
Capital contributions................................ 903,100 773,376 1,387,850
Proceeds from notes payable to shareholders.......... 3,510,000 156,877 --
Increase in due to related parties................... 166,563 -- --
----------- ----------- -----------
Net cash provided by financing activities...... 4,579,663 930,253 1,387,850
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents............................. $ (91,849) $ 47,840 $ 107,260
Cash and cash equivalents--beginning of period......... 107,260 -- --
----------- ----------- -----------
Cash and cash equivalents--end of period............... $ 15,411 $ 47,840 $ 107,260
=========== =========== ===========
Supplemental cash flows information:
Cash paid for interest............................... $ -- $ -- $ --
=========== =========== ===========
Cash paid for income taxes........................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
1. BASIS OF PRESENTATION
Web YP, Inc. (Web YP) is a California-based company founded in September
1997. Operations at Web YP began in 1998. Web YP publishes on-line yellow pages
and white pages directories and hosts over 125,000 web sites.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM PERIODS--The interim financial statements as of
September 30, 1999 and for the nine months ended September 30, 1999 and 1998 are
unaudited. These interim financial statements have been prepared on the same
basis as the annual financial statements included herewith. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the balance sheet, results of operations and cash
flows with respect to the interim financial statements, have been included. The
results of the operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS--Web YP considers cash in banks and highly-liquid
investments purchased with an original maturity of three months or less to be
cash and cash equivalents.
FURNITURE AND OFFICE EQUIPMENT--Furniture and office 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 accelerated methods
over the respective useful lives of the assets ranging from 3 to 7 years.
INCOME TAXES--Web YP has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been provided for by Web YP, as the stockholders of Web YP have
included the income or loss on their respective income tax returns.
REVENUE RECOGNITION--Revenues are recognized ratably over the time period
that the services are provided, generally, twelve months. Deferred revenues
consist of amounts received in advance of the services being provided.
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 anti-dilutive, the effect of such securities is not given
consideration. Options and warrants to purchase 3,914 shares of common stock
were excluded from the calculation of Diluted EPS at September 30, 1998 and 1999
and December 31, 1998, due to their antidilutive effect.
F-47
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--Web YP's only financial instruments are
cash, short-term trade receivables and payables, prepaid expenses, 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 as their interest rates approximate market rates.
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--For the year ended December 31, 1998 and for the
periods ended September 30, 1999 and 1998, Web YP 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.
3. RELATED-PARTY TRANSACTIONS
Transactions with related parties include certain web site design services
with stockholders and entities in which they have an interest. Services provided
to these related parties for the year ended December 31, 1998 and the nine
months ended September 30, 1999 and 1998 were approximately $323,000, $260,000,
and $250,000, respectively. Amounts receivable from related parties at
December 31, 1998 and September 30, 1999 were approximately $10,000 and $68,000,
respectively. In addition, Web YP utilizes employees of Big Stuff, Inc. (an
entity related to Web YP by common ownership) for various operating purposes
with the related employee costs being allocated to Web YP. For the year ended
December 31, 1998 and the nine months ended September 30, 1999 and 1998, the
employee costs allocated to Web YP were approximately $181,000, $136,000, and
$136,000, respectively. Due to related parties of $167,000 on September 30, 1999
relates to expense allocations from Big Stuff, Inc. for overhead and labor.
4. STOCK OPTIONS AND WARRANTS
In connection with its formation, Web YP issued various stock options and
warrants that allow the holders to purchase shares of common stock at defined
exercise prices. At the time of their issuance, management estimated that the
options and warrants had no fair market value based on the Company's estimate of
the fair market value of its common stock, which was $1.33 per share. As of
December 31, 1998 and September 30, 1999, 3,914 of such options and warrants
were issued and outstanding. Of the issued and outstanding options and warrants,
3,164 are exercisable at $50.00 per share and 750 are exercisable at $1.33 per
share. All of the options and warrants granted have a contractual life of
10 years from grant date and are only exercisable in the event of a significant
change in management control or an initial public offering of Web YP.
F-48
<PAGE>
WEB YP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
The per share weighted-average value of stock options and warrants granted
to employees during 1997 was determined to be $0.00 using the Black-Scholes
model.
5. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2001. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases for the year ended December 31, 1998 was approximately
$133,000.
At December 31, 1998, Web YP's future minimum rental payments due under
noncancelable leases are $63,000 in 1999, $66,000 in 2000 and $14,000 in 2001.
6. PREPAID PORTAL ROYALTIES AND ADVERTISING AGREEMENT
At September 30, 1999, prepaid expenses and other current assets consist
primarily of an agreement entered into by Web YP with a third party portal
website whereby Web YP will serve as the online yellow pages directory services
provider for a period of nine months. This amount has been classified as prepaid
expenses and other current assets on the accompanying September 30, 1999 balance
sheet, and is being amortized over a period of nine months.
7. NOTES PAYABLE TO SHAREHOLDERS
As of September 30, 1999, the shareholders of Web YP had advanced $3,510,000
to Web YP. The loans bear interest at 7% per annum.
8. COMMITMENTS AND CONTINGENCIES
Web YP is party to various legal actions, proceedings and claims arising in
the normal course of business. Some of the foregoing involve, or may involve,
claims for 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
Web YP. Web YP's management believes that any resulting liability will not
materially affect Web YP's financial position, liquidity or results of
operations.
9. SUBSEQUENT EVENT
Web YP and its stockholders have entered into an agreement with Advanced
Communications Group, Inc. ("Advanced") to sell all of the issued and
outstanding common stock of Web YP in exchange for shares of common stock of
Advanced.
F-49
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------
1999 1998 1998 1997 1996
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 757,145 $1,323,949 $1,647,688 $2,526,190 $2,310,911
Operating costs:
Cost of services................. 653,319 817,032 1,049,296 1,856,737 1,140,020
Selling, general and
administrative expenses........ 334,167 229,415 256,698 608,786 190,499
Depreciation and amortization.... 142,702 213,567 300,200 149,828 119,962
--------- ---------- ---------- ---------- ----------
Income (loss) from operations.... (373,043) 63,935 41,494 (89,161) 860,430
Other income (expense):
Interest expense................. (66,608) (48,402) (60,162) -- --
--------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes............................ (439,651) 15,533 (18,668) (89,161) 860,430
Income tax expense................. -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Net income (loss).............. $(439,651) $ 15,533 $ (18,668) $ (89,161) $ 860,430
========= ========== ========== ========== ==========
Basic and diluted income (loss) per
share............................ $ (125.61) $ 12.94 $ (5.33) $ (74.30) $ 717.03
========= ========== ========== ========== ==========
Weighted average common shares
outstanding...................... 3,500 1,200 3,500 1,200 1,200
========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
BIG STUFF, INC.
UNAUDITED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,384 $ 670 $ 94,703
Accounts receivable.................................... 81,696 184,485 439,808
Inventory.............................................. 18,125 21,618 23,863
Due from related party................................. 166,563 -- --
Prepaid expenses and other current assets.............. -- 70,203 188,750
---------- ---------- ----------
Total current assets................................. 267,768 276,976 747,124
Property, plant and equipment, net....................... 339,107 409,090 735,936
Intangible assets, net................................... 122,010 128,999 138,333
---------- ---------- ----------
Total assets......................................... $ 728,885 $ 815,065 $1,621,393
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 92,016 $ 31,741 $ 24,849
Line of credit......................................... 64,178 43,298 0
Due to stockholders.................................... 1,200,000 -- --
---------- ---------- ----------
Total current liabilities............................ 1,356,194 75,039 24,849
---------- ---------- ----------
Total liabilities.................................... 1,356,194 75,039 24,849
---------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value: 10,000 shares authorized;
3,500; 3,500 and 1,200 shares issued and outstanding,
respectively......................................... -- -- --
Additional paid-in capital............................. 1,522,969 1,522,969 1,172,969
Retained earnings (accumulated deficit)................ (2,150,278) (782,943) 423,575
---------- ---------- ----------
Total stockholders' equity........................... (627,309) 740,026 1,596,544
---------- ---------- ----------
Total liabilities and stockholders' equity........... $ 728,885 $ 815,065 $1,621,393
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
------------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY (DEFICIT)
-------- -------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. 1,200 $ -- $ 572,969 $ 1,082,736 $ 1,655,705
Net loss............................... -- -- -- (89,161) (89,161)
Capital contributions.................. -- -- 600,000 -- 600,000
Distributions to stockholders.......... -- -- -- (570,000) (570,000)
----- ---- ---------- ----------- -----------
Balance, December 31, 1997............. 1,200 $ -- $1,172,969 $ 423,575 $ 1,596,544
Net loss............................... -- -- -- (18,668) (18,668)
Capital contributions.................. 2,300 -- 350,000 -- 350,000
Distributions to stockholders.......... -- -- -- (1,187,850) (1,187,850)
----- ---- ---------- ----------- -----------
Balance, December 31, 1998............. 3,500 $ -- $1,522,969 $ (782,943) $ 740,026
Net loss............................... -- -- -- (439,651) (439,651)
Distributions to stockholders.......... -- -- -- (927,684) (927,684)
----- ---- ---------- ----------- -----------
Balance, September 30, 1999............ 3,500 $ -- $1,522,969 $(2,150,278) $ (627,309)
===== ==== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
BIG STUFF, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(439,651) $ (18,668) $ (89,161)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization................. 142,702 300,200 149,828
Gain on sale of fixed assets.................. -- 35,980 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net.................. 102,789 255,323 358,006
Prepaid expenses and other current
assets.................................. 70,203 118,547 (188,750)
Inventory................................. 3,493 2,245 15,937
Increase (decrease) in:
Accounts payable and accrued
liabilities............................. 81,155 6,892 19,171
--------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. (39,309) 700,519 265,031
--------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment,
net........................................... (65,730) -- (668,360)
Cost of business acquired....................... -- -- (140,000)
--------- ----------- -----------
Net cash used in investing activities..... (65,730) -- (808,360)
--------- ----------- -----------
Cash flows from financing activities:
Dividends....................................... (927,684) (1,187,850) (570,000)
Borrowings from stockholders.................... 1,033,437 43,298 --
Capital contributions........................... -- 350,000 600,000
--------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 105,753 (794,552) 30,000
--------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 714 (94,033) (513,329)
Cash and cash equivalents--beginning of period.... 670 94,703 608,032
--------- ----------- -----------
Cash and cash equivalents--end of period.......... $ 1,384 $ 670 $ 94,703
========= =========== ===========
Supplemental cash flows information:
Cash paid for interest.......................... $ 66,608 $ 60,162 $ --
========= =========== ===========
Cash paid for income taxes...................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998, AND THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BASIS OF PRESENTATION
Big Stuff, Inc. (Big Stuff) is a Texas-based company established in 1995.
Big Stuff was founded to provide computer services, including web site and ad
design, and ad colorization services for independent telephone directory
publishers.
The accompanying financial information has been prepared without audit. The
financial statements include the accounts of Big Stuff, Inc. The financial
statements are based on information supplied by Big Stuff and restated by
Advanced in order to conform to generally accepted accounting principles.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--Big Stuff 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 accelerated methods
over the respective useful lives of the assets ranging from 3 to 7 years.
INCOME TAXES--Big Stuff has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been provided for by Big Stuff, as the stockholders of Big
Stuff have included the income or loss on their respective income tax returns.
REVENUE RECOGNITION--Revenues are recognized as services are provided.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Big Stuff'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.
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.
F-54
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998, AND THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME--For the years ended December 31, 1998, 1997 and 1996
and for the periods ended September 30, 1999 and 1998, Big Stuff 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.
3. RELATED-PARTY TRANSACTIONS
Transactions with related parties include certain web site design services
with stockholders and entities in which they have an interest. Services provided
to these related parties for the year ended December 31, 1998 and the nine
months ended September 30, 1999 and 1998 were approximately $929,000, $443,000,
and $696,000, respectively. Amounts receivable from related parties at
December 31, 1998 and September 30, 1999 were approximately $82,000 and $40,000,
respectively.
To finance operations of Big Stuff the shareholders of Big Stuff loaned
$750,000 to Big Stuff.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land and buildings.......................................... $ -- $ 64
Leasehold improvements...................................... 2 2
Furniture and office equipment.............................. 1,164 1,149
------ ------
1,166 1,215
Less accumulated depreciation............................... (757) (479)
------ ------
$ 409 $ 736
====== ======
</TABLE>
5. LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2000. 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 approximately $72,000, $168,000
and $35,000, respectively.
At December 31, 1998, Big Stuff's future minimum rental payments due under
noncancelable leases are $48,000 in 1999 and $16,000 in 2000.
F-55
<PAGE>
BIG STUFF, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998, AND THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES
Big Stuff is party to various legal actions, proceedings and claims arising
in the normal course of business. Some of the foregoing involve, or may involve,
claims for 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
Big Stuff. Big Stuff's management believes that any resulting liability will not
materially affect Big Stuff's financial position, liquidity or results of
operations.
7. SUBSEQUENT EVENT
Big Stuff and its stockholders have entered into an agreement with Advanced
Communications Group, Inc. (Advanced) to sell all of the issued and outstanding
common stock of Big Stuff in exchange for shares of common stock of Advanced.
F-56
<PAGE>
ANNEX A
A-i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE I--THE TRANSACTIONS........................................ A-2
1.1 Transactions Prior to Closing: Corporate.................... A-2
1.2 Transactions Simultaneous with Closing...................... A-3
1.3 Effective Date; Fairness Opinion............................ A-4
1.4 Closing..................................................... A-4
1.5 Parent Name Change and Directors............................ A-5
1.6 Tax Deferred Exchange....................................... A-5
1.7 Taking of Necessary Action; Further Action.................. A-5
1.8 Aggregate Issuable Parent Common Stock...................... A-6
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE ICL PRINCIPALS.......................................... A-6
2.1 Organization and Good Standing.............................. A-6
2.2 Capitalization.............................................. A-6
2.3 Subsidiaries................................................ A-7
2.4 Authorization; Binding Agreement............................ A-7
2.5 Governmental Approvals...................................... A-7
2.6 No Violations............................................... A-8
2.7 Litigation.................................................. A-8
2.8 Absence of Certain Changes or Events........................ A-9
2.9 Finders and Investment Bankers.............................. A-9
2.10 Contracts................................................... A-9
2.11 Liabilities................................................. A-9
2.12 Real Estate................................................. A-10
2.13 Corporate Records........................................... A-10
2.14 Labor Matters............................................... A-10
2.15 Tax......................................................... A-10
2.16 PCP Acquisition Agreement................................... A-10
2.17 Knowledge................................................... A-11
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF PARENT.............. A-11
3.1 Organization and Good Standing.............................. A-11
3.2 Capitalization.............................................. A-11
3.3. Subsidiaries................................................ A-12
3.4 Authorization; Binding Agreement............................ A-12
3.5 Governmental Approvals...................................... A-12
3.6 No Violations............................................... A-12
3.7 Securities Filings and Litigation........................... A-13
3.8 Parent Financial Statements................................. A-13
3.9 Absence of Certain Changes or Events........................ A-14
3.10 Compliance with Laws........................................ A-14
3.11 Permits..................................................... A-14
3.12 Finders and Investment Bankers.............................. A-14
3.13 Contracts................................................... A-14
3.14 Corporate Records........................................... A-14
ARTICLE IV--ADDITIONAL COVENANTS OF THE COMPANY
AND THE ICL PRINCIPALS........................................... A-15
4.1 Notification of Certain Matters............................. A-15
4.2 Access and Information...................................... A-15
4.3 Reasonable Best Efforts..................................... A-15
4.4 Compliance.................................................. A-16
4.5 Benefit Plans............................................... A-16
4.6 Tax Opinion Certification................................... A-16
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
4.7 Shareholders Agreement and Voting Trust Agreements.......... A-16
4.8 Transfer Restrictions....................................... A-16
4.9 Subordinated Loan Agreement................................. A-16
4.10 Conduct of Business of Parent and the Parent Subsidiaries... A-17
ARTICLE V--ADDITIONAL COVENANTS OF PARENT.......................... A-17
5.1 Conduct of Business of Parent and the Parent Subsidiaries... A-17
5.2 Notification of Certain Matters............................. A-17
5.3 Access and Information...................................... A-17
5.4 Compliance.................................................. A-18
5.5 SEC and Shareholder Filings................................. A-18
5.6 Tax Treatment............................................... A-18
5.7 Reasonable Best Efforts..................................... A-18
5.8 Employee Benefit Plans...................................... A-18
5.9 Expenses.................................................... A-19
5.10 Indemnification and Insurance............................... A-19
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT, THE COMPANY
AND THE SHAREHOLDERS............................................. A-19
6.1 Registration of Securities.................................. A-19
6.2 Legal Requirements.......................................... A-21
6.3 Exchange and Voting Trust Agreement......................... A-21
6.4 Public Announcements........................................ A-21
6.5 Conduct of Business Prior to Closing Date................... A-21
6.6 No Solicitation of Acquisition Proposal..................... A-24
6.7 Confidentiality............................................. A-25
6.8 Capital Stock and Derivative Securities..................... A-25
ARTICLE VII--CONDITIONS TO CLOSING................................. A-26
7.1 Conditions to Obligations of Each Party to Closing.......... A-26
7.2 Additional Conditions to Obligations of Shareholders and
Company................................................... A-28
7.3 Additional Conditions to the Obligations of Parent.......... A-29
ARTICLE VIII--TERMINATION AND ABANDONMENT.......................... A-31
8.1 Termination................................................. A-31
8.2 Procedure Upon Termination.................................. A-32
ARTICLE IX--SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.................................................. A-32
9.1 Indemnification by the ICL Principals....................... A-32
9.2 Method of Asserting Claims.................................. A-32
9.3 Third Party Claims.......................................... A-33
9.4 Survival.................................................... A-34
9.5 Limitations................................................. A-34
9.6 Indemnification by the Parent............................... A-35
ARTICLE X--MUTUAL RELEASE.......................................... A-35
10.1 Mutual Release of All Claims................................ A-35
10.2 Covenant Not to Sue......................................... A-36
10.3 No Admission of Liability................................... A-36
ARTICLE XI--AMENDMENT AND WAIVER................................... A-36
11.1 Amendment of this Restated Agreement........................ A-36
11.2 Deviation from Form of Exchange and Voting Trust Agreement,
Support Agreement and Appendix A.......................... A-36
11.3 Extension; Waiver........................................... A-37
</TABLE>
A-iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XII--GENERAL PROVISIONS.................................... A-37
12.1 Notices..................................................... A-37
12.2 Interpretation.............................................. A-38
12.3 Counterparts................................................ A-38
12.4 Entire Agreement; Assignment................................ A-38
12.5 Severability................................................ A-38
12.6 Other Remedies.............................................. A-38
12.7 Governing Law............................................... A-38
12.8 Rules of Construction....................................... A-39
12.9 Limitation on Liability of Trustee.......................... A-39
12.10 Time of the Essence......................................... A-39
ARTICLE XIII--DEFINITIONS.......................................... A-39
13.1 Definitions................................................. A-39
</TABLE>
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AMENDED AND RESTATED
YPTEL AGREEMENT
This YPTEL AMENDED AND RESTATED AGREEMENT (THE "RESTATED AGREEMENT") is made
and entered into as of October 26, 1999 by and among Advanced Communications
Group, Inc., a Delaware corporation ("PARENT"), YPtel Corporation, a corporation
incorporated under the laws of Canada (THE "COMPANY"), the shareholders of the
Company listed on the attached EXHIBIT A, Edward Truant, Douglas G. McIntyre,
Jeffrey L. Rosenthal, Stephen D. Lister, The J.L.R. Family Trust and The Paisley
Family Trust (COLLECTIVELY, THE "ICL PRINCIPALS"), Cold Trust, Global Investment
Trust, Freezer Trust, Storage Trust, Directory Trust and Publisher Trust
("BARBADIAN TRUSTS") (the shareholders listed on EXHIBIT A, the ICL Principals
and the Barbadian Trusts are collectively referred to herein as the
"SHAREHOLDERS") and Imperial Capital Limited, a corporation incorporated under
the laws of the Province of Ontario ("ICL"). The ICL Principals are executing
this Restated Agreement solely for the purpose of making the representations and
warranties of the ICL Principals set forth in ARTICLE II and for agreeing to the
indemnification obligations of the ICL Principals set forth in ARTICLE IX, and
for agreeing to the obligations of the ICL Principals set forth in SECTION 4.1,
SECTION 6.6 and the other provisions of this Restated Agreement. ICL is the
attorney-in-fact pursuant to certain powers of attorney (THE "POWERS OF
ATTORNEY"), pursuant to which all Shareholders other than Edward Truant,
Douglas G. McIntyre, The J.L.R. Family Trust, The Paisley Family Trust and the
Barbadian Trusts have granted to ICL the right to vote and to dispose of all of
the Company Common Stock. ICL is executing this Restated Agreement as
attorney-in-fact for the Shareholders other than Edward Truant, Douglas G.
McIntyre, The J.L.R. Family Trust, The Paisley Family Trust and the Barbadian
Trusts to bind such Shareholders to their obligations set forth in this Restated
Agreement.
RECITALS
A. The Company is the beneficial owner, directly and indirectly, and holder
of record of all of the issued and outstanding shares of the capital stock of
YPtel, Inc. ("YPTI") and Pacific Coast Publishing, Ltd. ("PCP") (COLLECTIVELY,
THE "SUBSIDIARIES") and desires to have itself and, indirectly, all of its
assets, including the capital stock of each of the Subsidiaries, acquired
directly or indirectly by Parent on the terms and subject to the conditions set
forth in this Restated Agreement.
B. Parent desires to cause Newco II, an indirect subsidiary of Parent, to
be formed prior to the Closing, to acquire all of the issued and outstanding
capital stock of the Company, and Parent desires to acquire all of the
outstanding common stock of YPTI, all on the terms and subject to the conditions
set forth in this Restated Agreement.
C. The Boards of Directors of each of the Company and Parent believe it is
in the best interests of each company and their respective stockholders and the
Board of Directors of Parent has directed or will direct that the Restated
Agreement be submitted to the shareholders of Parent with the recommendation
that the Restated Agreement, including but not limited to the issuance of shares
of Parent Common Stock pursuant to the Exchange and Voting Trust Agreement, be
approved by the Parent's stockholders.
D. The Shareholders own all of the issued and outstanding Company capital
stock and some of the Shareholders propose to transfer their shares to
corporations or limited partnerships established by them so that such entities
(together with the Shareholders not so transferring their shares) will at the
time of Closing own all of the outstanding Company Common Stock other than the
shares of Company Common Stock issued to the Subordinated Lenders upon exercise
of the warrants issued pursuant to the Subordinated Loan Agreement.
E. The parties intend that the Closing will occur concurrently with or
after, among other actions, (i) the closing of the acquisition by Parent or a
direct or indirect subsidiary of Parent of all of the outstanding capital stock
of Web YP, Inc. ("WEB") and Big Stuff, Inc. ("BIG STUFF") on terms reasonably
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acceptable to the Company (WEB AND BIG STUFF ARE SOMETIMES COLLECTIVELY REFERRED
TO AS "WORLDPAGES") whether by merger, exchange or otherwise (THE "WORLDPAGES
ACQUISITION"); (ii) the redemption of the promissory notes (COLLECTIVELY, THE
"GREAT WESTERN NOTES") in the aggregate original principal amount of Fifteen
Million Dollars (U.S. $15,000,000) (plus accrued but unpaid interest at the time
of redemption) owed by Parent to Richard O'Neal and certain other former
shareholders of Great Western Directories, Inc. (COLLECTIVELY, THE "GREAT
WESTERN SHAREHOLDERS") by the issuance of Parent Common Stock to the Great
Western Shareholders; (iii) the execution and delivery of the Exchange and
Voting Trust Agreement and the Support Agreement; (iv) the Company
Recapitalization; (v) the YPTI Recapitalization and purchase by Parent from the
Company of all of the outstanding common stock of YPTI; and (vi) the
satisfaction of the other conditions to Closing set forth in this Restated
Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
ARTICLE I--THE TRANSACTIONS
1.1 TRANSACTIONS PRIOR TO CLOSING. Immediately prior to Closing and
subject to and upon the terms and conditions of the Restated Agreement:
(a) RECAPITALIZATION OF THE PARENT. The Parent shall be recapitalized
(THE "PARENT RECAPITALIZATION") so that immediately after the Parent
Recapitalization, the authorized capital stock of the Parent shall consist
of (A) 180,000,000 shares of the Parent Common Stock and (B) 20,000,000
shares of preferred stock of Parent from which the Board of Directors of
Parent (or a committee thereof) shall further authorize a class of voting
preferred stock to be issued to the Trustee pursuant to the Exchange and
Voting Trust Agreement and having the rights, preferences and designations
to be agreed upon prior to Closing (THE "PARENT CLASS B VOTING PREFERRED
STOCK").
(b) FORMATION OF NEWCO I AND NEWCO II. Parent shall (i) form an
unlimited liability company under the laws of Nova Scotia which will be
owned by Parent ("NEWCO I"), the authorized capital stock of which shall
consist of common stock ("NEWCO I COMMON STOCK"), and (ii) form an unlimited
liability company under the laws of Nova Scotia ("NEWCO II"), the authorized
capital stock of which shall consist of (a) common stock ("NEWCO II COMMON
STOCK"); and (b) non-voting special shares having the rights, preferences
and designations set forth in EXHIBIT B hereto (THE "CLASS A SPECIAL
SHARES"), the holders of which shall have the right to exchange such shares
on a one-for-one basis for shares of Parent Common Stock pursuant to the
Exchange and Voting Trust Agreement. The first issuance of Newco I Common
Stock to Parent and Newco II Common Stock to Newco I, each for nominal
consideration, shall be effected such that at all times all of the issued
and outstanding Newco I Common Stock shall be owned by Parent and all of the
issued and outstanding Newco II Common Stock shall be owned by Newco I.
(c) RECAPITALIZATION OF THE COMPANY. The Shareholders and the Company
shall cause the Company to be recapitalized (THE "COMPANY RECAPITALIZATION")
so that immediately after the Company Recapitalization, (i) the authorized
capital stock of the Company shall consist only of common stock (THE
"COMPANY COMMON STOCK"); and (ii) the exchange into Company Common stock of
all outstanding shares of Class A preferred stock, Class B preferred stock,
Class C preferred stock and Class D preferred stock of the Company has
occurred.
(d) CONTINUANCE AND AMALGAMATION. The Company shall take such steps as
may be necessary to discontinue its existence as a corporation governed by
the Canada Business Corporations Act and to continue as a corporation
governed by the laws of Nova Scotia and immediately after such continuance,
shall amalgamate with an unlimited liability corporation caused to be
incorporated by the Company Shareholders under the laws of Nova Scotia.
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(e) THE YPTI RECAPITALIZATION. (a) The Company shall cause YPTI to be
recapitalized (THE "YPTI RECAPITALIZATION") by amending YPTI's articles of
incorporation to create a class of non-voting cumulative preferred stock
(THE "YPTI PREFERRED STOCK") (with an aggregate redemption amount equal to
the fair market value of YPTI less the adjusted cost base of Company in YPTI
and having the rights, preferences and designations to be agreed upon prior
to Closing (THE "YPTI CERTIFICATE OF PREFERRED STOCK DESIGNATION") to be
filed with the Secretary of State of the State of Washington and
(b) thereafter, YPTI shall declare and pay to the Company a dividend of the
YPTI Preferred Stock.
(f) TRANSFER OF COMPANY SHARES.
(i) Some of the Shareholders will transfer their Company Common Stock
to corporations or limited partnerships (on a tax-deferred basis) so that
effective upon delivery to Parent of a duly executed assignment and
assumption agreement reasonably acceptable to Parent (A) such transferee
Shareholder shall become subject to the rights and obligations of the
transferor Shareholder under this Restated Agreement to the same extent
as if they had signed this Restated Agreement individually or through ICL
as the attorney-in-fact and (B) such transferor Shareholder shall be
released from any and all obligations hereunder and (C) thereafter
(together with such Shareholders not so transferring) shall be considered
the Shareholders hereunder in substitution for the transferors.
(ii) To the extent that any Person receives shares of Company Common
Stock from an ICL Principal, directly or indirectly, in connection with a
transfer contemplated in SECTION 1.1(f)(i) hereof, such transferee
Shareholder shall be deemed to be an ICL Principal for purposes of this
Restated Agreement. Effective upon delivery to Parent of a duly executed
assignment and assumption agreement reasonably acceptable to Parent
(A) such transferee Shareholder shall become subject to the rights and
obligations of the transferor ICL Principal under this Restated Agreement
to the same extent as if they had signed this Restated Agreement
individually and (B) such transferor ICL Principal shall be released from
any and all obligations hereunder and (C) thereafter (together with such
ICL Principals not so transferring) shall be considered the ICL
Principals hereunder in substitution for the transferor ICL Principal.
1.2 TRANSACTIONS AT CLOSING. At the Closing, and subject to and upon the
terms and conditions of this Restated Agreement:
(a) TRANSFER OF PARENT STOCK. In consideration for the issuance of
Newco I Common Stock to Parent and Newco II Common Stock to Newco I (each as
contemplated by SECTION 1.1(b) hereof), Parent shall transfer and deliver to
Newco I and Newco I shall transfer and deliver to Newco II, respectively,
that number of shares of Parent Common Stock necessary to accomplish the
exchange with certain Shareholders described in SECTION 1.2(b).
(b) EXCHANGE OF COMPANY COMMON STOCK. (i) The Shareholders shall
transfer and deliver to Newco II the Company Common Stock free and clear of
any and all liens, claims and encumbrances, together with stock powers duly
executed in blank by the Shareholders that are executing this Restated
Agreement and by ICL on behalf of the Shareholders (other than those that
are executing this Restated Agreement) with signatures of ICL and the
Shareholders who are executing this Restated Agreement guaranteed;
(ii) Newco II shall transfer and deliver, at the election of each
Shareholder, either (A) shares of Class A Special Shares or (B) shares of
Parent Common Stock for the shares of Company Common Stock exchanged under
(i) above, or a combination thereof. The procedure for the exchange of
shares of Company Common Stock by each Shareholder and the number of
Class A Special Shares and Parent Common Stock to be received by each
Shareholder at the Closing will be substantially in accordance with the
procedures agreed to in writing by the parties hereto. The total number of
(i) shares of Parent Common Stock
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issuable upon the exchange of Class A Special Shares, plus (ii) the number
of shares of Parent Common Stock to be issued at Closing to the Shareholders
under this SECTION 1.2(b), shall equal 15,000,000 shares and no more.
(c) SALE OF PARENT CLASS B VOTING PREFERRED STOCK. In exchange for
nominal cash consideration, Parent shall issue to the trustee (THE
"TRUSTEE") under the Exchange and Voting Trust Agreement, one or more shares
of Parent Class B Voting Preferred Stock.
(d) SALE OF YPTI COMMON STOCK. Parent shall purchase from the Company,
free and clear of any and all liens, claims and encumbrances, all shares of
YPTI Common Stock owned by the Company, which shall constitute all of the
outstanding shares of YPTI Common Stock, for an aggregate purchase price
equal to the adjusted cost base of the shares of YPTI, which the parties
hereto agree shall be equal to the fair market value thereof (approximately
$21,000,000 Canadian) (THE "YPTI CONSIDERATION"), payable in cash or in
exchange for a promissory note, with terms, mutually acceptable to the
parties, to be agreed upon prior to closing.
1.3 EFFECTIVE DATE; FAIRNESS OPINION. Despite its execution, no term,
provision, right or obligation under or pursuant to this Restated Agreement
shall be effective, unless and until the later of (a) the execution of this
Restated Agreement; and (b) the receipt by Parent's Board of Directors from its
financial advisors, PaineWebber Incorporated, or such other investment banking
firm selected by Parent's Board of Directors, of a written opinion addressed to
it for inclusion in the Proxy Statement to the effect that the consideration to
be paid, in the aggregate, by the Parent in the transactions contemplated by
this Restated Agreement, the Restated Web YP Agreement, the Restated Big Stuff
Agreement, including the lending by Richard O'Neal and Richard Reid to Web YP
and/or Big Stuff of up to an aggregate of Six Million Dollars ($6,000,000) and
the agreement relating to the redemption of the Great Western Notes, is fair to
Parent from a financial point of view. Unless and until the fairness opinion
referenced in this SECTION 1.3 is received by Parent, the June 3 YPtel Agreement
shall remain in full force and effect, subject to termination of such agreement
in accordance with its terms. Parent shall notify ICL immediately upon receipt
of the fairness opinion referenced in this SECTION 1.3. Immediately upon receipt
of the fairness opinion referenced in this SECTION 1.3 by Parent, this Restated
Agreement shall become effective and the June 3 YPtel Agreement shall terminate.
1.4 CLOSING. Unless this Restated Agreement is earlier terminated pursuant
to ARTICLE VIII, the closing of the transactions contemplated by this Restated
Agreement (THE "CLOSING") will take place three (3) business days after the
conditions set forth in ARTICLE VII are satisfied or waived, at the offices of
Blackwell Sanders Peper Martin LLP, 720 Olive Street, Suite 2400, St. Louis,
Missouri 63101 and is anticipated to be on or before January 31, 2000; PROVIDED,
HOWEVER, that if such conditions are not satisfied or waived by January 31,
2000, the Closing shall be automatically postponed for seven (7) days and will
continue to be postponed for continuous seven (7) day periods until
February 28, 2000, unless another place or time is agreed to in writing by
Parent and the Company. If such conditions are not satisfied or waived by
February 28, 2000, the Closing shall be automatically postponed until March 1,
1999, unless another time is agreed to in writing by Parent and the Company. The
date upon which the Closing actually occurs is herein referred to as the
"CLOSING DATE." At the Closing: (a) the Company shall deliver to Parent the
various certificates, instruments and documents required to be delivered by the
Company pursuant to this Restated Agreement; (b) Parent shall deliver to the
Company the various certificates, instruments and documents required to be
delivered by Parent pursuant to this Restated Agreement; (c) the Company shall
provide to Parent evidence reasonably satisfactory to Parent that the Company
Recapitalization has been completed; (d) the Company shall provide to Parent
evidence reasonably satisfactory to Parent that the YPTI Recapitalization has
been completed and as a part thereof, YPTI has distributed the YPTI Preferred
Stock as a dividend to Company in accordance with SECTION 1.1(e); (e) the
Shareholders shall transfer their shares of Company Common Stock to Newco II in
accordance with SECTION 1.2(b)(i); (f) Newco II shall issue and deliver to the
Shareholders the Class A Special Shares and/or Parent Common Stock in accordance
with SECTION 1.2(b)(ii); (g) Parent
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shall sell to the Trustee the Parent Class B Voting Preferred Stock in
accordance with SECTION 1.2(c); (h) the Trustee shall pay to Parent the
consideration for the Parent Class B Voting Preferred Stock; (i) the Company
shall sell to the Parent the YPTI Common Stock in accordance with
SECTION 1.2(d); (j) Parent shall pay to the Company the YPTI Consideration; and
(k) an election statement, in a form agreed to, shall be signed by the
appropriate parties in accordance with the provisions set forth in section 338
of the Code.
1.5 PARENT NAME CHANGE AND DIRECTORS.
(a) PARENT NAME CHANGE. Parent shall recommend, and submit to its
shareholders entitled to vote thereon, a resolution for their approval to
amend the Certificate of Incorporation of Parent. Such resolution shall
require Parent to change its name to "WorldPages.com, Inc." or a variation
thereof and take all reasonable measures to have such name change become
effective on the Closing Date.
(b) DIRECTORS. Immediately following the Closing Date, the Board of
Directors of the Parent shall be restructured to be composed of eight
(8) members as follows: (i) one director chosen by Parent and one director
chosen by ICL to serve three year terms, (ii) one director chosen by Parent
and one director chosen by ICL and one director to be agreed to by Parent,
ICL and WorldPages to serve two year terms, and (iii) one director chosen by
Parent and one director chosen by ICL and one director to be agreed to by
Parent, ICL and WorldPages to serve one year terms. The Parent currently
intends to nominate Richard O'Neal and two (2) individuals to be named at or
prior to Closing. The directors to be nominated by ICL are currently
anticipated to be Wilmot Matthews, George Anderson and Robert Flynn. In
addition, for a period of one (1) year following the Closing Date, each of
Parent and ICL may designate one party to attend any and all Board of
Directors meetings, as non-voting, non-participating observers only (THE
"OBSERVERS"). Parent shall reimburse the Observers for those expenses
incurred in connection with attending Board of Directors meetings, including
travel expenses, in the same manner and to the same extent that Parent
reimburses its directors for such expenses. The parties hereto expressly
acknowledge and agree that this SECTION 1.5(b) is not intended to, and does
not, except with regard to the initial Board of Directors of Parent
referenced in this SECTION 1.5(b), impose any requirement that the Board of
Directors of Parent be comprised of the individuals listed in this
SECTION 1.5(b) or that any Person has a right to designate a certain
individual or a certain number of individuals as nominees to the Board of
Directors of Parent.
1.6 TAX DEFERRED EXCHANGE. From the date hereof through and including the
Closing Date, neither the Company, nor the Subsidiaries, nor any of the
Shareholders nor any of their respective affiliates, nor Parent, or any of
Parent's subsidiaries or any of their respective affiliates, shall
(i) knowingly take any action, or knowingly fail to take any action, that would
jeopardize qualification of the transactions contemplated by SECTION 1.2(b) of
this Restated Agreement (with respect to the issuance of Class A Special Shares
to residents of Canada holding such shares as capital property) as a tax
deferred transfer pursuant to Subsection 85(1) of Income Tax Act [Canada] SC
1985 [5(th) Supp.] c.1, as amended ("INCOME TAX ACT [CANADA]"), provided a joint
election is filed on a timely basis in prescribed form; or (ii) enter into any
contract, agreement, commitment or arrangement with any such effect. ICL, on
behalf of each Shareholder, and Newco II agree to jointly elect that the
proceeds of the disposition of the Company Common Stock pursuant to this
Restated Agreement shall be the Canadian dollar adjusted cost base of the
transferred shares of Company Common Stock, unless otherwise agreed to by the
transferring Shareholders. Class A Special Shares and/or Parent Common Stock, at
such Shareholder's option, will be issued only to transferring Shareholders who
are resident in Canada for purposes of the Income Tax Act [Canada].
1.7 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Restated Agreement; including but not
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limited to vesting Newco II with full right and title to and possession of the
Company Common Stock; vesting the Shareholders with full right and title to and
possession of the Class A Special Shares and/or Parent Common Stock, vesting the
Trustee with full right and title to and possession of the Parent Class B Voting
Preferred Stock; vesting Parent with full right and title to and possession of
the YPTI Common Stock; and vesting the Company with full right and title to the
YPTI Preferred Stock, subject to the requirements of SECTION 6.8, the parties
hereto will take all such lawful and necessary and/or desirable action so long
as such action is not inconsistent with this Restated Agreement.
1.8 AGGREGATE ISSUABLE PARENT COMMON STOCK. Exclusive of any options
listed on SCHEDULE 6.5(b)(i) attached hereto, the Shareholders, collectively,
shall not have the right to receive more than, nor shall the Parent be obligated
to transfer more than, 15,000,000 shares of Parent Common Stock, in the
aggregate, to the Shareholders, whether at Closing or pursuant to the subsequent
exchange for Parent Common Stock of Class A Special Shares issued to the
Shareholders at the Closing.
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE ICL PRINCIPALS
The Company and the ICL Principals severally and not jointly and severally,
and jointly and severally as between the ICL Principals, represent and warrant
to Parent as follows:
2.1 ORGANIZATION AND GOOD STANDING. Company and each of the Subsidiaries
is a corporation duly organized and validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Company and each of the
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the character of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Company Material
Adverse Effect. SCHEDULE 2.1 sets forth a complete and accurate list of the
jurisdictions of incorporation or organization and qualification or license of
Company and the Subsidiaries. Company has heretofore delivered to Parent
accurate and complete copies of the Certificates or Articles of Incorporation
and Bylaws, or equivalent governing instruments, as currently in effect, of
Company and each of the Subsidiaries.
2.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Company (THE "COMPANY STOCK") consists of an unlimited number of Common Shares,
an unlimited number of Class A Shares, an unlimited number of Class B Shares,
1,841,000 Class C Shares, and an unlimited number of Class D Shares. As of the
date hereof, 13,500,000 shares of Common Stock, no Class A Shares, 100 Class B
Shares, 100 Class D Shares, and no Class C Shares of Company Stock are issued
and outstanding. No other capital stock of Company is issued or outstanding. All
issued and outstanding shares of the Company Stock are duly authorized, validly
issued, fully paid and non-assessable and are issued free of preemptive rights
and in compliance with applicable corporate and securities Laws. Except as set
forth on SCHEDULE 2.2 attached hereto, as of the date of this Restated Agreement
there are no outstanding rights, reservations of shares, subscriptions,
warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the capital stock or any other
security of Company, and there is no authorized or outstanding security of any
kind convertible into or exchangeable for any such capital stock or other
security. There are no restrictions upon the transfer of or otherwise pertaining
to the securities (including, but not limited to, the ability to pay dividends
thereon) or retained earnings of Company and the Subsidiaries or the ownership
thereof other than those, if any, described on SCHEDULE 2.2 attached hereto or
those imposed generally by the Securities Act, the Securities Exchange Act,
applicable state or foreign securities Laws or applicable corporate Law.
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2.3 SUBSIDIARIES. SCHEDULE 2.3(a) attached hereto sets forth the name and
percentages of any outstanding capital stock or other interest held, directly or
indirectly, by Company. Except as set forth on SCHEDULE 2.3(b) attached hereto,
all of the capital stock and other interests so held by Company are owned by it
or a Subsidiary as indicated on said SCHEDULE 2.3(a), free and clear of any
claim, lien, encumbrance, security interest or agreement with respect thereto.
All of the outstanding shares of capital stock in each of the Subsidiaries are
duly authorized, validly issued, fully paid and non-assessable and were issued
free of preemptive rights and in compliance with applicable corporate and
securities Laws. Except as set forth on SCHEDULE 2.3(c) attached hereto, there
are no irrevocable proxies, voting agreements or similar obligations with
respect to such capital stock of the Subsidiaries and no equity securities or
other interests of any of the Subsidiaries are or may become required to be
issued or purchased by reason of any options, warrants, rights to subscribe to,
puts, calls, reservation of shares or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Subsidiary is bound to
issue additional shares of its capital stock, or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable for such shares.
2.4 AUTHORIZATION; BINDING AGREEMENT. Company, the ICL Principals, the
Barbadian Trusts and ICL, as attorney-in-fact for the Shareholders not signing
this Restated Agreement, have all requisite power and authority to execute and
deliver this Restated Agreement and the Company Transaction Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Restated Agreement and the other agreements and documents
referred to herein and to be executed in connection herewith to which Company,
the ICL Principals, the Barbadian Trusts, ICL or any Shareholder is or will be a
party or a signatory (THE "COMPANY TRANSACTION AGREEMENTS") and the consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by Company's Board of Directors, ICL's Board of Directors, and the
trustees of The J.L.R. Family Trust, The Paisley Family Trust and the Barbadian
Trusts and no other corporate or other proceedings on the part of Company, any
Subsidiary, the ICL Principals, ICL or any Shareholder are necessary to
authorize the execution and delivery of this Restated Agreement and the Company
Transaction Agreements or to consummate the transactions contemplated hereby or
thereby, except for the concurrence of the Subordinated Lenders. This Restated
Agreement has been duly and validly executed and delivered by Company, the ICL
Principals, the Barbadian Trusts and ICL, as attorney-in-fact for the
Shareholders not signing this Restated Agreement, and constitutes, and upon
execution and delivery thereof as contemplated by this Restated Agreement, the
Company Transaction Agreements will constitute, the legal, valid and binding
obligations of Company, the ICL Principals and the Shareholders, enforceable
against Company, the ICL Principals and the Shareholders in accordance with its
and their respective terms, except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies (COLLECTIVELY, THE
"ENFORCEABILITY EXCEPTIONS"). The Powers of Attorney are in full force and
effect and ICL has full authority under the Powers of Attorney to execute this
Restated Agreement and the Company Transaction Agreements as attorney-in-fact
for the Shareholders not signing this Restated Agreement, to bind such
Shareholders to the obligations of the Shareholders set forth in this Restated
Agreement and the Company Transaction Agreements, and to transfer the Company
Common Shares of such Shareholders to Newco II as contemplated by this Restated
Agreement.
2.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("CONSENT") any nation or
government, any state, province, or other political subdivision thereof, any
Person, authority or body exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government including,
without limitation, any governmental or regulatory authority, agency,
department, board, commission or instrumentality, any court, tribunal or
arbitrator and any self-regulatory organization ("GOVERNMENTAL AUTHORITY") on
the part of the
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Shareholders, ICL, the ICL Principals, the Company or any of the Subsidiaries is
required in connection with the execution or delivery by the ICL Principals,
ICL, as attorney-in-fact for the Shareholders, or the Company of this Restated
Agreement and the Company Transaction Agreements or the consummation by Company
or the Shareholders of the transactions contemplated hereby or thereby other
than (i) filings with the SEC and state and provincial securities laws
administrators and other filings and/or court orders required under the Canada
Business Corporations Act, (ii) those Consents from or with Governmental
Authorities set forth on SCHEDULE 2.5 attached hereto, (iii) filings under the
HSR Act, (iv) filings with the Committee on Foreign Investment in the United
States for a determination as to whether the transaction contemplated by this
Restated Agreement is permitted under the Exon-Florio Amendment (Section 721) to
the Defense Production Act of 1950 (THE "EXON-FLORIO FILING"), (v) filings under
Investment Canada Act and the Competition Act, (vi) any filings required by the
U.S. Department of Commerce's reporting requirements for foreign investment in
the United States, and (vii) those Consents that, if they were not obtained or
made, do not or would not have a Company Material Adverse Effect.
2.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Company Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Company, ICL, the ICL
Principals and Shareholders with any of the provisions hereof or thereof will
not (i) conflict with or result in any breach of any provision of the
Certificate and/or Articles of Incorporation or Bylaws or other governing
instruments of Company or any of the Subsidiaries or of any provision of the
trust agreements of the Shareholders that are trusts, (ii) except as set forth
on SCHEDULE 2.6 attached hereto, require any Consent under or result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or augment the performance required) under any of the terms,
conditions or provisions of any Company Material Contract or other obligation to
which Shareholders, ICL, Company or any Subsidiary is a party or by which any of
them or any of their properties or assets may be bound, (iii) result in the
creation or imposition of any lien or encumbrance of any kind upon any of the
assets of Company or any Subsidiary, or (iv) subject to obtaining the Consents
from Governmental Authorities referred to in SECTION 2.5 above contravene any
applicable provision of any constitution, treaty, statute, law, code, rule,
regulation, ordinance, policy or order of any Governmental Authority, including
without limitation those Governmental Authorities in the United States and
Canada, or other matters having the force of law including, but not limited to,
any orders, decisions, injunctions, judgments, awards and decrees of or
agreements with any court or other Governmental Authority ("LAW") currently in
effect to which any Shareholder, ICL, the Company or any Subsidiary or its or
any of their respective assets or properties are subject, except in the case of
clauses (ii), (iii) and (iv), above, for any deviations from the foregoing which
do not or would not have a Company Material Adverse Effect.
2.7 LITIGATION. Except as set forth in SCHEDULE 2.7 attached hereto,
(i) the Company represents and warrants to Parent that there is no action, cause
of action, claim, demand, suit, proceeding, citation, summons, subpoena, inquiry
or investigation of any nature, civil, criminal, regulatory or otherwise, in law
or in equity, by or before any court, tribunal, arbitrator, mediator or other
Governmental Authority ("LITIGATION") pending or, to the knowledge of Company,
threatened against the Company, any Subsidiary, or any officer, director,
employee or agent thereof, in his or her capacity as such, or as a fiduciary
with respect to any Benefit Plan of Company, or otherwise relating, in a manner
that could have a Company Material Adverse Effect, to Company, any Subsidiary,
or the securities of any of them, or any properties or rights of Company or any
of the Subsidiaries or that could prevent or delay the consummation of the
transactions contemplated by this Restated Agreement; and (ii) the ICL
Principals represent and warrant to Parent that to the knowledge of the ICL
Principals there is no Litigation pending or threatened against Company, any
Subsidiary, or any officer, director, employee or agent thereof, in his or her
capacity as such, or as a fiduciary with respect to any Benefit Plan of Company,
or otherwise relating, in a manner that could have a Company
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Material Adverse Effect, to the Company, any Subsidiary, or the securities of
any of them, or any properties or rights of Company or any of the Subsidiaries
or that could prevent or delay the consummation of the transactions contemplated
by this Restated Agreement.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 2.8 attached hereto, since November 1, 1998, through the date of this
Restated Agreement, to the knowledge of the ICL Principals, there has not been
any event, occurrence, fact, condition, change, development or effect ("EVENT")
that could reasonably be expected to have a Company Material Adverse Effect.
2.9 FINDERS AND INVESTMENT BANKERS. Neither Company nor any Subsidiary nor
any of its respective officers or directors has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby other than a fee of U.S.
$265,000 payable to ICL by Parent or any direct or indirect subsidiary of Parent
immediately following Closing. There are no other fees due from the Company or
any Subsidiary to ICL and upon Closing neither the Company nor any Subsidiary
will have any further obligations to ICL pursuant to any management agreement or
other similar agreement.
2.10 CONTRACTS. Except as set forth in the PCP Acquisition Agreement or
SCHEDULE 2.10 attached hereto, the Company represents and warrants to Parent,
and the ICL Principals represent and warrant to the Parent that to their
knowledge, neither Company nor any Subsidiary is a party or is subject to any
Company Material Contract. Company has made available to Parent true and
accurate copies of the Company Material Contracts.
2.11 LIABILITIES. From November 1, 1998, through the date of this Restated
Agreement, except as expressly disclosed in SCHEDULE 2.11 or elsewhere is this
Restated Agreement or the Schedules attached hereto, to the knowledge of ICL
Principals, Company does not have any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, whether or not of a kind
required by Canadian generally accepted accounting principles to be set forth in
a financial statement other than those incurred in the ordinary course of
business or in an amount not in excess of U.S. $50,000 individually or U.S.
$100,000 in the aggregate. Except as set forth on SCHEDULE 2.11 attached hereto
or elsewhere in this Restated Agreement or the Schedules, as of the date of this
Restated Agreement, Company is not subject to (i) obligations in respect of
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) to the knowledge of ICL Principals, obligations which
would be required by generally accepted accounting principles to be classified
as "capital leases," (iv) to the knowledge of ICL Principals, obligations to pay
the deferred purchase price of property or services, except trade accounts
payable arising in the ordinary course of business and payable not more than
twelve (12) months from the date of incurrence, and (v) to the knowledge of the
ICL Principals any guaranties of any obligations of any other Person.
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2.12 REAL ESTATE.
(a) Neither the Company nor any of the Subsidiaries owns any real
property.
(b) SCHEDULE 2.12(b) attached hereto sets forth a true, correct and
complete schedule as of the date of this Restated Agreement of all leases,
subleases, easements, rights-of-way, licenses or other agreements entered
into after the PCP Closing Date under which Company or any of the
Subsidiaries uses or occupies, or has the right to use or occupy, now or in
the future, any real property or improvements thereon (THE "COMPANY REAL
PROPERTY LEASES"). Except for the matters listed on said SCHEDULE 2.12(b),
Company or a Subsidiary, as indicated thereon, to the knowledge of the ICL
Principals, holds the leasehold estate under or other interest in each
Company Real Property Lease and each lease for real property that existed on
the PCP Closing Date free and clear of all liens, encumbrances and other
rights of occupancy other than statutory landlords, or mechanics' liens
which have not been executed upon. All of the real property and improvements
occupied by the Company or any Subsidiary under the Company Real Property
Leases and each lease for real property that existed on the PCP Closing Date
are used by the Company as office and graphic design space only.
2.13 CORPORATE RECORDS. The corporate record books of or relating to
Company made available to Parent by Company contain accurate and complete
records of (i) all corporate actions of the stockholders and directors (and
committees thereof) of Company, (ii) the Certificate and/or Articles of
Incorporation, Bylaws and/or other governing instruments, as amended, of
Company, and (iii) the issuance and transfer of stock of Company. Except as set
forth on SCHEDULE 2.13 attached hereto, Company does not have any of its
material records or information recorded, stored, maintained or held off the
premises of Company or at other than its solicitors' offices.
2.14 LABOR MATTERS. The Company has only two employees.
2.15 TAX. Neither the Company nor the ICL Principals know of any fact or
have knowingly taken any action that could be reasonably expected to prevent the
transfer of shares contemplated by SECTION 1.2(b) of this Restated Agreement
(with respect to the issuance of Class A Special Shares to residents of Canada
holding such shares as capital property) from qualifying as a tax deferred
transfer pursuant to Subsection 85(1) of Income Tax Act [Canada]; provided a
joint election is filed on a timely basis in prescribed form.
2.16 PCP ACQUISITION AGREEMENT. Neither Company nor any of the ICL
Principals had any knowledge on the date of the closing (THE "PCP CLOSING DATE")
under the Asset Purchase Agreement by and among the Company, Pacific Coast
Publishing, Inc., a Washington corporation, Leonard Langley ("LANGLEY") and Gary
Calkins ("CALKINS") and Pacific Coast Publishing, Ltd. (formerly PCP
Acquisition Inc.), a Washington corporation (THE "PCP ACQUISITION AGREEMENT") or
has had at any time after the PCP Closing Date or currently has any knowledge
(i) that any of the representations and warranties made by Pacific Coast
Publishing, Inc., Langley and Calkins (COLLECTIVELY, THE "PCP SELLERS") to the
Company and PCP were untrue, inaccurate or incomplete; (ii) that the PCP
Sellers, or any of them, would be unable to fully satisfy any of their
indemnification or other obligations set forth in the PCP Acquisition Agreement;
or (iii) of any Event that would result in a violation or breach of, or
constitute (with or without due notice of lapse of time or both) a default by
Company or any Subsidiary of any of their respective obligations under the PCP
Acquisition Agreement or any of the other agreements entered into in connection
with the acquisition of PCP (THE "PCP TRANSACTION DOCUMENTS") or any other Event
that would allow the PCP Sellers, or any of them, to offset against or otherwise
reduce their respective indemnification obligations under the PCP Acquisition
Agreement. Company and the ICL Principals agree that they will give prompt
written notice to Parent if between the date of this Restated Agreement and the
Closing Date they obtain knowledge of any fact that would make the
representations and warranties set forth in this SECTION 2.16 untrue if they
were made at that time. Neither the Company nor any of the Subsidiaries have
assigned, transferred or otherwise
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conveyed any of their respective rights or entitlements under the PCP
Acquisition Agreement or the PCP Transaction Documents.
2.17 KNOWLEDGE. When a representation or warranty of the ICL Principals
contained in ARTICLE II hereof is qualified (i) by the "knowledge" of such ICL
Principals, or (ii) by a statement that the ICL Principals "have no knowledge"
of factual matters comprising the representation or warranty, or (iii) by a
statement that the ICL Principals are "unaware" of factual matters comprising
the representation or warranty, or (iv) by words of similar import, such
"knowledge qualifiers" mean that each of the ICL Principals has affirmatively
and actively made due inquiry of John Woodall and Jay Cramer or any of their
respective replacements and that none of the ICL Principals has learned of any
information, fact or event that would make the representation or warranty of the
ICL Principal untrue, inaccurate, incorrect or incomplete. Knowledge possessed
by or otherwise obtained by any one ICL Principal after due inquiry as provided
herein with respect to a representation or warranty qualified by "knowledge"
shall be deemed to be known by, or learned of by all of the ICL Principals.
ARTICLE III--REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent represents and warrants to the Company and the Shareholders as
follows:
3.1 ORGANIZATION AND GOOD STANDING. Parent is a corporation duly organized
and validly existing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Active Parent
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate, power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so duly organized, validly existing and in good standing or to
have such power and authority would not have a Parent Material Adverse Effect.
Parent and each of the Active Parent Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the character
of the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a Parent Material Adverse Effect. Parent has heretofore made available to
Company accurate and complete copies of the Certificates or Articles of
Incorporation and Bylaws, or equivalent governing instruments, as currently in
effect, of Parent and each of the Active Parent Subsidiaries.
3.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Parent consists of 180,000,000 shares of common stock of Parent, par value
$0.0001 per share ("PARENT COMMON STOCK") and 20,000,000 shares of preferred
stock, par value $0.0001. As of the opening of business on the date of this
Restated Agreement, (a) 20,083,953 shares of Parent Common Stock were
outstanding, (b) no shares of the Parent preferred stock were issued and
outstanding and (c) 163,307 shares of Parent Common Stock were held as treasury
shares. No other capital stock of Parent is issued or outstanding. All issued
and outstanding shares of the Parent Common Stock are duly authorized, validly
issued, fully paid and non-assessable and were issued free of preemptive rights
and in compliance with applicable corporate and securities Laws. Except as set
forth on SCHEDULE 3.2 attached hereto, as of the date of this Restated Agreement
there are no outstanding rights, reservations of shares, subscriptions,
warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the capital stock or any other
security of Parent, and there is no authorized or outstanding security of any
kind convertible into or exchangeable for any such capital stock or other
security. There are no restrictions upon the transfer of or otherwise pertaining
to the securities (including, but not limited to, the ability to pay dividends
thereon) or retained earnings of Parent and the Active Parent Subsidiaries or
the ownership thereof other than those pursuant to the Parent Guaranty or the
Great Western
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Credit Agreement or those imposed generally by the Securities Act, the
Securities Exchange Act, applicable state or foreign securities Laws or
applicable corporate Law.
3.3. SUBSIDIARIES. Except as set forth on SCHEDULE 3.3, all of the capital
stock and other interests of the Active Parent Subsidiaries held by Parent are
owned by it or a Parent subsidiary, free and clear of any claim, lien,
encumbrance, security interest or agreement with respect thereto. All of the
outstanding shares of capital stock in each of the Active Parent Subsidiaries
held directly or indirectly by Parent are duly authorized, validly issued, fully
paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable corporate and securities Laws. Except as set forth on
SCHEDULE 3.3 attached hereto, there are no irrevocable proxies, voting
agreements or similar obligations with respect to such capital stock of the
Active Parent Subsidiaries and no equity securities or other interests of any of
the Active Parent Subsidiaries are or may become required to be issued or
purchased by reason of any obligations, options, warrants, rights to subscribe
to puts, calls, reservation of shares or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any Active Parent Subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any Active
Parent Subsidiary is bound to issue additional shares of its capital stock, or
options, warrants or rights to purchase or acquire any additional shares of its
capital stock or securities convertible into or exchangeable for such shares.
3.4 AUTHORIZATION; BINDING AGREEMENT. Parent has all requisite corporate
power and authority to execute and deliver this Restated Agreement and the
Parent Transaction Agreements and to consummate the transactions contemplated
hereby. The execution and delivery of this Restated Agreement and the other
agreements and documents referred to herein and to be executed in connection
herewith to which Parent is or will be a party or a signatory (THE "PARENT
TRANSACTION AGREEMENTS") and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of Parent and except for the approval of the holders of the Parent
Common Stock, no other corporate proceedings on the part of Parent are necessary
to consummate the transactions contemplated hereby or thereby except for the
concurrence of Bank of America National Trust and Savings Association under the
Great Western Credit Agreement. This Restated Agreement has been duly and
validly executed and delivered by Parent and constitutes, and upon execution and
delivery thereof as contemplated by this Restated Agreement, the Parent
Transaction Agreements will constitute, the legal, valid and binding obligations
of Parent, enforceable against Parent in accordance with its and their
respective terms, subject to the Enforceability Exceptions.
3.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of Parent or any of the Active Parent Subsidiaries, is
required in connection with the execution or delivery by Parent of this Restated
Agreement and the Parent Transaction Agreements or the consummation by Parent of
the transactions contemplated hereby or thereby other than (i) filings with the
SEC, state securities laws administrators and the NYSE, (ii) those Consents from
or with Governmental Authorities set forth on SCHEDULE 3.5 hereto, (iii) the
Exon-Florio Filings, filings under the HSR Act, filings with the Ontario
Securities Commission and those required under the Canada Business Corporations
Act, the Investment Canada Act and the Competition Act, (iv) any filings
required by the U.S. Department of Commerce's reporting requirements for foreign
investment in the United States; and (v) those Consents that, if they were not
obtained or made, do not or would not have a Parent Material Adverse Effect.
3.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Parent Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Parent with any of the
provisions hereof or thereof will not (i) conflict with or result in any breach
of any provision of the Certificate and/or Articles of Incorporation or Bylaws
or other governing instruments of Parent or any of the Active Parent
Subsidiaries, except as set forth on
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SCHEDULE 3.6, (ii) require any Consent under or result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or augment the performance required) under any of the terms, conditions or
provisions of any Parent Material Contract or other obligation to which Parent
or any Parent subsidiary, is a party or by which any of them or any of their
properties or assets may be bound, except for compliance with the requirements
under that certain Guaranty of Parent (THE "PARENT GUARANTY") given pursuant to
the Loan Agreement dated as of May 14, 1999 by and among Great Western
Directories, Inc., the Lenders signatories thereto, and Bank of America National
Trust and Savings Association as Administrative Agent (THE "GREAT WESTERN CREDIT
AGREEMENT"), (iii) result in the creation or imposition of any lien or
encumbrance of any kind upon any of the assets of Parent or any Parent
Subsidiary, or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in SECTION 3.5 above, contravene any Law currently in
effect to which Parent or any Parent subsidiary or its or any of their
respective assets or properties are subject, except in the case of clauses (ii),
(iii) and (iv) above, for any deviations from the foregoing which do not or
would not have a Parent Material Adverse Effect.
3.7 SECURITIES FILINGS AND LITIGATION. Parent has made available to
Company true and complete copies of (i) its Annual Reports on Form 10-K, as
amended, for the years ended December 31, 1997 and 1998, as filed with the SEC,
(ii) its proxy statement relating to the meeting of shareholders held on
July 29, 1998, as filed with the SEC, and (iii) all other reports, statements
and registration statements and amendments thereto (including, without
limitation, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by Parent with the SEC since February 18, 1998. The reports and
statements set forth in clauses (i) through (iii), above, and those subsequently
provided or required to be provided pursuant to this section, are referred to
collectively as the "PARENT SECURITIES FILINGS." As of their respective dates,
or as of the date of the last amendment thereof, if amended after filing, none
of the Parent Securities Filings (including all schedules thereto and disclosure
documents incorporated by reference therein), contained or, as to Parent
Securities Filings subsequent to the date hereof, will contain any untrue
statement of a material fact or omitted or, as to Parent Securities Filings
subsequent to the date hereof, will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the Parent
Securities Filings at the time of filing or as of the date of the last amendment
thereof, if amended after filing, complied or, as to Parent Securities Filings
subsequent to the date hereof, will comply in all material respects with the
Securities Exchange Act or the Securities Act, as applicable. Except as set
forth in SCHEDULE 3.7, there is no Litigation pending or, to the knowledge of
Parent, threatened against Parent or any Parent subsidiary, any officer,
director, employee or agent thereof, in his or her capacity as such, or as a
fiduciary with respect to any Benefit Plan of Parent, or otherwise relating, in
a manner that could have a Parent Material Adverse Effect, to Parent, any Parent
subsidiary or the securities of any of them, or any properties or rights of
Parent or any of the Parent subsidiaries that could prevent or delay the
consummation of the transactions contemplated by this Restated Agreement. No
event has occurred as a consequence of which Parent would be required to file a
Current Report on Form 8-K pursuant to the requirements of the Securities
Exchange Act as to which such a report has not been timely filed with the SEC.
Any reports, statements and registration statements and amendments thereof
(including, without limitation, Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as amended) filed by Parent with the
SEC after the date hereof shall be provided to Company upon such filing.
3.8 PARENT FINANCIAL STATEMENTS. The audited consolidated and unaudited
interim financial statements of Parent and the Parent subsidiaries included in
the Parent Securities Filings (THE "PARENT FINANCIAL STATEMENTS")have been made
available to Company. Except as noted thereon, the Parent Financial Statements
were prepared in accordance with generally accepted accounting principles
applicable to the business of Parent and the Parent subsidiaries consistently
applied in accordance with past accounting practices and fairly present
(including, but not limited to, the inclusion of all
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adjustments with respect to interim periods which are necessary to present
fairly the financial condition and assets and liabilities or the results of
operations of Parent and the Parent subsidiaries, subject to normal year-end
adjustments in the ordinary course with respect to certain items immaterial in
amount or effect and the exclusion of footnote disclosure in interim Parent
Financial Statements) the financial condition and assets and liabilities or the
results of operations of Parent and the Parent subsidiaries as of the dates and
for the periods indicated. Except as set forth in SCHEDULE 3.8 or as reflected
in the Parent Financial Statements, as of their respective dates, neither Parent
nor any Parent subsidiary had any debts, obligations, guaranties of obligations
of others or liabilities (contingent or otherwise) that would be required in
accordance with generally accepted accounting principles to be disclosed in the
Parent Financial Statements.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Parent Securities Filings made available by Parent to Company prior to the date
of this Restated Agreement or in SCHEDULE 3.9 attached hereto, since June 30,
1999, through the date of this Restated Agreement, there has not been: (i) any
Event that could reasonably be expected to have a Parent Material Adverse
Effect; or (ii) any agreement by Parent to take any action that would result in
a breach of SECTION 6.5 below.
3.10 COMPLIANCE WITH LAWS. The business of Parent and the Parent
subsidiaries, has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which do not and would not have a
Parent Material Adverse Effect.
3.11 PERMITS. (i) Parent and the Parent subsidiaries have all permits,
certificates, licenses, approvals, tariffs and other authorizations required in
connection with the operation of their business (COLLECTIVELY, "PARENT
PERMITS"), (ii) neither Parent nor any Parent Subsidiary is in violation of any
Parent Permit, and (iii) no proceedings are pending or, to the knowledge of
Parent, threatened, to revoke or limit any Parent Permit, except, in the case of
clause (i) or (ii) above, those the absence or violation of which do not and
would not have a Parent Material Adverse Effect.
3.12 FINDERS AND INVESTMENT BANKERS. Neither Parent nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby, except that PaineWebber Incorporated
has been engaged to deliver the fairness opinion required to be delivered
pursuant to SECTION 1.3 and NationsBanc Montgomery Securities, L.L.C. has been
engaged to assist in the sale(s) of the CLEC Operations and a copy of the
engagement letters and other related documents have been furnished to the
Company.
3.13 CONTRACTS. Except as set forth in SCHEDULE 3.13, neither Parent nor
any Parent subsidiary is a party to any material note, bond, mortgage,
indenture, contract, lease, license, agreement, understanding, instrument, bid
or proposal ("PARENT MATERIAL CONTRACT"). Parent has made available to Company
true and accurate copies of the Parent Material Contracts. All such Parent
Material Contracts are valid and binding and are in full force and effect and
enforceable in accordance with their respective terms, subject to the
Enforceability Exceptions.
3.14 CORPORATE RECORDS. The respective corporate record books of or
relating to Parent and each of the Active Parent Subsidiaries made available to
Company by Parent contain accurate and complete records of (i) all corporate
actions of the respective shareholders and directors (and committees thereof) of
Parent and the Active Parent Subsidiaries, (ii) the Certificate and/or Articles
of Incorporation, Bylaws and/or other governing instruments, as amended, of
Parent and the Active Parent Subsidiaries, and (iii) the issuance and transfer
of stock of Parent and the Active Parent Subsidiaries.
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ARTICLE IV--ADDITIONAL COVENANTS OF THE COMPANY AND THE ICL PRINCIPALS
The Company and the ICL Principals severally and not jointly, and severally
and not jointly and severally as between the ICL Principals, covenant and agree
as follows:
4.1 NOTIFICATION OF CERTAIN MATTERS. The Company and the ICL Principals
shall give prompt notice to Parent if any of the following occur from the date
of this Restated Agreement through the Closing Date: (i) receipt of any notice
of, or other communication relating to, a default or Event which, with notice or
lapse of time or both, would become a default under any Company Material
Contract; (ii) receipt of any notice or other communication from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Restated Agreement;
(iii) receipt of any material notice or other communication from any
Governmental Authority in connection with the transactions contemplated by this
Restated Agreement; (iv) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of an Event which would have a
Company Material Adverse Effect; (v) receipt of any notice of or other
communication regarding or otherwise obtaining knowledge of the commencement or
threat of any Litigation involving or affecting any Shareholder that might
adversely impact the transactions contemplated by this Restated Agreement, the
Company or any Subsidiary, or any of their respective properties or assets, or,
to its knowledge, any employee, agent, director or officer of the Company or any
Subsidiary, in his or her capacity as such or as a fiduciary under a Benefit
Plan of the Company, which, if pending on the date hereof, would have been
required to have been disclosed pursuant to SECTION 2.7, and (vi) receipt of any
notice of or other communication regarding or otherwise obtaining knowledge of
any Event that would cause a breach by the Company, a Subsidiary, or any
Shareholder of any provision of this Restated Agreement or a Company Transaction
Agreement, including such a breach that would occur if such event had taken
place on or prior to the date of this Restated Agreement.
4.2 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, the Company and the Subsidiaries, upon reasonable notice,
will give, and shall direct its accountants and legal counsel to give, Parent,
its lenders and their respective authorized representatives (including, without
limitation, financial advisors, accountants and legal counsel) at all reasonable
times access to all offices and other facilities and to all contracts,
agreements, commitments, books and records (including, but not limited to, Tax
returns) of or pertaining to the Company and the Subsidiaries, will permit the
foregoing to make such inspections as they may require and will cause its
officers promptly to furnish Parent with (a) such financial and operating data
and other information with respect to the business and properties of the Company
and Subsidiaries as Parent may from time to time reasonably request including,
but not limited to, data and information required for inclusion in Parent's
pending registration statements and/or other Parent Securities Filings, and
(b) a copy of each material report, schedule and other document filed or
received by the Company or any Subsidiary pursuant to the requirements of
applicable securities Laws. The Company further agrees to permit an independent
accounting firm selected by Parent to either prepare or review the separate
company and consolidated corporate income tax returns and supporting schedules
for U.S., Canadian and state income tax purposes of the Company and the
Subsidiaries for fiscal year beginning November 1, 1998 and ending on the
earlier of October 31, 1999 or the date the Company is acquired, provided that
all of the costs and expenses of such services are paid by the Parent. The
foregoing access will be subject to government security restrictions and
restrictions contained in confidentiality agreements to which the Company is
subject and of which Parent has been advised prior to the date of this Restated
Agreement; provided that the Company shall use its reasonable best efforts to
obtain waivers of such restrictions.
4.3 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, the Company and ICL on behalf of the Shareholders agree to use their
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable to
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consummate and make effective as promptly as practicable, but in any event,
prior to the Closing, the transactions contemplated by this Restated Agreement
and the Company Transaction Agreements including, but not limited to
(i) obtaining the Consent of others to this Restated Agreement, the Company
Transaction Agreements and the transactions contemplated hereby and thereby,
(ii) the defending of any Litigation against the Company, ICL, any Subsidiary,
or any Shareholder challenging this Restated Agreement, the Transaction
Agreements or the consummation of the transactions contemplated hereby or
thereby, (iii) obtaining all Consents from Governmental Authorities required for
the consummation of the transactions contemplated hereby, (iv) timely making all
necessary filings under the HSR Act, and (v) timely making the Exon-Florio
Filings and any filings required under the laws of Nova Scotia, and the
Investment Canada Act and by the U.S. Department of Commerce's reporting
requirements for foreign investments in the United States. Upon the terms and
subject to the conditions hereof, the Company and ICL on behalf of the
Shareholders agree to use their reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary to
satisfy the other conditions of the Closing set forth herein. The Company and
ICL on behalf of the Shareholders will consult with counsel for Parent as to,
and will permit such counsel to participate in, at Parent's expense, any
Litigation referred to in clause (ii) above brought against or involving the
Company, any Subsidiary or any Shareholder.
4.4 COMPLIANCE. In consummating the transactions contemplated hereby, the
Company and ICL on behalf of the Shareholders shall comply in all material
respects with the provisions of the Securities Exchange Act and the Securities
Act and shall comply, and/or cause the Subsidiaries to comply or to be in
compliance, in all material respects, with all other applicable Laws.
4.5 BENEFIT PLANS. Between the date of this Restated Agreement and through
the Closing Date, no discretionary award or grant under any Benefit Plan of the
Company or a Subsidiary shall be made without the consent of Parent; nor shall
the Company or a Subsidiary take any action or permit any action to be taken to
accelerate the vesting of any warrants or options previously granted pursuant to
any such Benefit Plan. Neither the Company nor any Subsidiary shall make any
amendment to any Benefit Plan, any awards thereunder or the terms of any
security convertible into or exchangeable for capital stock without the consent
of Parent. Parent acknowledges the granting of the options listed on
SCHEDULE 6.5(b)(i).
4.6 TAX OPINION CERTIFICATION. Prior to the Closing Date, the Company and
the Shareholders shall provide tax counsel rendering an opinion under
SECTION 7.1(l) with a certificate concerning such factual matters as such
counsel identifies are relevant to its opinion.
4.7 SHAREHOLDERS AGREEMENT AND VOTING TRUST AGREEMENTS. The Company and
ICL on behalf of the Shareholders shall cause all voting trust agreements
between the Shareholders, ICL and the Company and any powers of attorney or
other agreements relating to the voting or disposition of the capital stock of
the Company (COLLECTIVELY, "THE VOTING TRUST AGREEMENTS") and the Unanimous
Shareholders Agreement to be cancelled as of the Closing Date.
4.8 TRANSFER RESTRICTIONS. In addition to any other restrictions imposed
by Law on the Shareholders' ability to transfer any Class A Special Shares or
Parent Common Stock received by the Shareholders pursuant to this Restated
Agreement and the Exchange and Voting Trust Agreement, each Shareholder agrees
that, with respect to Class A Special Shares, the restrictions on transfer set
forth in the Exchange and Voting Trust Agreement shall apply.
4.9 SUBORDINATED LOAN AGREEMENT. The Company shall cause PCP to satisfy
all of its obligations under the Subordinated Loan Agreement dated as of
November 1, 1998 (THE "SUBORDINATED LOAN AGREEMENT") by and among PCP (f/k/a PCP
Acquisition, Inc.), the lenders which are parties thereto (THE "SUBORDINATED
LENDERS") and Canterbury Mezzanine Capital, L.P., as agent, including, without
limitation, the repayment in full of the Loans (as defined in the Subordinated
Loan Agreement) and all interest accrued thereon.
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The Company shall use its reasonable best efforts to cause the Subordinated
Lenders to exercise the warrants evidenced by the Warrant Certificates (as
defined in the Subordinated Loan Agreement) and to convert the Company Class B
stock issued to the Subordinated Lenders thereunder into Company Common Stock.
4.10 CONDUCT OF BUSINESS OF COMPANY AND THE SUBSIDIARIES. The Company
covenants, represents and warrants that from the date of this Restated Agreement
through the Closing Date, unless the Parent shall otherwise expressly consent in
writing, the Company shall, and the Company shall cause each Subsidiary to, use
its or their reasonable best efforts to comply in all material respects with all
Laws applicable to it or any of its properties, assets or business and maintain
in full force and effect all authorizations and permits necessary for, or
otherwise material to, such business.
ARTICLE V--ADDITIONAL COVENANTS OF PARENT
Parent covenants and agrees as follows:
5.1 CONDUCT OF BUSINESS OF PARENT AND THE ACTIVE PARENT
SUBSIDIARIES. Parent covenants, represents and warrants that from the date of
this Restated Agreement through the Closing Date, unless the Company shall
otherwise expressly consent in writing, Parent shall, and Parent shall cause
each Active Parent Subsidiary to, use its or their reasonable best efforts to
comply in all material respects with all Laws applicable to it or any of its
properties, assets or business and maintain in full force and effect all the
Parent Authorizations necessary for, or otherwise material to, such business.
5.2 NOTIFICATION OF CERTAIN MATTERS. Parent shall give prompt notice to
the Company if any of the following occur from the date of this Restated
Agreement through the Closing Date: (i) any notice of, or other communication
relating to, a default or Event which, with notice or lapse of time or both,
would become a default under any Parent Material Contract which could have a
Parent Material Adverse Effect; (ii) receipt of any notice or other
communication from any third party alleging that the Consent of such third party
is or may be required in connection with the transactions contemplated by this
Restated Agreement; (iii) receipt of any material notice or other communication
from any regulatory authority (including, but not limited to, the NYSE or any
other securities exchange) in connection with the transactions contemplated by
this Restated Agreement; (iv) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of an Event which would have a Parent
Material Adverse Effect; (v) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of the commencement or threat of
which Parent has knowledge of any Litigation involving or affecting Parent or
any Parent subsidiary or any of their respective properties or assets, or, to
its knowledge, any employee, agent, director or officer, in his or her capacity
as such, of Parent or any Parent subsidiary which, if pending on the date
hereof, would have been required to have been disclosed pursuant to
SECTION 3.7; (vi) receipt of any notice of or other communication regarding or
otherwise obtaining knowledge of any Event that could cause a breach by Parent
of any provision of this Restated Agreement or a Parent Transaction Agreement,
including such a breach that could occur if such Event had taken place on or
prior to the date of this Restated Agreement; and (vii) amendment, modification
or waiver of any provision of the Ionex Agreement referenced on SCHEDULE 3.7
hereto.
5.3 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, Parent (i) will, upon reasonable notice, give the Company
and its authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel) at all reasonable times access as
reasonably requested to the offices and other facilities and to all material
contracts, agreements, commitments, books and records (including, but not
limited to, Tax returns) of or pertaining to Parent and the Active Parent
Subsidiaries; (ii) will permit the Company to make such reasonable inspections
as it may require; and (iii) will cause its officers promptly to furnish the
Company with (a) such financial and operating data and other information with
respect to the business and properties of
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Parent and the Active Parent Subsidiaries as the Company may from time to time
reasonably request, and (b) a copy of each material report, schedule and other
document filed or received by Parent or any Active Parent Subsidiary pursuant to
the requirements of applicable securities Laws, the NYSE or other securities
exchange, in each case as necessary in connection with the transactions
contemplated hereby. The foregoing access will be subject to restrictions
contained in SECTION 6.7 hereof.
5.4 COMPLIANCE. In consummating the transactions contemplated hereby,
Parent shall comply in all material respects with the provisions of the
Securities Exchange Act and the Securities Act and shall comply, and/or cause
the Active Parent Subsidiaries to comply or to be in compliance, in all material
respects, with all other applicable Laws.
5.5 SEC AND SHAREHOLDER FILINGS. Parent shall send to the Company a copy
of all material public reports and materials as and when it sends the same to
its shareholders, the SEC, the NYSE or any other securities commission or
exchange.
5.6 TAX TREATMENT. Prior to the Closing Date, Parent shall provide tax
counsel rendering an opinion under Subsection 7.1(l) with a certificate
concerning such factual matters as such counsel identifies are relevant to its
opinion.
5.7 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Parent agrees to use its reasonable best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable,
but in any event, prior to the Closing, the transactions contemplated by this
Restated Agreement and the Parent Transaction Agreements including, but not
limited to (i) obtaining the Consent of others to this Restated Agreement, the
Parent Transaction Agreements and the transactions contemplated hereby and
thereby, (ii) the defending of any Litigation against the Parent or any Parent
subsidiary, or any Shareholder challenging this Restated Agreement, the Parent
Transaction Agreements or the consummation of the transactions contemplated
hereby or thereby, (iii) obtaining all Consents from Governmental Authorities
required for the consummation of the transactions contemplated hereby,
(iv) timely making all necessary filings under the HSR Act, and (v) timely
making the Exon-Florio Filings and any filings required under the laws of Nova
Scotia, the Investment Canada Act and by the U.S. Department of Commerce's
reporting requirements for foreign investments in the United States. Upon the
terms and subject to the conditions hereof, Parent agrees to use its reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary to satisfy the other conditions of the Closing set
forth herein. Parent will consult with counsel for Company as to, and will
permit such counsel to participate in, at the Company's expense, any Litigation
referred to in clause (ii) above brought against or involving Parent or any
Parent subsidiary.
5.8 EMPLOYEE BENEFIT PLANS. After the Closing Date, Parent shall arrange
for each employee participating in the Benefit Plan of the Company and the
Subsidiaries at such time to participate in any counterpart Benefit Plans of
Parent in accordance with the eligibility criteria thereof, provided that
(i) such participants shall receive full credit for years of service with the
Company or any of the Subsidiaries prior to the transactions contemplated by
this Restated Agreement for all purposes for which such service was recognized
under the Benefit Plan of the Company and the Subsidiaries including, but not
limited to, recognition of service for eligibility, vesting, and, to the extent
not duplicative of benefits received under such Benefit Plan of the Company and
the Subsidiaries, the amount of benefits, and (ii) such participants shall
participate in the Benefit Plans of Parent on terms no less favorable than those
offered by Parent to similarly situated employees of Parent. Notwithstanding the
foregoing, Parent may continue one or more of the Benefit Plans of the Company
and the Subsidiaries, in which case Parent shall have satisfied its obligations
hereunder with respect to the benefits so provided.
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5.9 EXPENSES. The fees and expenses incurred in connection with the
transactions contemplated by this Restated Agreement shall be paid by the party
or parties set forth below at the time and subject to the satisfaction of the
conditions set forth below:
(a) If this Restated Agreement becomes effective pursuant to
SECTION 1.3 hereof, Parent shall pay, at such time as this Restated
Agreement becomes effective pursuant to SECTION 1.3, to ICL $75,000, which
amount shall represent reimbursement of ICL for services provided to Parent
by Edward Truant. The parties hereto agree that Parent shall have no payment
obligation with regard to the study of and report on Big Stuff prepared by
Ernst & Young LLP.
(b) If the transactions contemplated by this Restated Agreement are
consummated, at Closing Parent shall: (i) pay ICL a fee of $265,000;
(ii) upon receipt by Parent of an invoice or other similar documentation,
reimburse ICL for all other fees and expenses incurred by a party to this
Restated Agreement or a stockholder of any such party in connection with the
negotiation and effectuation of the terms and conditions of this Restated
Agreement and the June 3 YPtel Agreement and the transactions contemplated
hereby, including but not limited to all legal, accounting, financial
advisory and consulting fees, except for those previously paid pursuant to
SECTION 5.9(a) hereof; and (iii) upon receipt by Parent of an invoice or
other similar documentation, reimburse ICL for expenses incurred by ICL
relating to the renegotiation of the Company's and the Subsidiaries'
outstanding debt. The fees and expenses described in this SECTION 5.9(b) are
referred to collectively hereinafter as the "TRANSACTION FEES AND EXPENSES".
If the transactions contemplated by this Restated Agreement are not
consummated, all Transaction Fees and Expenses shall be and remain the
obligation of the respective parties that incurred them.
5.10 INDEMNIFICATION AND INSURANCE.
(a) Subject to SECTION 9.1(b), Parent shall cause the Company, to the
full extent required under the Company's Articles of Incorporation or Bylaws
in effect on the date of this Restated Agreement, to indemnify and hold
harmless each present and former director, officer, employee or agent of the
Company and the Subsidiaries (COLLECTIVELY, THE "INDEMNIFIED PARTIES") with
respect to matters occurring through the Closing Date, for a period of three
(3) years after the Closing Date.
(b) For a period of three (3) years after the Closing Date and to the
extent available, Parent shall cause the Company to maintain in effect
directors' and officers' liability insurance covering those Persons who are
currently covered by the Company's directors and officers' liability
insurance policy on terms (including the amounts of coverage and the amounts
of deductibles, if any) that are no less favorable to them in any material
respect than the terms now applicable to them under the Company's current
insurance policies.
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT,
THE COMPANY AND THE SHAREHOLDERS
6.1 REGISTRATION OF SECURITIES.
(a) On or before the Closing Date, the Parent shall use its reasonable
best efforts to cause the following securities to be registered with the SEC
under the Securities Act and with the appropriate Governmental Authorities
under state blue sky Laws:
(i) the 15,000,000 shares of Parent Common Stock to be transferred to
the Shareholders, whether at Closing or pursuant to the subsequent
exchange of the Class A Special Shares; and
(ii) the 75,000 warrants to purchase 75,000 shares of Parent Common
Stock to be granted to the current directors and/or officers of the
Company as listed on SCHEDULE 6.5(b)(i) hereof; and
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(iii) the 75,000 shares of Parent Common Stock issuable upon the exercise
of the 75,000 warrants referenced in SECTION 6.1(a)(ii) above.
(b) On or before the Closing Date, the Parent shall use its reasonable
best efforts to cause the following securities to be registered with the
appropriate Governmental Authorities or exempted from the registration and
prospectus requirements under the Canadian and provincial securities Laws
and the rules and regulations thereunder:
(i) Class A Special Shares;
(ii) Parent Common Stock transferable to the Shareholders by Newco II
pursuant to SECTION 1.2(b)(ii) hereof upon exchange by such
Shareholder of Company Common Stock; and
(iii) Parent Common Stock transferable to the Shareholders by Newco II
pursuant to SECTION 1.2(b)(ii) hereof upon exchange by such
Shareholder of the Class A Special Shares.
(c) As soon as reasonably practicable after the Closing Date, the Parent
shall use its reasonable best efforts to cause the following securities to
be registered with the SEC under the Securities Act and with the appropriate
Governmental Authorities under state blue sky Laws and where applicable, the
Canadian federal and provincial securities Laws and the rules and
regulations thereunder:
(i) the 186,281 warrants to purchase 186,281 shares of Parent Common
Stock to be granted to the current directors of the Company as
listed on SCHEDULE 6.5(b)(i) attached hereto;
(ii) the 186,281 shares of Parent Common Stock issuable upon the
exercise of the 186,281 warrants referenced in SECTION 6.1(c)(i)
above;
(iii) the 90,000 warrants to purchase 90,000 shares of Parent Common
Stock granted to the certain current or former non-employee
directors of the Parent pursuant to SECTION 6.9(ii) hereof; and
(iv) the 90,000 shares of Parent Common Stock issuable upon the exercise
of the 90,000 warrants referenced in SECTION 6.1(c)(iii) above.
(d) The registration statements referenced in SECTIONS 6.1(a)-(c) hereof
are hereinafter referred to collectively as the "REGISTRATION STATEMENTS."
(e) The Registration Statements shall state, if permitted on the
applicable registration statement form, that such Registration Statement
also registers such indeterminate number of additional shares of Parent
Common Stock as may become issuable to prevent dilution resulting from stock
splits, stock dividends or similar transactions with regard to Parent Common
Stock or Class A Special Shares.
(f) The Parent shall promptly prepare and file such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus(es) used in connection with the Registration
Statements, as may be necessary to keep the Registration Statements
effective at all times during the periods the Class A Special Shares are
exchangeable and the warrants and options referenced in SECTIONS
6.1(a)(iii), 6.1(b)(iii), 6.1(c)(ii) and 6.1(c)(iv) are exercisable. The
Parent shall use its reasonable best efforts to cause such amendment and/or
new registration statements to become effective as soon as practicable
following the filing thereof.
(g)
(i) On or before the Closing Date, Parent shall cause all Parent
Common Stock issuable upon the exercise of the warrants referenced in
SECTION 6.1(a)(ii) to be listed on each securities exchange on which the
Parent Common Stock is then listed for trading.
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(ii) As soon as reasonably practicable after the Closing Date, Parent
shall use its reasonable best efforts to cause all Parent Common Stock
issuable upon the exercise of the warrants referenced in Sections and
6.1(c)(iii) to be listed on each securities exchange on which the Parent
Common Stock is then listed for trading.
6.2 LEGAL REQUIREMENTS. Subject to the terms and conditions provided in
this Restated Agreement, each of the parties hereto shall use its reasonable
best efforts to take promptly, or cause to be taken, all reasonable actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable Laws to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals,
and to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Restated
Agreement for the purpose of securing for the parties hereto the benefits
contemplated by this Restated Agreement.
6.3 EXCHANGE AND VOTING TRUST AGREEMENT. At the Closing, Parent, Newco I,
Newco II, a trustee mutually satisfactory to Parent and Company, and those
Shareholders who will become the holders of all the Class A Special Shares on
the Closing Date (by ICL, as attorney-in-fact for certain Shareholders plus The
J.L.R. Family Trust and The Paisley Family Trust) shall enter into an Exchange
and Voting Trust Agreement substantially in the form of EXHIBIT C attached
hereto and which sets forth the agreement of the parties thereto with respect to
the procedures for voting the Parent Class B Voting Preferred Stock and the
exchange of the Class A Special Shares for Parent Common Stock (THE "EXCHANGE
AND VOTING TRUST AGREEMENT").
6.4 PUBLIC ANNOUNCEMENTS. All press releases and other disseminations of
information to employees, customers or suppliers relating to the transactions
contemplated by this Restated Agreement by any party hereto shall require the
prior approval of Parent and the Company, provided Parent shall have the right
to make such public announcements without the approval of the other parties
hereto should such disclosure be required by Law or the policies or requirements
of Canadian or United States securities regulators, stock exchanges, or other
relevant entities in the opinion of Parent's legal counsel. Should such
disclosure be required, Parent agrees to provide the others with reasonable
advance notice of and a copy of the proposed disclosure.
6.5 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. Except as expressly
contemplated by this Restated Agreement, during the period from the date of this
Restated Agreement to the Closing Date, the Company shall conduct, and it shall
cause the Subsidiaries to conduct, its or their businesses in the ordinary
course and consistent with past practice, subject to the limitations contained
in this Restated Agreement, and the Company shall, and it shall cause the
Subsidiaries to, use its or their reasonable best efforts to preserve intact its
business organization, to keep available the services of its officers, agents
and employees and to maintain satisfactory relationships with all Persons with
whom it does business. Except as expressly contemplated by this Restated
Agreement, and it being acknowledged and agreed by each of the parties to this
Restated Agreement that Parent is in the process of a substantial reduction in
workforce, and, subject to the sale of the CLEC Operations, Parent shall, and it
shall cause the Active Parent Subsidiaries to, use its or their reasonable best
efforts to preserve intact its business organization, consistent with the budget
adopted by the Executive Committee of the Board of Directors of Parent, to keep
available the services of only those officers, agents and employees whom Parent
believes are required to maintain satisfactory relationships with all Persons
with whom it does business. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in this Restated Agreement, after the
date of this Restated Agreement and prior to the Closing Date, (i) neither the
Company nor any Subsidiary will, without the prior written consent of Parent;
and
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(ii) subject to the sale of the CLEC Operations, neither Parent nor any Active
Parent Subsidiary will, without the prior written consent of the Company:
(a) except as provided for in this Restated Agreement, amend or propose
to amend its Certificate or Articles of Incorporation or Bylaws (or
comparable governing instruments) in any material respect;
(b) except as set forth on SCHEDULE 6.5(b)(i), with regard to the
Company or the Subsidiaries, or on SCHEDULE 6.5(b)(ii), with regard to
Parent or the Parent subsidiaries, authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose
of any shares of, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any shares of, the capital stock or
other securities of the Company or any Subsidiary, or of Parent or any
Parent subsidiary, including, but not limited to, any securities convertible
into or exchangeable for shares of stock of any class of the Company or any
Subsidiary, or of Parent or any Parent subsidiary, as the case may be;
(c) except as provided for in this Restated Agreement, split, combine or
reclassify any shares of its capital stock or declare, pay or set aside any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, other than dividends
or distributions to the Company or a Subsidiary, or to Parent or a Parent
subsidiary, as the case may be, or redeem, purchase or otherwise acquire or
offer to acquire any shares of its capital stock or other securities;
(d) except for debt (including, but not limited to, obligations in
respect of capital leases) disclosed on the financial statements of the
Company delivered to Parent prior to the date of this Restated Agreement and
changes thereto occurring in the ordinary course of business, (i) create,
incur or assume any short-term debt, long-term debt or obligations in
respect of capital leases, and indebtedness contemplated by this Restated
Agreement; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for
the obligations of any Person, except for obligations permitted by this
Restated Agreement of any subsidiary or Parent subsidiary, as the case may
be, in the ordinary course of business consistent with past practice;
(iii) except as contemplated in this Restated Agreement, make any capital
expenditures or make any loans, advances or capital contributions to, or
investments in, any other Person (other than customary advances to employees
made in the ordinary course of business consistent with past practice),
PROVIDED the Company will continue to make capital expenditures in
accordance with its budget, maintain, upgrade or expand its facilities and
those of the Subsidiaries, as the case may be, and otherwise operate in the
ordinary course and consistent with past practice; (iv) acquire the stock or
assets of, or merge or consolidate with, any other Person except as
contemplated in this Restated Agreement and the contemplated WorldPages
Acquisition; or (v) voluntarily incur any material liability or obligation
(absolute, accrued, contingent or otherwise), except in the ordinary course
of business;
(e) except in the ordinary course of business or as set forth in
SCHEDULE 6.5(e) or as otherwise permitted by this Restated Agreement, sell,
transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree to
sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any
material assets or properties, real, personal or mixed, except the sale of
the CLEC Operations, in the case of Parent and the Active Parent
Subsidiaries;
(f) increase in any manner the compensation of any of its officers,
agents or employees other than any increases required pursuant to their
employment agreements in accordance with their terms in effect on the date
of this Restated Agreement and increases in the ordinary course of business
consistent with past practice not in excess on an individual basis of the
lesser of 10% of the current compensation of such individual or U.S. $10,000
per annum;
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(g) enter into, establish, amend, make non-routine or material
interpretations or determinations with respect to, or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other
welfare, stock option, stock purchase, restricted stock, or other equity,
pension, retirement, vacation, severance, deferred compensation or other
compensation or benefit plan, policy, agreement, trust, fund or arrangement
with, for or in respect of, any shareholder, officer, director, other
employee, agent, consultant or affiliate, other than actions contemplated by
this Restated Agreement or in the ordinary course of business or those
agreements in connection with the WorldPages Acquisition.
(h) except with regard to the Saville matter referenced on SCHEDULE 3.7
attached hereto, compromise, settle, grant any waiver or release relating to
or otherwise adjust any Litigation, except routine Litigation in the
ordinary course of business consistent with past practice, involving only a
payment not in excess of U.S. $50,000 individually or U.S. $100,000 when
aggregated with all such payments by the Company and the Subsidiaries
combined or Parent and the Active Parent Subsidiaries combined, as the case
may be;
(i) (i) with respect to the Company or the Shareholders, take any action
or omit to take any action, which action or omission would result in a
breach of any of the covenants, representations and warranties of the
Company or Shareholders set forth in this Restated Agreement or which would
have a Company Material Adverse Effect and (ii) with respect to Parent, take
any action or omit to take any action, which action or omission would result
in a breach of any of the covenants, representations and warranties of the
Parent set forth in this Restated Agreement or which would have a Parent
Adverse Effect;
(j) except in the ordinary course of business, enter into any lease or
other agreement, or amend any lease or other agreement, with respect to real
property;
(k) (i) except as set forth in SECTION 6.5(k)(ii) or SECTION 11.2
hereof, and except in the ordinary course of business, enter into or amend
any agreement or transaction (A) pursuant to which the aggregate financial
obligation of the Company or a Subsidiary, or of Parent or a Parent
Subsidiary as the case may be, or the value of the services to be provided
could exceed U.S. $50,000, (B) having a term of more than 12 months and
pursuant to which the aggregate financial obligation of the Company or a
Subsidiary, or of Parent or a Parent Subsidiary as the case may be, or the
value of the services to be provided could exceed U.S. $100,000 per year, or
(C) which is not terminable upon no more than 30 days' notice without
penalty in excess of U.S. $50,000 individually or U.S. $100,000 when
aggregated with the penalties under all such agreements or transactions;
(ii) The parties hereto expressly agree that notwithstanding
anything in this Restated Agreement to the contrary, Parent may modify,
amend or waive its rights, including those respecting its indemnification
obligations, under (A) the Ionex Agreement referenced on SCHEDULE 3.13
attached hereto; (B) the Restated Web YP Agreement; and (C) the Restated Big
Stuff Agreement; PROVIDED that such modifications, amendments and/or waivers
do not, or would not reasonably be expected to, materially increase Parent's
obligations or materially adversely affect Parent's rights under each
respective agreement, or otherwise materially affect the consideration to be
received under each respective agreement.
(l) subject to SECTION 6.5(k)(ii) hereof, take any action with respect
to the indemnification of any Person;
(m) change any accounting practices or policies, except as required by
generally accepted accounting principles or Laws as agreed to or requested
by the Company's or Parent's auditors after consultation with Parent's or
the Company's auditors, as the case may be;
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(n) subject to SECTION 6.5(k)(ii) hereof, or except in the ordinary
course of business, enter into, amend, modify, terminate or waive any rights
under any Company Material Contract or Parent Material Contract;
(o) adopt a plan of liquidation, dissolution, exchange, consolidation,
share exchange, restructuring, recapitalization, or other reorganization;
PROVIDED, HOWEVER, that Parent may adopt such a plan and may cause the
liquidation or dissolution of any Parent subsidiary if Parent is unable to
sell such Parent subsidiary (i) at a price which Parent determines to be
reasonable; and (ii) during a time period which Parent determines to be
reasonable; or
(p) resolve, agree, commit or arrange to do any of the foregoing.
Furthermore, the Company covenants, represents and warrants that from and
after the date hereof, unless Parent shall otherwise expressly consent in
writing, the Company shall, and the Company shall cause each Subsidiary to, use
its or their reasonable best efforts to:
(A) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(B) pay all accounts payable and other obligations in the ordinary
course of business consistent with past practice and with the provisions of
this Restated Agreement, except if the same are contested in good faith,
and, in the case of the failure to pay any material accounts payable or
other obligations which are contested in good faith, only after consultation
with Parent; and
(C) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business and maintain in full force and
effect all Company Permits necessary for, or otherwise material to, such
business.
Furthermore, Parent covenants, represents and warrants that from and after
the date hereof, unless Company shall otherwise expressly consent in writing,
Parent shall, and Parent shall cause each Active Parent Subsidiary to, use its
or their reasonable best efforts to:
(1) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(2) pay all accounts payable and other obligations consistent with
prudent cash management principles, except if the same are contested in good
faith, and, in the case of the failure to pay any material accounts payable
or other obligations which are contested in good faith, only after
consultation with Company; and
(3) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business, except for such Laws the failure
to comply with which would not have a Parent Material Adverse Effect, and
maintain in full force and effect all Parent Permits necessary for, or
otherwise material to, such business, except for such Parent Permits the
failure of which to maintain would not have a Parent Material Adverse
Effect.
6.6 NO SOLICITATION OF ACQUISITION PROPOSAL. Unless Parent, the Company,
ICL and the ICL Principals shall agree in advance, in writing, neither Parent,
the Company, ICL, the ICL Principals nor any of their respective affiliates
(including, without limitation, directors, officers, employees, agents,
representatives and shareholders or any affiliates or associates thereof)
("ASSOCIATES") shall, directly or indirectly, make, encourage, facilitate,
solicit, assist or initiate any inquiry or proposal, or provide any information
to or participate in any negotiations with, any Person (other than the parties
to this Restated Agreement and their Associates) relating to any of the
following transactions ("EXTRAORDINARY TRANSACTIONS"): (i) liquidation,
dissolution, recapitalization, share exchange, business combination, exchange or
consolidation of the Company or a Subsidiary or Parent or a Parent subsidiary,
(ii) sale of
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a significant amount of assets of the Company or a Subsidiary or Parent or a
Parent subsidiary, (iii) purchase or sale of shares of capital stock of the
Company or a Subsidiary or Parent or a Parent subsidiary, or (iv) any similar
actions or transactions involving the Company or a Subsidiary or Parent or a
Parent subsidiary (other than the transactions contemplated by this Restated
Agreement), or agree to or consummate any Extraordinary Transaction. The parties
hereto shall immediately inform Parent and the Company of any inquiry, proposal,
or request for information or offer (including the terms thereof and the Person
making such inquiry, proposal, request or offer) which it may receive in respect
of an Extraordinary Transaction and provide Parent and Company with a copy of
any such written inquiries, proposals, requests for information and offers, and
thereafter keep Parent and Company fully informed of the status and details
thereof. The parties hereto acknowledge and agree that the provisions of this
SECTION 6.6 shall not apply to: (a) the sale of the CLEC Operations by Parent or
any Parent subsidiary; (b) the WorldPages Acquisition; or (c) any communications
between or actions by Parent (or any Parent subsidiary), the Company and ICL,
acting jointly, on the one hand, and any Person not a party to this Restated
Agreement, on the other hand, which occurred prior to the date that this
Restated Agreement becomes effective pursuant to SECTION 1.3 hereof.
6.7 CONFIDENTIALITY. Unless (i) otherwise expressly provided in this
Restated Agreement, (ii) required by Applicable Law or any listing agreement
with, or the rules and regulations of, any applicable securities exchange,
(iii) necessary to secure any required Consents as to which the other party has
been advised, or (iv) consented to in writing by Parent and the Company, this
Restated Agreement and any information or documents furnished in connection
herewith shall be kept strictly confidential by the Company, Parent and their
respective officers, directors, employees and agents. Prior to any disclosure
pursuant to the preceding sentence, the party intending to make such disclosure
shall consult with the other party regarding the nature and extent of the
disclosure. Nothing contained herein shall preclude disclosures to the extent
necessary to comply with accounting, SEC and other disclosure obligations
imposed by applicable Law. To the extent required by such disclosure
obligations, Parent, after consultation with the Company, may file with the SEC
a Report on Form 8-K pursuant to the Securities Exchange Act with respect to the
Transactions contemplated by this Restated Agreement, which report may include,
among other things, financial statements and pro forma financial information
with respect to the other party. In connection with any filing with the SEC of a
registration statement or amendment thereto under the Securities Act, Parent,
after consultation with the Company, may include a prospectus containing any
information required to be included therein with respect to the Transactions
contemplated by this Restated Agreement, including, but not limited to,
financial statements and pro forma financial information with respect to the
other party, and thereafter distribute said prospectus. Parent and the Company
shall cooperate with the other and provide such information and documents as may
be required in connection with any such filings. In the event the Transactions
contemplated by this Restated Agreement are not consummated, Parent and the
Company shall return to the other all documents furnished by the other and will
hold in absolute confidence any information obtained from the other party except
to the extent (i) such party is required to disclose such information by Law or
such disclosure is necessary or desirable in connection with the pursuit or
defense of a claim, (ii) such information was known by such party prior to such
disclosure or was thereafter developed or obtained by such party independent of
such disclosure, (iii) such party received such information on a
non-confidential basis from a source, other than the other party, which is not
known by such party to be bound by a confidentiality obligation with respect
thereto or (iv) such information becomes generally available to the public or is
otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clause (i) of the preceding sentence, the party
intending to disclose the same shall so notify the party which provided the same
in order that such party may seek a protective order or other appropriate remedy
should it choose to do so.
6.8 CAPITAL STOCK AND DERIVATIVE SECURITIES. In addition to the capital
stock of Parent to be issued pursuant to ARTICLE I of this Restated Agreement,
the Board of Directors of Parent shall have the right to grant or issue (i) the
options to acquire shares of Parent Common Stock pursuant to the Parent's
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1997 Stock Awards Plan which are listed on the attached SCHEDULE 6.5(b)(ii);
(ii) restricted stock valued at, or warrants to purchase up to 90,000 shares of
Parent Common Stock at an exercise price of U.S. $6.96 per share to be issued to
certain non-employee directors of Parent who were responsible for negotiating
the June 3 YPtel Agreement and the WorldPages Acquisition; (iii) the shares of
Parent Common Stock issuable upon conversion at Closing of the Great Western
Notes at a conversion price of U.S. $5.50 per share; (iv) up to 1,090,909 shares
of Parent Common Stock issuable at U.S. $5.50 per share upon redemption of one
or more notes which may be issued to the current shareholders of Web and Big
Stuff who may lend up to Six Million Dollars (U.S. $6,000,000.00) to Web or Big
Stuff as provided in the agreements by which Parent may acquire Web and Big
Stuff; (v) the shares of Parent Common Stock to be issued upon exercise of
options or warrants to be granted at Closing to those persons and at such
exercise prices as listed in SCHEDULE 6.5(b)(i); and (vi) one (1) share of
Parent Class B Voting Preferred Stock to be issued to the trustee under the
Exchange and Voting Trust Agreement pursuant to SECTION 1.2(c) hereof.
ARTICLE VII--CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSING. The respective
obligations of each party to this Restated Agreement to consummate and effect
this Restated Agreement and the transactions contemplated hereby shall be
subject to the satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this
Restated Agreement shall be in effect, nor shall any proceeding brought by
an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Restated Agreement, which makes the
consummation of the transactions contemplated by this Restated Agreement
illegal.
(b) EXCHANGE AND VOTING TRUST AGREEMENT. The Exchange and Voting Trust
Agreement shall have been duly executed and delivered by all parties thereto
and shall be in full force and effect.
(c) GOVERNMENT APPROVALS. All consents, other than consents the
failure of which to be obtained, in the judgment of Parent, would not have a
Company Material Adverse Effect, of any domestic or foreign Governmental
Authority required for the consummation of the transactions contemplated by
this Restated Agreement shall have been obtained by Final Order.
(d) RELATED TRANSACTIONS. The acquisition by Parent, or a direct or
indirect Subsidiary of Parent, of Web and Big Stuff in a tax free
reorganization shall have been consummated and any registration statement(s)
required for the registration of Parent Common Stock issued to Web and Big
Stuff as consideration in connection with the acquisition by Parent shall
have been declared effective and no stop order suspending the effectiveness
of such registration statement(s) shall have been issued and no proceeding
for that purpose shall have been initiated or threatened by the SEC; and the
Great Western Notes shall have been satisfied by the issuance of Parent
Common Stock to the Great Western Shareholders.
(e) FINANCING. Parent and the Active Parent Subsidiaries and the
Company and the Subsidiaries shall have received from their lenders (both in
Canada and in the United States) an extension of all of their and their
subsidiaries' debt owing by them on terms and conditions satisfactory to
Parent and the Company or all such debts shall be refinanced on terms
satisfactory to Parent and the Company or any consents and approvals
required from such lenders is received.
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(f) SHAREHOLDER APPROVAL. All necessary approvals of the Shareholders
and the shareholders of Parent in connection with the transactions
contemplated by this Restated Agreement shall have been obtained.
(g) REQUIRED CONSENTS. Any required Consents of any Person to the
transactions contemplated by this Restated Agreement shall have been
obtained on terms and conditions reasonably acceptable to Parent and the
Company and be in full force and effect, except for those the failure of
which to obtain, in the reasonable judgment of Parent and Company, would not
have a Company Material Adverse Effect or Parent Material Adverse Effect.
(h) HSR ACT, EXON-FLORIO FILINGS AND INVESTMENT CANADA ACT. A
determination that the transactions contemplated by this Restated Agreement
are permitted shall have been received from the Committee on Foreign
Investment in connection with the Exon-Florio Filings and any waiting period
applicable to the transactions contemplated by this Restated Agreement under
the HSR Act and the Investment Canada Act shall have expired or earlier
termination thereof shall have been granted and no action shall have been
instituted by either the United States Department of Justice or the United
States Federal Trade Commission or appropriate Canadian Governmental
Authorities to prevent the consummation of the transactions contemplated by
this Restated Agreement or to modify or amend such transactions in any
material manner, or if any such action shall have been instituted, it shall
have been withdrawn or a final judgment shall have been entered against such
Department or Commission or Canadian Governmental Authority, as the case may
be.
(i) REGISTRATION STATEMENT. The Registration Statement(s) shall have
been declared effective and no stop order suspending the effectiveness of
the Registration Statement(s) shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the SEC or any
Governmental Authority, whether state, federal, Canadian federal or
provincial.
(j) BLUE SKY. Parent shall have received all state securities Law and
Canadian federal or provincial authorizations or exemptions necessary to
consummate the transactions contemplated hereby.
(k) FAIRNESS OPINION. The written opinion received by Parent's Board
of Directors from its financial advisors, PaineWebber Incorporated, pursuant
to SECTION 1.3 shall not have been withdrawn.
(l) TAX OPINION. Parent and the Company shall have received an opinion
from Cassels Brock & Blackwell based on customary representations contained
in certificates of Parent, and the Company, to the effect that, if the
transactions contemplated by SECTION 1.2(b) of this Restated Agreement are
consummated in accordance with the provisions of this Restated Agreement,
the Shareholders who do not immediately exchange the Company Common Stock
owned by them for Parent Common Stock pursuant to this Restated Agreement
and who are residents of Canada and hold shares as capital property will be
able to treat the transactions contemplated by this Restated Agreement as a
tax deferred transfer pursuant to Subsection 85(1) utilizing the provisions
of Subsection 85(1) of the Income Tax Act [Canada] provided that such
Shareholders and Newco II timely make all joint elections.
(m) NYSE LISTING APPROVAL. Parent shall have received from the NYSE
approval for listing with the NYSE of the Parent Common Stock to be issued
pursuant to this Restated Agreement, the Restated Web YP Agreement and the
Restated Big Stuff Agreement.
(n) TRANSACTION FEES AND EXPENSES. ICL shall have received payment of
the Transaction Fees and Expenses pursuant to SECTION 5.9(b).
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(o) SUPPORT AGREEMENT. The Support Agreement, substantially in the
form of EXHIBIT D attached hereto, shall have been duly executed and
delivered by all parties thereto and shall be in full force and effect.
(p) SALE OF CLEC OPERATIONS. The sale of the CLEC Operations,
contemplated under the Ionex Agreement referenced on SCHEDULE 3.13 hereof,
shall have closed.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND COMPANY. The
obligations of the Company, ICL, the ICL Principals and the Shareholders to
consummate and effect this Restated Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing, by the
Company, ICL, the ICL Principals and a majority of the Shareholders:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The representations and warranties of Parent in this Restated
Agreement that are modified by materiality or Parent Material Adverse
Effect ("PARENT MODIFIED REPRESENTATION") shall be true and correct in
all respects and those that are not so modified ("PARENT NONMODIFIED
REPRESENTATION") shall be true and correct in all material respects on
the date hereof and, except for changes not prohibited by this Restated
Agreement, as of the Closing Date as if made at the Closing Date.
Furthermore, none of the representations or warranties of Parent
contained in this Restated Agreement, disregarding any qualifications
therein or in this SECTION 7.2(a) regarding Materiality or Parent
Material Adverse Effect, shall be untrue or incorrect to the extent that
such untrue or incorrect representations or warranties, when taken
together as a whole, have had or would have a Parent Material Adverse
Effect; and
(ii) Parent shall have performed and complied with all of the
covenants and agreements in all material respects and satisfied in all
material respects all of the conditions required by this Restated
Agreement to be performed or complied with or satisfied by Parent at or
prior to the Closing Date. Notwithstanding anything in this Restated
Agreement to the contrary, the parties hereto acknowledge and agree that
the consummation of the transactions contemplated by this Restated
Agreement and subsequent disposition of the CLEC Operations constitutes a
significant change from the plans and strategies described in the 1998
Form 10-K such that the representations and warranties of Parent that
reference the 1998 Form 10-K will not be true and correct as of the
Closing Date as they relate to the plans and strategies of the business
of Parent at Closing.
(b) CERTIFICATE OF PARENT AND OTHER DELIVERIES. The Company, ICL, the
ICL Principals and the Shareholders shall have been provided, with (i) a
certificate executed on behalf of Parent by an Officer to the effect that,
as of the Closing Date, all representations and warranties made by Parent
under this Restated Agreement are true and complete except as set forth in
SECTION 7.2(a); and all covenants, obligations and conditions of this
Restated Agreement to be performed by Parent on or before such date have
been so performed; (ii) a certificate of good standing from the Secretary of
State of the State of Delaware that Parent is a validly existing
corporation; (iii) duly adopted resolutions of the Board of Directors of
Parent approving the execution, delivery and performance of this Restated
Agreement and the Company Transaction Agreements to which it is a party and
the instruments contemplated hereby and thereby, certified by its Secretary
or Assistant Secretary; and (iv) such other documents and instruments as the
Company may reasonably request.
(c) LEGAL OPINION. The Company and the Shareholders shall have
received a legal opinion as to U.S. law issues from Blackwell Sanders Peper
Martin LLP, legal counsel to Parent (and if requested by the Company from
Canadian legal counsel for Parent as to Canadian law issues), in a form
reasonably acceptable to the Company and its legal counsel that addresses
matters typically
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covered in legal opinions in transactions similar to the transactions
contemplated by this Restated Agreement, including without limitation, the
authority of Parent to enter into this Restated Agreement and the Parent
Transaction Agreements and consummate the transactions contemplated hereby
and thereby and that the securities referenced in SECTION 6.1(a) or
SECTION 6.1(b) hereof shall have been registered with the SEC under the
Securities Act and shall have been listed for trading on the NYSE on or
before the Closing Date.
(d) KPMG OPINION. Parent shall have received the opinion from KPMG LLP
referenced in SECTION 7.3(d) hereof, and such opinion shall not have been
withdrawn.
(e) ICL PAYMENT. Parent shall have paid U.S. $75,000 to ICL, in
satisfaction of its obligation under SECTION 5.9(a) hereof.
(f) OUTSTANDING PARENT STOCK. Not more than the number of shares of
Parent as reflected in the 1998 10-K shall be outstanding on a fully diluted
basis, except as permitted by SECTION 6.9.
(g) NO MATERIAL ADVERSE CHANGE. There shall not have occurred after
the date hereof any Event that has or reasonably could be expected to have a
Parent Material Adverse Effect.
(h) LITIGATION. Except as set forth on SCHEDULE 3.7 hereof, there
shall be no action, suit, claim or proceeding of any nature pending, or
overtly threatened, against Parent or the Company, their respective
properties or any of their officers or directors, arising out of, or in any
way connected with, the Transactions contemplated by this Restated Agreement
or the other transactions contemplated by the terms of this Restated
Agreement which individually or in the aggregate may cause a Material
Adverse Effect.
(i) STOCK OPTIONS. The stock options listed on SCHEDULE 6.5(b)(i)
attached hereto shall have been granted by the Parent.
(j) ASSIGNMENT AND ASSUMPTION AGREEMENTS. To the extent that any
Shareholder has transferred shares pursuant to SECTION 1.1(f) hereof, the
assignment and assumption agreements referenced in SECTION 1.1(f) shall have
been duly executed and delivered by Parent.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of
Parent to consummate and effect this Restated Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The Company Modified Representations shall be true and correct in
all respects, and the Company Nonmodified Representations shall be true
and correct in all material respects, on the date hereof and, except for
changes not prohibited by this Restated Agreement, as of the Closing Date
as if made at the Closing Date. Furthermore, none of the representations
or warranties of the Company or Shareholders contained in this Restated
Agreement, disregarding any qualifications therein or in this
SECTION 7.3(a) regarding materiality or Company Material Adverse Effect,
shall be untrue or incorrect to the extent that such untrue or incorrect
representations or warranties, when taken together as a whole, have had
or would have a Company Material Adverse Effect; and
(ii) The Company and Shareholders shall have performed and complied
with all the covenants and agreements in all material respects and
satisfied in all material respects all the conditions required by this
Restated Agreement to be performed or complied with or satisfied by the
Company and Shareholders at or prior to the Closing Date.
(b) CERTIFICATE OF THE COMPANY AND OTHER DELIVERIES. Parent shall have
been provided with (i) a certificate executed on behalf of the Company by
its Chief Executive Officer to the effect
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that, as of the Closing Date all representations and warranties made by the
Company in this Restated Agreement are true and correct; and all covenants,
obligations and conditions of this Restated Agreement to be performed by the
Company and ICL on behalf of the Shareholders on or before such date have
been so performed; (ii) a certificate of good standing from the proper
authority in the jurisdictions in which the Company and the Subsidiaries are
incorporated or qualified to do business stating that each is a validly
existing corporation in good standing; (iii) duly adopted resolutions of the
Board of Directors of the Company approving the execution, delivery and
performance of this Restated Agreement and the Parent Transaction Agreements
to which the Company is a party and the instruments contemplated hereby and
thereby, certified by the Secretary or Assistant Secretary of the Company;
(iv) a true and complete copy of the Articles or Certificate of
Incorporation or comparable governing instruments, as amended, of the
Company and each of the Subsidiaries certified by the Secretary of State of
the state of incorporation or comparable authority in other jurisdictions,
and a true and complete copy of the Bylaws or comparable governing
instruments, as amended, of Parent and each of the Subsidiaries certified by
the Secretary thereof; (v) the duly executed Resignations on terms and
conditions reasonably acceptable to Parent; and (vi) such other documents
and instruments as Parent reasonably may request.
(c) LEGAL OPINION. Parent shall have received (i) a legal opinion as
to Canadian law issues from Cassels Brock & Blackwell, legal counsel to the
Company, (and if requested by Parent from U.S. legal counsel for the Company
as to U.S. law issues) in a form reasonably acceptable to Parent and its
legal counsel that addresses matters typically covered in legal opinions in
transactions similar to the transactions contemplated by this Restated
Agreement, including without limitation, the authority of all of the
Shareholders, the Company and ICL to enter into this Restated Agreement and
consummate the transactions contemplated hereby and, if required by Parent,
that the shares of Company Common Stock to be transferred to Newco II are
subject to the Powers of Attorney; and (ii) an opinion from Barbadian legal
counsel that the trustees of the Barbadian Trusts have the authority to
execute this Restated Agreement on behalf of the Barbadian Trusts and that
the Barbadian Trusts have the authority to enter into this Restated
Agreement and the Company Transaction Agreements and consummate the
transactions contemplated hereby and thereby and to hold the Parent Common
Stock that will be issued to the Barbadian Trusts pursuant to this Restated
Agreement.
(d) KPMG OPINION. Parent shall have received an opinion from KPMG LLP,
its independent certified public accountants, that upon completion of the
reorganization described in SECTIONS 1.1(a), 1.2(c) and 1.2(d) hereof,
Parent can properly file a consolidated income Tax return on behalf of a
consolidated group which would include Parent, YPTI and the Subsidiaries and
that the YPTI transactions can be accomplished as a tax free reorganization
under the Code, and such opinion shall not have been withdrawn.
(e) LITIGATION. There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against Parent or the Company,
their respective properties or any of their officers or directors, arising
out of, or in any way connected with, the transactions contemplated by this
Restated Agreement or the other transactions contemplated by the terms of
this Restated Agreement which individually or in the aggregate may cause a
Parent Material Adverse Effect or a Company Material Adverse Effect.
(f) NO MATERIAL ADVERSE CHANGE. There shall have not occurred after
the date hereof any Event that has or reasonably could be expected to have a
Company Material Adverse Effect.
(g) YPTI TRANSACTIONS. Parent shall have received evidence from the
Company reasonably satisfactory to Parent that the YPTI Reclassification has
been completed and Parent shall have completed the purchase of the YPTI
Common Stock in accordance with SECTION 1.2(d).
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(h) SUBORDINATED LOAN AGREEMENT AND UNANIMOUS SHAREHOLDERS
AGREEMENT. PCP shall have satisfied all of its obligations under the
Subordinated Loan Agreement including, without limitation, the repayment in
full of the Loans (as defined in the Subordinated Loan Agreement) and all
interest accrued thereon. The Subordinated Lenders shall have exercised the
warrants evidenced by the Warrant Certificates (as defined in the
Subordinated Loan Agreement) and the Company Class B stock issued to the
Subordinated Lenders thereunder shall have been converted into Company
Common Stock. The Subordinated Loan Agreement shall be terminated, no party
thereto shall have any remaining or continuing rights or obligations
thereunder, and all Liens (as defined in the Subordinated Loan Agreement)
granted thereunder shall have been released. The Unanimous Shareholders
Agreement shall be terminated and no party thereto shall have any continuing
rights or obligations thereunder.
(i) ICL AGREEMENTS. All management and other agreements between ICL
and the Company shall have been terminated and no party thereto shall have
any continuing rights or obligations thereunder.
(j) ASSIGNMENT AND ASSUMPTION AGREEMENTS. To the extent that any
Shareholder has transferred shares pursuant to SECTION 1.1(f) hereof, the
assignment and assumption agreements referenced in SECTION 1.1(f) shall have
been duly executed and delivered to Parent.
ARTICLE VIII--TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Restated Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date only as follows:
(a) by mutual written consent of Company and Parent, duly authorized by
the Board of Directors of each;
(b) by the Company or Parent if the Closing shall not have occurred on
or before January 31, 2000, as such date may be extended pursuant to
SECTION 1.4 (or such other date as may be agreed to by Company and Parent);
PROVIDED, THAT, no party may terminate this Restated Agreement under this
SECTION 8.1(b) if such party's breach of this Restated Agreement has caused
or resulted in the failure of the Closing to occur on or before such date;
(c) by the Company if (i) there are any breaches of any Parent Modified
Representation or any material breaches of any Parent Nonmodified
Representation, or (ii) Parent has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Parent promptly after
the discovery thereof and Parent has failed to cure or otherwise resolve the
same to the reasonable satisfaction of the Company within thirty (30) days
after receipt of such notice;
(d) by Parent if (i) there are any breaches of any Company Modified
Representations or any material breaches of any Company Nonmodified
Representations, or (ii) Company has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Company promptly after
the discovery thereof and Company has failed to cure or otherwise resolve
the same to the reasonable satisfaction of the Parent within thirty (30)
days after receipt of such notice;
(e) by Company or Parent if a court of competent jurisdiction or other
Governmental Authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting
this Restated Agreement or any of the transactions contemplated by this
Restated Agreement and such order, decree, ruling or other action shall have
become final and nonappealable;
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(f)(i) by the Company if the stockholders of Parent fail to approve the
issuance of the Parent Common Stock pursuant to this Restated Agreement or
the other transactions contemplated or otherwise referenced herein, as
applicable, at the meeting duly convened therefor;
(f)(ii) by Parent if the stockholders of Parent fail to approve the
issuance of the Parent Common Stock pursuant to this Restated Agreement or
the other transactions contemplated or otherwise referenced herein, as
applicable, at the meeting duly convened therefor;
(g) by Parent, if Company or its Board of Directors breaches any
provision of SECTION 6.6; or
(h) by the Company, if Parent or its Board of Directors breaches any
provision of SECTION 6.6.
The party desiring to terminate this Restated Agreement pursuant to this
SECTION 8.1 shall give written notice of such termination to the other party in
accordance with SECTION 11.1, below.
8.2 PROCEDURE UPON TERMINATION. In the event of termination pursuant to
this ARTICLE VIII, the transactions contemplated by this Restated Agreement
shall be abandoned without further action by the Company or Parent, provided
that the obligations of the applicable parties to this Restated Agreement
contained in ARTICLE IX hereof shall remain in full force and effect. If this
Restated Agreement is terminated as provided herein, each party shall use its
reasonable best efforts to redeliver all documents, work papers and other
material (including any copies thereof) of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing the same.
ARTICLE IX--SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 INDEMNIFICATION BY THE ICL PRINCIPALS.
(a) If the Closing has occurred, subject to the terms and conditions of
this ARTICLE IX, the ICL Principals shall indemnify Parent, and its
officers, directors, agents and representatives (THE "INDEMNITEES"), from
and in respect of, and hold the Indemnitees harmless against, any and all
damages, fines, penalties, losses, liabilities, judgments, and deficiencies
(including without limitation amounts paid in settlement and interest and
reasonable legal and accounting fees), but which amount shall be offset or
reduced by the amount of any insurance proceeds received by Parent in
respect of any of the foregoing, incurred or suffered by any of the
Indemnitees ("DAMAGES") resulting from, relating to or in connection with
any misrepresentation or breach of warranty of the ICL Principals or for any
other matters referred to elsewhere in this Restated Agreement.
(b) The ICL Principals acknowledge that their indemnification
obligations hereunder are solely in their capacity as former shareholders of
the Company, and, accordingly, the indemnification obligations in this
ARTICLE IX shall not entitle any ICL Principal who was or is a current or
former officer, director or employee of the Company to any indemnification
from the Company or the Parent pursuant to the organizational or governing
documents of the Company or the Parent or pursuant to this Restated
Agreement.
9.2 METHOD OF ASSERTING CLAIMS.
(a) Prior to the expiration of six (6) months from the Closing Date,
each Indemnitee shall give written notice (THE "CLAIM NOTICE") to the ICL
Principals, of any and all claims or events known to it which gives rise or
may give rise to a claim for indemnification hereunder by the Indemnitee
against the ICL Principals (AN "INDEMNIFIABLE CLAIM"). The Claim Notice
shall specify the nature and estimated amount of such Damages (THE "CLAIMED
AMOUNT"). In the case of any claim for indemnification hereunder arising out
of a claim, action, suit or proceeding brought by any Person who is not a
party to this Restated Agreement (A "THIRD-PARTY CLAIM"), prior to
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expiration of six (6) months from the Closing Date, the Indemnitee also
shall give the ICL Principals, copies of any written claims, process or
legal pleadings with respect to such Third-Party Claim.
(b) Within forty-five (45) days after delivery of a Claim Notice, the
ICL Principals shall notify the Parent in writing of their objections, if
any, to the claim. If the ICL Principals have no objections to the claim,
the ICL Principals shall remit to the Parent the Claimed Amount within
thirty (30) days. If the ICL Principals have objections to the claim, the
ICL Principals and the Indemnitee shall proceed in good faith to negotiate a
resolution of the dispute regarding the claim, and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
9.3 THIRD PARTY CLAIMS.
(a) Except as otherwise provided in paragraph (c) below, the ICL
Principals may elect to compromise or defend, at the ICL Principals' own
expense and by the ICL Principals' own counsel reasonably satisfactory to
the Indemnitee, any Third-Party Claim; provided that (i) the ICL Principals
provide the Indemnitee with reasonable evidence that the ICL Principals will
have the financial resources to defend against such claim and fulfill their
indemnification obligations hereunder; and (ii) the giving of a Defense
Notice (as defined below) by the ICL Principals shall constitute an
acknowledgment by the ICL Principals of their obligation to indemnify the
Indemnitee with respect to such Third-Party Claim in accordance with the
terms of this ARTICLE IX. If the ICL Principals elect to compromise or
defend a Third-Party Claim, the ICL Principals shall, within thirty
(30) days of their receipt of the notice provided pursuant to
SECTION 9.2(a) hereof (or sooner, if the nature of such Third-Party Claim so
requires), notify the related Indemnitee of their intent to do so (A
"DEFENSE NOTICE"), and such Indemnitee shall reasonably cooperate in the
compromise of, or defense against, such Third-Party Claim. The ICL
Principals shall be responsible for the payment of such Indemnitee's actual
reasonable out-of-pocket expenses (including reasonable legal and accounting
fees) incurred in connection with such cooperation, and such expenses shall
constitute Damages incurred or suffered by Parent within the meaning of
SECTION 9.1(a) hereof. After notice from the ICL Principals, to an
Indemnitee of their election to assume the defense of a Third-Party Claim,
the ICL Principals shall not be liable to such Indemnitee under this
ARTICLE IX for any legal expenses subsequently incurred by such Indemnitee
in connection with the defense thereof. If the ICL Principals elect not to
compromise or defend against a Third-Party Claim, or fail to notify an
Indemnitee of their election as provided in this SECTION 9.3, such
Indemnitee may pay, compromise or defend such Third-Party Claim on behalf of
and for the account and risk of the ICL Principals (and any amount paid or
expenses incurred in connection therewith shall constitute Damages (within
the meaning of SECTION 9.1(a) hereof) incurred or suffered by Parent. The
ICL Principals may not consent to entry of any judgment or enter into any
settlement without the written consent of each related Indemnitee (which
consent shall not be unreasonably withheld), unless such judgment or
settlement provides solely for money damages or other money payments for
which such Indemnitee is entitled to indemnification hereunder and includes
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnitee of a release from all liability in respect of such
Third-Party Claim.
(b) If there is a reasonable likelihood that a Third-Party Claim may
have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled
to indemnification hereunder, such Indemnitee will have the right, after
consultation with the ICL Principals, and at the cost and expense of the ICL
Principals (which costs and expenses, other than legal and accounting fees,
shall constitute Damages (within the meaning of SECTION 9.1(a) hereof) to
the extent provided therein to defend such Third-Party Claim.
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9.4 SURVIVAL. The representations and warranties of the Company set forth
in this Restated Agreement shall survive the Closing and shall continue for six
(6) months following the Closing Date. The representations and warranties shall
not be affected by any examination made for or on behalf of Parent or the
knowledge of any of Parent's officers, directors, stockholders, employees or
agents, except that the representations and warranties are qualified by the
matters disclosed in the Schedules to the representations and warranties of the
Company and the ICL Principals and Parent agrees that Parent has knowledge of
such matters. Notwithstanding anything to the contrary herein, if a claim for
indemnification is made before the expiration of the periods of survival set
forth above in this SECTION 9.4, then (notwithstanding the expiration of such
time period) the representation or warranty applicable to such claim shall
survive until, but only for purposes of, the resolution of such claim.
9.5 LIMITATIONS.
(a) The ICL Principals shall not be liable under this ARTICLE IX unless
and until the aggregate amount of Damages incurred or suffered by
Indemnitees exceeds U.S. $100,000. For purposes of the preceding sentence,
no independent claims of less than U.S. $10,000 may be made; PROVIDED,
HOWEVER, that all claims arising out of a common set of facts shall be
aggregated for purposes of determining whether the U.S. $10,000 threshold
has been met.
(b) The ICL Principals' aggregate liability under this ARTICLE IX shall
not exceed U.S. $4,125,000. The ICL Principals' liability under this
ARTICLE IX shall be joint and several; PROVIDED, HOWEVER, that the liability
of each of The J.L.R. Family Trust and The Paisley Family Trust under this
ARTICLE IX shall be limited to (i) Parent Common Stock received on the
Closing Date and held by such trust, or Parent Common Stock obtained upon
exchange of Class A Special Shares received on the Closing Date, and held by
such trust, or (ii) if the Parent Common Stock referred to in clause (i)
above has been sold or otherwise transferred, the after-tax proceeds from
the disposition of such Parent Common Stock.
(c) The ICL Principals may, at their option, satisfy their
indemnification obligations under this Restated Agreement by (i) the payment
of that amount of cash (in U.S. dollars) sufficient to satisfy such
indemnification claim, but in any event not exceeding the amount set forth
in SECTION 9.5(b) hereof, and subject to the provisions of SECTION 9.5(a)
hereof; or (ii) the delivery of stock certificates representing that number
of shares of Parent Common Stock or Class A Special Shares sufficient to
satisfy such indemnification claim, the value of which shall be determined
in accordance with SECTION 9.5(d) hereof; PROVIDED, HOWEVER, that any stock
certificates delivered in satisfaction of an indemnification claim must be
delivered to Parent within three (3) business days following (as applicable)
(A) the date calculated in accordance with SECTION 9.2 or SECTION 9.3
hereof, if the claim is not in dispute; (B) resolution of such
indemnification claim, whether prior to or following commencement of
litigation; or (C) the entry of a final and non-appealable judgment by a
court of competent jurisdiction.
(d)(i) The parties hereto agree that, for purposes of valuing shares
of Parent Common Stock delivered pursuant to SECTION 9.5(c) to satisfy
any indemnification claims pursuant to SECTION 9.2 or SECTION 9.3, Parent
Common Stock shall be valued at a price per share equal to the greater
of: (A) the weighted average of the closing prices, as reported on the
NYSE, of the Parent Common Stock on the twenty (20) trading days prior to
the date on which the stock certificates for the Parent Common Stock are
to be delivered pursuant to clause (ii) of SECTION 9.5(c), or (B) $5.50.
(ii) The parties hereto agree that, for purposes of valuing shares of
Class A Special Shares delivered to satisfy any indemnification claims
pursuant to SECTION 9.5(c), Class A Special Shares shall be valued at a
price per share equal to the greater of: (A) the weighted average of the
closing prices, as reported on the NYSE, of the Parent Common Stock into
which the Class A Special Shares are exchangeable on the twenty
(20) days prior to the date
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on which the stock certificates for the Class A Special Shares are to be
delivered pursuant to clause (ii) of SECTION 9.5(c), or (B) $5.50.
(e) No claim for indemnification pursuant to SECTION 9.1 shall be made
unless asserted by a written notice given to the ICL Principals on or before
six (6) months from the Closing Date. For greater certainty, no Claim Notice
may be given after six (6) months from the Closing Date.
9.6 INDEMNIFICATION BY THE PARENT.
(a) INDEMNITY. If the Closing has occurred, subject to the terms and
conditions of this SECTION 9.6, Parent shall indemnify the Company, the ICL
Principals, ICL and the Shareholders from and in respect of all, and hold
the Company, the ICL Principals, ICL and the Shareholders harmless against,
any and all damages, fines, penalties, losses, liabilities, judgments and
deficiencies (including without limitation amounts paid in settlement and
interest and reasonable legal and accounting fees) ("ICL PRINCIPAL
DAMAGES")resulting from, relating to or in connection with any
misrepresentation or breach of warranty of the Parent contained in this
Restated Agreement or for any other matters referred to elsewhere in this
Restated Agreement.
(b) SURVIVAL. The representations and warranties of Parent set forth
in this Restated Agreement shall survive the Closing and shall continue
until six (6) months after Closing Date. The representations and warranties
shall not be affected by any examination made for or on behalf of the
Company or ICL Principals or the knowledge of any of the Company's officers,
directors, stockholders, employees or agents, except that the
representations and warranties are qualified by the matters disclosed in the
Schedules to the representations and warranties of the Parent, and the
Company agrees that the Company has knowledge of such matters.
Notwithstanding anything to the contrary herein, if a claim for
indemnification is made before the expiration of the periods of survival set
forth above in this SECTION 9.6, then (notwithstanding the expiration of
such time period) the representation or warranty applicable to such claim
shall survive until, but only for purposes of, the resolution of such claim.
(c) LIMITATIONS. Parent shall not be liable under this SECTION 9.6
unless and until the aggregate amount of ICL Principal Damages incurred or
suffered by the ICL Principals exceeds U.S. $100,000. Furthermore, the
liability of Parent under this SECTION 9.6 shall not exceed U.S. $4,125,000.
No claim for indemnification pursuant to SECTION 9.6 shall be made unless
asserted by a written notice given to Parent on or before six (6) months
from the Closing Date. For greater certainty, no notice of a claim for
indemnification may be given after six (6) months from the Closing Date.
ARTICLE X--MUTUAL RELEASE
10.1 MUTUAL RELEASE OF ALL CLAIMS.
(a) Parent, for itself and for all of its stockholders, directors,
officers, agents, employees, representatives, divisions, subsidiaries,
affiliates, insurers, successors and assigns, hereby releases, remises,
acquits and forever discharges the Company, ICL and the ICL Principals, and
each of them and each of their respective stockholders, directors, officers,
agents, employees, representatives, divisions, parents, subsidiaries,
affiliates, insurers, successors and assigns, of and from any and all manner
of claims, actions, causes of action, suits, debts, dues, accounts,
contracts, agreements, continuing obligations, judgments, claims and demands
whatsoever, whether in law or in equity, which may exist or may hereafter
arise from any matter, fact, circumstance, happening or thing whatsoever
occurring or failing to occur in connection with the negotiation, execution
and performance of their respective obligations under the June 3 YPtel
Agreement.
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(b) The Company, ICL and the ICL Principals, each for itself and for all
of their respective stockholders, directors, officers, agents, employees,
representatives, divisions, subsidiaries, affiliates, insurers, successors
and assigns, hereby releases, remises, acquits and forever discharges Parent
and its stockholders, directors, officers, agents, employees,
representatives, divisions, parents, subsidiaries, affiliates, insurers,
successors and assigns, of and from any and all manner of claims, actions,
causes of action, suits, debts, dues, accounts, contracts, agreements,
continuing obligations, judgments, claims and demands whatsoever, whether in
law or in equity, which may exist or may hereafter arise from any matter,
fact, circumstance, happening or thing whatsoever occurring or failing to
occur in connection with the negotiation, execution and performance of its
obligations under the June 3 YPtel Agreement.
(c) Parent and each of the Company, ICL and the ICL Principals hereby
represent, warrant and acknowledge that the mutual covenants and agreements
in this ARTICLE X are made in good faith.
10.2 COVENANT NOT TO SUE.
(a) Parent hereby agrees that it will not institute any action against
the Company, ICL or the ICL Principals, including, but not limited to, any
claim for contractual indemnity or implied indemnity, arising out of the
June 3 YPtel Agreement.
(b) Each of the Company, the Shareholders, ICL and the ICL Principals
hereby agrees that it will not institute any action against Parent,
including, but not limited to, any claim for contractual indemnity or
implied indemnity, arising out of the June 3 YPtel Agreement.
10.3 NO ADMISSION OF LIABILITY. None of Parent, the Company, ICL or the
ICL Principals admits liability to any other party hereto and, in fact, each of
Parent, the Company, ICL and the ICL Principals denies any liability relating to
the June 3 YPtel Agreement.
ARTICLE XI--AMENDMENT AND WAIVER
11.1 AMENDMENT OF THIS RESTATED AGREEMENT. Prior to Parent stockholder
approval and except as is otherwise required by Applicable Law, this Restated
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. Following
receipt of approval by the Parent shareholders, the parties hereto acknowledge
and agree that this Restated Agreement may be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto; PROVIDED, HOWEVER, that any such amendment may not affect a substantive
issue under this Restated Agreement, including, but not limited to, the economic
consideration to be paid or received hereunder.
11.2 DEVIATION FROM FORM OF EXCHANGE AND VOTING TRUST AGREEMENT, THE
SUPPORT AGREEMENT AND APPENDIX A. Parent, the Company, the ICL Principals and
ICL agree that (i) the form of Exchange and Voting Trust Agreement attached
hereto as EXHIBIT C, the form of Support Agreement attached hereto as EXHIBIT D
and the form of Class A Special Shares Certificate of Designation attached
hereto as EXHIBIT B represent the agreement of the parties with regard to the
material terms and the economics of the Canadian tax deferral transaction; and
(ii) the Exchange and Voting Trust Agreement, the Support Agreement and the
Class A Special Shares Certificate of Designation which are executed by the
parties may differ from the forms attached hereto as EXHIBIT C, EXHIBIT D and
EXHIBIT B, respectively, only to the extent that such deviations (a) involve
solely procedural or mechanical elements of the Exchange and Voting Trust
Agreement, the Support Agreement and the Class A Special Shares Certificate of
Designation or the transactions contemplated thereunder; or (b) do not represent
deviations from the forms set forth in EXHIBIT C, EXHIBIT D and EXHIBIT B which
affect or may affect a substantive issue under the Exchange and Voting Trust
Agreement or which affect or may affect the economic consideration to paid or
received under the Exchange and Voting Trust Agreement,
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the Support Agreement or the Class A Special Shares Certificate of Designation.
The parties hereto acknowledge and agree that the terms of this SECTION 11.2 are
intended to, and shall, continue to apply following receipt of approval by the
Parent shareholders of the terms of this Restated Agreement and the transactions
contemplated herein.
11.3 EXTENSION; WAIVER. At any time prior to the Closing Date, Parent, on
the one hand, and the Company, ICL on behalf of the Shareholders and ICL
Principals, on the other, may, but shall not be obligated to (i) extend the time
for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made by such
other party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party; PROVIDED, HOWEVER, that an extension
pursuant to SECTION 1.4 hereof need not be set forth in writing in order to be
effective, unless such extension is to a date after March 1, 2000.
ARTICLE XII--GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent, to:
Advanced Communications Group, Inc.
390 South Woods Mill Road, Suite 150
St. Louis, Missouri
USA 63017
Attn: Mr. Richard O'Neal
Facsimile: (314) 205-8141
with a copy to:
Blackwell Sanders Peper Martin LLP
720 Olive Street, Suite 2400
St. Louis, Missouri
USA 63101-4834
Attn: Mr. Craig A. Adoor
Facsimile: (314) 345-6060
(b) if to the Company and Shareholders, to:
Imperial Capital Ltd.
1 First Canadian Place, Suite 5102
Toronto, Ontario
Canada M5X 1E3
Attn: Managing Partner
Facsimile: (416) 362-8660
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with a copy to:
Cassels Brock & Blackwell
Scotia Plaza--Suite 2100
40 King Street West
Toronto, Ontario
Canada M5H 3C2
Attn: Mr. Maxwell Gotlieb
Facsimile: (416) 360-8877
12.2 INTERPRETATION. The words "include", "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Restated
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Restated Agreement. All Exhibits and Schedules
to this Restated Agreement are hereby incorporated in and made a part of this
Restated Agreement as if set forth in full herein. References herein to
"dollars", "Dollars", "U.S. $" and "$" shall be deemed, in each case, to mean
U.S. dollars, unless expressly stated otherwise herein.
12.3 COUNTERPARTS. This Restated Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. One or more of the parties hereto
may sign this Restated Agreement and deliver this Restated Agreement by
facsimile transmission. The parties hereto agree that a facsimile of a signature
shall be deemed an original signature.
12.4 ENTIRE AGREEMENT; ASSIGNMENT. Subject to its becoming effective in
accordance with SECTION 1.3 hereof, this Restated Agreement including, but not
limited to, the Recitals hereto, the Schedules and Exhibits hereto, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof including, but not limited to, (A) the June 3 YPtel
Agreement; and (B) the Letter of Intent dated April 11, 1999 by and among
Parent, the Company, Web, Big Stuff and O'Neal and the Confidentiality Agreement
dated April 11, 1999 by and among Parent, the Company, Web, Big Stuff and
O'Neal; (ii) are not intended to confer upon any Person not a party hereto any
rights or remedies hereunder; and (iii) shall not be assigned by operation of
law or otherwise except as otherwise specifically provided, except that Parent
may assign its rights and delegate its obligations hereunder to its affiliates,
provided Parent shall remain liable hereunder.
12.5 SEVERABILITY. In the event that any provision of this Restated
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Restated Agreement will continue in full force and effect and the
application of such provision to other Persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto so long
as consideration of the Agreement is not materially affected for any party
hereof. The parties further agree to replace such void or unenforceable
provision of this Restated Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of such void or unenforceable provision.
12.6 OTHER REMEDIES. Subject to the limitations contained in this Restated
Agreement, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
12.7 GOVERNING LAW. This Restated Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern
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under applicable principles of conflicts of laws thereof. Each of the parties
hereto irrevocably consents to the exclusive jurisdiction and venue of any court
within the State of Delaware, in connection with any matter based upon or
arising out of this Restated Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such Persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction,
venue and such process.
12.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Restated
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
12.9 LIMITATION OF LIABILITY OF TRUSTEE. The parties hereto agree that
none of the trustees of any trust referred to in this Restated Agreement has any
personal liability or obligations in respect of the obligations of the trusts
and that the sole recourse against the trust and the trustees pursuant to this
Restated Agreement shall be solely against the ICL Principals. For greater
certainty, the term "trust" includes the trustees and where any reference is
made herein to an act to be performed by or on behalf of the trust, such
reference shall be construed and applied for all purposes as if it referred to
an act to be performed by or on behalf of the trustees, each in his
representative capacity as trustee of the trust, and where any reference is made
hereto to an act to be performed by or for or on behalf of any of the trustees,
such reference shall be construed and applied for all purposes as if it referred
to an act to be performed by or for or on behalf of each of the trustees in his
capacity as a trustee.
12.10 TIME OF THE ESSENCE. Time shall be of the essence of this Restated
Agreement and every part hereof.
ARTICLE XIII--DEFINITIONS
13.1 DEFINITIONS.
"Active Parent Subsidiaries" means Feist; FirsTel; Value; Great Western
Directories, Inc.; Telecom Resources, Inc.; the Switchboard of Oklahoma
City, Inc.; Long Distance Management of Kansas, Inc.; Long Distance Management
II, Inc.; and National Telecom, a proprietorship.
"Affiliate Agreements" shall have the meaning set forth in SECTION 4.11.
"Anniversary Date" shall mean the first anniversary of the Closing Date.
"Associates" shall have the meaning set forth in SECTION 6.6.
"Barbadian Trusts" means collectively, Cold Trust, Global Investment Trust,
Freezer Trust, Storage Trust, Directory Trust and Publisher Trust.
"Benefit Plan" shall mean (i) an employee benefit plan as defined in
Section 3(3) of ERISA, even if, because of some other provision of ERISA, such
plan is not subject to any other provision of ERISA, such plan is not subject to
any or all of ERISA's provisions, and (ii) whether or not described in the
preceding clause, (a) any pension, profit sharing, stock bonus, deferred or
supplemental compensation, retirement, thrift, stock purchase or stock purchase
or stock option plan, or any other compensation, welfare, insurance, medical,
hospitalization, fringe benefit or retirement plan, program, policy, course of
conduct, understanding or arrangement of any kind whatsoever, whether formal or
informal, oral or written, providing for benefits for or the welfare of any or
all of the current or former employees or agents of the employer or their
beneficiaries or dependents, (b) Multi-employer Plan, or (c) a multiple employer
plan as defined in Section 413 of the Code or in any other applicable Law.
"Big Stuff" shall have the meaning set forth in RECITAL E hereto.
"Claim Notice" shall have the meaning set forth in SECTION 9.2(a).
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"Claimed Amount" shall have the meaning set forth in SECTION 9.2(a).
"Class A Special Shares" shall have the meaning set forth in
SECTION 1.1(b).
"CLEC Operations" shall mean Feist, FirsTel, Valu, and such other non-yellow
pages operating subsidiaries or operations of Parent as shall be determined by
the Board of Directors of Parent.
"Closing" shall mean the closing of the transactions contemplated by this
Restated Agreement.
"Closing Date" shall mean the date upon which the Closing actually occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
Treasury regulations thereunder.
"Company" shall have the meaning set forth in the preamble hereto.
"Company Common Stock" shall have the meaning set forth in SECTION 1.1(c).
"Company Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Company and the Subsidiaries taken
as a whole, (ii) the ability of Company to perform its obligations set forth in
this Restated Agreement and the Company Transaction Agreements (as herein
defined), or (iii) the ability to timely consummate the transactions
contemplated by this Restated Agreement and the Company Transaction Agreements.
"Company Material Contract" shall mean a material note, bond, mortgage,
indenture, contract, lease, license, agreement, understanding, instrument, bid
or proposal to which Company or any Subsidiary is a party and which is with an
affiliate of Company or of a Subsidiary, if the financial obligation of Company
or a Subsidiary thereunder or applicable to the assets or properties of Company
or a Subsidiary could exceed U.S. $50,000 after the Closing Date or if it
provides for recurring monthly revenues to Company or a Subsidiary in excess of
U.S. $100,000 or includes any exclusivity or non-competition restrictions
applicable to Company or a Subsidiary.
"Company Modified Representations" shall mean the representations and
warranties of the Company and the ICL Principals contained in this Restated
Agreement that are modified by materiality or Company Material Adverse Effect.
"Company Nonmodified Representations" shall mean the representations and
warranties of the Company and Shareholders contained in this Restated Agreement
that are not modified by materiality or Company Material Adverse Effect.
"Company Permits" shall mean all permits, certificates, licenses, approvals,
and other authorization required in connection with the operation of the
business of the Company and the Subsidiaries.
"Company Real Property Leases" shall have the meaning set forth in
SECTION 2.12(b).
"Company Tax Goal" shall have the meaning set forth in SECTION 6.8.
"Company Transaction Agreements" shall have the meaning set forth in
SECTION 2.4.
"Consent" shall have the meaning set forth in SECTION 2.5.
"Damages" shall have the meaning set forth in SECTION 9.1(a).
"Defense Notice" shall have the meaning set forth in SECTION 9.3(a).
"Enforceability Exceptions" shall have the meaning set forth in
SECTION 2.4.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations thereunder.
A-40
<PAGE>
"Event" shall have the meaning set forth in SECTION 2.8.
"Exchange and Voting Trust Agreement" shall have the meaning set forth in
SECTION 6.3.
"Exon-Florio Filing" shall have the meaning set forth in SECTION 2.5.
"Extraordinary Transactions" shall have the meaning set forth in
SECTION 6.6.
"Feist" shall mean Feist Long Distance Service, Inc.
"Final Order," with respect to any Consent of a Governmental Authority,
shall mean an action by the appropriate Governmental Authority as to which:
(i) no request for stay by such Governmental Authority of the action is pending,
no such stay is in effect, and, if any deadline for filing any such request is
designated by statute or regulation, it has passed; (ii) no petition for
rehearing or reconsideration of the action is pending before such Governmental
Authority, and no appeal or comparable administrative remedy is pending before
such Governmental Authority, and the time for filing any such petition, appeal
or administrative remedy has passed; (iii) such Governmental Authority does not
have the action under reconsideration on its own motion and the time for such
reconsideration has passed; and (iv) no appeal to a court, or request for stay
by a court, of the Governmental Authority action is pending or in effect, and if
any deadline for filing any such appeal or request is designated by statute or
rule, it has passed.
"FirsTel" shall mean FirsTel, Inc.
"Governmental Authority" shall have the meaning set forth in SECTION 2.5.
"Great Western Credit Agreement" shall have the meaning set forth in
SECTION 3.6.
"Great Western Shareholders" shall have the meaning set forth in RECITAL E.
"Great Western Notes" shall have the meaning set forth in RECITAL E.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"ICL" shall have the meaning set forth in the preamble hereto.
"ICL Principal Damages" shall have the meaning set forth in SECTION 9.7(a).
"Income Tax Act [Canada]" shall have the meaning set forth in SECTION 1.6.
"Indemnifiable Claim" shall have the meaning set forth in SECTION 9.2(a).
"Indemnitees" shall have the meaning set forth in SECTION 9.1(a).
"June 3 YPtel Agreement" shall mean the Agreement dated as of June 3, 1999
by and among Parent, the Company, the Shareholders and ICL.
"Law" shall have the meaning set forth in SECTION 2.6.
"Litigation" shall have the meaning set forth in SECTION 2.7.
"Multi-employer Plan" shall mean a multi-employer plan as defined in
Section 3(37) of ERISA or in any other applicable Law.
"Newco I Common Stock" shall have the meaning set forth in SECTION 1.1(b).
"Newco II Common Stock" shall have the meaning set forth in SECTION 1.1(b).
"NYSE" shall mean the New York Stock Exchange, Inc.
"Observers" shall have the meaning set forth in SECTION 1.5(b).
A-41
<PAGE>
"Parent Class B Voting Preferred Stock" shall have the meaning set forth in
SECTION 1.1(a).
"Parent Common Stock" shall have the meaning set forth in SECTION 3.2.
"Parent Financial Statements" shall have the meaning set forth in
SECTION 3.8.
"Parent Guaranty" shall have the meaning set forth in SECTION 3.6.
"Parent Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Parent and the Active Parent
Subsidiaries taken as a whole, (ii) the ability of Parent to perform its
obligations set forth in this Restated Agreement and the Parent Transaction
Agreements, or (iii) the ability of Parent to timely consummate the transactions
contemplated by this Restated Agreement and the Parent Transaction Agreements.
"Parent Material Contract" shall have the meaning set forth in
SECTION 3.13.
"Parent Modified Representation" shall have the meaning set forth in
SECTION 7.2(a)(i).
"Parent Nonmodified Representation" shall have the meaning set forth in
SECTION 7.2(a)(i).
"Parent Permits" shall have the meaning set forth in SECTION 3.11.
"Parent Recapitalization" shall have the meaning set forth in
SECTION 1.1(a).
"Parent Securities Filings" shall have the meaning set forth in
SECTION 3.7.
"Parent Tax Goals" shall have the meaning set forth in SECTION 6.8(b).
"Parent Transaction Agreements" shall have the meaning set forth in
SECTION 3.4.
"PCP" shall have the meaning set forth in RECITAL A.
"PCP Acquisition Agreement" shall have the meaning set forth in
SECTION 2.16.
"PCP Closing Date" shall have the meaning set forth in SECTION 2.16.
"Person" shall mean and include an individual, corporation, partnership,
association, trust or other entity or organization, including a Governmental
Authority.
"Registration Statements" shall have the meaning set forth in
SECTION 6.1(d).
"Restated Agreement" shall have the meaning set forth in the preamble
hereto.
"Restated Big Stuff Agreement" shall mean that certain Amended and Restated
Acquisition Agreement dated as of October 26, 1999 by and among Parent, ACG
Acquisition VII Corp., Big Stuff, Richard O'Neal and Dick Reid.
"Restated Web YP Agreement" shall mean that certain Amended and Restated
Acquisition Agreement dated as of October 26, 1999 by and among Parent, ACG
Acquisition VI Corp., Web, Richard O'Neal and Dick Reid.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Exchange Act" shall mean the United States Securities Exchange
Act of 1934, as amended, and all rules and regulations promulgated thereunder.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
"Shareholders" shall have the meaning set forth in the preamble hereto.
"Subordinated Lenders" shall have the meaning set forth in SECTION 4.9.
A-42
<PAGE>
"Subordinated Loan Agreement" shall have the meaning set forth in
SECTION 4.9.
"Subsidiaries" shall have the meaning set forth in RECITAL A.
"Support Agreement" means the Support Agreement to be entered into at the
Closing between Parent, Newco II and the Shareholders who are expected to become
the holders of Class A Special Shares.
"Tax Goals" shall have the meaning set forth in SECTION 6.8(b).
"Third-Party Claim" shall have the meaning set forth in SECTION 9.2(a).
"Transaction Fees and Expenses" shall have the meaning set forth in
SECTION 5.9(b).
"Unanimous Shareholders Agreement" shall mean the Unanimous Shareholders
Agreement dated as of the 1(st) day of November, 1998 among Imperial Capital
Limited, a corporation incorporated under the laws of Ontario, the J.L.R. Family
Trust, an inter vivos trust duly formed and organized the laws of Ontario, the
Paisley Family Trust, an inter vivos trust duly formed and organized under the
laws of Ontario, Cold Trust, Global Investment Trust, Freezer Trust, Storage
Trust, Directory Trust and Publisher Trust, inter vivos trusts duly formed and
organized under the laws of Barbados, Canterbury Mezzanine Capital, L.P. and
Canterbury Detroit Partners, L.P., limited partnerships formed under the laws of
Delaware, and YPtel Corporation, a corporation incorporated under the laws of
Canada, as amended to date.
"Valu" shall mean, collectively, Valu-line of Louisiana, Inc. and Valu-line
of Longview, Inc.
"Web" shall have the meaning set forth in RECITAL E hereof.
"WorldPages" shall have the meaning set forth in RECITAL E hereof.
"YPTI Certificate of Preferred Stock Designation" shall have the meaning set
forth in SECTION 1.1(e).
"YPTI Consideration" shall have the meaning set forth in SECTION 1.2(d).
"YPTI Preferred Stock" shall have the meaning set forth in SECTION 1.1(e).
"YPTI Recapitalization" shall have the meaning set forth in SECTION 1.1(e).
[SIGNATURES ON FOLLOWING PAGES]
A-43
<PAGE>
[Signature pages to the Amended and Restated YPtel Agreement]
IN WITNESS WHEREOF, Parent, the Company, the Shareholders, the ICL
Principals and ICL have caused this Amended and Restated Agreement to be signed
by their duly authorized respective officers, if appropriate, all as of the date
first written above.
<TABLE>
<S> <C> <C>
ADVANCED COMMUNICATIONS GROUP, INC.
By: /s/ MICHAEL PRUSS
-----------------------------------------
Name: Michael Pruss
Title: Chief Financial Officer and
Secretary
YPTEL CORPORATION
By: /s/ DOUGLAS MCINTYRE
-----------------------------------------
Title: President & CEO
SHAREHOLDERS OF YPTEL CORPORATION
By: Imperial Capital Limited as
attorney-in-fact
By: /s/ S. LISTER
-----------------------------------------
Title:
THE J.L.R. FAMILY TRUST, by its trustees
By: /s/ JEFF ROSENTHAL
-----------------------------------------
Jeffrey L. Rosenthal, as trustee and with
no personal liability
/s/ MAXWELL GOTLIEB
-----------------------------------------
Maxwell Gotlieb, as trustee and with no
personal liability
</TABLE>
A-44
<PAGE>
<TABLE>
<S> <C> <C>
THE PAISLEY FAMILY TRUST
By: /s/ S. LISTER
-----------------------------------------
Stephen D. Lister, as trustee and with no
personal liability
/s/ MAXWELL GOTLIEB
-----------------------------------------
Maxwell Gotlieb, as trustee and with no
personal liability
/s/ EDWARD TRUANT
-----------------------------------------
Edward Truant
/s/ DOUGLAS MCINTYRE
-----------------------------------------
Douglas G. McIntyre
COLD TRUST
By: /s/
-----------------------------------------
Concorde Bank Limited, as trustee and with
no personal liability
-----------------------------------------
, as trustee and with no personal
liability
GLOBAL INVESTMENT TRUST
By: /s/
-----------------------------------------
Concorde Bank Limited, as trustee and with
no personal liability
-----------------------------------------
, as trustee and with no personal
liability and with liability limited to
its trust assets
</TABLE>
A-45
<PAGE>
<TABLE>
<S> <C> <C>
FREEZER TRUST
By: /s/ PETER N. BOOS
-----------------------------------------
Peter N. Boos, as trustee and with no
personal liability and with liability
limited to its trust assets
/s/ ROSALIND E. JACKSON
-----------------------------------------
Rosalind E. Jackson, as trustee and with
no personal liability and with liability
limited to its trust assets
STORAGE TRUST
By: /s/ PETER N. BOOS
-----------------------------------------
Peter N. Boos, as trustee and with no
personal liability
/s/ ROSALIND E. JACKSON
-----------------------------------------
Rosalind E. Jackson, as trustee and with
no personal liability
DIRECTORY TRUST
By: /s/
-----------------------------------------
Concorde Bank Limited, as trustee and with
no personal liability
-----------------------------------------
, as trustee and with no personal
liability and with liability limited to
its trust assets
</TABLE>
A-46
<PAGE>
<TABLE>
<S> <C> <C>
PUBLISHER TRUST
By: /s/ PETER N. BOOS
-----------------------------------------
Peter N. Boos, as trustee and with no
personal liability
/s/ ROSALIND E. JACKSON
-----------------------------------------
Rosalind E. Jackson, as trustee and with
no personal liability
IMPERIAL CAPITAL LIMITED, a corporation
incorporated under the laws of the Province of
Ontario
By: /s/ JEFF ROSENTHAL
-----------------------------------------
Name: Jeff Rosenthal
Title: Director
/s/ JEFF ROSENTHAL
-----------------------------------------
Jeffrey L. Rosenthal
/s/ S. LISTER
-----------------------------------------
Stephen D. Lister
</TABLE>
A-47
<PAGE>
ANNEX B
B-i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE I--TERMS OF THE MERGER..................................... B-2
1.1 THE MERGER.................................................. B-2
1.2 EFFECTIVE TIME.............................................. B-2
1.3 MERGER CONSIDERATION........................................ B-3
1.4 STOCKHOLDERS' RIGHTS UPON MERGER............................ B-3
1.5 SURRENDER AND EXCHANGE OF SHARES............................ B-3
1.6 DIRECTORS................................................... B-4
1.7 BYLAWS...................................................... B-4
1.8 OTHER EFFECTS OF MERGER..................................... B-4
1.9 TAX-FREE REORGANIZATION..................................... B-4
1.10 CONVERTIBLE NOTE............................................ B-4
1.11 ADDITIONAL ACTIONS.......................................... B-5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF WEB AND THE WEB
SHAREHOLDERS..................................................... B-5
2.1 ORGANIZATION AND GOOD STANDING.............................. B-5
2.2 CAPITALIZATION.............................................. B-5
2.3 SUBSIDIARIES................................................ B-6
2.4 AUTHORIZATION; BINDING AGREEMENT............................ B-6
2.5 GOVERNMENTAL APPROVALS...................................... B-6
2.6 NO VIOLATIONS............................................... B-6
2.7 LITIGATION.................................................. B-6
2.8 WEB FINANCIAL STATEMENTS.................................... B-7
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ B-7
2.10 COMPLIANCE WITH LAWS........................................ B-8
2.11 PERMITS..................................................... B-8
2.12 FINDERS AND INVESTMENT BANKERS.............................. B-8
2.13 CONTRACTS................................................... B-8
2.14 EMPLOYEE BENEFIT PLANS...................................... B-8
2.15 TAXES AND RETURNS........................................... B-9
2.16 LIABILITIES................................................. B-10
2.17 ENVIRONMENTAL MATTERS....................................... B-10
2.18 INTELLECTUAL PROPERTY; FICTITIOUS NAMES..................... B-11
2.19 REAL ESTATE................................................. B-11
2.20 CORPORATE RECORDS........................................... B-11
2.21 TITLE TO AND CONDITION OF PERSONAL PROPERTY................. B-11
2.22 NO ADVERSE ACTIONS.......................................... B-11
2.23 LABOR MATTERS............................................... B-12
2.24 INSURANCE................................................... B-12
2.25 DISCLOSURE.................................................. B-12
2.26 TAX......................................................... B-12
2.27 YEAR 2000 COMPLIANCE........................................ B-12
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF PARENT.............. B-13
3.1 ORGANIZATION AND GOOD STANDING.............................. B-13
3.2 CAPITALIZATION.............................................. B-13
3.3. SUBSIDIARIES................................................ B-13
3.4 AUTHORIZATION; BINDING AGREEMENT............................ B-14
3.5 GOVERNMENTAL APPROVALS...................................... B-14
3.6 NO VIOLATIONS............................................... B-14
3.7 SECURITIES FILINGS AND LITIGATION........................... B-14
3.8 PARENT FINANCIAL STATEMENTS................................. B-15
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ B-15
3.10 COMPLIANCE WITH LAWS........................................ B-16
3.11 PERMITS..................................................... B-16
3.12 FINDERS AND INVESTMENT BANKERS.............................. B-16
3.13 CONTRACTS................................................... B-16
3.14 CORPORATE RECORDS........................................... B-16
3.15 TAX......................................................... B-16
3.16 DISCLOSURE.................................................. B-16
</TABLE>
B-ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IV--ADDITIONAL COVENANTS OF WEB AND THE WEB
SHAREHOLDERS..................................................... B-17
4.1 NOTIFICATION OF CERTAIN MATTERS............................. B-17
4.2 ACCESS AND INFORMATION...................................... B-17
4.3 WEB SHAREHOLDER APPROVAL.................................... B-17
4.4 REASONABLE BEST EFFORTS..................................... B-18
4.5 COMPLIANCE.................................................. B-18
4.6 BENEFIT PLANS............................................... B-18
4.7 TAX OPINION CERTIFICATION................................... B-18
4.8 AFFILIATE AGREEMENTS........................................ B-18
4.9 TRANSFER RESTRICTIONS....................................... B-18
ARTICLE V--ADDITIONAL COVENANTS OF PARENT.......................... B-19
5.1 CONDUCT OF BUSINESS OF PARENT AND THE ACTIVE PARENT
SUBSIDIARIES.............................................. B-19
5.2 NOTIFICATION OF CERTAIN MATTERS............................. B-19
5.3 ACCESS AND INFORMATION...................................... B-20
5.4 COMPLIANCE.................................................. B-20
5.5 SEC AND SHAREHOLDER FILINGS................................. B-20
5.6 TAX TREATMENT............................................... B-20
5.7 EMPLOYMENT AND EMPLOYEE BENEFIT PLANS....................... B-20
5.9 EXPENSES.................................................... B-20
5.10 PARENT SHAREHOLDER APPROVAL................................. B-21
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT, WEB
AND THE WEB SHAREHOLDERS......................................... B-21
6.1 REGISTRATION OF SECURITIES.................................. B-21
6.2 EMPLOYMENT AGREEMENTS....................................... B-22
6.3 CONSENTS.................................................... B-22
6.4 LEGAL REQUIREMENTS.......................................... B-22
6.5 PUBLIC ANNOUNCEMENTS........................................ B-22
6.6 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE................... B-22
6.7 NO SOLICITATION OF ACQUISITION PROPOSAL..................... B-26
6.8 RESIGNATIONS................................................ B-26
6.9 CONFIDENTIALITY............................................. B-26
6.10 OPTIONS; STOCK ISSUANCES.................................... B-27
ARTICLE VII--CONDITIONS TO CLOSING................................. B-27
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSING.......... B-27
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WEB SHAREHOLDERS AND
WEB....................................................... B-29
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT.......... B-30
ARTICLE VIII--TERMINATION AND ABANDONMENT.......................... B-31
8.1 TERMINATION................................................. B-31
8.2 PROCEDURE UPON TERMINATION.................................. B-32
ARTICLE IX--SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.................................................. B-32
9.1 INDEMNIFICATION BY THE WEB SHAREHOLDERS..................... B-32
9.2 METHOD OF ASSERTING CLAIMS.................................. B-33
9.3 THIRD PARTY CLAIMS.......................................... B-33
9.4 SURVIVAL.................................................... B-34
9.5 LIMITATIONS................................................. B-35
9.6 THE REPRESENTATIVE.......................................... B-35
9.7 INDEMNIFICATION BY THE PARENT............................... B-36
ARTICLE X--MUTUAL RELAEASE......................................... B-37
10.1 MUTUAL RELEASE OF ALL CLAIMS................................ B-37
10.2 COVENANT NOT TO SUE......................................... B-37
10.3 NO ADMISSION OF LIABILITY................................... B-37
ARTICLE XI--AMENDMENT AND WAIVER................................... B-38
11.1 AMENDMENT OF THIS RESTATED AGREEMENT........................ B-38
11.2 EXTENSION; WAIVER........................................... B-38
</TABLE>
B-iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XII--GENERAL PROVISIONS.................................... B-38
12.1 NOTICES..................................................... B-38
12.2 INTERPRETATION.............................................. B-39
12.3 COUNTERPARTS................................................ B-39
12.4 ENTIRE AGREEMENT; ASSIGNMENT................................ B-39
12.5 SEVERABILITY................................................ B-39
12.6 OTHER REMEDIES.............................................. B-39
12.7 GOVERNING LAW............................................... B-39
12.8 RULES OF CONSTRUCTION....................................... B-40
ARTICLE XIII--DEFINITIONS.......................................... B-40
13.1 DEFINITIONS................................................. B-40
</TABLE>
B-iv
<PAGE>
AMENDED AND RESTATED
WEB YP AGREEMENT
This AMENDED AND RESTATED WEB YP ACQUISITION AGREEMENT (the "RESTATED
AGREEMENT") is made and entered into as of this 26th day of October, 1999, by
and among Advanced Communications Group, Inc., a Delaware corporation ("PARENT")
and ACG Acquisition VI Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("ACQUISITION SUBSIDIARY"), on the one hand and Web
YP, Inc., a Texas corporation ("WEB"), Richard O'Neal, a resident of the State
of Texas ("O'NEAL"), and Richard L. Reid, a resident of the State of Texas
("REID") (O'Neal and Reid are together referred to herein as the "WEB
SHAREHOLDERS"), on the other.
RECITALS
A. Parent desires to acquire, and Web and the Web Shareholders desire Parent
to acquire, all of the outstanding common stock of Web, on the terms and subject
to the conditions set forth in this Restated Agreement.
B. In furtherance of such acquisition, the respective Boards of Directors
of Parent, Acquisition Subsidiary and Web have approved the merger (the
"MERGER") of Acquisition Subsidiary with and into Web in accordance with the
Corporation Laws, all on the terms and conditions set forth in this Restated
Agreement.
C. The Boards of Directors of each of Web, Acquisition Subsidiary and
Parent believe it is in the best interests of each company and their respective
stockholders and the Board of Directors of Parent has directed or will direct
that the Restated Agreement be submitted to the shareholders of Parent with the
recommendation that the Restated Agreement, including, but not limited to, the
issuance of shares of Parent Common Stock pursuant to this Restated Agreement,
be approved by the Parent's stockholders and the Boards of Directors of Web and
Acquisition Subsidiary have directed or will direct that the Merger be submitted
to their respective shareholders in accordance with the Corporation Laws.
D. The Web Shareholders own all outstanding shares of Web Common Stock,
believe that the Merger and the transactions contemplated by this Restated
Agreement are in their best interests and desire to enter into this Restated
Agreement.
E. The parties intend that the Closing will occur prior to or concurrently
with, among other actions: (i) the closing of the acquisition by Parent or a
direct or indirect subsidiary of Parent of all of the outstanding capital stock
of YPtel Corporation, a corporation incorporated under the laws of Canada (the
"COMPANY") pursuant to that certain Amended and Restated YPtel Acquisition
Agreement, a form of which has been provided by Parent to Web (the "RESTATED
COMPANY AGREEMENT"), dated as of October 26, 1999, among the Parent, the
Company, the shareholders of the Company (the "COMPANY SHAREHOLDERS"),
Jeffrey L. Rosenthal, Stephen D. Lister, Edward Truant, Douglas G. McIntyre, The
J.L.R. Family Trust, The Paisley Family Trust, Imperial Capital Limited, a
corporation organized under the laws of the Province of Ontario ("ICL"), Cold
Trust, Global Investment Trust, Freezer Trust, Storage Trust, Directory Trust
and Publisher Trust; (ii) the closing of the acquisition by Parent or a
subsidiary of Parent of all of the outstanding capital stock of Big Stuff, Inc.
("BIG STUFF") (Web and Big Stuff are sometimes collectively referred to as
"WORLDPAGES") whether by merger, exchange or otherwise; (iii) the redemption of
the promissory notes (collectively, the "GREAT WESTERN NOTES") in the aggregate
original principal amount of Fifteen Million Dollars ($15,000,000.00) (plus
accrued but unpaid interest at the time of redemption) owed by Parent to O'Neal
and certain other former shareholders of Great Western Directories, Inc.
(collectively, the "GREAT WESTERN SHAREHOLDERS") by the issuance of Parent
Common Stock to the Great Western Shareholders; and (iv) the satisfaction of the
other conditions to closing set forth in this Restated Agreement, the Restated
Company Agreement and the Restated Big Stuff Agreement.
B-1
<PAGE>
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
ARTICLE I--TERMS OF THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Restated Agreement, the Merger shall be consummated in accordance with the Texas
Business Corporation Act (the "TEXAS CORPORATION ACT") and the General
Corporation Law of the State of Delaware (together with the Texas Corporation
Act, the "CORPORATION LAWS"). At the Effective Time, upon the terms and subject
to the conditions of this Restated Agreement, Acquisition Subsidiary shall be
merged with and into Web in accordance with the Corporation Laws and the
separate existence of Acquisition Subsidiary shall thereupon cease, and Web, as
the surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall
continue its corporate existence under the laws of the State of Texas as a
subsidiary of Parent and under the corporate name "Web YP, Inc." The Certificate
of Incorporation of Web shall be the certificate of incorporation of the
Surviving Corporation. The parties shall prepare and execute a certificate of
merger in a form to be agreed to by the parties hereto, acting reasonably (the
"CERTIFICATE OF MERGER"), in order to comply in all respects with the
requirements of the Corporation Laws and with the provisions of this Restated
Agreement.
1.2 EFFECTIVE TIME.
(a) EFFECTIVE TIME OF THIS RESTATED AGREEMENT. Despite its execution,
no term, provision, right or obligation under or pursuant to this Restated
Agreement shall be effective, unless and until the later of (i) the
execution of this Restated Agreement; and (ii) receipt by Parent's Board of
Directors from its financial advisors, PaineWebber Incorporated or such
other investment banking firm selected by Parent's Board of Directors, of a
written opinion addressed to it for inclusion in the Proxy Statement to the
effect that the consideration to be paid, in the aggregate, by the Parent in
the transactions contemplated by this Restated Agreement, the Restated
Company Agreement, the Restated Big Stuff Agreement, including the lending
by Richard O'Neal and Richard Reid to Web YP and/or Big Stuff of up to an
aggregate of Six Million Dollars ($6,000,000) and the agreement relating to
the redemption of the Great Western Notes, is fair to Parent from a
financial point of view. The parties to this Restated Agreement are parties
to that certain Web YP Acquisition Agreement dated as of June 3, 1999 (the
"JUNE 3 WEB YP AGREEMENT"). Unless and until the later of the events
described in clauses (i) and (ii) hereof occurs, the June 3 Web YP Agreement
shall remain in full force and effect, subject to termination of such
agreement in accordance with its terms. Immediately upon the execution of
this Restated Agreement, as described in clause (i) above, and the receipt
by Parent's Board from its financial advisors of a written opinion, as
described in clause (ii) above, this Restated Agreement shall become
effective and the June 3 Web YP Agreement shall terminate and none of the
parties thereto shall have any obligations thereunder.
(b) EFFECTIVE TIME OF THE MERGER. The Merger shall become effective as
of the time of the filing of the Certificate of Merger with the Secretary of
State of the State of Texas and the Secretary of State of the State of
Delaware in accordance with the applicable provisions of the Corporation
Laws or at such later time as may be specified in the Certificate of Merger.
The Certificate of Merger shall be filed, and the closing of the Merger (the
"CLOSING") shall occur three (3) business days after all of the conditions
set forth in this Restated Agreement have been satisfied or waived by the
party or parties entitled to the benefit of the same; PROVIDED, HOWEVER,
that if such conditions are not satisfied or waived by January 31, 2000, the
Closing shall be automatically postponed for seven (7) days and will
continue to be postponed for continuous seven (7) day periods until
February 28, 2000, unless another time is agreed to by Parent and Web. If
such conditions are not satisfied or waived by February 28, 2000, the
Closing shall be automatically
B-2
<PAGE>
postponed until March 1, 1999, unless another time is agreed to in writing
by Parent and Web. The Closing shall occur at the offices of Blackwell
Sanders Peper Martin LLP, 720 Olive Street, Suite 2400, St. Louis, Missouri
63101, unless another place is agreed to in writing by Parent and Web. The
time when the Merger shall become effective is herein referred to as the
"EFFECTIVE TIME" and the date on which the Effective Time occurs is herein
referred to as the "CLOSING DATE."
1.3 MERGER CONSIDERATION. Subject to the provisions of this Restated
Agreement and any applicable backup or other withholding requirements, each of
the issued and outstanding shares ("WEB SHARES") of common stock, no par value
per share, of Web ("WEB COMMON STOCK") as of the Effective Time shall be
converted into the right to receive, and there shall be paid and issued as
hereinafter provided, in exchange for the Web Shares, 309.0909 shares (the
"EXCHANGE RATIO") of Parent Common Stock, par value $.0001 per share ("PARENT
COMMON STOCK"), plus cash in lieu of any fractional share as hereinafter
provided (the "MERGER CONSIDERATION"). The Exchange Ratio is calculated based on
the assumption that all outstanding options and warrants to purchase Web Common
Stock will be exercised effective on or before the Closing Date. If any of such
options or warrants are not so exercised, the Exchange Ratio shall be increased
to reflect the actual number of shares of Web Common Stock issued and
outstanding as of the Closing Date; PROVIDED, HOWEVER, that Parent shall have no
obligation with respect to any such unexercised options and warrants.
No fractional shares of Parent Common Stock shall be issued pursuant to the
Merger nor will any fractional share interest involved entitle the holder
thereof to vote, to receive dividends or to exercise any other rights as a
shareholder of Parent. In lieu thereof, any Person who would otherwise be
entitled to a fractional share of Parent Common Stock pursuant to the provisions
hereof shall receive an amount in cash equal to the value of such fractional
share. The value of such fractional share for purposes hereof shall be the
product of such fraction multiplied by Five and 50/100 Dollars ($5.50).
Each share of Web Common Stock held in the treasury of Web or by a
wholly-owned subsidiary of Web shall be cancelled as of the Effective Time and
no Merger Consideration shall be payable with respect thereto. From and after
the Effective Time, there shall be no further transfers on the stock transfer
books of Web of any of the Web Shares outstanding prior to the Effective Time.
Subject to the provisions of this Restated Agreement, at the Effective Time,
all the shares of Acquisition Subsidiary common stock outstanding immediately
prior to the Merger shall be converted, by virtue of the Merger and without any
action on the part of the holder thereof, into one share of the common stock of
the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation.
1.4 STOCKHOLDERS' RIGHTS UPON MERGER. Upon consummation of the Merger, the
Certificates shall cease to represent any rights with respect thereto, and,
subject to applicable Law (as hereinafter defined) and this Restated Agreement,
the Certificates shall only represent the right to receive the Merger
Consideration including the amount of cash, if any, payable in lieu of
fractional shares of Parent Common Stock into which the Web Shares have been
converted pursuant to this Restated Agreement.
1.5 SURRENDER AND EXCHANGE OF SHARES. At the Effective Time, each holder
of a Web Share shall surrender and deliver the Certificates and transmittal
letter (the "LETTER OF TRANSMITTAL") to Continental Stock Transfer and Trust
Company. Upon such surrender and delivery, the holder shall receive a
certificate representing the number of whole shares of Parent Common Stock into
which such holder's Web Shares have been converted pursuant to this Restated
Agreement plus the amount of cash payable in lieu of any fractional share. Until
so surrendered and exchanged, each outstanding Certificate after the Effective
Time shall be deemed for all purposes to evidence the right to receive that
number of whole shares of Parent Common Stock into which the Web Shares have
been converted pursuant to this Restated Agreement, plus the amount of cash
payable in lieu of any fractional share;
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PROVIDED, HOWEVER, that no dividends or other distributions, if any, in respect
of the shares of Parent Common Stock, declared after the Effective Time and
payable to holders of record after the Effective Time, shall be paid to the
holders of any unsurrendered Certificates until such Certificates and Letters of
Transmittal are surrendered and delivered as provided herein. Subject to
applicable Law, after the surrender and exchange of the Certificates, the record
holders thereof will be entitled to receive any such dividends or other
distributions without interest thereon, which theretofore have become payable
with respect to the number of shares of Parent Common Stock for which such
Certificates were exchangeable. Holders of any unsurrendered Certificates shall
not be entitled to vote Parent Common Stock until such Certificates are
exchanged pursuant to this Restated Agreement.
1.6 DIRECTORS. Immediately following the Closing Date, the Board of
Directors of the Parent shall be restructured to be composed of eight (8)
members as follows: (i) one director chosen by Parent and one director chosen by
ICL to serve three (3) year terms; (ii) one director chosen by Parent and one
director chosen by ICL and one director to be agreed to by Parent, ICL and
WorldPages to serve two (2) year terms; and (iii) one director chosen by Parent
and one director chosen by ICL and one director to be agreed to by Parent, ICL
and WorldPages to serve one (1) year terms. Parent currently intends to nominate
Richard O'Neal and two (2) individuals to be named at or prior to Closing. The
directors to be nominated by ICL are currently anticipated to be Wilmot
Matthews, George Anderson and Robert Flynn. In addition, for a period of one (1)
year following the Closing Date, each of Parent and ICL may designate one party
to attend any and all Board of Directors meetings, as non-voting,
non-participating observers only (the "OBSERVERS"). Parent shall reimburse the
Observers for those expenses incurred in connection with attending Board of
Directors meetings, including travel expenses, in the same manner and to the
same extent that Parent reimburses its directors for such expenses. The parties
hereto expressly acknowledge and agree that this SECTION 1.6 is not intended to,
and does not, except with regard to the initial Board of Directors of Parent
referenced in this SECTION 1.6, impose any requirement that the Board of
Directors of Parent be comprised of the individuals listed in this SECTION 1.6
or that any Person has a right to designate a certain individual or a certain
number of individuals as nominees to the Board of Directors of Parent.
1.7 BYLAWS. At and after the Effective Time, the Bylaws of Acquisition
Subsidiary in effect at the Effective Time shall be the Bylaws of the Surviving
Corporation (subject to any subsequent amendment).
1.8 OTHER EFFECTS OF MERGER. The Merger shall have all further effects as
specified in the applicable provisions of the Corporation Laws.
1.9 TAX-FREE REORGANIZATION. The parties intend that the Merger qualify as
a tax-free reorganization pursuant to Section 368 of the Code. The parties
hereto hereby adopt this Restated Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368(a) of the Treasury regulations.
1.10 CONVERTIBLE NOTE. At any time between the date hereof and Closing,
O'Neal and Reid may continue to lend up to Six Million Dollars ($6,000,000) to
Web or Big Stuff pursuant to a "CONVERTIBLE NOTE", described below. The
Convertible Note includes amounts lent by O'Neal and Reid to Web or Big Stuff
since January 1, 1999. The Convertible Note will provide additional working
capital required by Web or Big Stuff (i) to consummate the contemplated
contractual arrangements with Excite and to fulfill its obligations thereunder,
(ii) to pay for extraordinary capital expenditures approved in advance by a
disinterested majority of the Board of Directors of the Parent, including
consummation of contractual arrangements with other entities similar to those
with Excite, or (iii) for working capital purposes, including for ordinary
capital expenditures. The conversion feature of the Convertible Note shall
provide that the principal amount of the Convertible Note, but not the accrued
but unpaid interest, shall be automatically converted into Parent common stock
at Closing at a conversion price of $5.50 per share. If the acquisition of
WorldPages contemplated by this Restated Agreement and the
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Restated Big Stuff Agreement shall not be consummated, the conversion feature
shall not be operable, and Parent shall have no obligations under the
Convertible Note. The parties agree that notwithstanding anything herein or in
the Restated Big Stuff Agreement to the contrary, there shall be no "doubling"
of the amount which may be lent by O'Neal and Reid to Web or Big Stuff and that
an aggregate maximum amount of $6,000,000 may be lent by O'Neal and Reid to Web
and Big Stuff, collectively.
1.11 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm or record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or Web or otherwise to carry out
this Restated Agreement, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of
Acquisition Subsidiary or Web, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of Acquisition
Subsidiary or Web, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Restated Agreement.
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF
WEB AND THE WEB SHAREHOLDERS
Web, on behalf of itself and the Web Shareholders, jointly and severally
represent and warrant to and covenant with Parent as follows:
2.1 ORGANIZATION AND GOOD STANDING. Web is a corporation duly organized
and validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Web is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the character of the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not have a Web Material
Adverse Effect. SCHEDULE 2.1 sets forth a complete and accurate list of the
jurisdictions of incorporation or organization and qualification or license of
Web. Web has heretofore delivered to Parent accurate and complete copies of the
Certificates or Articles of Incorporation and Bylaws, or equivalent governing
instruments, as currently in effect, of Web.
2.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Web (the "WEB STOCK") consists of 10,000 shares of common stock. As of the date
hereof, (a) 6,086 shares of Web Stock were issued and outstanding, and
(b) 3,914 shares of Web Stock were issuable upon exercise of outstanding
warrants and options (after giving effect to the acceleration of vesting to be
triggered by the transactions contemplated by this Restated Agreement). No other
capital stock of Web is issued or outstanding. All issued and outstanding shares
of the Web Stock are duly authorized, validly issued, fully paid and
non-assessable and were issued free of preemptive rights and in compliance with
applicable corporate and securities Laws. Except as set forth on SCHEDULE 2.2,
as of the date of this Restated Agreement there are no outstanding rights,
reservations of shares, subscriptions, warrants, puts, calls, unsatisfied
preemptive rights, options or other agreements of any kind relating to any of
the capital stock or any other security of Web, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. There are no restrictions upon the transfer of
or otherwise pertaining to the securities (including, but not limited to, the
ability to pay dividends thereon) or retained earnings of Web or the ownership
thereof other than those, if any, described on SCHEDULE 2.2 or those imposed
generally by the Securities Act, the Securities Exchange Act, applicable state
or foreign securities Laws or applicable corporate Law.
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2.3 SUBSIDIARIES. Web does not and will not, from the date of this
Restated Agreement until the Closing Date, hold, directly or indirectly, any
capital stock or other interest in any Person.
2.4 AUTHORIZATION; BINDING AGREEMENT. Web and the Web Shareholders have
all requisite power and authority to execute and deliver this Restated Agreement
and the Web Transaction Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Restated
Agreement and the other agreements and documents referred to herein and to be
executed in connection herewith to which Web or any Web Shareholder is or will
be a party or a signatory (the "WEB TRANSACTION AGREEMENTS") and the
consummation of the transactions contemplated hereby and thereby including, but
not limited to the Merger, have been or will be duly and validly authorized by
Web's Board of Directors and no other corporate or other proceedings on the part
of Web or any Web Shareholder are necessary to authorize the execution and
delivery of this Restated Agreement and the Web Transaction Agreements or to
consummate the transactions contemplated hereby or thereby (other than the
adoption of this Restated Agreement by the Web Shareholders in accordance with
the Texas Corporation Act and the Articles of Incorporation and Bylaws of Web).
This Restated Agreement has been duly and validly executed and delivered by Web
and the Web Shareholders and constitutes, and upon execution and delivery
thereof as contemplated by this Restated Agreement, the Web Transaction
Agreements will constitute, the legal, valid and binding obligations of Web and
the Web Shareholders, enforceable against Web and the Web Shareholders in
accordance with its and their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies (collectively, the "ENFORCEABILITY EXCEPTIONS").
2.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("CONSENT") any Governmental
Authority on the part of Web or any of the Web Shareholders is required in
connection with the execution or delivery by Web or the Web Shareholders of this
Restated Agreement and the Web Transaction Agreements or the consummation by Web
or the Web Shareholders of the transactions contemplated hereby or thereby other
than (i) the filing of the Certificate of Merger with the Secretary of State of
the States of Texas and Delaware; (ii) filings with the SEC and state securities
laws administrators, (iii) Consents from or with Governmental Authorities set
forth on SCHEDULE 2.5, (iv) filings under the HSR Act, and (v) those Consents
that, if they were not obtained or made, do not or would not have a Web Material
Adverse Effect.
2.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Web Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Web and the Web Shareholders
with any of the provisions hereof or thereof will not (i) conflict with or
result in any breach of any provision of the Certificate and/or Articles of
Incorporation or Bylaws or other governing instruments of Web, (ii) except as
set forth on SCHEDULE 2.6, require any Consent under or result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or augment the performance required) under any of the terms, conditions or
provisions of any Web Material Contract or other obligation to which Web or any
Web Shareholder is a party or by which any of them or any of their properties or
assets may be bound, (iii) result in the creation or imposition of any lien or
encumbrance of any kind upon any of the assets of Web or (iv) subject to
obtaining the Consents from Governmental Authorities referred to in SECTION 2.5
above, contravene any Law currently in effect to which Web or any Web
Shareholder or its or any of its respective assets or properties are subject,
except in the case of clauses (ii), (iii) and (iv) above, for any deviations
from the foregoing which do not or would not have a Web Material Adverse Effect.
2.7 LITIGATION. Except as set forth in SCHEDULE 2.7, there is no action,
cause of action, claim, demand, suit, proceeding, citation, summons, subpoena,
inquiry or investigation of any nature, civil,
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criminal, regulatory or otherwise, in law or in equity, by or before any court,
tribunal, arbitrator, mediator or other Governmental Authority ("LITIGATION")
pending or, to the knowledge of the Web Shareholders or Web, threatened against
Web or any officer, director, employee or agent thereof, in his or her capacity
as such, or as a fiduciary with respect to any Benefit Plan of Web, or otherwise
relating, in a manner that could have a Web Material Adverse Effect, to Web or
the securities of Web, or any properties or rights of Web or that could prevent
or delay the consummation of the transactions contemplated by this Restated
Agreement.
2.8 WEB FINANCIAL STATEMENTS. The audited financial statements of Web as
of and for the fiscal year ended December 31, 1998, and the unaudited financial
statements of Web as of and for the six months ended June 30, 1999 (the "WEB
FINANCIAL STATEMENTS") have been provided to Parent. The Web Financial
Statements were prepared in accordance with generally accepted accounting
principles applicable to the business of Web consistently applied in accordance
with past accounting practices and fairly present (including, but not limited
to, the inclusion of all adjustments with respect to interim periods which are
necessary to present fairly the financial condition and assets and liabilities
or the results of operations of Web except as may be indicated therein or in the
notes thereto, subject to normal year-end adjustment in the ordinary course with
respect to certain items immaterial in amount or effect and the exclusion of
footnote disclosure in interim Web Financial Statements) the financial condition
and assets and liabilities or the results of operations of Web as of the dates
and for the periods indicated. Except as reflected in the Web Financial
Statements, as of their respective dates, Web did not have any debts,
obligations, guaranties of obligations of others or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the Web Financial Statements.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 2.9, since June 30, 1999, through the date of this Restated Agreement,
there has not been: (i) any Event that could reasonably be expected to have a
Web Material Adverse Effect; (ii) any declaration, payment or setting aside for
payment of any dividend (except to the Web Shareholders, but only if the entire
amount of such dividend is paid to Big Stuff as a capital contribution) or other
distribution or any redemption, purchase or other acquisition of any shares of
capital stock or securities of Web; (iii) any return of any capital or other
distribution of assets to stockholders of Web (except to Web or a subsidiary
wholly owned by Web); (iv) other than in the ordinary course of business any
investment of a capital nature by Web by the purchase of any property or assets
except to the extent such investment is in the ordinary course of business and
is individually or in the aggregate, not in excess of $75,000; (v) any
acquisition (by merger, consolidation, acquisition of stock or assets or
otherwise) of any Person or business; (vi) any sale, disposition, pledge,
mortgage or other transfer of assets or properties of Web other than in the
ordinary course of business consistent with past practice; (vii) any action or
agreement or undertaking by Web to take any action that, if taken or done on or
after the date hereof, would result in a breach of SECTION 6.6 below;
(viii) any employment, severance or consulting agreement entered into by Web
with any stockholder, officer, director, agent, employee or consultant of Web or
any amendment or modification to, or termination of, any current employment,
severance or consulting agreement to which Web is a party or by which it is
bound; (ix) any forgiveness, cancellation, compromise, settlement, waiver or
release of any debts, claims, rights or Litigation, in each case in excess,
individually or in the aggregate, of $25,000; (x) any agreement, authorization
or commitment to take, whether in writing or otherwise, any action which, if
taken prior to the date hereof, would have made any representation or warranty
of Web in this Restated Agreement untrue or incorrect in any material respect;
(xi) any failure by Web to conduct its business in the ordinary course
consistent with past practice, it being understood, however, that Web has
accelerated and intensified its business activities since March 31, 1999,
including a payment in the amount of $3,500,000 to be made to Excite.
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2.10 COMPLIANCE WITH LAWS. The business of Web has been operated in
compliance with all Laws applicable thereto, except for any instances of
non-compliance which do not and would not have a Web Material Adverse Effect.
2.11 PERMITS. (i) Web has all permits, certificates, licenses, approvals,
and other authorizations required in connection with the operation of its
business (collectively, "WEB PERMITS"), (ii) Web is not in violation of any Web
Permit, and (iii) no proceedings are pending or, to the knowledge of Web,
threatened, to revoke or limit any Web Permit, except, in the case of
clause (i) or (ii) above, those the absence or violation of which do not and
would not have a Web Material Adverse Effect.
2.12 FINDERS AND INVESTMENT BANKERS. Neither Web nor any of its officers
or directors has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
2.13 CONTRACTS. Except as set forth in SCHEDULE 2.13, Web is not a party
or subject to any material note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal ("WEB MATERIAL
CONTRACT"). For purposes of this SECTION 2.13, a note, bond, mortgage,
indenture, contract, lease, license, agreement, understanding, instrument, bid
or proposal shall be considered a Web Material Contract (a) if it is with an
affiliate of Web, (b) if the financial obligation of Web thereunder or, if
applicable, to the assets or properties of Web could exceed $25,000 after the
Closing Date, or (c) if it provides for any exclusivity or non-competition
restrictions applicable to Web. Web has made available to Parent true and
accurate copies of the Web Material Contracts. All such Web Material Contracts
are valid and binding and are in full force and effect and enforceable in
accordance with their respective terms, subject to the Enforceability
Exceptions. Any and all transactions between or involving Web and an affiliate
thereof were entered into in the ordinary course of business and are upon fair
and reasonable terms not materially less favorable than Web could obtain or
become entitled to in an arm's-length transaction with a Person that is not an
affiliate. Except as set forth in SCHEDULE 2.5 (i) no Consent of any Person is
needed in order that each such Web Material Contract shall continue in full
force and effect in accordance with its terms without penalty, acceleration or
rights of early termination by reason of the consummation of the transactions
contemplated by this Restated Agreement, and (ii) Web is not in material
violation or breach of or default under any such Web Material Contract, nor to
Web's knowledge is any other party to any such Web Material Contract in material
violation or breach of or default under any such Web Material Contract.
2.14 EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 2.14, there
are no Benefit Plans (as defined below) maintained or contributed to by Web
under which Web could incur any liability. A "BENEFIT PLAN" shall mean (i) an
employee benefit plan as defined in Section 3(3) of the ERISA, even if, because
of some other provision of ERISA, such plan is not subject to any or all of
ERISA's provisions, and (ii) whether or not described in the preceding clause,
(a) any pension, profit sharing, stock bonus, deferred or supplemental
compensation, retirement, thrift, stock purchase or stock option plan, or any
other compensation, welfare, insurance, medical, hospitalization, fringe benefit
or retirement plan, program, policy, course of conduct, understanding or
arrangement of any kind whatsoever, whether formal or informal, oral or written,
providing for benefits for or the welfare of any or all of the current or former
employees or agents of Web or their beneficiaries or dependents, (b) a
multi-employer plan as defined in Section 3(37) of ERISA (a "MULTI-EMPLOYER
PLAN") or in any other applicable Law, or (c) a multiple employer plan as
defined in Section 413 of the Code or in any other applicable Law.
With respect to each Benefit Plan (where applicable): Web has made available
to Parent complete and accurate copies of (i) all plan and trust texts and
agreements, insurance contracts and other funding arrangements; (ii) annual
reports on the Form 5500 series for the last three (3) years; (iii) financial
statements and/or annual and periodic accountings of plan assets for the last
three
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(3) years; (iv) the most recent determination letter received from the IRS;
(v) actuarial valuations for the last three (3) years; and (vi) the most recent
summary plan description as defined in ERISA.
No Web Benefit Plan is a defined benefit pension plan subject to Title IV of
ERISA or Section 412 of the Code. Each of the Web Benefit Plans has been
maintained in compliance with its terms and all applicable Law, except where the
failure to do so would not result in a Web Material Adverse Effect or a
Surviving Corporation Material Adverse Effect. Web does not contribute to, and
does not have any outstanding liability with respect to, any Multi-employer
Plan.
Except as set forth in SCHEDULE 2.14, the consummation of the Merger will
not, either alone or in conjunction with another Event: (i) entitle any
individual to severance pay, or (ii) accelerate the time of payment or vesting
of benefits or increase the amount of compensation due to any individual.
2.15 TAXES AND RETURNS.
(a) Except as disclosed in SCHEDULE 2.15, Web has timely filed, or
caused to be timely filed, all federal, state, local and foreign income,
gross receipts, sales, use, property, production, payroll, franchise,
withholding, employment, social security, license, excise, transfer, gains,
and other tax returns or reports required to be filed by it, and has paid,
collected or withheld, or caused to be paid, collected or withheld, all
taxes and governmental charges, assessments and contributions of any nature
whatsoever including, but not limited to, any related penalties, interest
and liabilities (any of the foregoing being referred to herein as a "TAX"),
required to be paid, collected or withheld, other than such Taxes for which
adequate reserves in the Web Financial Statements have been established or
which are being contested in good faith and have been disclosed in writing
to Parent prior to the date of this Restated Agreement. Except as set forth
in SCHEDULE 2.15, there are no claims or assessments pending against Web for
any alleged deficiency in any Tax, and Web does not know of any threatened
Tax claims or assessments against Web (other than those for which adequate
reserves in the Web Financial Statements have been established or which are
being contested in good faith and have been disclosed in writing to Parent
prior to the date of this Restated Agreement). Except as set forth in
SCHEDULE 2.15, Web has not made an election under Section 338 of the Code
and has not taken any action that would result in any Tax liability of Web
as a result of a deemed election within the meaning of Section 338 of the
Code. Except as set forth in SCHEDULE 2.15, Web does not have any waivers or
extensions of any applicable statute of limitations to assess any Taxes.
Except as set forth in SCHEDULE 2.15, there are no outstanding requests by
Web for any extension of time within which to file any return or within
which to pay any Taxes shown to be due on any return. Web (i) has elected to
be treated as, and from the date of such election until the date hereof has
met, and currently meets, the eligibility requirements for treatment as, an
"S" corporation under the Code; and (ii) as of the date hereof, has no
subsidiaries for Tax purposes.
(b) A listing of all Tax sharing agreements or similar arrangements with
respect to or involving Web is set forth in SCHEDULE 2.15.
(c) Except as set forth in SCHEDULE 2.15, Web has not made or become
obligated to make, or will, as a result of the transactions contemplated by
this Restated Agreement, make or become obligated to make, any "excess
parachute payment" as defined in Section 280G of the Code (without regard to
subsection (b)(4) thereof).
(d) Web has disclosed on its federal income tax returns all positions
taken therein that could give rise to a substantial understatement of
federal income tax liability within the meaning of Section 6662(d) of the
Code.
(e) There are no liens for Taxes on the assets of Web except for
statutory liens for current Taxes not yet due and payable.
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(f) All elections with respect to Taxes affecting Web are set forth in
SCHEDULE 2.15 or, with respect to elections made on or before December 31,
1996, are reflected in the Tax returns of Web filed and provided to Parent
prior to the date of this Restated Agreement. Web has not: (i) made and will
not make a deemed dividend election under Treas. Reg. Section
1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code; (ii) consented at any time under Section 341(f)(l) of the Code to have
the provisions of Section 341(f)(2) of the Code apply to any disposition of
the assets of Web; (iii) agreed, and is not required, to make any adjustment
under Section 481(a) of the Code by reason of a change in accounting method
or otherwise; (iv) made an express election, and is not required, to treat
any asset of Web as owned by another Person for federal income Tax purposes
or as tax-exempt bond financed property or tax-exempt use property within
the meaning of Section 168 of the Code; (v) made any of the foregoing
elections and is not required to apply any of the foregoing rules under any
comparable state, foreign or local income Tax provision.
(g) Except as set forth in SCHEDULE 2.15, Web is not a partner or member
in any joint venture, partnership, limited liability company or other
arrangement or contract that is or could be treated as a partnership for
federal income Tax purposes.
(h) Except as set forth in SCHEDULE 2.15, Web is not a party to or
otherwise subject to any arrangement having the effect of or giving rise to
the recognition of a deduction or loss before the Closing Date and a
corresponding recognition of taxable income or gain after the Closing Date,
or any other arrangement that would have the effect of or give rise to the
recognition of taxable income or gain by Web after the Closing Date without
the receipt of or entitlement to a corresponding amount of cash.
2.16 LIABILITIES. From June 30, 1999, through the date of this Restated
Agreement, except as expressly disclosed in SCHEDULE 2.16 or in the Web
Financial Statements, Web does not have any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, whether or not of a kind
required by generally accepted accounting principles to be set forth in a
financial statement, other than those incurred in the ordinary course of
business or in an amount not in excess of $25,000 individually or $100,000 in
the aggregate. Except as set forth on SCHEDULE 2.16 or in the Web Financial
Statements, as of the date of this Restated Agreement, Web is not subject to any
(i) obligations in respect of borrowed money, (ii) obligations evidenced by
bonds, debentures, notes or other similar instruments, (iii) obligations which
would be required by generally accepted accounting principles to be classified
as "capital leases," (iv) obligations to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business and payable not more than twelve (12) months from the date of
incurrence, and (v) guaranties of any obligations of any other Person.
2.17 ENVIRONMENTAL MATTERS. As of the date of this Restated Agreement,
(i) except where the failure to so comply will not have a Web Material Adverse
Effect, Web is in compliance with all applicable Environmental Laws (as
hereinafter defined), (ii) there is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the knowledge
of Web, threatened against Web or any of its properties pursuant to
Environmental Laws, and (iii) except as set forth on SCHEDULE 2.17, there are no
past or present Events which reasonably may be expected to prevent compliance
with, or which have given rise to or which reasonably may be expected to give
rise to liability on the part of Web under Environmental Laws, except for those
which would not reasonably be expected to give rise to a Web Material Adverse
Effect. As used herein the term "ENVIRONMENTAL LAWS" shall mean Laws relating to
pollution, waste control, the generation, presence or disposal of asbestos,
hazardous or toxic wastes or substances, the protection of the environment,
environmental activity or public health and safety.
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2.18 INTELLECTUAL PROPERTY; FICTITIOUS NAMES. For purposes of this
Restated Agreement, "INTELLECTUAL PROPERTY" shall mean all patents, trademarks,
service marks, trade names, copyrights, franchises and similar rights of or used
by Web, all applications for any of the foregoing and all permits, grants and
licenses or other rights running to or from Web relating to any of the
foregoing. Except as set forth on SCHEDULE 2.18, (i) Web owns, or is licensed
to, or otherwise has, the full right to use all Intellectual Property currently
used or proposed to be used in its business, (ii) Web has not received, as of
the date of this Restated Agreement, notice of any charge or claim of any Person
relating to such Intellectual Property or any process or confidential
information of Web ("IP CLAIM NOTICE") and does not know of any basis for any
such charge or claim, and Web has sufficient rights in the Intellectual Property
to use it in the manner currently used or proposed to be used in its business,
and (iii) Web and its corporate predecessors, if any, have not conducted
business at any time during the period beginning five (5) years prior to
June 3, 1999 under any corporate, trade or fictitious names other than their
current corporate names. Web shall promptly notify Parent of any IP Claim Notice
received by Web after the date of this Restated Agreement.
2.19 REAL ESTATE.
(a) Web owns no real property.
(b) SCHEDULE 2.19(b) sets forth a true, correct and complete schedule as
of the date of this Restated Agreement of all material leases, subleases,
easements, rights-of-way, licenses or other agreements under which Web uses
or occupies, or has the right to use or occupy, now or in the future, any
real property or improvements thereon (the "WEB REAL PROPERTY LEASES").
Except for the matters listed on said SCHEDULE 2.19(b), Web holds the
leasehold estate under or other interest in each Web Real Property Lease
free and clear of all liens, encumbrances and other rights of occupancy
other than statutory landlords' or mechanics' liens which have not been
executed upon.
2.20 CORPORATE RECORDS. The corporate record books of or relating to Web
made available to Parent by Web contain accurate and complete records of
(i) all corporate actions of the stockholders and directors (and committees
thereof) of Web, (ii) the Certificate and/or Articles of Incorporation, Bylaws
and/or other governing instruments, as amended, of Web, and (iii) the issuance
and transfer of stock of Web. Except as set forth on SCHEDULE 2.20, Web does not
have any of its material records or information recorded, stored, maintained or
held off the premises of Web.
2.21 TITLE TO AND CONDITION OF PERSONAL PROPERTY. Web has good and
marketable title to, or a valid leasehold interest in, all material items of any
personal property reflected in the Web Financial Statements dated June 30, 1999,
or currently used in the operation of its business, and such property or
leasehold interests are free and clear of all liens, claims, charges, security
interests, options, or other title defects or encumbrances, except for property
disposed of in the ordinary course since the date thereof consistent with the
provisions of SECTION 2.9 above, and such exceptions to title and liens, claims,
charges, security interests, options, title defects or encumbrances which do not
and would not have a Web Material Adverse Effect. As of the date of this
Restated Agreement, all such personal property is in good operating condition
and repair (ordinary wear and tear excepted), is suitable for the use to which
the same is customarily put by Web, is free from material defects and is of a
quality and quantity presently usable in the ordinary course of the operation of
the business of Web, except where such failure would not have a Web Material
Adverse Effect.
2.22 NO ADVERSE ACTIONS. Except as set forth on SCHEDULE 2.22, there is no
existing, pending or, to the knowledge of Web, threatened termination,
cancellation, limitation, modification or change in the business relationship of
Web, with any supplier, customer or other Person except as are immaterial
individually and in the aggregate and are in the ordinary course of business.
None of Web, or, to the knowledge of Web or any Web Shareholder, any director,
officer, agent, employee or other Person acting on behalf of Web or any Web
Shareholder has used any corporate funds for unlawful
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contributions, payments, gifts, entertainment or other unlawful expenses
relating to political activity, or made any direct or indirect unlawful payments
to governmental or regulatory officials or others.
2.23 LABOR MATTERS. Except as may be set forth on SCHEDULE 2.13 or 2.23,
Web does not have any obligations, contingent or otherwise, under any
employment, severance or consulting agreement, collective bargaining agreement
or other contract with a labor union or other labor or employee group. To the
knowledge of Web or any Web Shareholder, as of the date of this Restated
Agreement, there are no efforts presently being made or threatened by or on
behalf of any labor union with respect to the unionizing of employees of Web. As
of the date of this Restated Agreement, there is no claim by an employee, an
employee group, a labor union or other labor group or a Governmental Authority
against Web pending or, to the knowledge of Web or any Web Shareholder,
threatened before the National Labor Relations Board or any other court or
tribunal respecting employment and employment practices, terms and conditions of
employment, termination of employment or the compliance with any legislation
concerning labor matters, including, without limiting the generality of what
precedes, labor relations, occupational health and safety, minimum labor
standards, industrial accidents and occupational diseases; there is no labor
strike, dispute, slowdown or stoppage pending or, to the knowledge of Web or any
Web Shareholder, threatened against or involving Web; no representation question
exists respecting the employees of Web; no grievance or internal or informal
complaint exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted. As of the date of this Restated Agreement, there has not been any
material adverse change in relations with employees or agents of Web as a result
of any announcement of the transactions contemplated by this Restated Agreement.
Web shall promptly notify Parent upon knowledge by Web or any Web Shareholder of
the occurrence after the date hereof of any matter referenced in this
SECTION 2.23.
2.24 INSURANCE. Web has obtained and maintains in full force and effect
insurance with responsible and reputable insurance companies or associations in
such amounts, on such terms and covering such risks, including fire and other
risks insured against by extended coverage, public liability insurance and
insurance against claims for personal injury or death or property damage
occurring in connection with the activities of Web or any properties owned,
occupied or controlled by it, as is customary and prudent. Since January 1,
1997, Web has not received notice of default under, or intended cancellation or
nonrenewal of, any policies of insurance, and Web has not been refused any
insurance coverage by an insurance carrier to which it has applied for
insurance.
2.25 DISCLOSURE. All information and documents provided prior to the date
of this Restated Agreement, and all information and documents subsequently
provided, to Parent or its representatives or lenders by or on behalf of Web in
connection with the transactions contemplated by this Restated Agreement are or
contain, or will be or will contain as to subsequently provided information or
documents, true, accurate and complete information in all material respects with
respect to the subject matter thereof and are, or will be as to subsequently
provided information or documents, reasonably responsive to any specific request
made by or on behalf of Parent or its representatives or lenders.
2.26 TAX. Neither Web nor the Web Shareholders know of any fact or have
taken any action, in each case with respect to Web or the Web Shareholders, that
could be reasonably expected to prevent the transaction contemplated hereby from
qualifying as a tax-free reorganization pursuant to Section 368 of the Code.
2.27 YEAR 2000 COMPLIANCE. Except as set forth in SCHEDULE 2.27 attached
hereto, Web has taken all commercially reasonable and prudent measures designed
to make all material aspects of Web's operations Year 2000 Compliant, to the
extent within Web's control. As used in this section, "YEAR 2000 COMPLIANT"
shall mean that any and all computer hardware including but not limited to
mainframe computers, personal computers, servers and related equipment),
computer software, programming languages, code, electronic applications and
systems (including but not limited to LANs, WANs, inter/
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intranet systems and client/server systems), programs, files, databases, chips,
microprocessors and any and all electronic or mechanical functionalities in any
way used in connection with, relied upon or relating to a specified subject
matter (e.g., a business, product or service) accurately and completely process
(in the manner intended, including but not limited to calculating, comparing and
sequencing) on a timely basis any and all data which are in any way dependent
upon usage of calendar dates, including but not limited to dates on or after
January 1, 2000, or time.
ARTICLE III--REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent represents and warrants to and covenants with Web as follows:
3.1 ORGANIZATION AND GOOD STANDING. Parent is a corporation duly organized
and validly existing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Active Parent
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate, power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so duly organized, validly existing and in good standing or to
have such power and authority would not have a Parent Material Adverse Effect.
Parent and each of the Active Parent Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the character
of the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a Parent Material Adverse Effect. SCHEDULE 3.1 sets forth a complete and
accurate list of the jurisdictions of incorporation or organization and
qualifications or licenses of Parent and the Active Parent Subsidiaries. Parent
has heretofore made available to Web accurate and complete copies of the
Certificates or Articles of Incorporation and Bylaws, or equivalent governing
instruments, as currently in effect, of Parent and each of the Active Parent
Subsidiaries.
3.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Parent consists of 180,000,000 shares of Parent Common Stock and 20,000,000
shares of preferred stock, par value $0.0001 per share. As of the opening of
business on the date of this Restated Agreement, (a) 20,083,953 shares of Parent
Common Stock were outstanding; (b) no shares of Parent preferred stock were
issued and outstanding; and (c) 163,307 shares of Parent Common Stock were held
as treasury shares. No other capital stock of Parent is issued or outstanding.
All issued and outstanding shares of the Parent Common Stock are duly
authorized, validly issued, fully paid and non-assessable and were issued free
of preemptive rights and in compliance with applicable corporate and securities
Laws. Except as set forth in the Parent Securities Filings or on SCHEDULE 3.2,
as of the date of this Restated Agreement there are no outstanding rights,
reservations of shares, subscriptions, warrants, puts, calls, unsatisfied
preemptive rights, options or other agreements of any kind relating to any of
the capital stock or any other security of Parent, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. There are no restrictions upon the transfer of
or otherwise pertaining to the securities (including, but not limited to, the
ability to pay dividends thereon) or retained earnings of Parent and the Active
Parent Subsidiaries or the ownership thereof other than those pursuant to the
Parent Guaranty, the Great Western Credit Agreement or those imposed generally
by the Securities Act, the Securities Exchange Act, applicable state or foreign
securities Laws or applicable corporate Law.
3.3 SUBSIDIARIES. Except as set forth on SCHEDULE 3.3, all of the capital
stock and other interests of the Active Parent Subsidiaries held by Parent are
owned by it or a Parent subsidiary, free and clear of any claim, lien,
encumbrance, security interest or agreement with respect thereto. All of the
outstanding shares of capital stock in each of the Active Parent Subsidiaries
held directly or indirectly
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by Parent are duly authorized, validly issued, fully paid and non-assessable and
were issued free of preemptive rights and in compliance with applicable
corporate and securities Laws.
3.4 AUTHORIZATION; BINDING AGREEMENT. Parent and Acquisition Subsidiary
have all requisite corporate power and authority to execute and deliver this
Restated Agreement and the Parent Transaction Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Restated Agreement and the other agreements and documents referred to herein and
to be executed in connection herewith to which Parent or Acquisition Subsidiary
is or will be a party or a signatory (the "PARENT TRANSACTION AGREEMENTS") and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the respective Boards of Directors of Parent and
Acquisition Subsidiary, as appropriate, and except for the approval of the
holders of the Parent Common Stock, no other corporate proceedings on the part
of Parent or Acquisition Subsidiary are necessary to authorize the execution and
delivery of this Restated Agreement and the Parent Transaction Agreements or to
consummate the transactions contemplated hereby or thereby, except for the
concurrence of Bank of America National Trust and Savings Association under the
Great Western Credit Agreement. This Restated Agreement has been duly and
validly executed and delivered by each of Parent and Acquisition Subsidiary and
constitutes, and upon execution and delivery thereof as contemplated by this
Restated Agreement, the Parent Transaction Agreements will constitute, the
legal, valid and binding obligations of Parent and Acquisition Subsidiary,
enforceable against each of Parent and Acquisition Subsidiary in accordance with
its and their respective terms, subject to the Enforceability Exceptions.
3.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of Parent or any of the Active Parent Subsidiaries, is
required in connection with the execution or delivery by Parent and Acquisition
Subsidiary of this Restated Agreement and the Parent Transaction Agreements or
the consummation by Parent and Acquisition Subsidiary of the transactions
contemplated hereby or thereby other than (i) filings with the SEC, state
securities laws administrators and the NYSE, (ii) Consents from or with
Governmental Authorities, (iii) filings under the HSR Act, and (iv) those
Consents that, if they were not obtained or made, do not or would not have a
Parent Material Adverse Effect.
3.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Parent Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Parent and Acquisition
Subsidiary with any of the provisions hereof or thereof will not (i) conflict
with or result in any breach of any provision of the Certificate and/or Articles
of Incorporation or Bylaws or other governing instruments of Parent or any of
the Active Parent Subsidiaries, except as set forth on SCHEDULE 3.6,
(ii) except for compliance with the requirements under the Parent Guaranty,
require any Consent under or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration or augment the
performance required) under any of the terms, conditions or provisions of any
Parent Material Contract or other obligation to which Parent or any Active
Parent Subsidiary, is a party or by which any of them or any of their properties
or assets may be bound, (iii) result in the creation or imposition of any lien
or encumbrance of any kind upon any of the assets of Parent or any Parent
Subsidiary, or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in SECTION 3.5 above, contravene any Law currently in
effect to which Parent or any Active Parent Subsidiary or its or any of their
respective assets or properties are subject, except in the case of clauses (ii),
(iii) and (iv) above, for any deviations from the foregoing which do not or
would not have a Parent Material Adverse Effect.
3.7 SECURITIES FILINGS AND LITIGATION.
(a) Parent has made available to Web true and complete copies of
(i) its Annual Reports on Form 10-K, as amended, for the years ended
December 31, 1997 and 1998, as filed with the SEC,
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(ii) its proxy statement relating to the meeting of shareholders held on
July 29, 1998, as filed with the SEC, and (iii) all other reports,
statements and registration statements and amendments thereto (including,
without limitation, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as amended) filed by Parent with the SEC since February 18, 1998.
The reports and statements set forth in clauses (i) through (iii) above, and
those subsequently provided or required to be provided pursuant to this
section, are referred to collectively as the "PARENT SECURITIES FILINGS." As
of their respective dates, or as of the date of the last amendment thereof,
if amended after filing, none of the Parent Securities Filings (including
all schedules thereto and disclosure documents incorporated by reference
therein), contained or, as to Parent Securities Filings subsequent to the
date hereof, will contain any untrue statement of a material fact or omitted
or, as to Parent Securities Filings subsequent to the date hereof, will omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Parent Securities Filings at the time of
filing or as of the date of the last amendment thereof, if amended after
filing, complied or, as to Parent Securities Filings subsequent to the date
hereof, will comply in all material respects with the Securities Exchange
Act or the Securities Act, as applicable.
(b) Except as set forth on SCHEDULE 3.7(b) attached hereto, there is no
Litigation pending or, to the knowledge of Parent, threatened against Parent
or any Active Parent Subsidiary, any officer, director, employee or agent
thereof, in his or her capacity as such, or as a fiduciary with respect to
any Benefit Plan of Parent, or otherwise relating, in a manner that could
have a Parent Material Adverse Effect, to Parent, any Active Parent
Subsidiary or the securities of any of them, or any properties or rights of
Parent or any of the Active Parent Subsidiaries, which is required to be
described in any Parent Securities Filing that is not so described. No event
has occurred as a consequence of which Parent would be required to file a
Current Report on Form 8-K pursuant to the requirements of the Securities
Exchange Act as to which such a report has not been timely filed with the
SEC. Any reports, statements and registration statements and amendments
thereof (including, without limitation, Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
Parent with the SEC after the date hereof shall be provided to Web upon such
filing.
3.8 PARENT FINANCIAL STATEMENTS. The audited consolidated and unaudited
interim financial statements of Parent and the Active Parent Subsidiaries
included in the Parent Securities Filings (the "PARENT FINANCIAL STATEMENTS")
have been made available to Web. Except as noted thereon, the Parent Financial
Statements were prepared in accordance with generally accepted accounting
principles applicable to the business of Parent and the Active Parent
Subsidiaries consistently applied in accordance with past accounting practices
and fairly present (including, but not limited to, the inclusion of all
adjustments with respect to interim periods which are necessary to present
fairly the financial condition and assets and liabilities or the results of
operations of Parent and the Active Parent Subsidiaries, subject to normal
year-end adjustments in the ordinary course with respect to certain items
immaterial in amount or effect and the exclusion of footnote disclosure in
interim Parent Financial Statements) the financial condition and assets and
liabilities or the results of operations of Parent and the Active Parent
Subsidiaries as of the dates and for the periods indicated. Except as set forth
in SCHEDULE 3.8 or as reflected in the Parent Financial Statements, as of their
respective dates, neither Parent nor any Active Parent Subsidiary had any debts,
obligations, guaranties of obligations of others or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the Parent Financial Statements.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Parent Securities Filings made available by Parent to Web prior to the date of
this Restated Agreement or in SCHEDULE 3.9 since June 30, 1999, through the date
of this Restated Agreement, there has not been: (i) any Event that could
reasonably be expected to have a Parent Material Adverse Effect; or (ii) any
agreement by
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Parent or Active Parent Subsidiary to take any action that would result in a
breach of SECTION 6.6 below.
3.10 COMPLIANCE WITH LAWS. The business of Parent and the Active Parent
Subsidiaries, has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which do not and would not have a
Parent Material Adverse Effect.
3.11 PERMITS. (i) Parent and the Active Parent Subsidiaries have all
permits, certificates, licenses, approvals, tariffs and other authorizations
required in connection with the operation of their business (collectively,
"PARENT PERMITS"), (ii) neither Parent nor any Active Parent Subsidiary is in
violation of any Parent Permit, and (iii) no proceedings are pending or, to the
knowledge of Parent, threatened, to revoke or limit any Parent Permit, except,
in the case of clause (i) or (ii) above, those the absence or violation of which
do not and would not have a Parent Material Adverse Effect.
3.12 FINDERS AND INVESTMENT BANKERS. Neither Parent nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby except that PaineWebber Incorporated
has been engaged to deliver the fairness opinion required to be delivered
pursuant to SECTION 7.1(l) and NationsBanc Montgomery Securities, L.L.C. has
been engaged to assist in the sale(s) of the CLEC Operations and a copy of the
engagement letters and other related documents have been (or will be, with
respect to the fairness opinion to be issued by PaineWebber Incorporated)
furnished to Web. Web will not be liable for any brokerage fees, commissions,
investment banking fees or other amounts to PaineWebber Incorporated or
NationsBanc Montgomery Securities, L.L.C. in connection with this Restated
Agreement, the Company Agreement, the Restated Big Stuff Agreement or any
transactions contemplated herein or therein.
3.13 CONTRACTS. Except as set forth in SCHEDULE 3.13 attached hereto,
neither Parent nor any Active Parent Subsidiary is a party to any material note,
bond, mortgage, indenture, contract, lease, license, agreement, understanding,
instrument, bid or proposal ("PARENT MATERIAL CONTRACT") required to be
described in or filed as an exhibit to any Parent Securities Filing that is not
described in or filed as required by the Securities Act or the Securities
Exchange Act, as the case may be. Parent has made available to Web true and
accurate copies of the Parent Material Contracts. All such Parent Material
Contracts are valid and binding and are in full force and effect and enforceable
in accordance with their respective terms, subject to the Enforceability
Exceptions.
3.14 CORPORATE RECORDS. The respective corporate record books of or
relating to Parent and each of the Active Parent Subsidiaries made available to
Web by Parent contain accurate and complete records of (i) all corporate actions
of the respective shareholders and directors (and committees thereof) of Parent
and the Active Parent Subsidiaries, (ii) the Certificate and/or Articles of
Incorporation, Bylaws and/or other governing instruments, as amended, of Parent
and the Active Parent Subsidiaries, and (iii) the issuance and transfer of stock
of Parent and the Active Parent Subsidiaries.
3.15 TAX. Parent does not know of any fact and has not taken any action
that could be reasonably expected to prevent the transaction contemplated hereby
from qualifying as a tax-free reorganization pursuant to Section 368 of the
Code.
3.16 DISCLOSURE. All information and documents provided prior to the date
of this Restated Agreement and all information and documents subsequently
provided, to Web and the Web Shareholders, or its or their respective
representatives or lenders by or on behalf of Parent in connection with the
transactions contemplated by this Restated Agreement are or contain, or will be
or will contain as to subsequently provided information or documents, true,
accurate and complete information in all material respects with respect to the
subject matter thereof and are, or will be as to subsequently provided
information or documents, reasonably responsive to any specific request made by
or on behalf of Web and the Web Shareholders or its or their representatives or
lenders.
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ARTICLE IV--ADDITIONAL COVENANTS OF WEB
AND THE WEB SHAREHOLDERS
Web and the Web Shareholders covenant and agree as follows:
4.1 NOTIFICATION OF CERTAIN MATTERS. Web and the Web Shareholders shall
give prompt notice to Parent if any of the following occur from the date of this
Restated Agreement through the Closing Date: (i) receipt of any notice of, or
other communication relating to, a default or Event which, with notice or lapse
of time or both, would become a default under any Web Material Contract;
(ii) receipt of any notice or other communication from any third party alleging
that the Consent of such third party is or may be required in connection with
the transactions contemplated by this Restated Agreement; (iii) receipt of any
material notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Restated Agreement;
(iv) receipt of any notice of or other communication regarding or otherwise
obtaining knowledge of an Event which would have a Web Material Adverse Effect;
(v) receipt of any notice of or other communication regarding or otherwise
obtaining knowledge of the commencement or threat of any Litigation involving or
affecting any Web Shareholder, Web or any of its or their respective properties
or assets, or, to its knowledge, any employee, agent, director or officer of
Web, in his or her capacity as such or as a fiduciary under a Benefit Plan of
Web, which, if pending on the date hereof, would have been required to have been
disclosed in this Restated Agreement or which relates to the consummation of the
transactions contemplated by this Restated Agreement, including the Merger, or
the Web Transaction Agreements or any material development in connection with
any Litigation disclosed by Web or any Web Shareholder in or pursuant to this
Restated Agreement; and (vi) the receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of any event that would cause a
breach by Web or any Web Shareholder of any provision of this Restated Agreement
or a Web Transaction Agreement, including such a breach that would occur if such
event had taken place on or prior to the date of this Restated Agreement.
4.2 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, Web, upon reasonable notice, will give, and shall direct
its accountants and legal counsel to give, Parent, its lenders and their
respective authorized representatives (including, without limitation, financial
advisors, accountants and legal counsel) at all reasonable times access to all
offices and other facilities and to all contracts, agreements, commitments,
books and records (including, but not limited to, Tax returns) of or pertaining
to Web, will permit the foregoing to make such inspections as they may require
and will cause its officers promptly to furnish Parent with (a) such financial
and operating data and other information with respect to the business and
properties of Web as Parent may from time to time reasonably request including,
but not limited to, data and information required for inclusion in Parent's
pending registration statements and/or other Parent Securities Filings, and
(b) a copy of each material report, schedule and other document filed or
received by Web pursuant to the requirements of applicable securities Laws. The
foregoing access will be subject to restrictions contained in SECTION 6.9
hereof.
4.3 WEB SHAREHOLDER APPROVAL. As soon as practicable, Web will, if
required, take all steps necessary to duly call, give notice of, convene and
hold a meeting of the Web Shareholders for the purpose of adopting this Restated
Agreement and for such other purposes as may be necessary or desirable in
connection with effectuating the transactions contemplated hereby. The Board of
Directors of Web (i) unless otherwise required under the fiduciary duties of the
directors of Web, as determined by such directors in good faith upon advice of
legal counsel, will recommend to the Web Shareholders that they adopt this
Restated Agreement and approve the transactions contemplated hereby, and
(ii) will use its reasonable best efforts to obtain any necessary adoption and
approval by the Web Shareholders of this Restated Agreement and the transactions
contemplated hereby including, without limitation, voting the Web Shares held
for such adoption and approval.
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4.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Web and the Web Shareholders agree to use their reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable, but in any event, prior to the Closing, the Merger
and the other transactions contemplated by this Restated Agreement and the Web
Transaction Agreements including, but not limited to (i) obtaining the Consent
of others to this Restated Agreement, the Web Transaction Agreements and the
transactions contemplated hereby and thereby, (ii) the defending of any
Litigation against Web, or involving any Web Shareholder challenging this
Restated Agreement, the Web Transaction Agreements or the consummation of the
transactions contemplated hereby or thereby, excluding any Litigation caused by
or relating to Parent or any Active Parent Subsidiary, (iii) obtaining all
Consents from Governmental Authorities required for the consummation of the
exchange and the transactions contemplated hereby, and (iv) timely making all
necessary filings under the HSR Act. Upon the terms and subject to the
conditions hereof, Web and the Web Shareholders agree to use their reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary to satisfy the other conditions of the Closing set
forth herein. Web and the Web Shareholders will consult with counsel for Parent
as to, and will permit such counsel to participate in, at Parent's expense, any
Litigation referred to in clause (ii) above brought against or involving Web or
any Web Shareholder.
4.5 COMPLIANCE. In consummating the Merger and the transactions
contemplated hereby, Web and the Web Shareholders shall comply in all material
respects with the provisions of the Securities Exchange Act and the Securities
Act and shall comply, in all material respects, with all other applicable Laws.
4.6 BENEFIT PLANS. Between the date of this Restated Agreement and through
the Closing Date, no discretionary award or grant under any Benefit Plan of Web
shall be made without the consent of Parent. Web shall not make any amendment to
any Benefit Plan, any awards thereunder or the terms of any security convertible
into or exchangeable for capital stock without the consent of Parent.
4.7 TAX OPINION CERTIFICATION. Web and the Web Shareholders shall use
their best efforts to cause the Merger to qualify, and will not take any action
which to their knowledge could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under Section 368 of the Code. Prior to the
Effective Time, Web and the Web Shareholders shall provide tax counsel rendering
an opinion under SECTION 7.1(m) with a certificate concerning such factual
matters as such counsel reasonably requests in connection with its opinion.
4.8 AFFILIATE AGREEMENTS. Web shall use its reasonable business efforts to
ensure that each Person who is or may be an "affiliate" of Web within the
meaning of Rule 145 promulgated under the Securities Act shall enter into an
agreement in a form agreed to by the parties hereto, acting reasonably
(collectively, the "AFFILIATE AGREEMENTS").
4.9 TRANSFER RESTRICTIONS. (a) In addition to any other restrictions
imposed by Law on the ability of any Web Shareholder to transfer any Parent
Common Stock received by such Web Shareholder pursuant to this Restated
Agreement, the Web Shareholders who are "affiliates" of Web within the meaning
of Rule 145 promulgated under the Securities Act acknowledge and agree that the
following legend will appear on all certificates representing the Parent Common
Stock received by such "affiliates" of Web pursuant to this Restated Agreement:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT TO
ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE RULES AND REGULATIONS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") THEREUNDER. NO SALES, TRANSFERS
OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
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ACT OR UPON THE PRIOR DELIVERY TO THE ISSUER OF AN OPINION FROM LEGAL
COUNSEL SATISFACTORY TO THE ISSUER AND IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER AND ITS LEGAL COUNSEL, STATING THAT SUCH SALE OR OTHER
DISPOSITION IS BEING MADE PURSUANT TO AND IN ACCORDANCE WITH THE
REQUIREMENTS OF SEC RULES 144 AND 145 OR IS OTHERWISE EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT.
(b) Notwithstanding the foregoing, Parent shall instruct its transfer
agent to remove the legend set forth in SECTION 4.9(a) for those sales of
Parent Common Stock by "affiliates" (as defined in Securities Act Rules 144
and 145) of Parent and Web made pursuant to Securities Act Rules 144 and
145.
ARTICLE V--
ADDITIONAL COVENANTS OF PARENT
Parent covenants and agrees as follows:
5.1 CONDUCT OF BUSINESS OF PARENT AND THE ACTIVE PARENT
SUBSIDIARIES. Parent covenants, represents and warrants that from the date of
this Restated Agreement through the Closing Date, unless Web shall otherwise
expressly consent in writing, Parent shall, and Parent shall cause each Active
Parent Subsidiary to, use its or their reasonable best efforts to comply in all
material respects with all Laws applicable to it or any of its properties,
assets or business and maintain in full force and effect all the Parent
Authorizations necessary for, or otherwise material to, such business.
5.2 NOTIFICATION OF CERTAIN MATTERS. Parent shall give prompt notice to
Web if any of the following occur from the date of this Restated Agreement
through the Closing Date: (i) any notice of, or other communication relating to,
a default or Event which, with notice or lapse of time or both, would become a
default under any Parent Material Contract which could have a Parent Material
Adverse Effect; (ii) receipt of any notice or other communication from any third
party alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Restated Agreement;
(iii) receipt of any material notice or other communication from any regulatory
authority (including, but not limited to, the NYSE or any other securities
exchange) in connection with the transactions contemplated by this Restated
Agreement; (iv) receipt of any notice of or other communication regarding or
otherwise obtaining knowledge of an Event which would have a Parent Material
Adverse Effect; (v) receipt of any notice of or other communication regarding or
otherwise obtaining knowledge of the commencement or threat of any Litigation
involving or affecting Parent or any Active Parent Subsidiary or any of their
respective properties or assets, or, to its knowledge, any employee, agent,
director or officer, in his or her capacity as such, of Parent or any Active
Parent Subsidiary which, if pending on the date hereof, would have been required
to have been disclosed in this Restated Agreement or which relates to the
consummation of the Merger or any material development in connection with any
Litigation disclosed by Parent in or pursuant to this Restated Agreement or the
Parent Securities Filings; (vi) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of any Event that could cause a
breach by Parent of any provision of this Restated Agreement or any Parent
Transaction Agreement, including such a breach that could occur if such Event
had taken place on or prior to the date of this Restated Agreement; and
(vii) amendment, modification or waiver of any provision of the Ionex Agreement
referenced on SCHEDULE 3.7 hereto.
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5.3 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, Parent: (i) will, upon reasonable notice, give, and direct
its legal counsel and accountants to give, Web and its authorized
representatives (including, without limitation, its financial advisors,
accountants and legal counsel) at all reasonable times access as reasonably
requested to the offices and other facilities and to all material contracts,
agreements, commitments, books and records (including, but not limited to, Tax
returns) of or pertaining to Parent and the Active Parent Subsidiaries;
(ii) will permit Web to make such reasonable inspections as it may require; and
(iii) will cause its officers promptly to furnish Web with (a) such financial
and operating data and other information with respect to the business and
properties of Parent and the Active Parent Subsidiaries as Web may from time to
time reasonably request, and (b) a copy of each material report, schedule and
other document filed or received by Parent or any Active Parent Subsidiary
pursuant to the requirements of applicable securities Laws, the NYSE or other
securities exchange, in each case as necessary in connection with the
transactions contemplated hereby. The foregoing access will be subject to the
restrictions contained in SECTION 6.9 hereof.
5.4 COMPLIANCE. In consummating the Merger and the transactions
contemplated hereby, Parent shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause the Active Parent Subsidiaries to comply or to be in
compliance, in all material respects, with all other applicable Laws.
5.5 SEC AND SHAREHOLDER FILINGS. Parent shall send to Web a copy of all
material public reports and materials as and when it sends the same to its
shareholders, the SEC, the NYSE or any other securities commission or exchange.
5.6 TAX TREATMENT. Parent and Acquisition Subsidiary shall use their best
efforts to cause the Merger to qualify, and will not take any action which to
its knowledge could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under Section 368 of the Code. Prior to the
Effective Time, Parent shall provide tax counsel rendering an opinion under
SECTION 7.1(m) with a certificate concerning such factual matters as such
counsel identifies are relevant to its opinion.
5.7 EMPLOYMENT AND EMPLOYEE BENEFIT PLANS. At or before the Closing Date,
Parent shall, after consultation with Web, offer employment to the employees of
Web, effective as of the Closing Date, upon terms and conditions reasonably
acceptable to the Web employees and to Parent. After the Closing Date, Parent
shall arrange for each employee participating in any of the Benefit Plans of Web
at such time to participate in any counterpart Benefit Plans of Parent in
accordance with the eligibility criteria thereof, provided that (i) such
participants shall receive full credit for years of service with Web prior to
the Merger for all purposes for which such service was recognized under the
Benefit Plan of Web including, but not limited to, recognition of service for
eligibility, vesting, and, to the extent not duplicative of benefits received
under such Benefit Plan of Web, the amount of benefits, and (ii) such
participants shall participate in the Benefit Plans of Parent on terms no less
favorable than those offered by Parent to similarly situated employees of
Parent. Notwithstanding the foregoing, Parent may continue one or more of the
Benefit Plans of Web, in which case Parent shall have satisfied its obligations
hereunder with respect to the benefits so provided.
5.9 EXPENSES. If the transactions contemplated by this Restated Agreement
are consummated, all fees and expenses incurred in connection with the
transactions contemplated by this Restated Agreement including, without
limitation, all legal, accounting, financial advisory, consulting fees,
(collectively, the "TRANSACTION EXPENSES") incurred by a party or its
stockholders in connection with the negotiation and effectuation of the terms
and conditions of this Restated Agreement and the transactions contemplated
hereby, shall be the obligation of Parent or any direct or indirect subsidiary
of Parent after Closing. If the Merger is not consummated, all Transaction
Expenses shall be and remain the obligation of the respective parties which
incurred them.
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5.10 PARENT SHAREHOLDER APPROVAL. As soon as practicable, Parent will, if
required, take all steps necessary to duly call, give notice of, convene and
hold a meeting of the Parent shareholders for the purpose of adopting this
Restated Agreement and for such other purposes as may be necessary or desirable
in connection with effectuating the transactions contemplated hereby. The Board
of Directors of Parent (i) unless otherwise required under the fiduciary duties
of the directors of Parent, as determined by such directors in good faith and
upon advice of legal counsel, will recommend to the Parent shareholders that
they adopt this Restated Agreement and approve the transactions contemplated
hereby, and (ii) will use its reasonable best efforts to obtain any necessary
adoption and approval by the Parent shareholders of this Restated Agreement and
the transactions contemplated hereby.
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT,
WEB AND THE WEB SHAREHOLDERS
6.1 REGISTRATION OF SECURITIES.
(a) On or before the Closing Date, the Parent shall use its reasonable
best efforts to cause the following securities to be registered with the SEC
under the Securities Act and with the appropriate Governmental Authorities
under state blue sky Laws:
(i) Parent Common Stock to be received by Web Shareholders and any
other shareholders of Web upon conversion of Web Common Stock, as
described in SECTION 1.3 hereof; and
(ii) Parent Common Stock to be received by Web Shareholders upon
conversion of the Convertible Note described in SECTION 1.10 hereof.
(b) The Parent shall hold the meeting of the shareholders of Parent to
consider and to vote upon the approval of the Restated Agreement including
the issuance of Parent Common Stock to the Web Shareholders and to the
shareholders of the Company and of Big Stuff, and Parent and Web will
cooperate in the preparation of one or more registration statements (such
registration statements, together with any and all amendments and
supplements thereto, being hereinafter referred to as the "REGISTRATION
STATEMENTS"), which will include the preparation of one or more proxy
statements of the Parent satisfying all requirements of applicable state
securities Laws, the Securities Act and the Securities Exchange Act.
(c) Web will furnish Parent with such information concerning Web as is
necessary in order to cause the Registration Statements and any proxy
statements, insofar as they relate to Web, to comply with applicable Law.
None of the information relating to Web supplied by Web for inclusion in the
Registration Statements or any proxy statements will be false or misleading
with respect to any material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Web agrees promptly to advise Parent if, at any time prior to
the meeting of the shareholders of the Parent referenced herein, any
information provided by it in the Registration Statements or any proxy
statement is or becomes incorrect or incomplete in any material respect and
to provide Parent with the information needed to correct such inaccuracy or
omission. Web will furnish Parent with such supplemental information as may
be necessary in order to cause the Registration Statements or the proxy
statements, insofar as it relates to Web, to comply with applicable Law
after the mailing thereof to the stockholders of Parent, Web, Big Stuff, the
Company and others to whom it must be mailed.
(d) Web and Parent agree to cooperate in making any preliminary filings
of Registration Statements and the proxy statement with the SEC as promptly
as practicable, on a confidential basis pursuant to Rule 14a-6(e)(2) under
the Securities Exchange Act.
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(e) Parent will file the Registration Statements and the proxy statement
with the SEC and appropriate materials with applicable state securities
agencies and will use all reasonable best efforts to cause the Registration
Statements and the proxy statement to become effective under the Securities
Act and the Exchange Act and all such state filed materials to comply with
applicable state securities Laws. Web authorizes Parent to utilize in the
Registration Statements and in all such state filed materials, the
information concerning Web provided to Parent in connection with, or
contained in, the Registration Statements. Parent promptly will advise Web
when the Registration Statements have become effective and of any
supplements or amendments thereto, and Parent will furnish Web with copies
of all such documents. Parent shall file any and all amendments, supplements
and related filings to such Registration Statements (and state filed
materials) as may be required. Web shall not distribute any written material
that might constitute a "prospectus" relating to this Restated Agreement or
any of the transactions contemplated by this Restated Agreement within the
meaning of the Securities Act or any other applicable securities Law without
the prior written consent of Parent.
6.2 EMPLOYMENT AGREEMENTS. At or before the Closing Date, Parent will
enter into Employment and Non-Competition Agreements, in forms agreed to by
Parent and Web, acting reasonably, with certain individuals, the identities of
whom shall be agreed upon by Parent and Web, acting reasonably.
6.3 CONSENTS. Each of Parent and Web shall promptly apply for or otherwise
seek, and use its best efforts to obtain, all consents and approvals required to
be obtained by it for the consummation of the Merger.
6.4 LEGAL REQUIREMENTS. Subject to the terms and conditions provided in
this Restated Agreement, each of the parties hereto shall use its reasonable
best efforts to take promptly, or cause to be taken, all reasonable actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable Laws to consummate and make effective the transactions
contemplated hereby and to obtain all necessary waivers, consents and approvals
and to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Restated
Agreement for the purpose of securing for the parties hereto the benefits
contemplated by this Restated Agreement.
6.5 PUBLIC ANNOUNCEMENTS. All press releases and other disseminations of
information to employees, customers or suppliers relating to the Merger or the
transactions contemplated by this Restated Agreement or the Restated Company
Agreement by any party hereto shall require the prior approval of Parent and
Web, provided Parent shall have the right to make such public announcements
without the approval of the other parties hereto should such disclosure be
required by Law or the policies or requirements of United States securities
regulators, stock exchanges, or other relevant entities in the opinion of
Parent's legal counsel. Should such disclosure be required, Parent agrees to
provide the others with reasonable advance notice of and a copy of, and to
consult with the others regarding, the proposed disclosure.
6.6 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. Except as expressly
contemplated by this Restated Agreement, during the period from the date of this
Restated Agreement to the Closing Date, Web shall conduct its business in the
ordinary course and consistent with past practice, subject to the limitations
contained in this Restated Agreement, and Web shall use its reasonable business
efforts to preserve intact its business organization, to keep available the
services of its officers, agents and employees and to maintain satisfactory
relationships with all Persons with whom it does business. Except as expressly
contemplated by this Restated Agreement, and it being acknowledged and agreed by
each of the parties to this Restated Agreement that Parent is in the process of
a substantial reduction in workforce, and, subject to the sale of the CLEC
Operations, Parent shall, and it shall cause the Active Parent Subsidiaries to,
use its or their reasonable best efforts to preserve intact its
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business organization consistent with the budget adopted by the Executive
Committee of the Board of Directors of Parent, to keep available the services of
only those officers, agents and employees whom Parent believes are required to
maintain satisfactory relationships with all Persons with whom it does business.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Restated Agreement, after the date of this Restated
Agreement and prior to the Closing Date, (i) Web will not, without the prior
written consent of Parent (which consent shall not be unreasonably withheld or
delayed); and (ii) subject to the sale of the CLEC Operations, neither Parent
nor any Active Parent Subsidiary will, without the prior written consent of Web
(which consent shall not be unreasonably withheld or delayed):
(a) except as provided for in this Restated Agreement, the Restated
Company Agreement or the Restated Big Stuff Agreement, amend or propose to
amend its Certificate or Articles of Incorporation or Bylaws (or comparable
governing instruments) in any material respect;
(b) except as set forth on SCHEDULE 6.6(b)(i), with regard to Web, or
Parent Common Stock to be issued pursuant to those options or warrants
listed on SCHEDULE 6.6(b)(ii) or in SECTION 6.10, with regard to Parent or
the Active Parent Subsidiaries, authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of
any shares of, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any shares of, the capital stock or
other securities of Web, or of Parent or any Active Parent Subsidiary, as
the case may be, including, but not limited to, any securities convertible
into or exchangeable for shares of stock of any class of Web, or of Parent
or any Active Parent Subsidiary, as the case may be; PROVIDED, HOWEVER, that
Web may issue capital stock pursuant to the exercise of options and warrants
outstanding on the date of this Restated Agreement;
(c) except as provided for in this Restated Agreement, the Restated
Company Agreement or the Restated Big Stuff Agreement, split, combine or
reclassify any shares of its capital stock or declare, pay or set aside any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, other than dividends
or distributions to the Web Shareholders (but only if the entire amount of
such dividend is paid to Big Stuff as a capital contribution), or to Parent
or a Parent subsidiary, as the case may be, or redeem, purchase or otherwise
acquire or offer to acquire any shares of its capital stock or other
securities; PROVIDED, HOWEVER, that Web may make a dividend or distribution
to the Web Shareholders in the amount of cash or other consideration
received by Web on or before the Closing Date from the exercise of options
and warrants to purchase Web Common Stock;
(d) except for debt (including, but not limited to, obligations in
respect of capital leases, but excluding obligations under the Convertible
Note) not in excess of $50,000 in the aggregate for all Persons combined,
(i) create, incur or assume any short-term debt (excluding trade payables
incurred in the ordinary course of business), long-term debt or obligations
in respect of capital leases, except for indebtedness contemplated by this
Restated Agreement; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, indirectly, contingently or
otherwise) for the obligations of any Person, except for obligations
permitted by this Restated Agreement of any Active Parent Subsidiary, in the
ordinary course of business consistent with past practice; (iii) except as
contemplated in this Restated Agreement, make any capital expenditures or
make any loans, advances or capital contributions to, or investments in, any
other Person (other than customary advances to employees made in the
ordinary course of business consistent with past practice), provided Web
will continue to make capital expenditures, maintain, upgrade and expand its
facilities, and otherwise operate in the ordinary course and consistent with
past practice; (iv) acquire the stock or assets of, or merge or consolidate
with, any other Person or business, except as contemplated in this Restated
Agreement and except the contemplated merger with Big Stuff or the
contemplated acquisition of all of the issued and outstanding capital stock,
either
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directly or indirectly, of the Company; or (v) voluntarily incur any
material liability or obligation (absolute, accrued, contingent or
otherwise), except in the ordinary course of business;
(e) except for the contemplated sale of the Parent's CLEC Operations,
sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or
agree to sell, transfer, mortgage, pledge or otherwise dispose of or
encumber, any material assets or properties, real, personal or mixed, except
in the ordinary course of business, in the case of Parent and the Active
Parent Subsidiaries;
(f) increase in any manner the compensation of any of its officers,
agents or employees other than any increases required pursuant to their
employment agreements in accordance with their terms in effect on the date
of this Restated Agreement and increases in the ordinary course of business
consistent with past practice not in excess on an individual basis of the
lesser of 10% of the current compensation of such individual or $10,000 per
annum;
(g) enter into, establish, amend, make non-routine or material
interpretations or determinations with respect to, or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other
welfare, stock option, stock purchase, restricted stock, or other equity,
pension, retirement, vacation, severance, deferred compensation or other
compensation or benefit plan, policy, agreement, trust, fund or arrangement
with, for or in respect of, any shareholder, officer, director, other
employee, agent, consultant or affiliate, other than actions contemplated by
this Restated Agreement, the Restated Company Agreement and the Restated Big
Stuff Agreement;
(h) make any elections with respect to Taxes that are inconsistent with
the prior elections reflected in the Financial Statements as of and to the
period ended December 31, 1998;
(i) except with regard to the Saville matter referenced on SCHEDULE 3.7
attached hereto, compromise, settle, grant any waiver or release relating to
or otherwise adjust any Litigation, except routine Litigation in the
ordinary course of business consistent with past practice, involving only a
payment not in excess of $50,000 individually or $100,000 when aggregated
with all such payments by Web or by Parent and the Active Parent
Subsidiaries combined, as the case may be;
(j) take any action or omit to take any action, which action or omission
would result in a breach of any of the covenants, representations and
warranties of Web, the Web Shareholders or Parent or the Active Parent
Subsidiaries set forth in this Restated Agreement or would have a Web
Material Adverse Effect, with regard to Web and the Web Shareholders, or a
Parent Material Adverse Effect, with regard to Parent and the Active Parent
Subsidiaries;
(k) except in the ordinary course of business enter into any lease or
other agreement, or amend any lease or other agreement, with respect to real
property;
(l)
(i) except as set forth in SECTION 6.6(l)(ii) or SECTION 11.1 or 11.2
hereof, enter into or amend any agreement or transaction (A) pursuant to
which the aggregate financial obligation of Web, or of Parent or an
Active Parent Subsidiary, as the case may be, or the value of the
services to be provided could exceed $50,000, (B) having a term of more
than twelve (12) months and pursuant to which the aggregate financial
obligation of Web, or of Parent or an Active Parent Subsidiary, as the
case may be, or the value of the services to be provided could exceed
$100,000 per year, or (C) which is not terminable by Web or Parent or the
Active Parent Subsidiaries, as the case may be, upon no more than thirty
(30) days' notice without penalty in excess of $50,000 individually or
$100,000 when aggregated with the penalties under all such agreements or
transactions;
(ii) The parties hereto expressly agree that, notwithstanding
anything in this Restated Agreement to the contrary, Parent may modify,
amend or waive its rights, including those respecting its indemnification
obligations, under (A) the Ionex Agreement referenced on
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SCHEDULE 3.13 attached hereto; (B) the Restated Company Agreement; and
(C) the Restated Big Stuff Agreement; PROVIDED, that such modifications,
amendments and/or waivers do not, or would not reasonably be expected to,
materially increase Parent's obligations or materially adversely affect
Parent's rights under each respective agreement, or otherwise materially
affect the consideration to be received under each respective agreement.
(m) except as set forth in SECTION 6.6(l)(ii) hereof, take any action
with respect to the indemnification of any Person;
(n) change any accounting practices or policies, except as required by
generally accepted accounting principles or Laws or as agreed to or
requested by Web's or Parent's auditors after consultation with Parent's or
Web's auditors, as the case may be; PROVIDED, HOWEVER, that notice and a
description of any change pursuant to this SECTION 6.6(n) shall be provided
promptly after such change is effected to Web or Parent, as the case may be;
(o) except as set forth in SECTION 6.6(l)(ii) hereof, or except in the
ordinary course of business, enter into, amend, modify, terminate or waive
any rights under any contract which would result in a Web Material Adverse
Effect, with respect to Web, or a Parent Material Adverse Effect, with
respect to Parent;
(p) adopt a plan of liquidation, dissolution, merger, consolidation,
share exchange, restructuring, recapitalization, or other reorganization;
PROVIDED, HOWEVER, that Parent may adopt such a plan and may cause the
liquidation or dissolution of any Parent subsidiary if Parent is unable to
sell such Parent subsidiary (i) at a price which Parent determines to be
reasonable, and (ii) during a time period which Parent determines to be
reasonable; PROVIDED, FURTHER, HOWEVER, that if Parent adopts such a plan or
causes such liquidation or dissolution, Parent promptly shall provide to Web
notice of such adoption, liquidation or dissolution, as the case may be; or
(q) resolve, agree, commit or arrange to do any of the foregoing.
Notwithstanding anything in this SECTION 6.6 to the contrary, it is
understood that Web has been accelerating and intensifying its business
activities since March 31, 1999 and will continue to do so. Accordingly,
(x) "ordinary course of business" and "consistent with past practice", as used
in this SECTION 6.6 with respect to Web, shall be interpreted to include such
acceleration and intensification; and (y) in considering requests for consent
from Web, Parent shall take into account such acceleration and intensification.
Furthermore, Parent covenants, represents and warrants that from and after
the date hereof, unless Web shall otherwise expressly consent in writing, Parent
shall use its reasonable business efforts to:
(1) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(2) pay all accounts payable and other obligations consistent with
prudent cash management principles, except if the same are contested in good
faith, and, in the case of the failure to pay any material accounts payable
or other obligations which are contested in good faith, only after
consultation with Web; and
(3) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business, except for such Laws the failure
to comply with which would not have a Parent Material Adverse Effect and
maintain in full force and effect all Parent Permits necessary for, or
otherwise material to, such business, except for such Parent Permits the
failure of which to maintain in full force and effect would not have a
Parent Material Adverse Effect.
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Furthermore, Web covenants, represents and warrants that from and after the
date hereof, unless Parent shall otherwise expressly consent in writing, Web
shall use its or their reasonable business efforts to:
(1) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(2) pay all accounts payable and other obligations, when they become due
and payable, in the ordinary course of business consistent with past
practice and with the provisions of this Restated Agreement, except if the
same are contested in good faith, and, in the case of the failure to pay any
material accounts payable or other obligations which are contested in good
faith, only after consultation with Parent; and
(3) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business, and maintain in full force and
effect all Web Permits necessary for, or otherwise material to, such
business.
6.7 NO SOLICITATION OF ACQUISITION PROPOSAL. Unless Parent, Web and the
Web Shareholders shall otherwise agree in advance, in writing, neither the Web
Shareholders, Web, Parent nor any of their Associates shall, directly or
indirectly, make, encourage, facilitate, solicit, assist or initiate any inquiry
or proposal, or provide any information to or participate in any negotiations
with, any Person or group other than the parties to this Restated Agreement and
their Associates relating to any of the following transactions ("EXTRAORDINARY
TRANSACTIONS"): (i) liquidation, dissolution, recapitalization, share exchange,
business combination, merger or consolidation of Web or Parent or an Active
Parent Subsidiary; (ii) sale of a significant amount of assets of Web or Parent
or an Active Parent Subsidiary; (iii) purchase or sale of shares of capital
stock of Web or Parent or an Active Parent Subsidiary; or (iv) any similar
actions or transactions involving Web or Parent or an Active Parent Subsidiary
(other than the Merger and the transactions contemplated by this Restated
Agreement, the Restated Company Agreement and the Restated Big Stuff Agreement),
or agree to or consummate any Extraordinary Transaction. Each of Parent and Web
shall immediately inform the other party of any inquiry, proposal, or request
for information or offer (including the terms thereof and the Person making such
inquiry, proposal, request or offer) which it may receive in respect of an
Extraordinary Transaction and provide the other party with a copy of any such
written inquiries, proposals, requests for information and offers, and
thereafter keep the other party fully informed of the status and details
thereof. The parties hereto acknowledge and agree that the provisions of this
SECTION 6.7 shall not apply to: (a) the sale of the CLEC Operations by Parent or
any Active Parent Subsidiary; or (b) to the acquisition of Big Stuff or the
Company; or (c) any communications between or actions by Parent (or any Parent
subsidiary), the Company and ICL, acting jointly, on the one hand, and any
Person not a party to this Restated Agreement, on the other hand, which occurred
prior to the date that this Restated Agreement becomes effective pursuant to
SECTION 1.2 hereof.
6.8 RESIGNATIONS. Web shall use its reasonable best efforts to cause the
officers and/or directors of Web as Parent may request to voluntarily resign
their positions as such effective as of the Closing Date. The instruments
effecting such resignations are herein referred to as the "RESIGNATIONS."
6.9 CONFIDENTIALITY. Unless (i) otherwise expressly provided in this
Restated Agreement, (ii) required by applicable Law or any listing agreement
with, or the rules and regulations of, any applicable securities exchange,
(iii) necessary to secure any required Consents as to which the other party has
been advised, or (iv) consented to in writing by Parent and Web, this Restated
Agreement and any information or documents furnished in connection with this
Restated Agreement, the June 3 Web YP Agreement or the Confidentiality Agreement
dated April 11, 1999 by and among Parent, the Company, Web, Big Stuff and O'Neal
shall be kept strictly confidential by Web, Parent and their respective
officers, directors, employees and agents. Prior to any disclosure pursuant to
the preceding sentence, the party intending to make such disclosure shall
consult with the other party regarding the
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nature and extent of the disclosure. Nothing contained herein shall preclude
disclosures to the extent necessary to comply with accounting, SEC and other
disclosure obligations imposed by applicable Law. To the extent required by such
disclosure obligations, Parent, after consultation with Web, may file with the
SEC a Report on Form 8-K pursuant to the Securities Exchange Act with respect to
the Merger, which report may include, among other things, financial statements
and pro forma financial information with respect to the other party. In
connection with any filing with the SEC of a registration statement or amendment
thereto under the Securities Act, Parent, after consultation with Web, may
include a prospectus containing any information required to be included therein
with respect to the Merger, including, but not limited to, financial statements
and pro forma financial information with respect to the other party, and
thereafter distribute said prospectus. Parent and Web shall cooperate with the
other and provide such information and documents as may be required in
connection with any such filings. In the event the Merger is not consummated,
Parent and Web shall return to the other all documents furnished by the other
and will hold in absolute confidence any information obtained from the other
party except to the extent (i) such party is required to disclose such
information by Law or such disclosure is required by discovery, subpoena or
other similar legal process in a proceeding involving a third Person; (ii) such
party received such information on a non-confidential basis from a source, other
than the other party, which is not known by such party to be bound by a
confidentiality obligation with respect thereto; or (iii) such information
becomes generally available to the public or is otherwise no longer
confidential. Prior to any disclosure of information pursuant to the exception
in clause (i) of the preceding sentence, the party intending to disclose the
same shall so notify, in writing, the party which provided the same in order
that such party may seek a protective order or other appropriate remedy should
it choose to do so.
6.10 OPTIONS; STOCK ISSUANCES. The Board of Directors of Parent shall have
the right to grant or issue, as the case may be, (i) restricted stock or options
to acquire shares of Parent Common Stock pursuant to the Parent's 1997 Stock
Awards Plan, provided that no more than the number of shares authorized under
the 1997 Stock Awards Plan have been issued; (ii) restricted stock valued at or
warrants to purchase up to 90,000 shares of Parent Common Stock to be issued to
certain non-employee directors of Parent who were responsible for negotiating
the June 3 Web YP Agreement at an exercise price of $6.96 per share, the
Restated Company Agreement and the Restated Big Stuff Agreement; (iii) the
shares of Parent Common Stock issuable upon conversion at Closing of the Great
Western Notes at a conversion price of $5.50 per share; (iv) up to 1,090,909
shares of Parent Common Stock issuable upon conversion of one or more notes
which may be issued to the Web Shareholders who may lend up to Six Million
Dollars ($6,000,000.00) to Web or Big Stuff as provided in this Restated
Agreement, at a conversion price of $5.50 per share; (v) shares of Parent Common
Stock to be issued upon exercise of options or warrants to be granted at Closing
to those Persons designated by Company in the Restated Company Agreement;
(vi) those shares of Parent Common Stock issuable upon exercise of previously
granted options; and (vii) one (1) share of Parent Class B Voting Preferred
Stock to be issued to the trustee under the Exchange and Voting Trust Agreement.
ARTICLE VII--CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSING. The respective
obligations of each party to consummate this Restated Agreement and effect the
Merger shall be subject to the satisfaction or waiver at or prior to the Closing
Date of the following conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor
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shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal.
(b) OTHER AGREEMENTS. The Restated Company Agreement and the Restated
Big Stuff Agreement and all documents related to the Restated Company
Agreement and the Restated Big Stuff Agreement shall have been duly executed
and delivered by all parties thereto and shall be in full force and effect.
(c) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Employment and
Non-Competition Agreements described in SECTION 6.2 hereof shall have been
duly executed and delivered by all parties thereto and shall be in full
force and effect.
(d) GOVERNMENT APPROVALS. Except for those Consents the failure of
which to be obtained, (i) in the reasonable judgment of Parent, would not
have a Parent Material Adverse Effect or a Web Material Adverse Effect, and
(ii) in the reasonable judgment of Web, would not have a Web Material
Adverse Effect or a Parent Material Adverse Effect, all Consents of any
domestic or foreign Governmental Authority required for the consummation of
the Merger shall have been obtained by Final Order.
(e) RELATED TRANSACTIONS. (i) The acquisition by Parent, or a direct
or indirect subsidiary of Parent, of Web and Big Stuff in a tax-free
reorganization shall have been consummated prior to or simultaneously with
the acquisition of the Company and any registration statement(s) required
for the registration of Parent Common Stock issued to the Web Shareholders,
the Company shareholders and the shareholders of Big Stuff as consideration
in connection with the acquisition of Web, the Company and Big Stuff by
Parent shall have been declared effective, (ii) no stop order suspending the
effectiveness of such registration statement(s) shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the SEC or any other Governmental Authority, and (iii) the Great Western
Notes shall have been satisfied by the issuance of Parent Common Stock to
the Great Western Shareholders.
(f) FINANCING. Parent and Web shall have received from their lenders
an extension of all of their and their subsidiaries' debt owing by them on
terms and conditions satisfactory to Parent and Web or all such debts shall
be refinanced on terms satisfactory to Parent and Web or any consents and
approvals required from such lenders is received.
(g) SHAREHOLDER APPROVAL. All necessary approvals of the Web
Shareholders and the shareholders of Parent in connection with the Merger
shall have been obtained.
(h) REQUIRED CONSENTS. Any required Consents of any Person to the
Merger or the transactions contemplated by this Restated Agreement shall
have been obtained on terms and conditions reasonably acceptable to Parent
and Web and be in full force and effect, except for those the failure of
which to obtain, in the reasonable judgment of Parent and Web, would not
have a Parent Material Adverse Effect or a Web Material Adverse Effect.
(i) HSR ACT. Any waiting period applicable to the Merger under the HSR
Act shall have expired or earlier termination thereof shall have been
granted and no action shall have been instituted by either the United States
Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by this Restated Agreement or
to modify or amend such transactions in any material manner, or if any such
action shall have been instituted, it shall have been withdrawn or a final
judgment shall have been entered against such Department or Commission, as
the case may be.
(j) REGISTRATION STATEMENT(S). The Registration Statement(s) shall
have been declared effective and no stop order suspending the effectiveness
of the Registration Statement(s) shall have
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been issued and no proceeding for that purpose shall have been initiated or
threatened by the SEC or any Governmental Authority, whether state or
federal.
(k) BLUE SKY. Parent shall have received all state securities Law
authorizations necessary to consummate the transactions contemplated hereby.
(l) FAIRNESS OPINION. The written opinion received by Parent's Board
of Directors from its financial advisors, PaineWebber Incorporated, pursuant
to SECTION 1.2 hereof shall not have been withdrawn.
(m) TAX OPINION. Parent shall have received an opinion from Blackwell
Sanders Peper Martin LLP based on customary representations contained in
certificates of Parent, to the effect that, if the Merger is consummated in
accordance with the provisions of this Restated Agreement, the Merger will
qualify as a tax-free reorganization within the meaning of the Code.
(n) NYSE LISTING APPROVAL. Parent shall have received from the NYSE
approval for listing with the NYSE of the Parent Common Stock to be issued
pursuant to this Restated Agreement, the Restated Company Agreement and the
Restated Big Stuff Agreement.
(o) SALE OF CLEC OPERATIONS. The sale of the CLEC Operations,
contemplated under the Ionex Agreement referenced on SCHEDULE 3.13 hereof,
shall have closed.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WEB SHAREHOLDERS AND WEB. The
obligations of the Web Shareholders and Web to consummate and effect this
Restated Agreement and the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Web:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The representations and warranties of Parent in this Restated
Agreement that are modified by materiality or Parent Material Adverse
Effect ("PARENT MODIFIED REPRESENTATION") shall be true and correct in
all respects and those that are not so modified ("PARENT NONMODIFIED
REPRESENTATION") shall be true and correct in all material respects on
the date hereof and, except for changes not prohibited by this Restated
Agreement, as of the Closing Date as if made at the Closing Date.
Furthermore, none of the representations or warranties of Parent
contained in this Restated Agreement, disregarding any qualifications
therein or in this SECTION 7.2(a) regarding materiality or Parent
Material Adverse Effect, shall be untrue or incorrect to the extent that
such untrue or incorrect representations or warranties, when taken
together as a whole, have had or would have a Parent Material Adverse
Effect; and
(ii) Parent shall have performed and complied with all of the
covenants and agreements in all material respects and satisfied in all
material respects all of the conditions required by this Restated
Agreement to be performed or complied with or satisfied by Parent at or
prior to the Closing Date. Notwithstanding anything in this Restated
Agreement to the contrary, the parties hereto acknowledge and agree that
the consummation of the transactions contemplated by this Restated
Agreement and the subsequent disposition of the CLEC Operations
constitutes a significant change from the plans and strategies described
in the 1998 10-K such that the representations and warranties of Parent
that reference the 1998 10-K will not be true and correct as of the
Closing Date as they relate to the plans and strategies of the business
of Parent at the Closing Date.
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(b) CERTIFICATE OF PARENT AND OTHER DELIVERIES. Web shall have been
provided, with (i) a certificate executed on behalf of Parent by an Officer
to the effect that, as of the Closing Date, all representations and
warranties made by Parent under this Restated Agreement are true and
complete except as qualified by SECTION 7.2(a)(i) hereof; and all covenants,
obligations and conditions of this Restated Agreement to be performed by
Parent on or before such date have been so performed; (ii) a certificate of
good standing from the Secretary of State of the State of Delaware that
Parent is a validly existing corporation; (iii) duly adopted resolutions of
the Board of Directors of Parent approving the execution, delivery and
performance of this Restated Agreement and the Parent Transaction Agreements
to which it is a party and the instruments contemplated hereby and thereby,
certified by its Secretary or Assistant Secretary; and (iv) such other
documents and instruments as Web may reasonably request.
(c) SHAREHOLDER APPROVAL. Web shall have received from Parent's
transfer agent a certificate indicating that a sufficient number of Parent's
shareholders voted to approve the Merger such that the Merger was deemed
approved by the Parent shareholders.
(d) LEGAL OPINION. Web shall have received a legal opinion of
Blackwell Sanders Peper Martin LLP, legal counsel to Parent, in a form to be
agreed upon by the parties hereto, acting reasonably.
(e) NO MATERIAL ADVERSE CHANGE. There shall not have occurred after
the date hereof any Event that has or reasonably could be expected to have a
Parent Material Adverse Effect.
(f) LITIGATION. Except as set forth on SCHEDULE 3.7 attached hereto,
there shall be no action, suit, claim or proceeding of any nature pending,
or overtly threatened, against Parent, its properties or any of its officers
or directors, arising out of, or in any way connected with, the Merger or
the other transactions contemplated by the terms of this Restated Agreement
which individually or in the aggregate may cause a Parent Material Adverse
Effect.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of
Parent to consummate and effect this Restated Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The representations and warranties of Web and the Web
Shareholders contained in this Restated Agreement that are modified by
materiality or Web Material Adverse Effect ("WEB MODIFIED
REPRESENTATION") shall be true and correct in all respects, and those
that are not so modified ("WEB NONMODIFIED REPRESENTATION") shall be true
and correct in all material respects, on the date hereof and, except for
changes not prohibited by this Restated Agreement, as of the Closing Date
as if made at the Closing Date. Furthermore, none of the representations
or warranties of Web or the Web Shareholders contained in this Restated
Agreement, disregarding any qualifications therein or in this
SECTION 7.3(a) regarding materiality or Web Material Adverse Effect,
shall be untrue or incorrect to the extent that such untrue or incorrect
representations or warranties, when taken together as a whole, have had
or would have a Web Material Adverse Effect; and
(ii) Web and the Web Shareholders shall have performed and complied
with all the covenants and agreements in all material respects and
satisfied in all material respects all the conditions required by this
Restated Agreement to be performed or complied with or satisfied by Web
and the Web Shareholders at or prior to the Closing Date.
(b) CERTIFICATE OF WEB AND OTHER DELIVERIES. Parent shall have been
provided with (i) a certificate executed on behalf of Web by its Chief
Executive Officer to the effect that, as of the
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Effective Time all representations and warranties made by Web in this
Restated Agreement are true and correct, except as qualified by
SECTION 7.3(a)(i) hereof, and all covenants, obligations and conditions of
this Restated Agreement to be performed by Web and the Web Shareholders on
or before such date have been so performed; (ii) a certificate of good
standing from the proper authority in the jurisdictions in which Web is
incorporated or qualified to do business stating that each is a validly
existing corporation in good standing; (iii) duly adopted resolutions of the
Web Board of Directors and Web Shareholders approving the execution,
delivery and performance of this Restated Agreement and the Web Transaction
Agreements to which Web is a party and the instruments contemplated hereby
and thereby, certified by the Secretary or Assistant Secretary of Web;
(iv) a true and complete copy of the Articles or Certificate of
Incorporation or comparable governing instruments, as amended, of Web
certified by the Secretary of State of the state of incorporation or
comparable authority in other jurisdictions, and a true and complete copy of
the Bylaws or comparable governing instruments, as amended, of Web certified
by the Secretary thereof; (v) the duly executed Resignations on terms and
conditions reasonably acceptable to Parent; and (vi) such other documents
and instruments as Parent reasonably may request.
(c) LEGAL OPINION. Parent shall have received a legal opinion from
Steinhart & Falconer LLP, legal counsel to Web, in a form to be agreed upon
by the parties hereto, acting reasonably.
(d) LITIGATION. There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against Web, its respective
properties or any of its officers or directors, arising out of, or in any
way connected with, the Merger or the other transactions contemplated by the
terms of this Restated Agreement which individually or in the aggregate may
cause a Web Material Adverse Effect.
(e) NO MATERIAL ADVERSE CHANGE. There shall have not occurred after
the date hereof any Event that has or reasonably could be expected to have a
Web Material Adverse Effect.
(f) AFFILIATE AGREEMENTS. At least thirty (30) days prior to the
Effective Time, Parent shall have received the duly executed Affiliate
Agreements.
ARTICLE VIII--TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Restated Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Closing Date only
as follows, whether before or after approval by the Web Shareholders:
(a) by mutual written consent of Web and Parent, duly authorized by the
Board of Directors of each;
(b) by Web or Parent if the Closing shall not have occurred on or before
January 31, 2000, as such date may be extended pursuant to SECTION 1.2(b)
hereof (or such other date as may be agreed to by Web and Parent); PROVIDED,
THAT, no party may terminate this Restated Agreement under this
SECTION 8.1(b) if such party's breach of this Restated Agreement has caused
or resulted in the failure of the Closing to occur on or before such date;
(c) by Web if (i) there are any breaches of any Parent Modified
Representation or any material breaches of any Parent Nonmodified
Representation, or (ii) Parent has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Parent promptly after
the discovery thereof and Parent has failed to cure or otherwise resolve the
same to the reasonable satisfaction of Web within thirty (30) days after
receipt of such notice;
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(d) by Parent if (i) there are any breaches of any Web Modified
Representations or any material breaches of any Web Nonmodified
Representations, or (ii) Web has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Web promptly after the
discovery thereof and Web has failed to cure or otherwise resolve the same
to the reasonable satisfaction of Parent within thirty (30) days after
receipt of such notice;
(e) by Web or Parent if a court of competent jurisdiction or other
Governmental Authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting
the Merger, the Restated Company Agreement or any of the transactions
contemplated by this Restated Agreement or such other agreements and such
order, decree, ruling or other action shall have become final and
nonappealable;
(f)(i) by Web if the stockholders of Parent fail to approve and adopt
the Merger or the issuance of the Parent Common Stock pursuant to this
Restated Agreement or the other transactions contemplated or otherwise
referenced herein or therein, as applicable, at the meeting duly convened
therefor;
(f)(ii) by Parent if the stockholders of Parent fail to approve and
adopt the Merger pursuant to this Restated Agreement or the other
transactions contemplated or otherwise referenced herein or therein, as
applicable;
(g) by Parent, if Web or its Board of Directors breaches any provision
of SECTION 6.7; or
(h) by Web, if Parent or its Board of Directors breaches any provision
of SECTION 6.7;
The party desiring to terminate this Restated Agreement pursuant to this
SECTION 8.1 shall give written notice of such termination to the other party in
accordance with SECTION 11.1 below.
8.2 PROCEDURE UPON TERMINATION. In the event of termination pursuant to
this ARTICLE VIII, the Merger shall be abandoned without further action by Web
or Parent, provided that the obligations of the applicable parties to this
Restated Agreement contained in ARTICLE IX and SECTION 6.9 hereof shall remain
in full force and effect. If this Restated Agreement is terminated as provided
herein, each party shall use its reasonable best efforts to redeliver all
documents, work papers and other material (including any copies thereof) of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same. Nothing
contained in this Restated Agreement shall relieve any party from any liability
for any inaccuracy, misrepresentation or breach of this Restated Agreement prior
to termination.
ARTICLE IX--SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 INDEMNIFICATION BY THE WEB SHAREHOLDERS.
(a) If the Closing has occurred, subject to the terms and conditions of
this ARTICLE IX, the Web Shareholders shall indemnify Parent, and its
officers, directors, agents and representatives (THE "INDEMNITEES"), from
and in respect of, and hold the Indemnitees harmless against, any and all
damages, fines, penalties, losses, liabilities, excise and other taxes,
judgments, and deficiencies (including without limitation amounts paid in
settlement and interest and reasonable out-of-pocket legal and accounting
fees), but which amount shall be offset or reduced by the amount of any
insurance proceeds received by Parent in respect of any of the foregoing,
incurred or suffered by any of the Indemnitees ("DAMAGES") resulting from,
relating to or in connection with any misrepresentation or breach of
warranty of the Web Shareholders contained in this Restated Agreement.
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(b) The Web Shareholders acknowledge that their indemnification
obligations hereunder are solely in their capacity as former shareholders of
Web, and, accordingly, the indemnification obligations in this ARTICLE IX
shall not entitle any Web Shareholder who was or is a current or former
officer, director or employee of Web to any indemnification from Web
pursuant to the organizational or governing documents of Web or pursuant to
this Restated Agreement.
9.2 METHOD OF ASSERTING CLAIMS.
(a) Prior to the date (THE "REPORT DATE") that is thirty (30) days after
the completion of Parent's audit report by Parent's independent auditors for
the fiscal year ended December 31, 1999, each Indemnitee shall give written
notice (THE "CLAIM NOTICE") to the Representative, as agent for the Web
Shareholders, of any and all claims or events known to it which gives rise
to a claim for indemnification hereunder by the Indemnitee against the Web
Shareholders (AN "INDEMNIFIABLE CLAIM"). The Claim Notice shall specify the
nature and estimated amount of such claimed Damages (THE "CLAIMED AMOUNT").
In the case of any claim for indemnification hereunder arising out of a
claim, action, suit or proceeding brought by any Person who is not a party
to this Restated Agreement (A "THIRD-PARTY CLAIM"), prior to the Report
Date, the Indemnitee also shall give the Representative, as agent for the
Web Shareholders, copies of any written claims, process or legal pleadings
with respect to such Third-Party Claim.
(b) Within forty-five (45) days after delivery of a Claim Notice, the
Representative shall notify the Parent in writing of his objections, if any,
to the claim. If the Representative has no objections to the claim, the
Representative shall remit to the Parent the Claimed Amount within thirty
(30) days. If the Representative has objections to the claim, the
Representative and the Indemnitee shall proceed in good faith to negotiate a
resolution of the dispute regarding the claim, and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
9.3 THIRD PARTY CLAIMS.
(a) Except as otherwise provided in paragraph (c) below, the
Representative, as agent for the Web Shareholders, may elect to compromise
or defend, at the Web Shareholders' own expense and by the Web Shareholders'
own counsel reasonably satisfactory to the Indemnitee, any Third-Party
Claim; provided that (i) the Representative provides the Indemnitee with
reasonable evidence that the Web Shareholders will have the financial
resources to defend against such claim and fulfill their indemnification
obligations hereunder; and (ii) the giving of a Defense Notice (as defined
below) by the Representative shall constitute an acknowledgment by the Web
Shareholders of their obligation to indemnify the Indemnitee with respect to
such Third-Party Claim in accordance with the terms of this ARTICLE IX. If
the Representative, as agent for the Web Shareholders, elects to compromise
or defend a Third-Party Claim, the Representative shall, within thirty
(30) days of its receipt of the notice provided pursuant to SECTION 9.2(a)
hereof (or sooner, if the nature of such Third-Party Claim so requires),
notify the related Indemnitee of its intent to do so (A "DEFENSE NOTICE"),
and such Indemnitee shall reasonably cooperate in the compromise of, or
defense against, such Third-Party Claim. The Web Shareholders shall be
responsible for the payment of such Indemnitee's actual out-of-pocket
expenses (other than legal and accounting fees) incurred in connection with
such cooperation, and such expenses shall constitute Damages incurred or
suffered by Parent within the meaning of SECTION 9.1(a) hereof. After notice
from the Representative, as agent for the Web Shareholders, to an Indemnitee
of its election to assume the defense of a Third-Party Claim, the Web
Shareholders shall not be liable to such Indemnitee under this ARTICLE IX
for any legal expenses subsequently incurred by such Indemnitee in
connection with the defense thereof. If the Representative, as agent for the
Web Shareholders, elects not to compromise or defend against a Third-Party
Claim, or fails to notify an Indemnitee of its election as provided in this
SECTION 9.3, such Indemnitee may pay, compromise or defend such Third-Party
Claim on
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behalf of and for the account and risk of the Web Shareholders (and any
amount paid or expenses incurred in connection therewith shall constitute
Damages incurred or suffered by Parent within the meaning of SECTION 9.1(a)
hereof). The Representative may not consent to entry of any judgment or
enter into any settlement without the written consent of each related
Indemnitee (which consent shall not be unreasonably withheld), unless such
judgment or settlement provides solely for money damages or other money
payments for which such Indemnitee is entitled to indemnification hereunder
and includes as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnitee of a release from all liability in respect of
such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought by a
taxing authority in respect of Taxes for which the Web Shareholders may be
required to indemnify the Parent (A "TAX CLAIM"), the Representative, as
agent for the Web Shareholders, shall have the sole right to control any Tax
Claim, provided, however, that the Representative shall provide the
Indemnitee with copies of all correspondence with any taxing authority in
connection with any such Tax Claim and shall keep the Indemnitee reasonably
informed of all progress with such taxing authority, and provided further
that the Representative shall consult with the Indemnitee in good faith in
contesting any proposed adjustment and shall consider any reasonable advice
from the Indemnitee concerning such Tax Claim so long as the Representative,
as agent for the Web Shareholders, shall (subject to the immediately
following sentence) ultimately be entitled to control any such Tax Claim
concerning any indemnity obligation of the Web Shareholders. The
Representative shall not be entitled to compromise or settle any Tax
liability of the Company for any pre-Closing Period that would have the
effect of materially decreasing the Company's deductions for credits or
materially increasing the Company's taxable income for any taxable year or
period subsequent to the pre-Closing Period without the prior written
consent of Parent, which consent shall not be unreasonably withheld. Parent
will cooperate fully with Representative in defending any Tax Claim.
(c) If there is a reasonable likelihood that a Third-Party Claim may
have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled
to indemnification hereunder, such Indemnitee will have the right, after
consultation with the Representative, and at the cost and expense of the Web
Shareholders (which costs and expenses, other than legal and accounting
fees, shall constitute Damages within the meaning of SECTION 9.1(a) hereof
to the extent provided therein), to defend such Third-Party Claim. If the
Third-Party Claim involves a third party with whom Parent has a significant
on-going or prospective relationship, the Indemnitee will have the right,
after consultation with the Representative, and at the cost and expense of
the Web Shareholders (which costs and expenses, other than legal and
accounting fees, shall constitute Damages within the meaning of
SECTION 9.1(a) hereof to the extent provided therein), to defend such
Third-Party Claim; provided that the Web Shareholders shall not be obligated
to pay Damages to the extent it is determined (by agreement between the
Representative and Indemnitees or by arbitration or court judgment) that the
Third-Party Claim was settled on terms that were not fair and reasonable to
the Indemnitors.
9.4 SURVIVAL. The representations and warranties of Web set forth in this
Restated Agreement shall survive the Closing and shall continue until the Report
Date. The representations and warranties shall not be affected by any
examination made for or on behalf of Parent or the knowledge of any of Parent's
officers, directors, stockholders, employees or agents, except that the
representations and warranties are qualified by the matters disclosed in the
Disclosure Schedules to the representations and warranties of Web and the Web
Shareholders contained in ARTICLE II hereof and Parent agrees that Parent has
knowledge of such matters. Notwithstanding anything to the contrary herein, if a
claim for indemnification is made before the expiration of the periods of
survival set forth above in this
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SECTION 9.4, then (notwithstanding the expiration of such time period) the
representation or warranty applicable to such claim shall survive until, but
only for purposes of, the resolution of such claim.
9.5 LIMITATIONS.
(a) The Web Shareholders shall not be liable under this ARTICLE IX
unless and until the aggregate amount of Damages incurred or suffered by
Indemnitees exceeds $100,000, (at which point the Web Shareholders shall
become liable for the entire amount of such Damages in excess of $75,000).
For purposes of the preceding sentence, no independent claims of less than
$1,000 may be made; PROVIDED, HOWEVER, that all claims arising out of a
common set of facts shall be aggregated for purposes of determining whether
the $1,000 threshold has been met.
(b) The Web Shareholders' liability under this ARTICLE IX shall not
exceed $850,000.
(c) The Web Shareholders may, at their option, satisfy their
indemnification obligations under this Restated Agreement by (i) the payment
of that amount of cash sufficient to satisfy such indemnification claim, but
in any event not exceeding the amount set forth in SECTION 9.5(b) hereof,
and subject to the provisions of SECTION 9.5(a) hereof; or (ii) the delivery
of stock certificates representing that number of shares of Parent Common
Stock sufficient to satisfy such indemnification claim, the value of which
shall be determined in accordance with SECTION 9.5(d) hereof; PROVIDED,
HOWEVER, that any stock certificates delivered in satisfaction of an
indemnification claim must be delivered to Parent within three (3) business
days following (as applicable) (A) the date calculated in accordance with
SECTION 9.2 or SECTION 9.3 hereof, if the claim is not in dispute;
(B) resolution of such indemnification claim, whether prior to or following
commencement of litigation; or (C) the entry of a final and non-appealable
judgment by a court of competent jurisdiction.
(d) The parties hereto agree that, for purposes of valuing shares of
Parent Common Stock delivered pursuant to SECTION 9.5(c) to satisfy any
indemnification claims pursuant to SECTION 9.2 or SECTION 9.3, Parent Common
Stock shall be valued at a price per share equal to the greater of: (A) the
weighted average of the closing prices, as reported on the NYSE, of the
Parent Common Stock on the twenty (20) trading days prior to the date on
which the stock certificates for the Parent Common Stock are to be delivered
pursuant to clause (ii) of SECTION 9.5(c), or (B) $5.50.
(e) No claim for indemnification pursuant to SECTION 9.1 shall be made
unless asserted by a written notice given to the Representative on or before
the Report Date.
9.6 THE REPRESENTATIVE.
(a) Web and the Web Shareholders hereby authorize, direct and appoint
Reid to act as sole and exclusive agent, attorney-in-fact and representative
of the Web Shareholders (THE "REPRESENTATIVE"), and authorizes and directs
the Representative to (i) take any and all actions (including without
limitation executing and delivering any documents, incurring any costs and
expenses for the account of the Web Shareholders (which will constitute
Damages incurred or suffered by Parent within the meaning of SECTION 9.1(a)
hereof) and making any and all determinations) which may be required or
permitted by this Restated Agreement to be taken by the Web Shareholders or
the Representative, (ii) exercise such other rights, power and authority as
are authorized, delegated and granted to the Representative hereunder in
connection with the transactions contemplated hereby and (iii) exercise such
rights, power and authority as are incidental to the foregoing. Any such
actions taken, exercises of rights, power or authority, and any decision or
determination made by the Representative consistent therewith, shall be
absolutely and irrevocably binding on each indemnifying party as if such
indemnifying party personally had taken such action, exercised such rights,
power or authority or made such decision or determination in such
indemnifying party's individual capacity. Notwithstanding any other
provision of this Restated Agreement, if the Closing occurs, then with
respect to the matters covered by ARTICLE IX, (i) each
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of the Web Shareholders irrevocably relinquishes such Web Shareholder's
right to act independently and other than through the Representative, except
with respect to the removal of the Representative or appointment of a
successor Representative as provided in SECTION 9.6(b) below, and (ii) no
Web Shareholders shall have any right under this Restated Agreement or
otherwise to institute any suit, action or proceeding against Web or Parent
with respect to any such matter, any such right being irrevocably and
exclusively delegated to the Representative. The Representative hereby
acknowledges and accepts the foregoing authorization and appointment and
agrees to serve as the Representative in accordance with this Restated
Agreement.
(b) The Representative shall serve as Representative until his
resignation, removal from office, incapacity or death; provided, however,
that the Representative shall not have the right to resign without
(i) prior written notice to the Web Shareholders, and (ii) picking a
successor reasonably satisfactory to Parent to serve until a successor
thereto is elected by the Web Shareholders. The Representative may be
removed at any time, and a successor representative, reasonably satisfactory
to Parent, may be appointed, pursuant to written action by Web Shareholders.
Any successor to the Representative shall, for purposes of this Restated
Agreement, be deemed to be, from the time of the appointment thereof in
accordance with the terms hereof, the Representative, and from and after
such time, the term "REPRESENTATIVE" as used herein and therein shall be
deemed to refer to such successor. No appointment of a successor shall be
effective unless such successor agrees in writing to be bound by the terms
of this Restated Agreement.
(c) The Representative shall be permitted to retain counsel, consultants
and other advisors and shall promptly notify Parent after retaining any such
Person.
(d) The provisions of this SECTION 9.6 shall in no way impose any
obligations on Parent (other than those set forth in paragraph (c) above).
In particular, notwithstanding any notice received by Parent to the contrary
(except any notice of the appointment of a successor Representative approved
by Parent in accordance with paragraph (b) of this SECTION 9.6), Parent
shall be entitled to assume that all actions, decisions and determinations
of the Representative are fully authorized by the Web Shareholders.
(e) The Representative shall not be liable to the Web Shareholders for
the performance of any act or the failure to act so long as he acted or
failed to act in good faith in what he reasonably believed to be the scope
of his authority and for a purpose which he reasonably believed to be in the
best interests of the Web Shareholders.
9.7 INDEMNIFICATION BY THE PARENT.
(a) INDEMNITY. If the Closing has occurred, subject to the terms and
conditions of this SECTION 9.7, Parent shall indemnify the Web Shareholders
from and in respect of all, and hold the Web Shareholders harmless against,
any and all damages, fines, penalties, losses, liabilities, judgments and
deficiencies (including without limitation amounts paid in settlement and
interest) ("WEB SHAREHOLDER DAMAGES") resulting from, relating to or in
connection with any misrepresentation or breach of warranty of the Parent
contained in this Restated Agreement.
(b) SURVIVAL. The representations and warranties of Parent set forth
in this Restated Agreement shall survive the Closing and shall continue
until the Report Date. The representations and warranties shall not be
affected by any examination made for or on behalf of Web or Web Shareholders
or the knowledge of any of the Web's officers, directors, stockholders,
employees or agents, except that the representations and warranties are
qualified by the matters disclosed in the Disclosure Schedules to the
representations and warranties of the Parent contained in ARTICLE III
hereof, and Web agrees that Web has knowledge of such matters.
Notwithstanding anything to the contrary herein, if a claim for
indemnification is made before the expiration of the periods of
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survival set forth above in this SECTION 9.7, then (notwithstanding the
expiration of such time period) the representation or warranty applicable to
such claim shall survive until, but only for purposes of, the resolution of
such claim.
(c) LIMITATIONS. Parent shall not be liable under this SECTION 9.7
unless and until the aggregate amount of Web Shareholder Damages incurred or
suffered by the Web Shareholders exceeds $100,000 (at which point Parent
shall become liable for the entire amount of Web Shareholder Damages in
excess of $75,000). Furthermore, the liability of Parent under this
SECTION 9.7 shall be $850,000. No claim for indemnification pursuant to
SECTION 9.7 shall be made unless asserted by a written notice given to
Parent on or before the Report Date.
ARTICLE X--MUTUAL RELEASE
10.1 MUTUAL RELEASE OF ALL CLAIMS.
(a) Parent, for itself and for all of its stockholders, directors,
officers, agents, employees, representatives, divisions, subsidiaries,
affiliates, insurers, successors and assigns, hereby releases, remises,
acquits and forever discharges Web and the Web Shareholders, and each of
them and each of their respective stockholders, directors, officers, agents,
employees, representatives, divisions, parents, subsidiaries, affiliates,
insurers, successors and assigns, of and from any and all manner of claims,
actions, causes of action, suits, debts, dues, accounts, contracts,
agreements, continuing obligations, judgments, claims and demands
whatsoever, whether in law or in equity, which now exist or may hereafter
arise from any matter, fact, circumstance, happening or thing whatsoever
occurring or failing to occur in connection with the negotiation, execution
and performance of their respective obligations under the June 3 Web YP
Agreement.
(b) Web and the Web Shareholders, each for itself and for all of their
respective stockholders, directors, officers, agents, employees,
representatives, divisions, subsidiaries, affiliates, insurers, successors
and assigns, hereby releases, remises, acquits and forever discharges Parent
and its stockholders, directors, officers, agents, employees,
representatives, divisions, parents, subsidiaries, affiliates, insurers,
successors and assigns, of and from any and all manner of claims, actions,
causes of action, suits, debts, dues, accounts, contracts, agreements,
continuing obligations, judgments, claims and demands whatsoever, whether in
law or in equity, which now exist or may hereafter arise from any matter,
fact, circumstance, happening or thing whatsoever occurring or failing to
occur in connection with the negotiation, execution and performance of its
obligations under the June 3 YPtel Agreement.
(c) Parent and each of Web and the Web Shareholders hereby represent,
warrant and acknowledge that the mutual covenants and agreements in this
ARTICLE X are made in good faith.
10.2 COVENANT NOT TO SUE.
(a) Parent hereby agrees that it will not institute any action against
Web and the Web Shareholders arising out of the June 3 Web YP Agreement,
including, but not limited to, any claim for contractual indemnity or
implied indemnity.
(b) Each of Web and the Web Shareholders hereby agrees that it will not
institute any action against Parent arising out of the June 3 Web YP
Agreement, including, but not limited to, any claim for contractual
indemnity or implied indemnity.
10.3 NO ADMISSION OF LIABILITY. None of Parent, Web or the Web
Shareholders admits liability to any other party hereto and, in fact, each of
Parent, Web and the Web Shareholders denies any liability relating to the
June 3 Web YP Agreement.
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ARTICLE XI--AMENDMENT AND WAIVER
11.1 AMENDMENT OF THIS RESTATED AGREEMENT. Prior to Parent stockholder
approval and except as is otherwise required by Applicable Law, this Restated
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. Following
receipt of approval by the Parent shareholders, the parties hereto acknowledge
and agree that this Restated Agreement may be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto; PROVIDED, HOWEVER, that any such amendment shall not have a material
adverse effect upon Parent.
11.2 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Acquisition Subsidiary, on the one hand, and Web and the Web Shareholders,
on the other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made by such other party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party; PROVIDED, HOWEVER, that an extension pursuant to
SECTION 1.2(b) hereof need not be set forth in writing in order to be effective,
unless such extension is to a date after March 1, 2000.
ARTICLE XII--GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent, to:
Advanced Communications Group, Inc.
390 South Woods Mill Road, Suite 150
St. Louis, Missouri 63017
Attn: Mr. Richard O'Neal
Facsimile: (314) 205-8141
with a copy to:
Blackwell Sanders Peper Martin LLP
720 Olive Street, Suite 2400
St. Louis, Missouri 63101-4834
Attn: Mr. Craig A. Adoor
Facsimile: (314) 345-6060
(b) if to Web and Web Shareholders, to:
Web YP, Inc.
4515 South Georgia, Suite 118
Amarillo, Texas 79102
Attn: Mr. Richard L. Reid
Facsimile: (806) 354-2974
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with a copy to:
Steinhart & Falconer
333 Market Street
32(nd) Floor
San Francisco, California 94105-2150
Attn: Mr. Robb A. Scott
Facsimile: (415) 442-0856
12.2 INTERPRETATION. The words "INCLUDE," "INCLUDES" and "INCLUDING" when
used herein shall be deemed in each case to be followed by the words "without
limitation". The table of contents and headings contained in this Restated
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Restated Agreement. All Disclosure Schedules
to this Restated Agreement constitute a part of this Restated Agreement as if
set forth in full herein and are incorporated herein.
12.3 COUNTERPARTS. This Restated Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
12.4 ENTIRE AGREEMENT; ASSIGNMENT. Subject to its becoming effective in
accordance with SECTION 1.2 hereof, this Restated Agreement (including, but not
limited to, the Recitals hereto), the Disclosure Schedules hereto, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof including, but not limited to, (A) the June 3 Web YP
Agreement; and (B) the Letter of Intent dated April 11, 1999 by and among the
Parent, the Company, Web, Big Stuff and O'Neal and the Confidentiality Agreement
dated April 11, 1999 by and among Parent, the Company, Web, Big Stuff and
O'Neal; (ii) are not intended to confer upon any Person not a party hereto any
rights or remedies hereunder except that the Representative shall have the
express rights articulated in ARTICLE IX; and (iii) shall not be assigned by
operation of law or otherwise, except that Parent may assign its rights and
delegate its obligations hereunder to its affiliates, provided that Parent shall
remain liable hereunder.
12.5 SEVERABILITY. In the event that any provision of this Restated
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Restated Agreement will continue in full force and effect and the
application of such provision to other Persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto so long
as consideration of the Restated Agreement is not materially affected for any
party hereof. The parties further agree to replace such void or unenforceable
provision of this Restated Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of such void or unenforceable provision.
12.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
12.7 GOVERNING LAW. This Restated Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within the State of California, City and
County of
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San Francisco, in connection with any matter based upon or arising out of this
Restated Agreement or the matters contemplated herein, agrees that process may
be served upon them in any manner authorized by the laws of the State of
California, City and County of San Francisco for such Persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
12.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Restated
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
ARTICLE XIII--DEFINITIONS
13.1 DEFINITIONS.
"Acquisition Subsidiary" shall have the meaning ascribed to it in the
preamble hereto.
"Active Parent Subsidiaries" shall mean Feist; FirsTel; Value; Great Western
Directories, Inc.; Telecom Resources, Inc.; the Switchboard of Oklahoma
City, Inc.; Long Distance Management of Kansas, Inc.; Long Distance Management
II, Inc.; and National Telecom, a proprietorship.
"Affiliate Agreements" shall have the meaning set forth in SECTION 4.8
hereof.
"Anniversary Date" shall mean the first anniversary of the Closing Date.
"Associates" shall mean affiliates of any Person (including, without
limitation, directors, officers, employees, agents, representatives and
shareholders or any affiliates or associates thereof).
"Benefit Plan" shall have the meaning ascribed to such term in SECTION 2.14
hereof.
"Big Stuff" shall have the meaning ascribed to such term in Recital E
hereto.
"Certificate of Merger" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Certificates" shall mean the certificates which, prior to the Merger,
represented the Web Shares, and shall include a certificate issued upon due
execution and delivery of an affidavit of loss and a bond, if required by
Parent, in the event that a Web Shareholder is unable to produce and deliver, at
the Closing, the original certificate which prior to the Merger, represented any
Web Shares.
"Claim Notice" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Claimed Amount" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Class A Special Shares" shall have the meaning set forth in the Restated
Company Agreement.
"CLEC Operations" shall mean Feist, FirsTel, Valu, and such other non-yellow
pages operating subsidiaries or operations of Parent as shall be determined by
the Board of Directors of Parent.
"Closing" shall mean the closing of the Merger.
"Closing Date" shall mean the date on which the Closing actually occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
Treasury regulations thereunder.
"Company" shall have the meaning set forth in Recital E hereto.
"Company Shareholders" shall have the meaning set forth in Recital E hereto.
"Consent" shall have the meaning ascribed to such term in SECTION 2.5
hereof.
"Conversion Stock" shall have the meaning ascribed to such term in
SECTION 4.9 hereof.
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"Convertible Note" shall have the meaning ascribed to such term
SECTION 1.10 hereof.
"Corporation Laws" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Damages" shall have the meaning ascribed to such term in SECTION 9.1(a)
hereof.
"Defense Notice" shall have the meaning ascribed to such term in
SECTION 9.3(a) hereof.
"Disclosure Schedules" shall mean, collectively, that information required
to be delivered by Web to Parent, and by Parent to Web, pursuant to this
Restated Agreement.
"Effective Time" shall have the meaning ascribed to such term in
SECTION 1.2 hereof.
"Enforceability Exceptions" shall have the meaning ascribed to such term in
SECTION 2.4 hereof.
"Environmental Laws" shall have the meaning ascribed to such term in
SECTION 2.17 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations thereunder.
"Event" shall mean any event, occurrence, fact, condition, change,
development or effect.
"Exchange Ratio" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Extraordinary Transactions" shall have the meaning ascribed to such term in
SECTION 6.7 hereof.
"Feist" shall mean Feist Long Distance Service, Inc.
"Final Order", with respect to any Consent of a Governmental Authority,
shall mean an action by the appropriate Governmental Authority as to which:
(i) no request for stay by such Governmental Authority of the action is pending,
no such stay is in effect, and, if any deadline for filing any such request is
designated by statute or regulation, it has passed; (ii) no petition for
rehearing or reconsideration of the action is pending before such Governmental
Authority, and no appeal or comparable administrative remedy is pending before
such Governmental Authority, and the time for filing any such petition, appeal
or administrative remedy has passed; (iii) such Governmental Authority does not
have the action under reconsideration on its own motion and the time for such
reconsideration has passed; and (iv) no appeal to a court, or request for stay
by a court, of the Governmental Authority action is pending or in effect, and if
any deadline for filing any such appeal or request is designated by statute or
rule, it has passed.
"FirsTel" shall mean FirsTel, Inc.
"Governmental Authority" shall mean a nation or government, any state or
other political subdivision thereof, any Person, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government including, without limitation, any governmental or
regulatory authority, agency, department, board, commission or instrumentality,
any court, tribunal or arbitrator and any self-regulatory organization.
"Great Western Credit Agreement" shall mean the Loan Agreement dated as of
May 14, 1999, by and among Great Western Directories, Inc., the lenders
signatories thereto, and Bank of America National Trust and Savings Association
as Administrative Agent.
"Great Western Notes" shall have the meaning ascribed to such term in
Recital E hereto.
"Great Western Shareholders" shall have the meaning ascribed to such term in
Recital E hereto.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"ICL" shall have the meaning ascribed to such term in Recital E hereto.
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"Indemnifiable Claim" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Indemnitees" shall have the meaning ascribed to such term in
SECTION 9.1(a) hereof.
"Intellectual Property" shall have the meaning ascribed to such term in
SECTION 2.18 hereof.
"IP Claim Notice" shall have the meaning ascribed to such term in
SECTION 2.18 hereof.
"IRS" shall mean the United States Internal Revenue Service, or any
successor thereto.
"June 3 Web YP Agreement" shall have the meaning ascribed to such term in
SECTION 1.2(a) hereof.
"Law" shall mean applicable provision of any constitution, treaty, statute,
law, code, rule, regulation, ordinance, policy or order of any Governmental
Authority or other matters having the force of law including, but not limited
to, any orders, decisions, injunctions, judgments, awards and decrees of or
agreements with any court or other Governmental Authority.
"Letter of Transmittal" shall have the meaning ascribed to such term in
SECTION 1.5 hereof.
"Litigation" shall have the meaning ascribed to such term in SECTION 2.7
hereof.
"Merger" shall have the meaning ascribed to such term in Recital B hereto.
"Merger Consideration" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Multi-employer Plan" shall have the meaning ascribed to such term in
SECTION 2.14 hereof.
"NYSE" shall mean the New York Stock Exchange, Inc.
"O'Neal" shall have the meaning ascribed to such term in the preamble
hereto.
"Parent" shall have the meaning ascribed to such term in the Preamble
hereto.
"Parent Common Stock" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Parent Financial Statements" shall have the meaning ascribed to such term
in SECTION 3.8 hereof.
"Parent Guaranty" shall mean that certain Guaranty of Parent given pursuant
to the Great Western Credit Agreement.
"Parent Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Parent and the Active Parent
Subsidiaries taken as a whole, (ii) the ability of Parent to perform its
obligations set forth in this Restated Agreement and the Parent Transaction
Agreements, or (iii) the ability of Parent to timely consummate the transactions
contemplated by this Restated Agreement and the Parent Transaction Agreements.
"Parent Material Contract" shall have the meaning ascribed to such term in
SECTION 3.13 hereof.
"Parent Modified Representations" shall have the meaning ascribed to such
term in SECTION 7.2(a)(i) hereof.
"Parent Nonmodified Representation" shall have the meaning ascribed to such
term in SECTION 7.2(a)(i) hereof.
"Parent Permits" shall have the meaning ascribed to such term in
SECTION 3.11 hereof.
"Parent Securities Filings" shall have the meaning ascribed to such term in
SECTION 3.7 hereof.
"Parent Series A Stock "shall have the meaning ascribed to such term in
SECTION 3.2 hereof.
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"Parent Transaction Agreements" shall have the meaning ascribed to such term
in SECTION 3.4 hereof.
"Person" shall mean and include an individual, corporation, partnership,
association, trust or other entity or organization, including a Governmental
Authority.
"Registration Statements" shall have the meaning ascribed to such term in
SECTION 6.1(b) hereof.
"Reid" shall have the meaning ascribed to such term in the preamble hereto.
"Report Date" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Representative" shall have the meaning ascribed to such term in
SECTION 9.6 hereof.
"Resignations" shall have the meaning ascribed to such term in SECTION 6.8
hereof.
"Restated Agreement" shall have the meaning ascribed to it in the preamble
hereto.
"Restated Big Stuff Agreement" shall mean that certain Amended and Restated
Acquisition Agreement dated as of October 26, 1999, among the Parent, ACG
Acquisition VII Corp., Big Stuff and the Big Stuff shareholders.
"Restated Company Agreement" shall have the meaning set forth in Recital E
hereto.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
"Surviving Corporation" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Surviving Corporation Common Stock" shall have the meaning ascribed to such
term in SECTION 1.3 hereof.
"Surviving Corporation Material Adverse Effect" shall mean a material
adverse effect on (i) the business, assets, condition (financial or otherwise),
properties, liabilities or the results of operations of the Surviving
Corporation, or (ii) the ability to timely consummate the transactions
contemplated by this Restated Agreement.
"Tax" shall have the meaning ascribed to such term in SECTION 2.15(a)
hereof.
"Tax Claim" shall have the meaning ascribed to such term in SECTION 9.3(b)
hereof.
"Third-Party Claim" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Transaction Expenses" shall have the meaning ascribed to such term in
SECTION 5.9 hereof.
"Valu" shall mean, collectively, Valu-line of Louisiana, Inc. and Valu-line
of Longview, Inc.
"Web" shall have the meaning ascribed to such term in the preamble hereto.
"Web Common Stock" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Web Financial Statements" shall have the meaning ascribed to such term in
SECTION 2.8 hereof.
"Web Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Web taken as a whole, (ii) the
ability of Web to perform its obligations set forth in this Restated Agreement
and the Web Transaction Agreements, or (iii) the ability of Web or the Web
Shareholders to timely
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consummate the transactions contemplated by this Restated Agreement and the Web
Transaction Agreements.
"Web Material Contract" shall have the meaning ascribed to such term in
SECTION 2.13 hereof.
"Web Modified Representations" shall have the meaning ascribed to such term
in SECTION 7.3(a)(i) hereof.
"Web Nonmodified Representations" shall have the meaning ascribed to such
term in SECTION 7.3(a)(i) hereof.
"Web Permits" shall have the meaning ascribed to such term in SECTION 2.11
hereof.
"Web Real Property Leases" shall have the meaning ascribed to such term in
SECTION 2.19(b) hereof.
"Web Shares" shall have the meaning ascribed to such term in SECTION 1.3
hereof.
"Web Shareholders" shall have the meaning ascribed to such term in the
preamble hereto.
"Web Shareholder Damages" shall have the meaning ascribed to such term in
SECTION 9.7(a) hereof.
"Web Stock" shall have the meaning set forth in SECTION 2.2 hereof.
"Web Transaction Agreements" shall have the meaning ascribed to such term in
SECTION 2.4 hereof.
"WorldPages" shall have the meaning ascribed to such term in Recital E
hereto.
"Year 2000 Compliant" shall have the meaning ascribed to such term in
SECTION 2.27 hereof.
[SIGNATURES ON FOLLOWING PAGE]
B-44
<PAGE>
[Signature pages to the Amended and Restated Web YP Acquisition Agreement]
IN WITNESS WHEREOF, Parent, the Acquisition Subsidiary, Web and the Web
Shareholders have caused this Restated Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
ADVANCED COMMUNICATIONS GROUP, INC.
By: /s/ MICHAEL PRUSS
-----------------------------------------
Name: Michael Pruss
Title: Chief Financial Officer and
Secretary
ACG ACQUISITION VI CORP.
By: /s/ MICHAEL PRUSS
-----------------------------------------
Name: Michael Pruss
Title: Secretary
WEB YP, INC.
By: /s/ RICHARD L. REID
-----------------------------------------
Title: CEO
/s/ RICHARD O'NEAL
-----------------------------------------
RICHARD O'NEAL
/s/ RICHARD L. REID
-----------------------------------------
RICHARD L. REID
</TABLE>
B-45
<PAGE>
ANNEX C
C-i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE I--TERMS OF THE MERGER..................................... C-2
1.1 THE MERGER.................................................. C-2
1.2 EFFECTIVE TIME.............................................. C-2
1.3 MERGER CONSIDERATION........................................ C-3
1.4 STOCKHOLDERS' RIGHTS UPON MERGER............................ C-3
1.5 SURRENDER AND EXCHANGE OF SHARES............................ C-3
1.6 DIRECTORS................................................... C-4
1.7 BYLAWS...................................................... C-4
1.8 OTHER EFFECTS OF MERGER..................................... C-4
1.9 TAX-FREE REORGANIZATION..................................... C-4
1.10 CONVERTIBLE NOTE............................................ C-4
1.11 ADDITIONAL ACTIONS.......................................... C-5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF BIG STUFF AND THE BIG
STUFF SHAREHOLDERS............................................... C-5
2.1 ORGANIZATION AND GOOD STANDING.............................. C-5
2.2 CAPITALIZATION.............................................. C-5
2.3 SUBSIDIARIES................................................ C-5
2.4 AUTHORIZATION; BINDING AGREEMENT............................ C-5
2.5 GOVERNMENTAL APPROVALS...................................... C-6
2.6 NO VIOLATIONS............................................... C-6
2.7 LITIGATION.................................................. C-6
2.8 BIG STUFF FINANCIAL STATEMENTS.............................. C-7
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ C-7
2.10 COMPLIANCE WITH LAWS........................................ C-7
2.11 PERMITS..................................................... C-8
2.12 FINDERS AND INVESTMENT BANKERS.............................. C-8
2.13 CONTRACTS................................................... C-8
2.14 EMPLOYEE BENEFIT PLANS...................................... C-8
2.15 TAXES AND RETURNS........................................... C-9
2.16 LIABILITIES................................................. C-10
2.17 ENVIRONMENTAL MATTERS....................................... C-10
2.18 INTELLECTUAL PROPERTY; FICTITIOUS NAMES..................... C-11
2.19 REAL ESTATE................................................. C-11
2.20 CORPORATE RECORDS........................................... C-11
2.21 TITLE TO AND CONDITION OF PERSONAL PROPERTY................. C-11
2.22 NO ADVERSE ACTIONS.......................................... C-11
2.23 LABOR MATTERS............................................... C-12
2.24 INSURANCE................................................... C-12
2.25 DISCLOSURE.................................................. C-12
2.26 TAX......................................................... C-12
2.27 YEAR 2000 COMPLIANCE........................................ C-12
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF PARENT.............. C-13
3.1 ORGANIZATION AND GOOD STANDING.............................. C-13
3.2 CAPITALIZATION.............................................. C-13
3.3. SUBSIDIARIES................................................ C-13
3.4 AUTHORIZATION; BINDING AGREEMENT............................ C-14
3.5 GOVERNMENTAL APPROVALS...................................... C-14
3.6 NO VIOLATIONS............................................... C-14
3.7 SECURITIES FILINGS AND LITIGATION........................... C-15
3.8 PARENT FINANCIAL STATEMENTS................................. C-15
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ C-16
3.10 COMPLIANCE WITH LAWS........................................ C-16
</TABLE>
C-ii
<PAGE>
<TABLE>
<C> <S> <C>
3.11 PERMITS..................................................... C-16
3.12 FINDERS AND INVESTMENT BANKERS.............................. C-16
3.13 CONTRACTS................................................... C-16
3.14 CORPORATE RECORDS........................................... C-16
3.15 TAX......................................................... C-16
3.16 DISCLOSURE.................................................. C-16
ARTICLE IV--ADDITIONAL COVENANTS OF BIG STUFF AND THE BIG STUFF
SHAREHOLDERS..................................................... C-17
4.1 NOTIFICATION OF CERTAIN MATTERS............................. C-17
4.2 ACCESS AND INFORMATION...................................... C-17
4.3 BIG STUFF SHAREHOLDER APPROVAL.............................. C-17
4.4 REASONABLE BEST EFFORTS..................................... C-18
4.5 COMPLIANCE.................................................. C-18
4.6 BENEFIT PLANS............................................... C-18
4.7 TAX OPINION CERTIFICATION................................... C-18
4.8 AFFILIATE AGREEMENTS........................................ C-18
4.9 TRANSFER RESTRICTIONS....................................... C-18
ARTICLE V--ADDITIONAL COVENANTS OF PARENT.......................... C-19
5.1 CONDUCT OF BUSINESS OF PARENT AND THE ACTIVE PARENT
SUBSIDIARIES.............................................. C-19
5.2 NOTIFICATION OF CERTAIN MATTERS............................. C-19
5.3 ACCESS AND INFORMATION...................................... C-20
5.4 COMPLIANCE.................................................. C-20
5.5 SEC AND SHAREHOLDER FILINGS................................. C-20
5.6 TAX TREATMENT............................................... C-20
5.7 EMPLOYMENT AND EMPLOYEE BENEFIT PLANS....................... C-20
5.9 EXPENSES....................................................
5.10 PARENT SHAREHOLDER APPROVAL................................. C-21
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT, BIG STUFF AND THE BIG
STUFF SHAREHOLDERS............................................... C-21
6.1 REGISTRATION OF SECURITIES.................................. C-21
6.2 EMPLOYMENT AGREEMENTS....................................... C-22
6.3 CONSENTS.................................................... C-22
6.4 LEGAL REQUIREMENTS.......................................... C-22
6.5 PUBLIC ANNOUNCEMENTS........................................ C-22
6.6 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE................... C-22
6.7 NO SOLICITATION OF ACQUISITION PROPOSAL..................... C-26
6.8 RESIGNATIONS................................................ C-26
6.9 CONFIDENTIALITY............................................. C-26
6.10 OPTIONS; STOCK ISSUANCES.................................... C-27
ARTICLE VII--CONDITIONS TO CLOSING................................. C-28
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSING.......... C-28
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BIG STUFF
SHAREHOLDERS AND BIG STUFF................................ C-29
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT.......... C-30
ARTICLE VIII--TERMINATION AND ABANDONMENT.......................... C-31
8.1 TERMINATION................................................. C-31
8.2 PROCEDURE UPON TERMINATION.................................. C-32
</TABLE>
C-iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IX--SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.................................................. C-32
9.1 INDEMNIFICATION BY THE BIG STUFF SHAREHOLDERS............... C-32
9.2 METHOD OF ASSERTING CLAIMS.................................. C-33
9.3 THIRD PARTY CLAIMS.......................................... C-33
9.4 SURVIVAL.................................................... C-35
9.5 LIMITATIONS................................................. C-35
9.6 THE REPRESENTATIVE.......................................... C-35
9.7 INDEMNIFICATION BY THE PARENT............................... C-36
ARTICLE X--MUTUAL RELAEASE......................................... C-37
10.1 MUTUAL RELEASE OF ALL CLAIMS................................ C-37
10.2 COVENANT NOT TO SUE......................................... C-37
10.3 NO ADMISSION OF LIABILITY................................... C-38
ARTICLE XI--AMENDMENT AND WAIVER................................... C-38
11.1 AMENDMENT OF THIS RESTATED AGREEMENT........................ C-38
11.2 EXTENSION; WAIVER........................................... C-38
ARTICLE XII--GENERAL PROVISIONS.................................... C-38
12.1 NOTICES..................................................... C-38
12.2 INTERPRETATION.............................................. C-39
12.3 COUNTERPARTS................................................ C-39
12.4 ENTIRE AGREEMENT; ASSIGNMENT................................ C-39
12.5 SEVERABILITY................................................ C-39
12.6 OTHER REMEDIES.............................................. C-39
12.7 GOVERNING LAW............................................... C-40
12.8 RULES OF CONSTRUCTION....................................... C-40
ARTICLE XIII--DEFINITIONS.......................................... C-40
13.1 DEFINITIONS................................................. C-40
</TABLE>
C-iv
<PAGE>
AMENDED AND RESTATED
BIG STUFF AGREEMENT
This AMENDED AND RESTATED BIG STUFF ACQUISITION AGREEMENT (the "RESTATED
AGREEMENT") is made and entered into as of this 26th day of October, 1999, by
and among Advanced Communications Group, Inc., a Delaware corporation ("PARENT")
and ACG Acquisition VII Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("ACQUISITION SUBSIDIARY"), on the one hand and Big
Stuff, Inc., a Texas corporation ("BIG STUFF"), Richard O'Neal, a resident of
the State of Texas ("O'NEAL"), and Richard L. Reid, a resident of the State of
Texas ("REID") (O'Neal and Reid are together referred to herein as the "BIG
STUFF SHAREHOLDERS"), on the other.
RECITALS
A. Parent desires to acquire, and Big Stuff and the Big Stuff Shareholders
desire Parent to acquire, all of the outstanding common stock of Big Stuff, on
the terms and subject to the conditions set forth in this Restated Agreement.
B. In furtherance of such acquisition, the respective Boards of Directors
of Parent, Acquisition Subsidiary and Big Stuff have approved the merger (the
"MERGER") of Acquisition Subsidiary with and into Big Stuff in accordance with
the Corporation Laws, all on the terms and conditions set forth in this Restated
Agreement.
C. The Boards of Directors of each of Big Stuff, Acquisition Subsidiary and
Parent believe it is in the best interests of each company and their respective
stockholders and the Board of Directors of Parent has directed or will direct
that the Restated Agreement be submitted to the shareholders of Parent with the
recommendation that the Restated Agreement, including, but not limited to, the
issuance of shares of Parent Common Stock pursuant to this Restated Agreement,
be approved by the Parent's stockholders and the Boards of Directors of Big
Stuff and Acquisition Subsidiary have directed or will direct that the Merger be
submitted to their respective shareholders in accordance with the Corporation
Laws.
D. The Big Stuff Shareholders own all outstanding shares of Big Stuff Common
Stock, believe that the Merger and the transactions contemplated by this
Restated Agreement are in their best interests and desire to enter into this
Restated Agreement.
E. The parties intend that the Closing will occur prior to or concurrently
with, among other actions: (i) the closing of the acquisition by Parent or a
direct or indirect subsidiary of Parent of all of the outstanding capital stock
of YPtel Corporation, a corporation incorporated under the laws of Canada (the
"COMPANY") pursuant to that certain Amended and Restated YPtel Acquisition
Agreement, a form of which has been provided by Parent to Big Stuff (the
"RESTATED COMPANY AGREEMENT"), dated as of October 26, 1999, among the Parent,
the Company, the shareholders of the Company (the "COMPANY SHAREHOLDERS"),
Jeffrey L. Rosenthal, Stephen D. Lister, Edward Truant, Douglas G. McIntyre, The
J.L.R. Family Trust, The Paisley Family Trust, Imperial Capital Limited, a
corporation organized under the laws of the Province of Ontario ("ICL"), Cold
Trust, Global Investment Trust, Freezer Trust, Storage Trust, Directory Trust
and Publisher Trust; (ii) the closing of the acquisition by Parent or a
subsidiary of Parent of all of the outstanding capital stock of Web YP, Inc.
("WEB") (Big Stuff and Web are sometimes collectively referred to as
"WORLDPAGES") whether by merger, exchange or otherwise; (iii) the redemption of
the promissory notes (collectively, the "GREAT WESTERN NOTES") in the aggregate
original principal amount of Fifteen Million Dollars ($15,000,000.00) (plus
accrued but unpaid interest at the time of redemption) owed by Parent to O'Neal
and certain other former shareholders of Great Western Directories, Inc.
(collectively, the "GREAT WESTERN SHAREHOLDERS") by the issuance of Parent
Common Stock to the Great Western Shareholders; and (iv) the satisfaction of the
other conditions to closing set forth in this Restated Agreement, the Restated
Company Agreement and the Restated Web YP Agreement.
C-1
<PAGE>
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
ARTICLE I--TERMS OF THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Restated Agreement, the Merger shall be consummated in accordance with the Texas
Business Corporation Act (the "TEXAS CORPORATION ACT") and the General
Corporation Law of the State of Delaware (together with the Texas Corporation
Act, the "CORPORATION LAWS"). At the Effective Time, upon the terms and subject
to the conditions of this Restated Agreement, Acquisition Subsidiary shall be
merged with and into Big Stuff in accordance with the Corporation Laws and the
separate existence of Acquisition Subsidiary shall thereupon cease, and Big
Stuff, as the surviving corporation in the Merger (the "SURVIVING CORPORATION"),
shall continue its corporate existence under the laws of the State of Texas as a
subsidiary of Parent and under the corporate name "Big Stuff YP, Inc." The
Certificate of Incorporation of Big Stuff shall be the certificate of
incorporation of the Surviving Corporation. The parties shall prepare and
execute a certificate of merger in a form to be agreed to by the parties hereto,
acting reasonably (the "CERTIFICATE OF MERGER"), in order to comply in all
respects with the requirements of the Corporation Laws and with the provisions
of this Restated Agreement.
1.2 EFFECTIVE TIME.
(a) EFFECTIVE TIME OF THIS RESTATED AGREEMENT. Despite its execution,
no term, provision, right or obligation under or pursuant to this Restated
Agreement shall be effective, unless and until the later of (i) the
execution of this Restated Agreement; and (ii) receipt by Parent's Board of
Directors from its financial advisors, PaineWebber Incorporated or such
other investment banking firm selected by Parent's Board of Directors, of a
written opinion addressed to it for inclusion in the Proxy Statement to the
effect that the consideration to be paid, in the aggregate, by the Parent in
the transactions contemplated by this Restated Agreement, the Restated
Company Agreement, the Restated Web Agreement, including the lending by
Richard O'Neal and Richard Reid to Big Stuff and/or Web of up to an
aggregate of Six Million Dollars ($6,000,000) and the agreement relating to
the redemption of the Great Western Notes, is fair to Parent from a
financial point of view. The parties to this Restated Agreement are parties
to that certain Big Stuff Acquisition Agreement dated as of June 3, 1999
(the "JUNE 3 BIG STUFF AGREEMENT"). Unless and until the later of the events
described in clauses (i) and (ii) hereof occurs, the June 3 Big Stuff YP
Agreement shall remain in full force and effect, subject to termination of
such agreement in accordance with its terms. Immediately upon the execution
of this Restated Agreement, as described in clause (i) above, and the
receipt by Parent's Board from its financial advisors of a written opinion,
as described in clause (ii) above, this Restated Agreement shall become
effective and the June 3 Big Stuff YP Agreement shall terminate and none of
the parties thereto shall have any obligations thereunder.
(b) EFFECTIVE TIME OF THE MERGER. The Merger shall become effective as
of the time of the filing of the Certificate of Merger with the Secretary of
State of the State of Texas and the Secretary of State of the State of
Delaware in accordance with the applicable provisions of the Corporation
Laws or at such later time as may be specified in the Certificate of Merger.
The Certificate of Merger shall be filed, and the closing of the Merger (the
"CLOSING") shall occur three (3) business days after all of the conditions
set forth in this Restated Agreement have been satisfied or waived by the
party or parties entitled to the benefit of the same; PROVIDED, HOWEVER,
that if such conditions are not satisfied or waived by January 31, 2000, the
Closing shall be automatically postponed for seven (7) days and will
continue to be postponed for continuous seven (7) day periods until
February 28, 2000, unless another time is agreed to by Parent and Big Stuff.
If such conditions are not satisfied or waived by February 28, 2000, the
Closing shall be
C-2
<PAGE>
automatically postponed until March 1, 1999, unless another time is agreed
to in writing by Parent and Big Stuff. The Closing shall occur at the
offices of Blackwell Sanders Peper Martin LLP, 720 Olive Street,
Suite 2400, St. Louis, Missouri 63101, unless another place is agreed to in
writing by Parent and Big Stuff. The time when the Merger shall become
effective is herein referred to as the "EFFECTIVE TIME" and the date on
which the Effective Time occurs is herein referred to as the "CLOSING DATE."
1.3 MERGER CONSIDERATION. Subject to the provisions of this Restated
Agreement and any applicable backup or other withholding requirements, each of
the issued and outstanding shares ("BIG STUFF SHARES") of common stock, no par
value per share, of Big Stuff ("BIG STUFF COMMON STOCK") as of the Effective
Time shall be converted into the right to receive, and there shall be paid and
issued as hereinafter provided, in exchange for the Big Stuff Shares, 415.584
shares (the "EXCHANGE RATIO") of Parent Common Stock, par value $.0001 per share
("PARENT COMMON STOCK"), plus cash in lieu of any fractional share as
hereinafter provided (the "MERGER CONSIDERATION").
No fractional shares of Parent Common Stock shall be issued pursuant to the
Merger nor will any fractional share interest involved entitle the holder
thereof to vote, to receive dividends or to exercise any other rights as a
shareholder of Parent. In lieu thereof, any Person who would otherwise be
entitled to a fractional share of Parent Common Stock pursuant to the provisions
hereof shall receive an amount in cash equal to the value of such fractional
share. The value of such fractional share for purposes hereof shall be the
product of such fraction multiplied by Five and 50/100 Dollars ($5.50).
Each share of Big Stuff Common Stock held in the treasury of Big Stuff or by
a wholly-owned subsidiary of Big Stuff shall be cancelled as of the Effective
Time and no Merger Consideration shall be payable with respect thereto. From and
after the Effective Time, there shall be no further transfers on the stock
transfer books of Big Stuff of any of the Big Stuff Shares outstanding prior to
the Effective Time.
Subject to the provisions of this Restated Agreement, at the Effective Time,
all the shares of Acquisition Subsidiary common stock outstanding immediately
prior to the Merger shall be converted, by virtue of the Merger and without any
action on the part of the holder thereof, into one share of the common stock of
the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation.
1.4 STOCKHOLDERS' RIGHTS UPON MERGER. Upon consummation of the Merger, the
Certificates shall cease to represent any rights with respect thereto, and,
subject to applicable Law (as hereinafter defined) and this Restated Agreement,
the Certificates shall only represent the right to receive the Merger
Consideration including the amount of cash, if any, payable in lieu of
fractional shares of Parent Common Stock into which the Big Stuff Shares have
been converted pursuant to this Restated Agreement.
1.5 SURRENDER AND EXCHANGE OF SHARES. At the Effective Time, each holder
of a Big Stuff Share shall surrender and deliver the Certificates and
transmittal letter (the "LETTER OF TRANSMITTAL") to Continental Stock Transfer
and Trust Company. Upon such surrender and delivery, the holder shall receive a
certificate representing the number of whole shares of Parent Common Stock into
which such holder's Big Stuff Shares have been converted pursuant to this
Restated Agreement plus the amount of cash payable in lieu of any fractional
share. Until so surrendered and exchanged, each outstanding Certificate after
the Effective Time shall be deemed for all purposes to evidence the right to
receive that number of whole shares of Parent Common Stock into which the Big
Stuff Shares have been converted pursuant to this Restated Agreement, plus the
amount of cash payable in lieu of any fractional share; PROVIDED, HOWEVER, that
no dividends or other distributions, if any, in respect of the shares of Parent
Common Stock, declared after the Effective Time and payable to holders of record
after the Effective Time, shall be paid to the holders of any unsurrendered
Certificates until such
C-3
<PAGE>
Certificates and Letters of Transmittal are surrendered and delivered as
provided herein. Subject to applicable Law, after the surrender and exchange of
the Certificates, the record holders thereof will be entitled to receive any
such dividends or other distributions without interest thereon, which
theretofore have become payable with respect to the number of shares of Parent
Common Stock for which such Certificates were exchangeable. Holders of any
unsurrendered Certificates shall not be entitled to vote Parent Common Stock
until such Certificates are exchanged pursuant to this Restated Agreement.
1.6 DIRECTORS. Immediately following the Closing Date, the Board of
Directors of the Parent shall be restructured to be composed of eight
(8) members as follows: (i) one director chosen by Parent and one director
chosen by ICL to serve three (3) year terms; (ii) one director chosen by Parent
and one director chosen by ICL and one director to be agreed to by Parent, ICL
and WorldPages to serve two (2) year terms; and (iii) one director chosen by
Parent and one director chosen by ICL and one director to be agreed to by
Parent, ICL and WorldPages to serve one (1) year terms. Parent currently intends
to nominate Richard O'Neal and two (2) individuals to be named at or prior to
Closing. The directors to be nominated by ICL are currently anticipated to be
Wilmot Matthews, George Anderson and Robert Flynn. In addition, for a period of
one (1) year following the Closing Date, each of Parent and ICL may designate
one party to attend any and all Board of Directors meetings, as non-voting,
non-participating observers only (the "OBSERVERS"). Parent shall reimburse the
Observers for those expenses incurred in connection with attending Board of
Directors meetings, including travel expenses, in the same manner and to the
same extent that Parent reimburses its directors for such expenses. The parties
hereto expressly acknowledge and agree that this SECTION 1.6 is not intended to,
and does not, except with regard to the initial Board of Directors of Parent
referenced in this SECTION 1.6, impose any requirement that the Board of
Directors of Parent be comprised of the individuals listed in this SECTION 1.6
or that any Person has a right to designate a certain individual or a certain
number of individuals as nominees to the Board of Directors of Parent.
1.7 BYLAWS. At and after the Effective Time, the Bylaws of Acquisition
Subsidiary in effect at the Effective Time shall be the Bylaws of the Surviving
Corporation (subject to any subsequent amendment).
1.8 OTHER EFFECTS OF MERGER. The Merger shall have all further effects as
specified in the applicable provisions of the Corporation Laws.
1.9 TAX-FREE REORGANIZATION. The parties intend that the Merger qualify as
a tax-free reorganization pursuant to Section 368 of the Code. The parties
hereto hereby adopt this Restated Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368(a) of the Treasury regulations.
1.10 CONVERTIBLE NOTE. At any time between the date hereof and Closing,
O'Neal and Reid may continue to lend up to Six Million Dollars ($6,000,000) to
Big Stuff or Web pursuant to a "CONVERTIBLE NOTE", described below. The
Convertible Note includes amounts lent by O'Neal and Reid to Big Stuff or Web
since January 1, 1999. The Convertible Note will provide additional working
capital required by Big Stuff or Web (i) to consummate the contemplated
contractual arrangements with Excite and to fulfill its obligations thereunder,
(ii) to pay for extraordinary capital expenditures approved in advance by a
disinterested majority of the Board of Directors of the Parent, including
consummation of contractual arrangements with other entities similar to those
with Excite, or (iii) for working capital purposes, including for ordinary
capital expenditures. The conversion feature of the Convertible Note shall
provide that the principal amount of the Convertible Note, but not the accrued
but unpaid interest, shall be automatically converted into Parent common stock
at Closing at a conversion price of $5.50 per share. If the acquisition of
WorldPages contemplated by this Restated Agreement and the Restated Web
Agreement shall not be consummated, the conversion feature shall not be
operable, and Parent shall have no obligations under the Convertible Note. The
parties agree that notwithstanding anything herein or in the Restated Web
Agreement to the contrary, there shall be no "doubling" of the
C-4
<PAGE>
amount which may be lent by O'Neal and Reid to Big Stuff or Web and that an
aggregate maximum amount of $6,000,000 may be lent by O'Neal and Reid to Big
Stuff and Web, collectively.
1.11 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm or record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or Big Stuff or otherwise to
carry out this Restated Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of Acquisition Subsidiary or Big Stuff, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
Acquisition Subsidiary or Big Stuff, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Restated Agreement.
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF
BIG STUFF AND THE BIG STUFF SHAREHOLDERS
Big Stuff, on behalf of itself and the Big Stuff Shareholders, jointly and
severally represent and warrant to and covenant with Parent as follows:
2.1 ORGANIZATION AND GOOD STANDING. Big Stuff is a corporation duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Big Stuff is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a Big Stuff Material Adverse Effect. SCHEDULE 2.1 sets forth a complete
and accurate list of the jurisdictions of incorporation or organization and
qualification or license of Big Stuff. Big Stuff has heretofore delivered to
Parent accurate and complete copies of the Certificates or Articles of
Incorporation and Bylaws, or equivalent governing instruments, as currently in
effect, of Big Stuff.
2.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Big Stuff (the "BIG STUFF STOCK") consists of 10,000 shares of common stock. As
of the date hereof, (a) 3,500 shares of Big Stuff Stock were issued and
outstanding, and (b) no options or warrants to purchase any shares of Big Stuff
capital stock were issued or outstanding. No other capital stock of Big Stuff is
issued or outstanding. All issued and outstanding shares of the Big Stuff Stock
are duly authorized, validly issued, fully paid and non-assessable and were
issued free of preemptive rights and in compliance with applicable corporate and
securities Laws. Except as set forth on SCHEDULE 2.2, as of the date of this
Restated Agreement there are no outstanding rights, reservations of shares,
subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or
other agreements of any kind relating to any of the capital stock or any other
security of Big Stuff, and there is no authorized or outstanding security of any
kind convertible into or exchangeable for any such capital stock or other
security. There are no restrictions upon the transfer of or otherwise pertaining
to the securities (including, but not limited to, the ability to pay dividends
thereon) or retained earnings of Big Stuff or the ownership thereof other than
those, if any, described on SCHEDULE 2.2 or those imposed generally by the
Securities Act, the Securities Exchange Act, applicable state or foreign
securities Laws or applicable corporate Law.
2.3 SUBSIDIARIES. Big Stuff does not and will not, from the date of this
Restated Agreement until the Closing Date, hold, directly or indirectly, any
capital stock or other interest in any Person.
2.4 AUTHORIZATION; BINDING AGREEMENT. Big Stuff and the Big Stuff
Shareholders have all requisite power and authority to execute and deliver this
Restated Agreement and the Big Stuff Transaction
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Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Restated Agreement and the other agreements
and documents referred to herein and to be executed in connection herewith to
which Big Stuff or any Big Stuff Shareholder is or will be a party or a
signatory (the "BIG STUFF TRANSACTION AGREEMENTS") and the consummation of the
transactions contemplated hereby and thereby including, but not limited to the
Merger, have been or will be duly and validly authorized by Big Stuff's Board of
Directors and no other corporate or other proceedings on the part of Big Stuff
or any Big Stuff Shareholder are necessary to authorize the execution and
delivery of this Restated Agreement and the Big Stuff Transaction Agreements or
to consummate the transactions contemplated hereby or thereby (other than the
adoption of this Restated Agreement by the Big Stuff Shareholders in accordance
with the Texas Corporation Act and the Articles of Incorporation and Bylaws of
Big Stuff). This Restated Agreement has been duly and validly executed and
delivered by Big Stuff and the Big Stuff Shareholders and constitutes, and upon
execution and delivery thereof as contemplated by this Restated Agreement, the
Big Stuff Transaction Agreements will constitute, the legal, valid and binding
obligations of Big Stuff and the Big Stuff Shareholders, enforceable against Big
Stuff and the Big Stuff Shareholders in accordance with its and their respective
terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity regarding the availability of remedies (collectively, the "ENFORCEABILITY
EXCEPTIONS").
2.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("CONSENT") any Governmental
Authority on the part of Big Stuff or any of the Big Stuff Shareholders is
required in connection with the execution or delivery by Big Stuff or the Big
Stuff Shareholders of this Restated Agreement and the Big Stuff Transaction
Agreements or the consummation by Big Stuff or the Big Stuff Shareholders of the
transactions contemplated hereby or thereby other than (i) the filing of the
Certificate of Merger with the Secretary of State of the States of Texas and
Delaware; (ii) filings with the SEC and state securities laws administrators,
(iii) Consents from or with Governmental Authorities set forth on SCHEDULE 2.5,
(iv) filings under the HSR Act, and (v) those Consents that, if they were not
obtained or made, do not or would not have a Big Stuff Material Adverse Effect.
2.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Big Stuff Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Big Stuff and the Big Stuff
Shareholders with any of the provisions hereof or thereof will not (i) conflict
with or result in any breach of any provision of the Certificate and/or Articles
of Incorporation or Bylaws or other governing instruments of Big Stuff,
(ii) except as set forth on SCHEDULE 2.6, require any Consent under or result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or augment the performance required) under any of the terms,
conditions or provisions of any Big Stuff Material Contract or other obligation
to which Big Stuff or any Big Stuff Shareholder is a party or by which any of
them or any of their properties or assets may be bound, (iii) result in the
creation or imposition of any lien or encumbrance of any kind upon any of the
assets of Big Stuff or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in SECTION 2.5 above, contravene any Law currently in
effect to which Big Stuff or any Big Stuff Shareholder or its or any of its
respective assets or properties are subject, except in the case of clauses (ii),
(iii) and (iv) above, for any deviations from the foregoing which do not or
would not have a Big Stuff Material Adverse Effect.
2.7 LITIGATION. Except as set forth in SCHEDULE 2.7, there is no action,
cause of action, claim, demand, suit, proceeding, citation, summons, subpoena,
inquiry or investigation of any nature, civil, criminal, regulatory or
otherwise, in law or in equity, by or before any court, tribunal, arbitrator,
mediator or other Governmental Authority ("LITIGATION") pending or, to the
knowledge of the Big Stuff
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Shareholders or Big Stuff, threatened against Big Stuff or any officer,
director, employee or agent thereof, in his or her capacity as such, or as a
fiduciary with respect to any Benefit Plan of Big Stuff, or otherwise relating,
in a manner that could have a Big Stuff Material Adverse Effect, to Big Stuff or
the securities of Big Stuff, or any properties or rights of Big Stuff or that
could prevent or delay the consummation of the transactions contemplated by this
Restated Agreement.
2.8 BIG STUFF FINANCIAL STATEMENTS. The unaudited interim financial
statements of Big Stuff as of and for the fiscal year ended December 31, 1998,
and as of and for the six months ended June 30, 1999 (the "BIG STUFF FINANCIAL
STATEMENTS") have been provided to Parent. The Big Stuff Financial Statements
were prepared in accordance with generally accepted accounting principles
applicable to the business of Big Stuff consistently applied in accordance with
past accounting practices and fairly present (including, but not limited to, the
inclusion of all adjustments with respect to interim periods which are necessary
to present fairly the financial condition and assets and liabilities or the
results of operations of Big Stuff except as may be indicated therein or in the
notes thereto, subject to normal year-end adjustment in the ordinary course with
respect to certain items immaterial in amount or effect and the exclusion of
footnote disclosure in interim Big Stuff Financial Statements) the financial
condition and assets and liabilities or the results of operations of Big Stuff
as of the dates and for the periods indicated. Except as reflected in the Big
Stuff Financial Statements, as of their respective dates, Big Stuff did not have
any debts, obligations, guaranties of obligations of others or liabilities
(contingent or otherwise) that would be required in accordance with generally
accepted accounting principles to be disclosed in the Big Stuff Financial
Statements.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 2.9, since June 30, 1999, through the date of this Restated Agreement,
there has not been: (i) any Event that could reasonably be expected to have a
Big Stuff Material Adverse Effect; (ii) any declaration, payment or setting
aside for payment of any dividend (except to the Big Stuff Shareholders, but
only if the entire amount of such dividend is paid to Web as a capital
contribution) or other distribution or any redemption, purchase or other
acquisition of any shares of capital stock or securities of Big Stuff;
(iii) any return of any capital or other distribution of assets to stockholders
of Big Stuff (except to Big Stuff or a subsidiary wholly owned by Big Stuff);
(iv) other than in the ordinary course of business any investment of a capital
nature by Big Stuff by the purchase of any property or assets except to the
extent such investment is in the ordinary course of business and is individually
or in the aggregate, not in excess of $75,000; (v) any acquisition (by merger,
consolidation, acquisition of stock or assets or otherwise) of any Person or
business; (vi) any sale, disposition, pledge, mortgage or other transfer of
assets or properties of Big Stuff other than in the ordinary course of business
consistent with past practice; (vii) any action or agreement or undertaking by
Big Stuff to take any action that, if taken or done on or after the date hereof,
would result in a breach of SECTION 6.6 below; (viii) any employment, severance
or consulting agreement entered into by Big Stuff with any stockholder, officer,
director, agent, employee or consultant of Big Stuff or any amendment or
modification to, or termination of, any current employment, severance or
consulting agreement to which Big Stuff is a party or by which it is bound;
(ix) any forgiveness, cancellation, compromise, settlement, waiver or release of
any debts, claims, rights or Litigation, in each case in excess, individually or
in the aggregate, of $25,000; (x) any agreement, authorization or commitment to
take, whether in writing or otherwise, any action which, if taken prior to the
date hereof, would have made any representation or warranty of Big Stuff in this
Restated Agreement untrue or incorrect in any material respect; (xi) any failure
by Big Stuff to conduct its business in the ordinary course consistent with past
practice, it being understood, however, that Big Stuff has accelerated and
intensified its business activities since March 31, 1999.
2.10 COMPLIANCE WITH LAWS. The business of Big Stuff has been operated in
compliance with all Laws applicable thereto, except for any instances of
non-compliance which do not and would not have a Big Stuff Material Adverse
Effect.
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2.11 PERMITS. (i) Big Stuff has all permits, certificates, licenses,
approvals, and other authorizations required in connection with the operation of
its business (collectively, "BIG STUFF PERMITS"), (ii) Big Stuff is not in
violation of any Big Stuff Permit, and (iii) no proceedings are pending or, to
the knowledge of Big Stuff, threatened, to revoke or limit any Big Stuff Permit,
except, in the case of clause (i) or (ii) above, those the absence or violation
of which do not and would not have a Big Stuff Material Adverse Effect.
2.12 FINDERS AND INVESTMENT BANKERS. Neither Big Stuff nor any of its
officers or directors has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
2.13 CONTRACTS. Except as set forth in SCHEDULE 2.13, Big Stuff is not a
party or subject to any material note, bond, mortgage, indenture, contract,
lease, license, agreement, understanding, instrument, bid or proposal ("BIG
STUFF MATERIAL CONTRACT"). For purposes of this SECTION 2.13, a note, bond,
mortgage, indenture, contract, lease, license, agreement, understanding,
instrument, bid or proposal shall be considered a Big Stuff Material Contract
(a) if it is with an affiliate of Big Stuff, (b) if the financial obligation of
Big Stuff thereunder or, if applicable, to the assets or properties of Big Stuff
could exceed $25,000 after the Closing Date, or (c) if it provides for any
exclusivity or non-competition restrictions applicable to Big Stuff. Big Stuff
has made available to Parent true and accurate copies of the Big Stuff Material
Contracts. All such Big Stuff Material Contracts are valid and binding and are
in full force and effect and enforceable in accordance with their respective
terms, subject to the Enforceability Exceptions. Any and all transactions
between or involving Big Stuff and an affiliate thereof were entered into in the
ordinary course of business and are upon fair and reasonable terms not
materially less favorable than Big Stuff could obtain or become entitled to in
an arm's-length transaction with a Person that is not an affiliate. Except as
set forth in SCHEDULE 2.5 (i) no Consent of any Person is needed in order that
each such Big Stuff Material Contract shall continue in full force and effect in
accordance with its terms without penalty, acceleration or rights of early
termination by reason of the consummation of the transactions contemplated by
this Restated Agreement, and (ii) Big Stuff is not in material violation or
breach of or default under any such Big Stuff Material Contract, nor to Big
Stuff's knowledge is any other party to any such Big Stuff Material Contract in
material violation or breach of or default under any such Big Stuff Material
Contract.
2.14 EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 2.14, there
are no Benefit Plans (as defined below) maintained or contributed to by Big
Stuff under which Big Stuff could incur any liability. A "BENEFIT PLAN" shall
mean (i) an employee benefit plan as defined in Section 3(3) of the ERISA, even
if, because of some other provision of ERISA, such plan is not subject to any or
all of ERISA's provisions, and (ii) whether or not described in the preceding
clause, (a) any pension, profit sharing, stock bonus, deferred or supplemental
compensation, retirement, thrift, stock purchase or stock option plan, or any
other compensation, welfare, insurance, medical, hospitalization, fringe benefit
or retirement plan, program, policy, course of conduct, understanding or
arrangement of any kind whatsoever, whether formal or informal, oral or written,
providing for benefits for or the welfare of any or all of the current or former
employees or agents of Big Stuff or their beneficiaries or dependents, (b) a
multi-employer plan as defined in Section 3(37) of ERISA (a "MULTI-EMPLOYER
PLAN") or in any other applicable Law, or (c) a multiple employer plan as
defined in Section 413 of the Code or in any other applicable Law.
With respect to each Benefit Plan (where applicable): Big Stuff has made
available to Parent complete and accurate copies of (i) all plan and trust texts
and agreements, insurance contracts and other funding arrangements; (ii) annual
reports on the Form 5500 series for the last three (3) years; (iii) financial
statements and/or annual and periodic accountings of plan assets for the last
three (3) years; (iv) the most recent determination letter received from the
IRS; (v) actuarial valuations for the last three (3) years; and (vi) the most
recent summary plan description as defined in ERISA.
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No Big Stuff Benefit Plan is a defined benefit pension plan subject to Title
IV of ERISA or Section 412 of the Code. Each of the Big Stuff Benefit Plans has
been maintained in compliance with its terms and all applicable Law, except
where the failure to do so would not result in a Big Stuff Material Adverse
Effect or a Surviving Corporation Material Adverse Effect. Big Stuff does not
contribute to, and does not have any outstanding liability with respect to, any
Multi-employer Plan.
Except as set forth in SCHEDULE 2.14, the consummation of the Merger will
not, either alone or in conjunction with another Event: (i) entitle any
individual to severance pay, or (ii) accelerate the time of payment or vesting
of benefits or increase the amount of compensation due to any individual.
2.15 TAXES AND RETURNS.
(a) Except as disclosed in SCHEDULE 2.15, Big Stuff has timely filed, or
caused to be timely filed, all federal, state, local and foreign income,
gross receipts, sales, use, property, production, payroll, franchise,
withholding, employment, social security, license, excise, transfer, gains,
and other tax returns or reports required to be filed by it, and has paid,
collected or withheld, or caused to be paid, collected or withheld, all
taxes and governmental charges, assessments and contributions of any nature
whatsoever including, but not limited to, any related penalties, interest
and liabilities (any of the foregoing being referred to herein as a "TAX"),
required to be paid, collected or withheld, other than such Taxes for which
adequate reserves in the Big Stuff Financial Statements have been
established or which are being contested in good faith and have been
disclosed in writing to Parent prior to the date of this Restated Agreement.
Except as set forth in SCHEDULE 2.15, there are no claims or assessments
pending against Big Stuff for any alleged deficiency in any Tax, and Big
Stuff does not know of any threatened Tax claims or assessments against Big
Stuff (other than those for which adequate reserves in the Big Stuff
Financial Statements have been established or which are being contested in
good faith and have been disclosed in writing to Parent prior to the date of
this Restated Agreement). Except as set forth in SCHEDULE 2.15, Big Stuff
has not made an election under Section 338 of the Code and has not taken any
action that would result in any Tax liability of Big Stuff as a result of a
deemed election within the meaning of Section 338 of the Code. Except as set
forth in SCHEDULE 2.15, Big Stuff does not have any waivers or extensions of
any applicable statute of limitations to assess any Taxes. Except as set
forth in SCHEDULE 2.15, there are no outstanding requests by Big Stuff for
any extension of time within which to file any return or within which to pay
any Taxes shown to be due on any return. Big Stuff (i) has elected to be
treated as, and from the date of such election until the date hereof has
met, and currently meets, the eligibility requirements for treatment as, an
"S" corporation under the Code; and (ii) as of the date hereof, has no
subsidiaries for Tax purposes.
(b) A listing of all Tax sharing agreements or similar arrangements with
respect to or involving Big Stuff is set forth in SCHEDULE 2.15.
(c) Except as set forth in SCHEDULE 2.15, Big Stuff has not made or
become obligated to make, or will, as a result of the transactions
contemplated by this Restated Agreement, make or become obligated to make,
any "excess parachute payment" as defined in Section 280G of the Code
(without regard to subsection (b)(4) thereof).
(d) Big Stuff has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial understatement
of federal income tax liability within the meaning of Section 6662(d) of the
Code.
(e) There are no liens for Taxes on the assets of Big Stuff except for
statutory liens for current Taxes not yet due and payable.
(f) All elections with respect to Taxes affecting Big Stuff are set
forth in SCHEDULE 2.15 or, with respect to elections made on or before
December 31, 1996, are reflected in the Tax returns of Big Stuff filed and
provided to Parent prior to the date of this Restated Agreement. Big Stuff
has
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not: (i) made and will not make a deemed dividend election under Treas. Reg.
Section 1.1502-32(f)(2) or a consent dividend election under Section 565 of
the Code; (ii) consented at any time under Section 341(f)(l) of the Code to
have the provisions of Section 341(f)(2) of the Code apply to any
disposition of the assets of Big Stuff; (iii) agreed, and is not required,
to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise; (iv) made an express election, and
is not required, to treat any asset of Big Stuff as owned by another Person
for federal income Tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code;
(v) made any of the foregoing elections and is not required to apply any of
the foregoing rules under any comparable state, foreign or local income Tax
provision.
(g) Except as set forth in SCHEDULE 2.15, Big Stuff is not a partner or
member in any joint venture, partnership, limited liability company or other
arrangement or contract that is or could be treated as a partnership for
federal income Tax purposes.
(h) Except as set forth in SCHEDULE 2.15, Big Stuff is not a party to or
otherwise subject to any arrangement having the effect of or giving rise to
the recognition of a deduction or loss before the Closing Date and a
corresponding recognition of taxable income or gain after the Closing Date,
or any other arrangement that would have the effect of or give rise to the
recognition of taxable income or gain by Big Stuff after the Closing Date
without the receipt of or entitlement to a corresponding amount of cash.
2.16 LIABILITIES. From June 30, 1999, through the date of this Restated
Agreement, except as expressly disclosed in SCHEDULE 2.16 or in the Big Stuff
Financial Statements, Big Stuff does not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise,
whether or not of a kind required by generally accepted accounting principles to
be set forth in a financial statement, other than those incurred in the ordinary
course of business or in an amount not in excess of $25,000 individually or
$100,000 in the aggregate. Except as set forth on SCHEDULE 2.16 or in the Big
Stuff Financial Statements, as of the date of this Restated Agreement, Big Stuff
is not subject to any (i) obligations in respect of borrowed money,
(ii) obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations which would be required by generally accepted
accounting principles to be classified as "capital leases," (iv) obligations to
pay the deferred purchase price of property or services, except trade accounts
payable arising in the ordinary course of business and payable not more than
twelve (12) months from the date of incurrence, and (v) guaranties of any
obligations of any other Person.
2.17 ENVIRONMENTAL MATTERS. As of the date of this Restated Agreement,
(i) except where the failure to so comply will not have a Big Stuff Material
Adverse Effect, Big Stuff is in compliance with all applicable Environmental
Laws (as hereinafter defined), (ii) there is no civil, criminal or
administrative judgment, action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending or, to the
knowledge of Big Stuff, threatened against Big Stuff or any of its properties
pursuant to Environmental Laws, and (iii) except as set forth on SCHEDULE 2.17,
there are no past or present Events which reasonably may be expected to prevent
compliance with, or which have given rise to or which reasonably may be expected
to give rise to liability on the part of Big Stuff under Environmental Laws,
except for those which would not reasonably be expected to give rise to a Big
Stuff Material Adverse Effect. As used herein the term "ENVIRONMENTAL LAWS"
shall mean Laws relating to pollution, waste control, the generation, presence
or disposal of asbestos, hazardous or toxic wastes or substances, the protection
of the environment, environmental activity or public health and safety.
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2.18 INTELLECTUAL PROPERTY; FICTITIOUS NAMES. For purposes of this
Restated Agreement, "INTELLECTUAL PROPERTY" shall mean all patents, trademarks,
service marks, trade names, copyrights, franchises and similar rights of or used
by Big Stuff, all applications for any of the foregoing and all permits, grants
and licenses or other rights running to or from Big Stuff relating to any of the
foregoing. Except as set forth on SCHEDULE 2.18, (i) Big Stuff owns, or is
licensed to, or otherwise has, the full right to use all Intellectual Property
currently used or proposed to be used in its business, (ii) Big Stuff has not
received, as of the date of this Restated Agreement, notice of any charge or
claim of any Person relating to such Intellectual Property or any process or
confidential information of Big Stuff ("IP CLAIM NOTICE") and does not know of
any basis for any such charge or claim, and Big Stuff has sufficient rights in
the Intellectual Property to use it in the manner currently used or proposed to
be used in its business, and (iii) Big Stuff and its corporate predecessors, if
any, have not conducted business at any time during the period beginning five
(5) years prior to June 3, 1999 under any corporate, trade or fictitious names
other than their current corporate names. Big Stuff shall promptly notify Parent
of any IP Claim Notice received by Big Stuff after the date of this Restated
Agreement.
2.19 REAL ESTATE.
(a) Big Stuff owns no real property.
(b) SCHEDULE 2.19(b) sets forth a true, correct and complete schedule as
of the date of this Restated Agreement of all material leases, subleases,
easements, rights-of-way, licenses or other agreements under which Big Stuff
uses or occupies, or has the right to use or occupy, now or in the future,
any real property or improvements thereon (the "BIG STUFF REAL PROPERTY
LEASES"). Except for the matters listed on said SCHEDULE 2.19(b), Big Stuff
holds the leasehold estate under or other interest in each Big Stuff Real
Property Lease free and clear of all liens, encumbrances and other rights of
occupancy other than statutory landlords' or mechanics' liens which have not
been executed upon.
2.20 CORPORATE RECORDS. The corporate record books of or relating to Big
Stuff made available to Parent by Big Stuff contain accurate and complete
records of (i) all corporate actions of the stockholders and directors (and
committees thereof) of Big Stuff, (ii) the Certificate and/or Articles of
Incorporation, Bylaws and/or other governing instruments, as amended, of Big
Stuff, and (iii) the issuance and transfer of stock of Big Stuff. Except as set
forth on SCHEDULE 2.20, Big Stuff does not have any of its material records or
information recorded, stored, maintained or held off the premises of Big Stuff.
2.21 TITLE TO AND CONDITION OF PERSONAL PROPERTY. Big Stuff has good and
marketable title to, or a valid leasehold interest in, all material items of any
personal property reflected in the Big Stuff Financial Statements dated
June 30, 1999, or currently used in the operation of its business, and such
property or leasehold interests are free and clear of all liens, claims,
charges, security interests, options, or other title defects or encumbrances,
except for property disposed of in the ordinary course since the date thereof
consistent with the provisions of SECTION 2.9 above, and such exceptions to
title and liens, claims, charges, security interests, options, title defects or
encumbrances which do not and would not have a Big Stuff Material Adverse
Effect. As of the date of this Restated Agreement, all such personal property is
in good operating condition and repair (ordinary wear and tear excepted), is
suitable for the use to which the same is customarily put by Big Stuff, is free
from material defects and is of a quality and quantity presently usable in the
ordinary course of the operation of the business of Big Stuff, except where such
failure would not have a Big Stuff Material Adverse Effect.
2.22 NO ADVERSE ACTIONS. Except as set forth on SCHEDULE 2.22, there is no
existing, pending or, to the knowledge of Big Stuff, threatened termination,
cancellation, limitation, modification or change in the business relationship of
Big Stuff, with any supplier, customer or other Person except as are immaterial
individually and in the aggregate and are in the ordinary course of business.
None of Big Stuff, or, to the knowledge of Big Stuff or any Big Stuff
Shareholder, any director, officer, agent,
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employee or other Person acting on behalf of Big Stuff or any Big Stuff
Shareholder has used any corporate funds for unlawful contributions, payments,
gifts, entertainment or other unlawful expenses relating to political activity,
or made any direct or indirect unlawful payments to governmental or regulatory
officials or others.
2.23 LABOR MATTERS. Except as may be set forth on SCHEDULE 2.13 or 2.23,
Big Stuff does not have any obligations, contingent or otherwise, under any
employment, severance or consulting agreement, collective bargaining agreement
or other contract with a labor union or other labor or employee group. To the
knowledge of Big Stuff or any Big Stuff Shareholder, as of the date of this
Restated Agreement, there are no efforts presently being made or threatened by
or on behalf of any labor union with respect to the unionizing of employees of
Big Stuff. As of the date of this Restated Agreement, there is no claim by an
employee, an employee group, a labor union or other labor group or a
Governmental Authority against Big Stuff pending or, to the knowledge of Big
Stuff or any Big Stuff Shareholder, threatened before the National Labor
Relations Board or any other court or tribunal respecting employment and
employment practices, terms and conditions of employment, termination of
employment or the compliance with any legislation concerning labor matters,
including, without limiting the generality of what precedes, labor relations,
occupational health and safety, minimum labor standards, industrial accidents
and occupational diseases; there is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of Big Stuff or any Big Stuff Shareholder,
threatened against or involving Big Stuff; no representation question exists
respecting the employees of Big Stuff; no grievance or internal or informal
complaint exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted. As of the date of this Restated Agreement, there has not been any
material adverse change in relations with employees or agents of Big Stuff as a
result of any announcement of the transactions contemplated by this Restated
Agreement. Big Stuff shall promptly notify Parent upon knowledge by Big Stuff or
any Big Stuff Shareholder of the occurrence after the date hereof of any matter
referenced in this SECTION 2.23.
2.24 INSURANCE. Big Stuff has obtained and maintains in full force and
effect insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks, including
fire and other risks insured against by extended coverage, public liability
insurance and insurance against claims for personal injury or death or property
damage occurring in connection with the activities of Big Stuff or any
properties owned, occupied or controlled by it, as is customary and prudent.
Since January 1, 1997, Big Stuff has not received notice of default under, or
intended cancellation or nonrenewal of, any policies of insurance, and Big Stuff
has not been refused any insurance coverage by an insurance carrier to which it
has applied for insurance.
2.25 DISCLOSURE. All information and documents provided prior to the date
of this Restated Agreement, and all information and documents subsequently
provided, to Parent or its representatives or lenders by or on behalf of Big
Stuff in connection with the transactions contemplated by this Restated
Agreement are or contain, or will be or will contain as to subsequently provided
information or documents, true, accurate and complete information in all
material respects with respect to the subject matter thereof and are, or will be
as to subsequently provided information or documents, reasonably responsive to
any specific request made by or on behalf of Parent or its representatives or
lenders.
2.26 TAX. Neither Big Stuff nor the Big Stuff Shareholders know of any
fact or have taken any action, in each case with respect to Big Stuff or the Big
Stuff Shareholders, that could be reasonably expected to prevent the transaction
contemplated hereby from qualifying as a tax-free reorganization pursuant to
Section 368 of the Code.
2.27 YEAR 2000 COMPLIANCE. Except as set forth in SCHEDULE 2.27 attached
hereto, Big Stuff has taken all commercially reasonable and prudent measures
designed to make all material aspects of Big Stuff's operations Year 2000
Compliant, to the extent within Big Stuff's control. As used in this section,
"YEAR 2000 COMPLIANT" shall mean that any and all computer hardware including
but not limited to
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mainframe computers, personal computers, servers and related equipment),
computer software, programming languages, code, electronic applications and
systems (including but not limited to LANs, WANs, inter/intranet systems and
client/server systems), programs, files, databases, chips, microprocessors and
any and all electronic or mechanical functionalities in any way used in
connection with, relied upon or relating to a specified subject matter (e.g., a
business, product or service) accurately and completely process (in the manner
intended, including but not limited to calculating, comparing and sequencing) on
a timely basis any and all data which are in any way dependent upon usage of
calendar dates, including but not limited to dates on or after January 1, 2000,
or time.
ARTICLE III--REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent represents and warrants to and covenants with Big Stuff as follows:
3.1 ORGANIZATION AND GOOD STANDING. Parent is a corporation duly organized
and validly existing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Active Parent
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate, power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so duly organized, validly existing and in good standing or to
have such power and authority would not have a Parent Material Adverse Effect.
Parent and each of the Active Parent Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the character
of the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a Parent Material Adverse Effect. SCHEDULE 3.1 sets forth a complete and
accurate list of the jurisdictions of incorporation or organization and
qualifications or licenses of Parent and the Active Parent Subsidiaries. Parent
has heretofore made available to Big Stuff accurate and complete copies of the
Certificates or Articles of Incorporation and Bylaws, or equivalent governing
instruments, as currently in effect, of Parent and each of the Active Parent
Subsidiaries.
3.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Parent consists of 180,000,000 shares of Parent Common Stock and 20,000,000
shares of preferred stock, par value $0.0001 per share. As of the opening of
business on the date of this Restated Agreement, (a) 20,083,953 shares of Parent
Common Stock were outstanding; (b) no shares of Parent preferred stock were
issued and outstanding; and (c) 163,307 shares of Parent Common Stock were held
as treasury shares. No other capital stock of Parent is issued or outstanding.
All issued and outstanding shares of the Parent Common Stock are duly
authorized, validly issued, fully paid and non-assessable and were issued free
of preemptive rights and in compliance with applicable corporate and securities
Laws. Except as set forth in the Parent Securities Filings or on SCHEDULE 3.2,
as of the date of this Restated Agreement there are no outstanding rights,
reservations of shares, subscriptions, warrants, puts, calls, unsatisfied
preemptive rights, options or other agreements of any kind relating to any of
the capital stock or any other security of Parent, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. There are no restrictions upon the transfer of
or otherwise pertaining to the securities (including, but not limited to, the
ability to pay dividends thereon) or retained earnings of Parent and the Active
Parent Subsidiaries or the ownership thereof other than those pursuant to the
Parent Guaranty, the Great Western Credit Agreement or those imposed generally
by the Securities Act, the Securities Exchange Act, applicable state or foreign
securities Laws or applicable corporate Law.
3.3 SUBSIDIARIES. Except as set forth on SCHEDULE 3.3, all of the capital
stock and other interests of the Active Parent Subsidiaries held by Parent are
owned by it or a Parent subsidiary, free and clear
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of any claim, lien, encumbrance, security interest or agreement with respect
thereto. All of the outstanding shares of capital stock in each of the Active
Parent Subsidiaries held directly or indirectly by Parent are duly authorized,
validly issued, fully paid and non-assessable and were issued free of preemptive
rights and in compliance with applicable corporate and securities Laws.
3.4 AUTHORIZATION; BINDING AGREEMENT. Parent and Acquisition Subsidiary
have all requisite corporate power and authority to execute and deliver this
Restated Agreement and the Parent Transaction Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Restated Agreement and the other agreements and documents referred to herein and
to be executed in connection herewith to which Parent or Acquisition Subsidiary
is or will be a party or a signatory (the "PARENT TRANSACTION AGREEMENTS") and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the respective Boards of Directors of Parent and
Acquisition Subsidiary, as appropriate, and except for the approval of the
holders of the Parent Common Stock, no other corporate proceedings on the part
of Parent or Acquisition Subsidiary are necessary to authorize the execution and
delivery of this Restated Agreement and the Parent Transaction Agreements or to
consummate the transactions contemplated hereby or thereby, except for the
concurrence of Bank of America National Trust and Savings Association under the
Great Western Credit Agreement. This Restated Agreement has been duly and
validly executed and delivered by each of Parent and Acquisition Subsidiary and
constitutes, and upon execution and delivery thereof as contemplated by this
Restated Agreement, the Parent Transaction Agreements will constitute, the
legal, valid and binding obligations of Parent and Acquisition Subsidiary,
enforceable against each of Parent and Acquisition Subsidiary in accordance with
its and their respective terms, subject to the Enforceability Exceptions.
3.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of Parent or any of the Active Parent Subsidiaries, is
required in connection with the execution or delivery by Parent and Acquisition
Subsidiary of this Restated Agreement and the Parent Transaction Agreements or
the consummation by Parent and Acquisition Subsidiary of the transactions
contemplated hereby or thereby other than (i) filings with the SEC, state
securities laws administrators and the NYSE, (ii) Consents from or with
Governmental Authorities, (iii) filings under the HSR Act, and (iv) those
Consents that, if they were not obtained or made, do not or would not have a
Parent Material Adverse Effect.
3.6 NO VIOLATIONS. The execution and delivery of this Restated Agreement
and the Parent Transaction Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Parent and Acquisition
Subsidiary with any of the provisions hereof or thereof will not (i) conflict
with or result in any breach of any provision of the Certificate and/or Articles
of Incorporation or Bylaws or other governing instruments of Parent or any of
the Active Parent Subsidiaries, except as set forth on SCHEDULE 3.6,
(ii) except for compliance with the requirements under the Parent Guaranty,
require any Consent under or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration or augment the
performance required) under any of the terms, conditions or provisions of any
Parent Material Contract or other obligation to which Parent or any Active
Parent Subsidiary, is a party or by which any of them or any of their properties
or assets may be bound, (iii) result in the creation or imposition of any lien
or encumbrance of any kind upon any of the assets of Parent or any Parent
Subsidiary, or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in SECTION 3.5 above, contravene any Law currently in
effect to which Parent or any Active Parent Subsidiary or its or any of their
respective assets or properties are subject, except in the case of clauses (ii),
(iii) and (iv) above, for any deviations from the foregoing which do not or
would not have a Parent Material Adverse Effect.
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3.7 SECURITIES FILINGS AND LITIGATION.
(a) Parent has made available to Big Stuff true and complete copies of
(i) its Annual Reports on Form 10-K, as amended, for the years ended
December 31, 1997 and 1998, as filed with the SEC, (ii) its proxy statement
relating to the meeting of shareholders held on July 29, 1998, as filed with
the SEC, and (iii) all other reports, statements and registration statements
and amendments thereto (including, without limitation, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as amended) filed by Parent with
the SEC since February 18, 1998. The reports and statements set forth in
clauses (i) through (iii) above, and those subsequently provided or required
to be provided pursuant to this section, are referred to collectively as the
"PARENT SECURITIES FILINGS." As of their respective dates, or as of the date
of the last amendment thereof, if amended after filing, none of the Parent
Securities Filings (including all schedules thereto and disclosure documents
incorporated by reference therein), contained or, as to Parent Securities
Filings subsequent to the date hereof, will contain any untrue statement of
a material fact or omitted or, as to Parent Securities Filings subsequent to
the date hereof, will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the Parent
Securities Filings at the time of filing or as of the date of the last
amendment thereof, if amended after filing, complied or, as to Parent
Securities Filings subsequent to the date hereof, will comply in all
material respects with the Securities Exchange Act or the Securities Act, as
applicable.
(b) Except as set forth on SCHEDULE 3.7(b) attached hereto, there is no
Litigation pending or, to the knowledge of Parent, threatened against Parent
or any Active Parent Subsidiary, any officer, director, employee or agent
thereof, in his or her capacity as such, or as a fiduciary with respect to
any Benefit Plan of Parent, or otherwise relating, in a manner that could
have a Parent Material Adverse Effect, to Parent, any Active Parent
Subsidiary or the securities of any of them, or any properties or rights of
Parent or any of the Active Parent Subsidiaries, which is required to be
described in any Parent Securities Filing that is not so described. No event
has occurred as a consequence of which Parent would be required to file a
Current Report on Form 8-K pursuant to the requirements of the Securities
Exchange Act as to which such a report has not been timely filed with the
SEC. Any reports, statements and registration statements and amendments
thereof (including, without limitation, Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
Parent with the SEC after the date hereof shall be provided to Big Stuff
upon such filing.
3.8 PARENT FINANCIAL STATEMENTS. The audited consolidated and unaudited
interim financial statements of Parent and the Active Parent Subsidiaries
included in the Parent Securities Filings (the "PARENT FINANCIAL STATEMENTS")
have been made available to Big Stuff. Except as noted thereon, the Parent
Financial Statements were prepared in accordance with generally accepted
accounting principles applicable to the business of Parent and the Active Parent
Subsidiaries consistently applied in accordance with past accounting practices
and fairly present (including, but not limited to, the inclusion of all
adjustments with respect to interim periods which are necessary to present
fairly the financial condition and assets and liabilities or the results of
operations of Parent and the Active Parent Subsidiaries, subject to normal
year-end adjustments in the ordinary course with respect to certain items
immaterial in amount or effect and the exclusion of footnote disclosure in
interim Parent Financial Statements) the financial condition and assets and
liabilities or the results of operations of Parent and the Active Parent
Subsidiaries as of the dates and for the periods indicated. Except as set forth
in SCHEDULE 3.8 or as reflected in the Parent Financial Statements, as of their
respective dates, neither Parent nor any Active Parent Subsidiary had any debts,
obligations, guaranties of obligations of others or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the Parent Financial Statements.
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3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Parent Securities Filings made available by Parent to Big Stuff prior to the
date of this Restated Agreement or in SCHEDULE 3.9 since June 30, 1999, through
the date of this Restated Agreement, there has not been: (i) any Event that
could reasonably be expected to have a Parent Material Adverse Effect; or
(ii) any agreement by Parent or Active Parent Subsidiary to take any action that
would result in a breach of SECTION 6.6 below.
3.10 COMPLIANCE WITH LAWS. The business of Parent and the Active Parent
Subsidiaries, has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which do not and would not have a
Parent Material Adverse Effect.
3.11 PERMITS. (i) Parent and the Active Parent Subsidiaries have all
permits, certificates, licenses, approvals, tariffs and other authorizations
required in connection with the operation of their business (collectively,
"PARENT PERMITS"), (ii) neither Parent nor any Active Parent Subsidiary is in
violation of any Parent Permit, and (iii) no proceedings are pending or, to the
knowledge of Parent, threatened, to revoke or limit any Parent Permit, except,
in the case of clause (i) or (ii) above, those the absence or violation of which
do not and would not have a Parent Material Adverse Effect.
3.12 FINDERS AND INVESTMENT BANKERS. Neither Parent nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby except that PaineWebber Incorporated
has been engaged to deliver the fairness opinion required to be delivered
pursuant to SECTION 7.1(l) and NationsBanc Montgomery Securities, L.L.C. has
been engaged to assist in the sale(s) of the CLEC Operations and a copy of the
engagement letters and other related documents have been (or will be, with
respect to the fairness opinion to be issued by PaineWebber Incorporated)
furnished to Big Stuff. Big Stuff will not be liable for any brokerage fees,
commissions, investment banking fees or other amounts to PaineWebber
Incorporated or NationsBanc Montgomery Securities, L.L.C. in connection with
this Restated Agreement, the Company Agreement, the Restated Web Agreement or
any transactions contemplated herein or therein.
3.13 CONTRACTS. Except as set forth in SCHEDULE 3.13 attached hereto,
neither Parent nor any Active Parent Subsidiary is a party to any material note,
bond, mortgage, indenture, contract, lease, license, agreement, understanding,
instrument, bid or proposal ("PARENT MATERIAL CONTRACT") required to be
described in or filed as an exhibit to any Parent Securities Filing that is not
described in or filed as required by the Securities Act or the Securities
Exchange Act, as the case may be. Parent has made available to Big Stuff true
and accurate copies of the Parent Material Contracts. All such Parent Material
Contracts are valid and binding and are in full force and effect and enforceable
in accordance with their respective terms, subject to the Enforceability
Exceptions.
3.14 CORPORATE RECORDS. The respective corporate record books of or
relating to Parent and each of the Active Parent Subsidiaries made available to
Big Stuff by Parent contain accurate and complete records of (i) all corporate
actions of the respective shareholders and directors (and committees thereof) of
Parent and the Active Parent Subsidiaries, (ii) the Certificate and/or Articles
of Incorporation, Bylaws and/or other governing instruments, as amended, of
Parent and the Active Parent Subsidiaries, and (iii) the issuance and transfer
of stock of Parent and the Active Parent Subsidiaries.
3.15 TAX. Parent does not know of any fact and has not taken any action
that could be reasonably expected to prevent the transaction contemplated hereby
from qualifying as a tax-free reorganization pursuant to Section 368 of the
Code.
3.16 DISCLOSURE. All information and documents provided prior to the date
of this Restated Agreement and all information and documents subsequently
provided, to Big Stuff and the Big Stuff Shareholders, or its or their
respective representatives or lenders by or on behalf of Parent in connection
with the transactions contemplated by this Restated Agreement are or contain, or
will be or will contain as to subsequently provided information or documents,
true, accurate and complete
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information in all material respects with respect to the subject matter thereof
and are, or will be as to subsequently provided information or documents,
reasonably responsive to any specific request made by or on behalf of Big Stuff
and the Big Stuff Shareholders or its or their representatives or lenders.
ARTICLE IV--ADDITIONAL COVENANTS OF BIG STUFF
AND THE BIG STUFF SHAREHOLDERS
Big Stuff and the Big Stuff Shareholders covenant and agree as follows:
4.1 NOTIFICATION OF CERTAIN MATTERS. Big Stuff and the Big Stuff
Shareholders shall give prompt notice to Parent if any of the following occur
from the date of this Restated Agreement through the Closing Date: (i) receipt
of any notice of, or other communication relating to, a default or Event which,
with notice or lapse of time or both, would become a default under any Big Stuff
Material Contract; (ii) receipt of any notice or other communication from any
third party alleging that the Consent of such third party is or may be required
in connection with the transactions contemplated by this Restated Agreement;
(iii) receipt of any material notice or other communication from any
Governmental Authority in connection with the transactions contemplated by this
Restated Agreement; (iv) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of an Event which would have a Big
Stuff Material Adverse Effect; (v) receipt of any notice of or other
communication regarding or otherwise obtaining knowledge of the commencement or
threat of any Litigation involving or affecting any Big Stuff Shareholder, Big
Stuff or any of its or their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer of Big Stuff, in his or her
capacity as such or as a fiduciary under a Benefit Plan of Big Stuff, which, if
pending on the date hereof, would have been required to have been disclosed in
this Restated Agreement or which relates to the consummation of the transactions
contemplated by this Restated Agreement, including the Merger, or the Big Stuff
Transaction Agreements or any material development in connection with any
Litigation disclosed by Big Stuff or any Big Stuff Shareholder in or pursuant to
this Restated Agreement; and (vi) the receipt of any notice of or other
communication regarding or otherwise obtaining knowledge of any event that would
cause a breach by Big Stuff or any Big Stuff Shareholder of any provision of
this Restated Agreement or a Big Stuff Transaction Agreement, including such a
breach that would occur if such event had taken place on or prior to the date of
this Restated Agreement.
4.2 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, Big Stuff, upon reasonable notice, will give, and shall
direct its accountants and legal counsel to give, Parent, its lenders and their
respective authorized representatives (including, without limitation, financial
advisors, accountants and legal counsel) at all reasonable times access to all
offices and other facilities and to all contracts, agreements, commitments,
books and records (including, but not limited to, Tax returns) of or pertaining
to Big Stuff, will permit the foregoing to make such inspections as they may
require and will cause its officers promptly to furnish Parent with (a) such
financial and operating data and other information with respect to the business
and properties of Big Stuff as Parent may from time to time reasonably request
including, but not limited to, data and information required for inclusion in
Parent's pending registration statements and/or other Parent Securities Filings,
and (b) a copy of each material report, schedule and other document filed or
received by Big Stuff pursuant to the requirements of applicable securities
Laws. The foregoing access will be subject to restrictions contained in
SECTION 6.9 hereof.
4.3 BIG STUFF SHAREHOLDER APPROVAL. As soon as practicable, Big Stuff
will, if required, take all steps necessary to duly call, give notice of,
convene and hold a meeting of the Big Stuff Shareholders for the purpose of
adopting this Restated Agreement and for such other purposes as may be necessary
or desirable in connection with effectuating the transactions contemplated
hereby. The Board of Directors of Big Stuff (i) unless otherwise required under
the fiduciary duties of the directors of Big Stuff, as determined by such
directors in good faith upon advice of legal counsel, will recommend to
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the Big Stuff Shareholders that they adopt this Restated Agreement and approve
the transactions contemplated hereby, and (ii) will use its reasonable best
efforts to obtain any necessary adoption and approval by the Big Stuff
Shareholders of this Restated Agreement and the transactions contemplated hereby
including, without limitation, voting the Big Stuff Shares held for such
adoption and approval.
4.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Big Stuff and the Big Stuff Shareholders agree to use their reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable, but in any event, prior to the Closing,
the Merger and the other transactions contemplated by this Restated Agreement
and the Big Stuff Transaction Agreements including, but not limited to
(i) obtaining the Consent of others to this Restated Agreement, the Big Stuff
Transaction Agreements and the transactions contemplated hereby and thereby,
(ii) the defending of any Litigation against Big Stuff, or involving any Big
Stuff Shareholder challenging this Restated Agreement, the Big Stuff Transaction
Agreements or the consummation of the transactions contemplated hereby or
thereby, excluding any Litigation caused by or relating to Parent or any Active
Parent Subsidiary, (iii) obtaining all Consents from Governmental Authorities
required for the consummation of the exchange and the transactions contemplated
hereby, and (iv) timely making all necessary filings under the HSR Act. Upon the
terms and subject to the conditions hereof, Big Stuff and the Big Stuff
Shareholders agree to use their reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary to
satisfy the other conditions of the Closing set forth herein. Big Stuff and the
Big Stuff Shareholders will consult with counsel for Parent as to, and will
permit such counsel to participate in, at Parent's expense, any Litigation
referred to in clause (ii) above brought against or involving Big Stuff or any
Big Stuff Shareholder.
4.5 COMPLIANCE. In consummating the Merger and the transactions
contemplated hereby, Big Stuff and the Big Stuff Shareholders shall comply in
all material respects with the provisions of the Securities Exchange Act and the
Securities Act and shall comply, in all material respects, with all other
applicable Laws.
4.6 BENEFIT PLANS. Between the date of this Restated Agreement and through
the Closing Date, no discretionary award or grant under any Benefit Plan of Big
Stuff shall be made without the consent of Parent. Big Stuff shall not make any
amendment to any Benefit Plan, any awards thereunder or the terms of any
security convertible into or exchangeable for capital stock without the consent
of Parent.
4.7 TAX OPINION CERTIFICATION. Big Stuff and the Big Stuff Shareholders
shall use their best efforts to cause the Merger to qualify, and will not take
any action which to their knowledge could reasonably be expected to prevent the
Merger from qualifying, as a reorganization under Section 368 of the Code. Prior
to the Effective Time, Big Stuff and the Big Stuff Shareholders shall provide
tax counsel rendering an opinion under SECTION 7.1(m) with a certificate
concerning such factual matters as such counsel reasonably requests in
connection with its opinion.
4.8 AFFILIATE AGREEMENTS. Big Stuff shall use its reasonable business
efforts to ensure that each Person who is or may be an "affiliate" of Big Stuff
within the meaning of Rule 145 promulgated under the Securities Act shall enter
into an agreement in a form agreed to by the parties hereto, acting reasonably
(collectively, the "AFFILIATE AGREEMENTS").
4.9 TRANSFER RESTRICTIONS. (a) In addition to any other restrictions
imposed by Law on the ability of any Big Stuff Shareholder to transfer any
Parent Common Stock received by such Big Stuff Shareholder pursuant to this
Restated Agreement, the Big Stuff Shareholders who are "affiliates" of Big Stuff
within the meaning of Rule 145 promulgated under the Securities Act acknowledge
and agree that the following legend will appear on all certificates representing
the Parent Common Stock received by such "affiliates" of Big Stuff pursuant to
this Restated Agreement:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT
TO ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT OF 1933, AS
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AMENDED (THE "SECURITIES ACT"), AND THE RULES AND REGULATIONS PROMULGATED
BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") THEREUNDER. NO SALES,
TRANSFERS OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR UPON THE PRIOR DELIVERY TO THE ISSUER OF AN OPINION FROM LEGAL COUNSEL
SATISFACTORY TO THE ISSUER AND IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER AND ITS LEGAL COUNSEL, STATING THAT SUCH SALE OR OTHER DISPOSITION
IS BEING MADE PURSUANT TO AND IN ACCORDANCE WITH THE REQUIREMENTS OF SEC
RULES 144 AND 145 OR IS OTHERWISE EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT.
(b) Notwithstanding the foregoing, Parent shall instruct its transfer
agent to remove the legend set forth in SECTION 4.9(a) for those sales of
Parent Common Stock by "affiliates" (as defined in Securities Act Rules 144
and 145) of Parent and Big Stuff made pursuant to Securities Act Rules 144
and 145.
ARTICLE V
ADDITIONAL COVENANTS OF PARENT
Parent covenants and agrees as follows:
5.1 CONDUCT OF BUSINESS OF PARENT AND THE ACTIVE PARENT
SUBSIDIARIES. Parent covenants, represents and warrants that from the date of
this Restated Agreement through the Closing Date, unless Big Stuff shall
otherwise expressly consent in writing, Parent shall, and Parent shall cause
each Active Parent Subsidiary to, use its or their reasonable best efforts to
comply in all material respects with all Laws applicable to it or any of its
properties, assets or business and maintain in full force and effect all the
Parent Authorizations necessary for, or otherwise material to, such business.
5.2 NOTIFICATION OF CERTAIN MATTERS. Parent shall give prompt notice to
Big Stuff if any of the following occur from the date of this Restated Agreement
through the Closing Date: (i) any notice of, or other communication relating to,
a default or Event which, with notice or lapse of time or both, would become a
default under any Parent Material Contract which could have a Parent Material
Adverse Effect; (ii) receipt of any notice or other communication from any third
party alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Restated Agreement;
(iii) receipt of any material notice or other communication from any regulatory
authority (including, but not limited to, the NYSE or any other securities
exchange) in connection with the transactions contemplated by this Restated
Agreement; (iv) receipt of any notice of or other communication regarding or
otherwise obtaining knowledge of an Event which would have a Parent Material
Adverse Effect; (v) receipt of any notice of or other communication regarding or
otherwise obtaining knowledge of the commencement or threat of any Litigation
involving or affecting Parent or any Active Parent Subsidiary or any of their
respective properties or assets, or, to its knowledge, any employee, agent,
director or officer, in his or her capacity as such, of Parent or any Active
Parent Subsidiary which, if pending on the date hereof, would have been required
to have been disclosed in this Restated Agreement or which relates to the
consummation of the Merger or any material development in connection with any
Litigation disclosed by Parent in or pursuant to this Restated Agreement or the
Parent Securities Filings; (vi) receipt of any notice of or other communication
regarding or otherwise obtaining knowledge of any Event that could cause a
breach by Parent of any provision of this Restated Agreement or any Parent
Transaction Agreement, including such a breach that could occur if such Event
had taken place on or prior to the date of this Restated Agreement; and
(vii) amendment, modification or waiver of any provision of the Ionex Agreement
referenced on SCHEDULE 3.7 hereto.
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5.3 ACCESS AND INFORMATION. Between the date of this Restated Agreement
and the Closing Date, Parent: (i) will, upon reasonable notice, give, and direct
its legal counsel and accountants to give, Big Stuff and its authorized
representatives (including, without limitation, its financial advisors,
accountants and legal counsel) at all reasonable times access as reasonably
requested to the offices and other facilities and to all material contracts,
agreements, commitments, books and records (including, but not limited to, Tax
returns) of or pertaining to Parent and the Active Parent Subsidiaries;
(ii) will permit Big Stuff to make such reasonable inspections as it may
require; and (iii) will cause its officers promptly to furnish Big Stuff with
(a) such financial and operating data and other information with respect to the
business and properties of Parent and the Active Parent Subsidiaries as Big
Stuff may from time to time reasonably request, and (b) a copy of each material
report, schedule and other document filed or received by Parent or any Active
Parent Subsidiary pursuant to the requirements of applicable securities Laws,
the NYSE or other securities exchange, in each case as necessary in connection
with the transactions contemplated hereby. The foregoing access will be subject
to the restrictions contained in SECTION 6.9 hereof.
5.4 COMPLIANCE. In consummating the Merger and the transactions
contemplated hereby, Parent shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause the Active Parent Subsidiaries to comply or to be in
compliance, in all material respects, with all other applicable Laws.
5.5 SEC AND SHAREHOLDER FILINGS. Parent shall send to Big Stuff a copy of
all material public reports and materials as and when it sends the same to its
shareholders, the SEC, the NYSE or any other securities commission or exchange.
5.6 TAX TREATMENT. Parent and Acquisition Subsidiary shall use their best
efforts to cause the Merger to qualify, and will not take any action which to
its knowledge could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under Section 368 of the Code. Prior to the
Effective Time, Parent shall provide tax counsel rendering an opinion under
SECTION 7.1(m) with a certificate concerning such factual matters as such
counsel identifies are relevant to its opinion.
5.7 EMPLOYMENT AND EMPLOYEE BENEFIT PLANS. At or before the Closing Date,
Parent shall, after consultation with Big Stuff, offer employment to the
employees of Big Stuff, effective as of the Closing Date, upon terms and
conditions reasonably acceptable to the Big Stuff employees and to Parent. After
the Closing Date, Parent shall arrange for each employee participating in any of
the Benefit Plans of Big Stuff at such time to participate in any counterpart
Benefit Plans of Parent in accordance with the eligibility criteria thereof,
provided that (i) such participants shall receive full credit for years of
service with Big Stuff prior to the Merger for all purposes for which such
service was recognized under the Benefit Plan of Big Stuff including, but not
limited to, recognition of service for eligibility, vesting, and, to the extent
not duplicative of benefits received under such Benefit Plan of Big Stuff, the
amount of benefits, and (ii) such participants shall participate in the Benefit
Plans of Parent on terms no less favorable than those offered by Parent to
similarly situated employees of Parent. Notwithstanding the foregoing, Parent
may continue one or more of the Benefit Plans of Big Stuff, in which case Parent
shall have satisfied its obligations hereunder with respect to the benefits so
provided.
5.9 EXPENSES. If the transactions contemplated by this Restated Agreement
are consummated, all fees and expenses incurred in connection with the
transactions contemplated by this Restated Agreement including, without
limitation, all legal, accounting, financial advisory, consulting fees,
(collectively, the "TRANSACTION EXPENSES") incurred by a party or its
stockholders in connection with the negotiation and effectuation of the terms
and conditions of this Restated Agreement and the transactions contemplated
hereby, shall be the obligation of Parent or any direct or indirect subsidiary
of Parent after Closing. If the Merger is not consummated, all Transaction
Expenses shall be and remain the obligation of the respective parties which
incurred them.
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5.10 PARENT SHAREHOLDER APPROVAL. As soon as practicable, Parent will, if
required, take all steps necessary to duly call, give notice of, convene and
hold a meeting of the Parent shareholders for the purpose of adopting this
Restated Agreement and for such other purposes as may be necessary or desirable
in connection with effectuating the transactions contemplated hereby. The Board
of Directors of Parent (i) unless otherwise required under the fiduciary duties
of the directors of Parent, as determined by such directors in good faith and
upon advice of legal counsel, will recommend to the Parent shareholders that
they adopt this Restated Agreement and approve the transactions contemplated
hereby, and (ii) will use its reasonable best efforts to obtain any necessary
adoption and approval by the Parent shareholders of this Restated Agreement and
the transactions contemplated hereby.
ARTICLE VI--ADDITIONAL COVENANTS OF THE PARENT,
BIG STUFF AND THE BIG STUFF SHAREHOLDERS
6.1 REGISTRATION OF SECURITIES.
(a) On or before the Closing Date, the Parent shall use its reasonable
best efforts to cause the following securities to be registered with the SEC
under the Securities Act and with the appropriate Governmental Authorities
under state blue sky Laws:
(i) Parent Common Stock to be received by Big Stuff Shareholders and
any other shareholders of Big Stuff upon conversion of Big Stuff Common
Stock, as described in SECTION 1.3 hereof; and
(ii) Parent Common Stock to be received by Big Stuff Shareholders
upon conversion of the Convertible Note described in SECTION 1.10 hereof.
(b) The Parent shall hold the meeting of the shareholders of Parent to
consider and to vote upon the approval of the Restated Agreement including
the issuance of Parent Common Stock to the Big Stuff Shareholders and to the
shareholders of the Company and of Web, and Parent and Big Stuff will
cooperate in the preparation of one or more registration statements (such
registration statements, together with any and all amendments and
supplements thereto, being hereinafter referred to as the "REGISTRATION
STATEMENTS"), which will include the preparation of one or more proxy
statements of the Parent satisfying all requirements of applicable state
securities Laws, the Securities Act and the Securities Exchange Act.
(c) Big Stuff will furnish Parent with such information concerning Big
Stuff as is necessary in order to cause the Registration Statements and any
proxy statements, insofar as they relate to Big Stuff, to comply with
applicable Law. None of the information relating to Big Stuff supplied by
Big Stuff for inclusion in the Registration Statements or any proxy
statements will be false or misleading with respect to any material fact or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Big Stuff agrees
promptly to advise Parent if, at any time prior to the meeting of the
shareholders of the Parent referenced herein, any information provided by it
in the Registration Statements or any proxy statement is or becomes
incorrect or incomplete in any material respect and to provide Parent with
the information needed to correct such inaccuracy or omission. Big Stuff
will furnish Parent with such supplemental information as may be necessary
in order to cause the Registration Statements or the proxy statements,
insofar as it relates to Big Stuff, to comply with applicable Law after the
mailing thereof to the stockholders of Parent, Big Stuff, Web, the Company
and others to whom it must be mailed.
(d) Big Stuff and Parent agree to cooperate in making any preliminary
filings of Registration Statements and the proxy statement with the SEC as
promptly as practicable, on a confidential basis pursuant to
Rule 14a-6(e)(2) under the Securities Exchange Act.
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(e) Parent will file the Registration Statements and the proxy statement
with the SEC and appropriate materials with applicable state securities
agencies and will use all reasonable best efforts to cause the Registration
Statements and the proxy statement to become effective under the Securities
Act and the Exchange Act and all such state filed materials to comply with
applicable state securities Laws. Big Stuff authorizes Parent to utilize in
the Registration Statements and in all such state filed materials, the
information concerning Big Stuff provided to Parent in connection with, or
contained in, the Registration Statements. Parent promptly will advise Big
Stuff when the Registration Statements have become effective and of any
supplements or amendments thereto, and Parent will furnish Big Stuff with
copies of all such documents. Parent shall file any and all amendments,
supplements and related filings to such Registration Statements (and state
filed materials) as may be required. Big Stuff shall not distribute any
written material that might constitute a "prospectus" relating to this
Restated Agreement or any of the transactions contemplated by this Restated
Agreement within the meaning of the Securities Act or any other applicable
securities Law without the prior written consent of Parent.
6.2 EMPLOYMENT AGREEMENTS. At or before the Closing Date, Parent will
enter into Employment and Non-Competition Agreements, in forms agreed to by
Parent and Big Stuff, acting reasonably, with certain individuals, the
identities of whom shall be agreed upon by Parent and Big Stuff, acting
reasonably.
6.3 CONSENTS. Each of Parent and Big Stuff shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger.
6.4 LEGAL REQUIREMENTS. Subject to the terms and conditions provided in
this Restated Agreement, each of the parties hereto shall use its reasonable
best efforts to take promptly, or cause to be taken, all reasonable actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable Laws to consummate and make effective the transactions
contemplated hereby and to obtain all necessary waivers, consents and approvals
and to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Restated
Agreement for the purpose of securing for the parties hereto the benefits
contemplated by this Restated Agreement.
6.5 PUBLIC ANNOUNCEMENTS. All press releases and other disseminations of
information to employees, customers or suppliers relating to the Merger or the
transactions contemplated by this Restated Agreement or the Restated Company
Agreement by any party hereto shall require the prior approval of Parent and Big
Stuff, provided Parent shall have the right to make such public announcements
without the approval of the other parties hereto should such disclosure be
required by Law or the policies or requirements of United States securities
regulators, stock exchanges, or other relevant entities in the opinion of
Parent's legal counsel. Should such disclosure be required, Parent agrees to
provide the others with reasonable advance notice of and a copy of, and to
consult with the others regarding, the proposed disclosure.
6.6 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. Except as expressly
contemplated by this Restated Agreement, during the period from the date of this
Restated Agreement to the Closing Date, Big Stuff shall conduct its business in
the ordinary course and consistent with past practice, subject to the
limitations contained in this Restated Agreement, and Big Stuff shall use its
reasonable business efforts to preserve intact its business organization, to
keep available the services of its officers, agents and employees and to
maintain satisfactory relationships with all Persons with whom it does business.
Except as expressly contemplated by this Restated Agreement, and it being
acknowledged and agreed by each of the parties to this Restated Agreement that
Parent is in the process of a substantial reduction in workforce, and, subject
to the sale of the CLEC Operations, Parent shall, and it shall
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cause the Active Parent Subsidiaries to, use its or their reasonable best
efforts to preserve intact its business organization consistent with the budget
adopted by the Executive Committee of the Board of Directors of Parent, to keep
available the services of only those officers, agents and employees whom Parent
believes are required to maintain satisfactory relationships with all Persons
with whom it does business. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in this Restated Agreement, after the
date of this Restated Agreement and prior to the Closing Date, (i) Big Stuff
will not, without the prior written consent of Parent (which consent shall not
be unreasonably withheld or delayed); and (ii) subject to the sale of the CLEC
Operations, neither Parent nor any Active Parent Subsidiary will, without the
prior written consent of Big Stuff (which consent shall not be unreasonably
withheld or delayed):
(a) except as provided for in this Restated Agreement, the Restated
Company Agreement or the Restated Web Agreement, amend or propose to amend
its Certificate or Articles of Incorporation or Bylaws (or comparable
governing instruments) in any material respect;
(b) except as set forth on SCHEDULE 6.6(b)(i), with regard to Big Stuff,
or Parent Common Stock to be issued pursuant to those options or warrants
listed on SCHEDULE 6.6(b)(ii) or in SECTION 6.10, with regard to Parent or
the Active Parent Subsidiaries, authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of
any shares of, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any shares of, the capital stock or
other securities of Big Stuff, or of Parent or any Active Parent Subsidiary,
as the case may be, including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of Big
Stuff, or of Parent or any Active Parent Subsidiary, as the case may be;
PROVIDED, HOWEVER, that Big Stuff may issue capital stock pursuant to the
exercise of options and warrants outstanding on the date of this Restated
Agreement;
(c) except as provided for in this Restated Agreement, the Restated
Company Agreement or the Restated Web Agreement, split, combine or
reclassify any shares of its capital stock or declare, pay or set aside any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, other than dividends
or distributions to the Big Stuff Shareholders (but only if the entire
amount of such dividend is paid to Web as a capital contribution), or to
Parent or a Parent subsidiary, as the case may be, or redeem, purchase or
otherwise acquire or offer to acquire any shares of its capital stock or
other securities;
(d) except for debt (including, but not limited to, obligations in
respect of capital leases, but excluding obligations under the Convertible
Note) not in excess of $50,000 in the aggregate for all Persons combined,
(i) create, incur or assume any short-term debt (excluding trade payables
incurred in the ordinary course of business), long-term debt or obligations
in respect of capital leases, except for indebtedness contemplated by this
Restated Agreement; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, indirectly, contingently or
otherwise) for the obligations of any Person, except for obligations
permitted by this Restated Agreement of any Active Parent Subsidiary, in the
ordinary course of business consistent with past practice; (iii) except as
contemplated in this Restated Agreement, make any capital expenditures or
make any loans, advances or capital contributions to, or investments in, any
other Person (other than customary advances to employees made in the
ordinary course of business consistent with past practice), provided Big
Stuff will continue to make capital expenditures, maintain, upgrade and
expand its facilities, and otherwise operate in the ordinary course and
consistent with past practice; (iv) acquire the stock or assets of, or merge
or consolidate with, any other Person or business, except as contemplated in
this Restated Agreement and except the contemplated merger with Web or the
contemplated acquisition of all of the issued and outstanding capital stock,
either directly or indirectly, of the Company; or (v) voluntarily incur any
material liability or obligation (absolute, accrued, contingent or
otherwise), except in the ordinary course of business;
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(e) except for the contemplated sale of the Parent's CLEC Operations,
sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or
agree to sell, transfer, mortgage, pledge or otherwise dispose of or
encumber, any material assets or properties, real, personal or mixed, except
in the ordinary course of business, in the case of Parent and the Active
Parent Subsidiaries;
(f) increase in any manner the compensation of any of its officers,
agents or employees other than any increases required pursuant to their
employment agreements in accordance with their terms in effect on the date
of this Restated Agreement and increases in the ordinary course of business
consistent with past practice not in excess on an individual basis of the
lesser of 10% of the current compensation of such individual or $10,000 per
annum;
(g) enter into, establish, amend, make non-routine or material
interpretations or determinations with respect to, or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other
welfare, stock option, stock purchase, restricted stock, or other equity,
pension, retirement, vacation, severance, deferred compensation or other
compensation or benefit plan, policy, agreement, trust, fund or arrangement
with, for or in respect of, any shareholder, officer, director, other
employee, agent, consultant or affiliate, other than actions contemplated by
this Restated Agreement, the Restated Company Agreement and the Restated Web
Agreement;
(h) make any elections with respect to Taxes that are inconsistent with
the prior elections reflected in the Financial Statements as of and to the
period ended December 31, 1998;
(i) except with regard to the Saville matter referenced on SCHEDULE 3.7
attached hereto, compromise, settle, grant any waiver or release relating to
or otherwise adjust any Litigation, except routine Litigation in the
ordinary course of business consistent with past practice, involving only a
payment not in excess of $50,000 individually or $100,000 when aggregated
with all such payments by Big Stuff or by Parent and the Active Parent
Subsidiaries combined, as the case may be;
(j) take any action or omit to take any action, which action or omission
would result in a breach of any of the covenants, representations and
warranties of Big Stuff, the Big Stuff Shareholders or Parent or the Active
Parent Subsidiaries set forth in this Restated Agreement or would have a Big
Stuff Material Adverse Effect, with regard to Big Stuff and the Big Stuff
Shareholders, or a Parent Material Adverse Effect, with regard to Parent and
the Active Parent Subsidiaries;
(k) except in the ordinary course of business enter into any lease or
other agreement, or amend any lease or other agreement, with respect to real
property;
(l)
(i) except as set forth in SECTION 6.6(l)(ii) or SECTION 11.1 OR 11.2
hereof, enter into or amend any agreement or transaction (A) pursuant to
which the aggregate financial obligation of Big Stuff, or of Parent or an
Active Parent Subsidiary, as the case may be, or the value of the
services to be provided could exceed $50,000, (B) having a term of more
than twelve (12) months and pursuant to which the aggregate financial
obligation of Big Stuff, or of Parent or an Active Parent Subsidiary, as
the case may be, or the value of the services to be provided could exceed
$100,000 per year, or (C) which is not terminable by Big Stuff or Parent
or the Active Parent Subsidiaries, as the case may be, upon no more than
thirty (30) days' notice without penalty in excess of $50,000
individually or $100,000 when aggregated with the penalties under all
such agreements or transactions;
(ii) The parties hereto expressly agree that, notwithstanding
anything in this Restated Agreement to the contrary, Parent may modify,
amend or waive its rights, including those respecting its indemnification
obligations, under (A) the Ionex Agreement referenced on SCHEDULE 3.13
attached hereto; (B) the Restated Company Agreement; and (C) the Restated
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Web Agreement; PROVIDED, that such modifications, amendments and/or
waivers do not, or would not reasonably be expected to, materially
increase Parent's obligations or materially adversely affect Parent's
rights under each respective agreement, or otherwise materially affect
the consideration to be received under each respective agreement.
(m) except as set forth in SECTION 6.6(l)(ii) hereof, take any action
with respect to the indemnification of any Person;
(n) change any accounting practices or policies, except as required by
generally accepted accounting principles or Laws or as agreed to or
requested by Big Stuff's or Parent's auditors after consultation with
Parent's or Big Stuff's auditors, as the case may be; PROVIDED, HOWEVER,
that notice and a description of any change pursuant to this SECTION 6.6(n)
shall be provided promptly after such change is effected to Big Stuff or
Parent, as the case may be;
(o) except as set forth in SECTION 6.6(l)(ii) hereof, or except in the
ordinary course of business, enter into, amend, modify, terminate or waive
any rights under any contract which would result in a Big Stuff Material
Adverse Effect, with respect to Big Stuff, or a Parent Material Adverse
Effect, with respect to Parent;
(p) adopt a plan of liquidation, dissolution, merger, consolidation,
share exchange, restructuring, recapitalization, or other reorganization;
PROVIDED, HOWEVER, that Parent may adopt such a plan and may cause the
liquidation or dissolution of any Parent subsidiary if Parent is unable to
sell such Parent subsidiary (i) at a price which Parent determines to be
reasonable, and (ii) during a time period which Parent determines to be
reasonable; PROVIDED, FURTHER, HOWEVER, that if Parent adopts such a plan or
causes such liquidation or dissolution, Parent promptly shall provide to Big
Stuff notice of such adoption, liquidation or dissolution, as the case may
be; or
(q) resolve, agree, commit or arrange to do any of the foregoing.
Notwithstanding anything in this SECTION 6.6 to the contrary, it is
understood that Big Stuff has been accelerating and intensifying its business
activities since March 31, 1999 and will continue to do so. Accordingly,
(x) "ordinary course of business" and "consistent with past practice", as used
in this SECTION 6.6 with respect to Big Stuff, shall be interpreted to include
such acceleration and intensification; and (y) in considering requests for
consent from Big Stuff, Parent shall take into account such acceleration and
intensification.
Furthermore, Parent covenants, represents and warrants that from and after
the date hereof, unless Big Stuff shall otherwise expressly consent in writing,
Parent shall use its reasonable business efforts to:
(1) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(2) pay all accounts payable and other obligations consistent with
prudent cash management principles, except if the same are contested in good
faith, and, in the case of the failure to pay any material accounts payable
or other obligations which are contested in good faith, only after
consultation with Big Stuff; and
(3) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business, except for such Laws the failure
to comply with which would not have a Parent Material Adverse Effect and
maintain in full force and effect all Parent Permits necessary for, or
otherwise material to, such business, except for such Parent Permits the
failure of which to maintain in full force and effect would not have a
Parent Material Adverse Effect.
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Furthermore, Big Stuff covenants, represents and warrants that from and
after the date hereof, unless Parent shall otherwise expressly consent in
writing, Big Stuff shall use its or their reasonable business efforts to:
(1) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(2) pay all accounts payable and other obligations, when they become due
and payable, in the ordinary course of business consistent with past
practice and with the provisions of this Restated Agreement, except if the
same are contested in good faith, and, in the case of the failure to pay any
material accounts payable or other obligations which are contested in good
faith, only after consultation with Parent; and
(3) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business, and maintain in full force and
effect all Big Stuff Permits necessary for, or otherwise material to, such
business.
6.7 NO SOLICITATION OF ACQUISITION PROPOSAL. Unless Parent, Big Stuff and
the Big Stuff Shareholders shall otherwise agree in advance, in writing, neither
the Big Stuff Shareholders, Big Stuff, Parent nor any of their Associates shall,
directly or indirectly, make, encourage, facilitate, solicit, assist or initiate
any inquiry or proposal, or provide any information to or participate in any
negotiations with, any Person or group other than the parties to this Restated
Agreement and their Associates relating to any of the following transactions
("EXTRAORDINARY TRANSACTIONS"): (i) liquidation, dissolution, recapitalization,
share exchange, business combination, merger or consolidation of Big Stuff or
Parent or an Active Parent Subsidiary; (ii) sale of a significant amount of
assets of Big Stuff or Parent or an Active Parent Subsidiary; (iii) purchase or
sale of shares of capital stock of Big Stuff or Parent or an Active Parent
Subsidiary; or (iv) any similar actions or transactions involving Big Stuff or
Parent or an Active Parent Subsidiary (other than the Merger and the
transactions contemplated by this Restated Agreement, the Restated Company
Agreement and the Restated Web Agreement), or agree to or consummate any
Extraordinary Transaction. Each of Parent and Big Stuff shall immediately inform
the other party of any inquiry, proposal, or request for information or offer
(including the terms thereof and the Person making such inquiry, proposal,
request or offer) which it may receive in respect of an Extraordinary
Transaction and provide the other party with a copy of any such written
inquiries, proposals, requests for information and offers, and thereafter keep
the other party fully informed of the status and details thereof. The parties
hereto acknowledge and agree that the provisions of this SECTION 6.7 shall not
apply to: (a) the sale of the CLEC Operations by Parent or any Active Parent
Subsidiary; or (b) to the acquisition of Web or the Company; or (c) any
communications between or actions by Parent (or any Parent subsidiary), the
Company and ICL, acting jointly, on the one hand, and any Person not a party to
this Restated Agreement, on the other hand, which occurred prior to the date
that this Restated Agreement becomes effective pursuant to SECTION 1.2 hereof.
6.8 RESIGNATIONS. Big Stuff shall use its reasonable best efforts to cause
the officers and/or directors of Big Stuff as Parent may request to voluntarily
resign their positions as such effective as of the Closing Date. The instruments
effecting such resignations are herein referred to as the "RESIGNATIONS."
6.9 CONFIDENTIALITY. Unless (i) otherwise expressly provided in this
Restated Agreement, (ii) required by applicable Law or any listing agreement
with, or the rules and regulations of, any applicable securities exchange,
(iii) necessary to secure any required Consents as to which the other party has
been advised, or (iv) consented to in writing by Parent and Big Stuff, this
Restated Agreement and any information or documents furnished in connection with
this Restated Agreement, the June 3 Big Stuff YP Agreement or the
Confidentiality Agreement dated April 11, 1999 by and among Parent, the Company,
Big Stuff, Web and O'Neal shall be kept strictly confidential by Big Stuff,
Parent and their respective officers, directors, employees and agents. Prior to
any disclosure pursuant to
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the preceding sentence, the party intending to make such disclosure shall
consult with the other party regarding the nature and extent of the disclosure.
Nothing contained herein shall preclude disclosures to the extent necessary to
comply with accounting, SEC and other disclosure obligations imposed by
applicable Law. To the extent required by such disclosure obligations, Parent,
after consultation with Big Stuff, may file with the SEC a Report on Form 8-K
pursuant to the Securities Exchange Act with respect to the Merger, which report
may include, among other things, financial statements and pro forma financial
information with respect to the other party. In connection with any filing with
the SEC of a registration statement or amendment thereto under the Securities
Act, Parent, after consultation with Big Stuff, may include a prospectus
containing any information required to be included therein with respect to the
Merger, including, but not limited to, financial statements and pro forma
financial information with respect to the other party, and thereafter distribute
said prospectus. Parent and Big Stuff shall cooperate with the other and provide
such information and documents as may be required in connection with any such
filings. In the event the Merger is not consummated, Parent and Big Stuff shall
return to the other all documents furnished by the other and will hold in
absolute confidence any information obtained from the other party except to the
extent (i) such party is required to disclose such information by Law or such
disclosure is required by discovery, subpoena or other similar legal process in
a proceeding involving a third Person; (ii) such party received such information
on a non-confidential basis from a source, other than the other party, which is
not known by such party to be bound by a confidentiality obligation with respect
thereto; or (iii) such information becomes generally available to the public or
is otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clause (i) of the preceding sentence, the party
intending to disclose the same shall so notify, in writing, the party which
provided the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.
6.10 OPTIONS; STOCK ISSUANCES. The Board of Directors of Parent shall have
the right to grant or issue, as the case may be, (i) restricted stock or options
to acquire shares of Parent Common Stock pursuant to the Parent's 1997 Stock
Awards Plan, provided that no more than the number of shares authorized under
the 1997 Stock Awards Plan have been issued; (ii) restricted stock valued at or
warrants to purchase up to 90,000 shares of Parent Common Stock to be issued to
certain non-employee directors of Parent who were responsible for negotiating
the June 3 Big Stuff Agreement at an exercise price of $6.96 per share, the
Restated Company Agreement and the Restated Web Agreement; (iii) the shares of
Parent Common Stock issuable upon conversion at Closing of the Great Western
Notes at a conversion price of $5.50 per share; (iv) up to 1,090,909 shares of
Parent Common Stock issuable upon conversion of one or more notes which may be
issued to the Big Stuff Shareholders who may lend up to Six Million Dollars
($6,000,000.00) to Big Stuff or Web as provided in this Restated Agreement, at a
conversion price of $5.50 per share; (v) shares of Parent Common Stock to be
issued upon exercise of options or warrants to be granted at Closing to those
Persons designated by Company in the Restated Company Agreement; (vi) those
shares of Parent Common Stock issuable upon exercise of previously granted
options; and (vii) one (1) share of Parent Class B Voting Preferred Stock to be
issued to the trustee under the Exchange and Voting Trust Agreement.
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ARTICLE VII--CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSING. The respective
obligations of each party to consummate this Restated Agreement and effect the
Merger shall be subject to the satisfaction or waiver at or prior to the Closing
Date of the following conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger
illegal.
(b) OTHER AGREEMENTS. The Restated Company Agreement and the Restated
Web Agreement and all documents related to the Restated Company Agreement
and the Restated Web Agreement shall have been duly executed and delivered
by all parties thereto and shall be in full force and effect.
(c) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Employment and
Non-Competition Agreements described in SECTION 6.2 hereof shall have been
duly executed and delivered by all parties thereto and shall be in full
force and effect.
(d) GOVERNMENT APPROVALS. Except for those Consents the failure of
which to be obtained, (i) in the reasonable judgment of Parent, would not
have a Parent Material Adverse Effect or a Big Stuff Material Adverse
Effect, and (ii) in the reasonable judgment of Big Stuff, would not have a
Big Stuff Material Adverse Effect or a Parent Material Adverse Effect, all
Consents of any domestic or foreign Governmental Authority required for the
consummation of the Merger shall have been obtained by Final Order.
(e) RELATED TRANSACTIONS. (i) The acquisition by Parent, or a direct
or indirect subsidiary of Parent, of Big Stuff and Web in a tax-free
reorganization shall have been consummated prior to or simultaneously with
the acquisition of the Company and any registration statement(s) required
for the registration of Parent Common Stock issued to the Big Stuff
Shareholders, the Company shareholders and the shareholders of Web as
consideration in connection with the acquisition of Big Stuff, the Company
and Web by Parent shall have been declared effective, (ii) no stop order
suspending the effectiveness of such registration statement(s) shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the SEC or any other Governmental Authority, and (iii) the
Great Western Notes shall have been satisfied by the issuance of Parent
Common Stock to the Great Western Shareholders.
(f) FINANCING. Parent and Big Stuff shall have received from their
lenders an extension of all of their and their subsidiaries' debt owing by
them on terms and conditions satisfactory to Parent and Big Stuff or all
such debts shall be refinanced on terms satisfactory to Parent and Big Stuff
or any consents and approvals required from such lenders is received.
(g) SHAREHOLDER APPROVAL. All necessary approvals of the Big Stuff
Shareholders and the shareholders of Parent in connection with the Merger
shall have been obtained.
(h) REQUIRED CONSENTS. Any required Consents of any Person to the
Merger or the transactions contemplated by this Restated Agreement shall
have been obtained on terms and conditions reasonably acceptable to Parent
and Big Stuff and be in full force and effect, except for those the failure
of which to obtain, in the reasonable judgment of Parent and Big Stuff,
would not have a Parent Material Adverse Effect or a Big Stuff Material
Adverse Effect.
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(i) HSR ACT. Any waiting period applicable to the Merger under the HSR
Act shall have expired or earlier termination thereof shall have been
granted and no action shall have been instituted by either the United States
Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by this Restated Agreement or
to modify or amend such transactions in any material manner, or if any such
action shall have been instituted, it shall have been withdrawn or a final
judgment shall have been entered against such Department or Commission, as
the case may be.
(j) REGISTRATION STATEMENT(S). The Registration Statement(s) shall
have been declared effective and no stop order suspending the effectiveness
of the Registration Statement(s) shall have been issued and no proceeding
for that purpose shall have been initiated or threatened by the SEC or any
Governmental Authority, whether state or federal.
(k) BLUE SKY. Parent shall have received all state securities Law
authorizations necessary to consummate the transactions contemplated hereby.
(l) FAIRNESS OPINION. The written opinion received by Parent's Board
of Directors from its financial advisors, PaineWebber Incorporated, pursuant
to SECTION 1.2 hereof shall not have been withdrawn.
(m) TAX OPINION. Parent shall have received an opinion from Blackwell
Sanders Peper Martin LLP based on customary representations contained in
certificates of Parent, to the effect that, if the Merger is consummated in
accordance with the provisions of this Restated Agreement, the Merger will
qualify as a tax-free reorganization within the meaning of the Code.
(n) NYSE LISTING APPROVAL. Parent shall have received from the NYSE
approval for listing with the NYSE of the Parent Common Stock to be issued
pursuant to this Restated Agreement, the Restated Company Agreement and the
Restated Web Agreement.
(o) SALE OF CLEC OPERATIONS. The sale of the CLEC Operations,
contemplated under the Ionex Agreement referenced on SCHEDULE 3.13 hereof,
shall have closed.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BIG STUFF SHAREHOLDERS AND BIG
STUFF. The obligations of the Big Stuff Shareholders and Big Stuff to
consummate and effect this Restated Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Big Stuff:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The representations and warranties of Parent in this Restated
Agreement that are modified by materiality or Parent Material Adverse
Effect ("PARENT MODIFIED REPRESENTATION") shall be true and correct in
all respects and those that are not so modified ("PARENT NONMODIFIED
REPRESENTATION") shall be true and correct in all material respects on
the date hereof and, except for changes not prohibited by this Restated
Agreement, as of the Closing Date as if made at the Closing Date.
Furthermore, none of the representations or warranties of Parent
contained in this Restated Agreement, disregarding any qualifications
therein or in this SECTION 7.2(a) regarding materiality or Parent
Material Adverse Effect, shall be untrue or incorrect to the extent that
such untrue or incorrect representations or warranties, when taken
together as a whole, have had or would have a Parent Material Adverse
Effect; and
(ii) Parent shall have performed and complied with all of the
covenants and agreements in all material respects and satisfied in all
material respects all of the conditions required by this Restated
Agreement to be performed or complied with or satisfied by Parent at or
prior to the Closing Date. Notwithstanding anything in this Restated
Agreement to the contrary, the parties hereto acknowledge and agree that
the consummation of the transactions contemplated by this Restated
Agreement and the subsequent disposition of the CLEC Operations
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constitutes a significant change from the plans and strategies described
in the 1998 10-K such that the representations and warranties of Parent
that reference the 1998 10-K will not be true and correct as of the
Closing Date as they relate to the plans and strategies of the business
of Parent at the Closing Date.
(b) CERTIFICATE OF PARENT AND OTHER DELIVERIES. Big Stuff shall have
been provided, with (i) a certificate executed on behalf of Parent by an
Officer to the effect that, as of the Closing Date, all representations and
warranties made by Parent under this Restated Agreement are true and
complete except as qualified by SECTION 7.2(a)(i) hereof; and all covenants,
obligations and conditions of this Restated Agreement to be performed by
Parent on or before such date have been so performed; (ii) a certificate of
good standing from the Secretary of State of the State of Delaware that
Parent is a validly existing corporation; (iii) duly adopted resolutions of
the Board of Directors of Parent approving the execution, delivery and
performance of this Restated Agreement and the Parent Transaction Agreements
to which it is a party and the instruments contemplated hereby and thereby,
certified by its Secretary or Assistant Secretary; and (iv) such other
documents and instruments as Big Stuff may reasonably request.
(c) SHAREHOLDER APPROVAL. Big Stuff shall have received from Parent's
transfer agent a certificate indicating that a sufficient number of Parent's
shareholders voted to approve the Merger such that the Merger was deemed
approved by the Parent shareholders.
(d) LEGAL OPINION. Big Stuff shall have received a legal opinion of
Blackwell Sanders Peper Martin LLP, legal counsel to Parent, in a form to be
agreed upon by the parties hereto, acting reasonably.
(e) NO MATERIAL ADVERSE CHANGE. There shall not have occurred after
the date hereof any Event that has or reasonably could be expected to have a
Parent Material Adverse Effect.
(f) LITIGATION. Except as set forth on SCHEDULE 3.7 attached hereto,
there shall be no action, suit, claim or proceeding of any nature pending,
or overtly threatened, against Parent, its properties or any of its officers
or directors, arising out of, or in any way connected with, the Merger or
the other transactions contemplated by the terms of this Restated Agreement
which individually or in the aggregate may cause a Parent Material Adverse
Effect.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of
Parent to consummate and effect this Restated Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS.
(i) The representations and warranties of Big Stuff and the Big Stuff
Shareholders contained in this Restated Agreement that are modified by
materiality or Big Stuff Material Adverse Effect ("BIG STUFF MODIFIED
REPRESENTATION") shall be true and correct in all respects, and those
that are not so modified ("BIG STUFF NONMODIFIED REPRESENTATION") shall
be true and correct in all material respects, on the date hereof and,
except for changes not prohibited by this Restated Agreement, as of the
Closing Date as if made at the Closing Date. Furthermore, none of the
representations or warranties of Big Stuff or the Big Stuff Shareholders
contained in this Restated Agreement, disregarding any qualifications
therein or in this SECTION 7.3(a) regarding materiality or Big Stuff
Material Adverse Effect, shall be untrue or incorrect to the extent that
such untrue or incorrect representations or warranties, when taken
together as a whole, have had or would have a Big Stuff Material Adverse
Effect; and
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(ii) Big Stuff and the Big Stuff Shareholders shall have performed
and complied with all the covenants and agreements in all material
respects and satisfied in all material respects all the conditions
required by this Restated Agreement to be performed or complied with or
satisfied by Big Stuff and the Big Stuff Shareholders at or prior to the
Closing Date.
(b) CERTIFICATE OF BIG STUFF AND OTHER DELIVERIES. Parent shall have
been provided with (i) a certificate executed on behalf of Big Stuff by its
Chief Executive Officer to the effect that, as of the Effective Time all
representations and warranties made by Big Stuff in this Restated Agreement
are true and correct, except as qualified by SECTION 7.3(a)(i) hereof, and
all covenants, obligations and conditions of this Restated Agreement to be
performed by Big Stuff and the Big Stuff Shareholders on or before such date
have been so performed; (ii) a certificate of good standing from the proper
authority in the jurisdictions in which Big Stuff is incorporated or
qualified to do business stating that each is a validly existing corporation
in good standing; (iii) duly adopted resolutions of the Big Stuff Board of
Directors and Big Stuff Shareholders approving the execution, delivery and
performance of this Restated Agreement and the Big Stuff Transaction
Agreements to which Big Stuff is a party and the instruments contemplated
hereby and thereby, certified by the Secretary or Assistant Secretary of Big
Stuff; (iv) a true and complete copy of the Articles or Certificate of
Incorporation or comparable governing instruments, as amended, of Big Stuff
certified by the Secretary of State of the state of incorporation or
comparable authority in other jurisdictions, and a true and complete copy of
the Bylaws or comparable governing instruments, as amended, of Big Stuff
certified by the Secretary thereof; (v) the duly executed Resignations on
terms and conditions reasonably acceptable to Parent; and (vi) such other
documents and instruments as Parent reasonably may request.
(c) LEGAL OPINION. Parent shall have received a legal opinion from
Steinhart & Falconer LLP, legal counsel to Big Stuff, in a form to be agreed
upon by the parties hereto, acting reasonably.
(d) LITIGATION. There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against Big Stuff, its respective
properties or any of its officers or directors, arising out of, or in any
way connected with, the Merger or the other transactions contemplated by the
terms of this Restated Agreement which individually or in the aggregate may
cause a Big Stuff Material Adverse Effect.
(e) NO MATERIAL ADVERSE CHANGE. There shall have not occurred after
the date hereof any Event that has or reasonably could be expected to have a
Big Stuff Material Adverse Effect.
(f) AFFILIATE AGREEMENTS. At least thirty (30) days prior to the
Effective Time, Parent shall have received the duly executed Affiliate
Agreements.
ARTICLE VIII--TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Restated Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Closing Date only
as follows, whether before or after approval by the Big Stuff Shareholders:
(a) by mutual written consent of Big Stuff and Parent, duly authorized
by the Board of Directors of each;
(b) by Big Stuff or Parent if the Closing shall not have occurred on or
before January 31, 2000, as such date may be extended pursuant to
SECTION 1.2(b) hereof (or such other date as may be agreed to by Big Stuff
and Parent); PROVIDED, THAT, no party may terminate this Restated Agreement
under this SECTION 8.1(b) if such party's breach of this Restated Agreement
has caused or resulted in the failure of the Closing to occur on or before
such date;
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(c) by Big Stuff if (i) there are any breaches of any Parent Modified
Representation or any material breaches of any Parent Nonmodified
Representation, or (ii) Parent has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Parent promptly after
the discovery thereof and Parent has failed to cure or otherwise resolve the
same to the reasonable satisfaction of Big Stuff within thirty (30) days
after receipt of such notice;
(d) by Parent if (i) there are any breaches of any Big Stuff Modified
Representations or any material breaches of any Big Stuff Nonmodified
Representations, or (ii) Big Stuff has breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of
its material covenants or agreements contained herein as to which notice
specifying such breach or failure has been given to Big Stuff promptly after
the discovery thereof and Big Stuff has failed to cure or otherwise resolve
the same to the reasonable satisfaction of Parent within thirty (30) days
after receipt of such notice;
(e) by Big Stuff or Parent if a court of competent jurisdiction or other
Governmental Authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting
the Merger, the Restated Company Agreement or any of the transactions
contemplated by this Restated Agreement or such other agreements and such
order, decree, ruling or other action shall have become final and
nonappealable;
(f) (i) by Big Stuff if the stockholders of Parent fail to approve and
adopt the Merger or the issuance of the Parent Common Stock pursuant to this
Restated Agreement or the other transactions contemplated or otherwise
referenced herein or therein, as applicable, at the meeting duly convened
therefor;
(f)(ii) by Parent if the stockholders of Parent fail to approve and
adopt the Merger pursuant to this Restated Agreement or the other
transactions contemplated or otherwise referenced herein or therein, as
applicable;
(g) by Parent, if Big Stuff or its Board of Directors breaches any
provision of SECTION 6.7; or
(h) by Big Stuff, if Parent or its Board of Directors breaches any
provision of SECTION 6.7;
The party desiring to terminate this Restated Agreement pursuant to this
SECTION 8.1 shall give written notice of such termination to the other party in
accordance with SECTION 11.1 below.
8.2 PROCEDURE UPON TERMINATION. In the event of termination pursuant to
this ARTICLE VIII, the Merger shall be abandoned without further action by Big
Stuff or Parent, provided that the obligations of the applicable parties to this
Restated Agreement contained in ARTICLE IX and SECTION 6.9 hereof shall remain
in full force and effect. If this Restated Agreement is terminated as provided
herein, each party shall use its reasonable best efforts to redeliver all
documents, work papers and other material (including any copies thereof) of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same. Nothing
contained in this Restated Agreement shall relieve any party from any liability
for any inaccuracy, misrepresentation or breach of this Restated Agreement prior
to termination.
ARTICLE IX--SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 INDEMNIFICATION BY THE BIG STUFF SHAREHOLDERS.
(a) If the Closing has occurred, subject to the terms and conditions of
this ARTICLE IX, the Big Stuff Shareholders shall indemnify Parent, and its
officers, directors, agents and representatives (THE "INDEMNITEES"), from
and in respect of, and hold the Indemnitees harmless against, any and
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all damages, fines, penalties, losses, liabilities, excise and other taxes,
judgments, and deficiencies (including without limitation amounts paid in
settlement and interest and reasonable out-of-pocket legal and accounting
fees), but which amount shall be offset or reduced by the amount of any
insurance proceeds received by Parent in respect of any of the foregoing,
incurred or suffered by any of the Indemnitees ("DAMAGES") resulting from,
relating to or in connection with any misrepresentation or breach of
warranty of the Big Stuff Shareholders contained in this Restated Agreement.
(b) The Big Stuff Shareholders acknowledge that their indemnification
obligations hereunder are solely in their capacity as former shareholders of
Big Stuff, and, accordingly, the indemnification obligations in this
ARTICLE IX shall not entitle any Big Stuff Shareholder who was or is a
current or former officer, director or employee of Big Stuff to any
indemnification from Big Stuff pursuant to the organizational or governing
documents of Big Stuff or pursuant to this Restated Agreement.
9.2 METHOD OF ASSERTING CLAIMS.
(a) Prior to the date (THE "REPORT DATE") that is thirty (30) days after
the completion of Parent's audit report by Parent's independent auditors for
the fiscal year ended December 31, 1999, each Indemnitee shall give written
notice (THE "CLAIM NOTICE") to the Representative, as agent for the Big
Stuff Shareholders, of any and all claims or events known to it which gives
rise to a claim for indemnification hereunder by the Indemnitee against the
Big Stuff Shareholders (AN "INDEMNIFIABLE CLAIM"). The Claim Notice shall
specify the nature and estimated amount of such claimed Damages (THE
"CLAIMED AMOUNT"). In the case of any claim for indemnification hereunder
arising out of a claim, action, suit or proceeding brought by any Person who
is not a party to this Restated Agreement (A "THIRD-PARTY CLAIM"), prior to
the Report Date, the Indemnitee also shall give the Representative, as agent
for the Big Stuff Shareholders, copies of any written claims, process or
legal pleadings with respect to such Third-Party Claim.
(b) Within forty-five (45) days after delivery of a Claim Notice, the
Representative shall notify the Parent in writing of his objections, if any,
to the claim. If the Representative has no objections to the claim, the
Representative shall remit to the Parent the Claimed Amount within thirty
(30) days. If the Representative has objections to the claim, the
Representative and the Indemnitee shall proceed in good faith to negotiate a
resolution of the dispute regarding the claim, and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
9.3 THIRD PARTY CLAIMS.
(a) Except as otherwise provided in paragraph (c) below, the
Representative, as agent for the Big Stuff Shareholders, may elect to
compromise or defend, at the Big Stuff Shareholders' own expense and by the
Big Stuff Shareholders' own counsel reasonably satisfactory to the
Indemnitee, any Third-Party Claim; provided that (i) the Representative
provides the Indemnitee with reasonable evidence that the Big Stuff
Shareholders will have the financial resources to defend against such claim
and fulfill their indemnification obligations hereunder; and (ii) the giving
of a Defense Notice (as defined below) by the Representative shall
constitute an acknowledgment by the Big Stuff Shareholders of their
obligation to indemnify the Indemnitee with respect to such Third-Party
Claim in accordance with the terms of this ARTICLE IX. If the
Representative, as agent for the Big Stuff Shareholders, elects to
compromise or defend a Third-Party Claim, the Representative shall, within
thirty (30) days of its receipt of the notice provided pursuant to
SECTION 9.2(a) hereof (or sooner, if the nature of such Third-Party Claim so
requires), notify the related Indemnitee of its intent to do so (A "DEFENSE
NOTICE"), and such Indemnitee shall reasonably cooperate in the compromise
of, or defense against, such Third-Party Claim. The Big Stuff Shareholders
shall be responsible for the payment of such Indemnitee's actual
out-of-pocket
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expenses (other than legal and accounting fees) incurred in connection with
such cooperation, and such expenses shall constitute Damages incurred or
suffered by Parent within the meaning of SECTION 9.1(a) hereof. After notice
from the Representative, as agent for the Big Stuff Shareholders, to an
Indemnitee of its election to assume the defense of a Third-Party Claim, the
Big Stuff Shareholders shall not be liable to such Indemnitee under this
ARTICLE IX for any legal expenses subsequently incurred by such Indemnitee
in connection with the defense thereof. If the Representative, as agent for
the Big Stuff Shareholders, elects not to compromise or defend against a
Third-Party Claim, or fails to notify an Indemnitee of its election as
provided in this SECTION 9.3, such Indemnitee may pay, compromise or defend
such Third-Party Claim on behalf of and for the account and risk of the Big
Stuff Shareholders (and any amount paid or expenses incurred in connection
therewith shall constitute Damages incurred or suffered by Parent within the
meaning of SECTION 9.1(a) hereof). The Representative may not consent to
entry of any judgment or enter into any settlement without the written
consent of each related Indemnitee (which consent shall not be unreasonably
withheld), unless such judgment or settlement provides solely for money
damages or other money payments for which such Indemnitee is entitled to
indemnification hereunder and includes as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnitee of a release from all
liability in respect of such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought by a
taxing authority in respect of Taxes for which the Big Stuff Shareholders
may be required to indemnify the Parent (A "TAX CLAIM"), the Representative,
as agent for the Big Stuff Shareholders, shall have the sole right to
control any Tax Claim, provided, however, that the Representative shall
provide the Indemnitee with copies of all correspondence with any taxing
authority in connection with any such Tax Claim and shall keep the
Indemnitee reasonably informed of all progress with such taxing authority,
and provided further that the Representative shall consult with the
Indemnitee in good faith in contesting any proposed adjustment and shall
consider any reasonable advice from the Indemnitee concerning such Tax Claim
so long as the Representative, as agent for the Big Stuff Shareholders,
shall (subject to the immediately following sentence) ultimately be entitled
to control any such Tax Claim concerning any indemnity obligation of the Big
Stuff Shareholders. The Representative shall not be entitled to compromise
or settle any Tax liability of the Company for any pre-Closing Period that
would have the effect of materially decreasing the Company's deductions for
credits or materially increasing the Company's taxable income for any
taxable year or period subsequent to the pre-Closing Period without the
prior written consent of Parent, which consent shall not be unreasonably
withheld. Parent will cooperate fully with Representative in defending any
Tax Claim.
(c) If there is a reasonable likelihood that a Third-Party Claim may
have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled
to indemnification hereunder, such Indemnitee will have the right, after
consultation with the Representative, and at the cost and expense of the Big
Stuff Shareholders (which costs and expenses, other than legal and
accounting fees, shall constitute Damages within the meaning of
SECTION 9.1(a) hereof to the extent provided therein), to defend such
Third-Party Claim. If the Third-Party Claim involves a third party with whom
Parent has a significant on-going or prospective relationship, the
Indemnitee will have the right, after consultation with the Representative,
and at the cost and expense of the Big Stuff Shareholders (which costs and
expenses, other than legal and accounting fees, shall constitute Damages
within the meaning of SECTION 9.1(a) hereof to the extent provided therein),
to defend such Third-Party Claim; provided that the Big Stuff Shareholders
shall not be obligated to pay Damages to the extent it is determined (by
agreement between the Representative and Indemnitees or by arbitration or
court judgment) that the Third-Party Claim was settled on terms that were
not fair and reasonable to the Indemnitors.
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9.4 SURVIVAL. The representations and warranties of Big Stuff set forth in
this Restated Agreement shall survive the Closing and shall continue until the
Report Date. The representations and warranties shall not be affected by any
examination made for or on behalf of Parent or the knowledge of any of Parent's
officers, directors, stockholders, employees or agents, except that the
representations and warranties are qualified by the matters disclosed in the
Disclosure Schedules to the representations and warranties of Big Stuff and the
Big Stuff Shareholders contained in ARTICLE II hereof and Parent agrees that
Parent has knowledge of such matters. Notwithstanding anything to the contrary
herein, if a claim for indemnification is made before the expiration of the
periods of survival set forth above in this SECTION 9.4, then (notwithstanding
the expiration of such time period) the representation or warranty applicable to
such claim shall survive until, but only for purposes of, the resolution of such
claim.
9.5 LIMITATIONS.
(a) The Big Stuff Shareholders shall not be liable under this
ARTICLE IX unless and until the aggregate amount of Damages incurred or
suffered by Indemnitees exceeds $100,000, (at which point the Big Stuff
Shareholders shall become liable for the entire amount of such Damages in
excess of $75,000). For purposes of the preceding sentence, no independent
claims of less than $1,000 may be made; PROVIDED, HOWEVER, that all claims
arising out of a common set of facts shall be aggregated for purposes of
determining whether the $1,000 threshold has been met.
(b) The Big Stuff Shareholders' liability under this ARTICLE IX shall
not exceed $400,000.
The Big Stuff Shareholders may, at their option, satisfy their
indemnification obligations under this Restated Agreement by (i) the payment of
that amount of cash sufficient to satisfy such indemnification claim, but in any
event not exceeding the amount set forth in SECTION 9.5(b) hereof, and subject
to the provisions of SECTION 9.5(a) hereof; or (ii) the delivery of stock
certificates representing that number of shares of Parent Common Stock
sufficient to satisfy such indemnification claim, the value of which shall be
determined in accordance with SECTION 9.5(d) hereof; PROVIDED, HOWEVER, that any
stock certificates delivered in satisfaction of an indemnification claim must be
delivered to Parent within three (3) business days following (as applicable)
(A) the date calculated in accordance with SECTION 9.2 or SECTION 9.3 hereof, if
the claim is not in dispute; (B) resolution of such indemnification claim,
whether prior to or following commencement of litigation; or (C) the entry of a
final and non-appealable judgment by a court of competent jurisdiction.
(d) The parties hereto agree that, for purposes of valuing shares of
Parent Common Stock delivered pursuant to SECTION 9.5(c) to satisfy any
indemnification claims pursuant to SECTION 9.2 or SECTION 9.3, Parent Common
Stock shall be valued at a price per share equal to the greater of: (A) the
weighted average of the closing prices, as reported on the NYSE, of the
Parent Common Stock on the twenty (20) trading days prior to the date on
which the stock certificates for the Parent Common Stock are to be delivered
pursuant to clause (ii) of SECTION 9.5(c), or (B) $5.50.
(e) No claim for indemnification pursuant to SECTION 9.1 shall be made
unless asserted by a written notice given to the Representative on or before
the Report Date.
9.6 THE REPRESENTATIVE.
(a) Big Stuff and the Big Stuff Shareholders hereby authorize, direct
and appoint Reid to act as sole and exclusive agent, attorney-in-fact and
representative of the Big Stuff Shareholders (THE "REPRESENTATIVE"), and
authorizes and directs the Representative to (i) take any and all actions
(including without limitation executing and delivering any documents,
incurring any costs and expenses for the account of the Big Stuff
Shareholders (which will constitute Damages incurred or suffered by Parent
within the meaning of SECTION 9.1(a) hereof) and making any and all
determinations) which may be required or permitted by this Restated
Agreement to be taken by the Big Stuff Shareholders or the Representative,
(ii) exercise such other rights, power and authority as are authorized,
delegated and granted to the Representative hereunder in connection
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with the transactions contemplated hereby and (iii) exercise such rights,
power and authority as are incidental to the foregoing. Any such actions
taken, exercises of rights, power or authority, and any decision or
determination made by the Representative consistent therewith, shall be
absolutely and irrevocably binding on each indemnifying party as if such
indemnifying party personally had taken such action, exercised such rights,
power or authority or made such decision or determination in such
indemnifying party's individual capacity. Notwithstanding any other
provision of this Restated Agreement, if the Closing occurs, then with
respect to the matters covered by ARTICLE IX, (i) each of the Big Stuff
Shareholders irrevocably relinquishes such Big Stuff Shareholder's right to
act independently and other than through the Representative, except with
respect to the removal of the Representative or appointment of a successor
Representative as provided in SECTION 9.6(b) below, and (ii) no Big Stuff
Shareholders shall have any right under this Restated Agreement or otherwise
to institute any suit, action or proceeding against Big Stuff or Parent with
respect to any such matter, any such right being irrevocably and exclusively
delegated to the Representative. The Representative hereby acknowledges and
accepts the foregoing authorization and appointment and agrees to serve as
the Representative in accordance with this Restated Agreement.
(b) The Representative shall serve as Representative until his
resignation, removal from office, incapacity or death; provided, however,
that the Representative shall not have the right to resign without
(i) prior written notice to the Big Stuff Shareholders, and (ii) picking a
successor reasonably satisfactory to Parent to serve until a successor
thereto is elected by the Big Stuff Shareholders. The Representative may be
removed at any time, and a successor representative, reasonably satisfactory
to Parent, may be appointed, pursuant to written action by Big Stuff
Shareholders. Any successor to the Representative shall, for purposes of
this Restated Agreement, be deemed to be, from the time of the appointment
thereof in accordance with the terms hereof, the Representative, and from
and after such time, the term "REPRESENTATIVE" as used herein and therein
shall be deemed to refer to such successor. No appointment of a successor
shall be effective unless such successor agrees in writing to be bound by
the terms of this Restated Agreement.
(c) The Representative shall be permitted to retain counsel, consultants
and other advisors and shall promptly notify Parent after retaining any such
Person.
(d) The provisions of this SECTION 9.6 shall in no way impose any
obligations on Parent (other than those set forth in paragraph (c) above).
In particular, notwithstanding any notice received by Parent to the contrary
(except any notice of the appointment of a successor Representative approved
by Parent in accordance with paragraph (b) of this SECTION 9.6), Parent
shall be entitled to assume that all actions, decisions and determinations
of the Representative are fully authorized by the Big Stuff Shareholders.
(e) The Representative shall not be liable to the Big Stuff Shareholders
for the performance of any act or the failure to act so long as he acted or
failed to act in good faith in what he reasonably believed to be the scope
of his authority and for a purpose which he reasonably believed to be in the
best interests of the Big Stuff Shareholders.
9.7 INDEMNIFICATION BY THE PARENT.
(a) INDEMNITY. If the Closing has occurred, subject to the terms and
conditions of this SECTION 9.7, Parent shall indemnify the Big Stuff
Shareholders from and in respect of all, and hold the Big Stuff Shareholders
harmless against, any and all damages, fines, penalties, losses,
liabilities, judgments and deficiencies (including without limitation
amounts paid in settlement and interest) ("BIG STUFF SHAREHOLDER DAMAGES")
resulting from, relating to or in connection with any misrepresentation or
breach of warranty of the Parent contained in this Restated Agreement.
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(b) SURVIVAL. The representations and warranties of Parent set forth
in this Restated Agreement shall survive the Closing and shall continue
until the Report Date. The representations and warranties shall not be
affected by any examination made for or on behalf of Big Stuff or Big Stuff
Shareholders or the knowledge of any of Big Stuff's officers, directors,
stockholders, employees or agents, except that the representations and
warranties are qualified by the matters disclosed in the Disclosure
Schedules to the representations and warranties of the Parent contained in
ARTICLE III hereof, and Big Stuff agrees that Big Stuff has knowledge of
such matters. Notwithstanding anything to the contrary herein, if a claim
for indemnification is made before the expiration of the periods of survival
set forth above in this SECTION 9.7, then (notwithstanding the expiration of
such time period) the representation or warranty applicable to such claim
shall survive until, but only for purposes of, the resolution of such claim.
(c) LIMITATIONS. Parent shall not be liable under this SECTION 9.7
unless and until the aggregate amount of Big Stuff Shareholder Damages
incurred or suffered by the Big Stuff Shareholders exceeds $100,000 (at
which point Parent shall become liable for the entire amount of Big Stuff
Shareholder Damages in excess of $75,000). Furthermore, the liability of
Parent under this SECTION 9.7 shall be $400,000. No claim for
indemnification pursuant to SECTION 9.7 shall be made unless asserted by a
written notice given to Parent on or before the Report Date.
ARTICLE X--MUTUAL RELEASE
10.1 MUTUAL RELEASE OF ALL CLAIMS.
(a) Parent, for itself and for all of its stockholders, directors,
officers, agents, employees, representatives, divisions, subsidiaries,
affiliates, insurers, successors and assigns, hereby releases, remises,
acquits and forever discharges Big Stuff and the Big Stuff Shareholders, and
each of them and each of their respective stockholders, directors, officers,
agents, employees, representatives, divisions, parents, subsidiaries,
affiliates, insurers, successors and assigns, of and from any and all manner
of claims, actions, causes of action, suits, debts, dues, accounts,
contracts, agreements, continuing obligations, judgments, claims and demands
whatsoever, whether in law or in equity, which now exist or may hereafter
arise from any matter, fact, circumstance, happening or thing whatsoever
occurring or failing to occur in connection with the negotiation, execution
and performance of their respective obligations under the June 3 Big Stuff
Agreement.
(b) Big Stuff and the Big Stuff Shareholders, each for itself and for
all of their respective stockholders, directors, officers, agents,
employees, representatives, divisions, subsidiaries, affiliates, insurers,
successors and assigns, hereby releases, remises, acquits and forever
discharges Parent and its stockholders, directors, officers, agents,
employees, representatives, divisions, parents, subsidiaries, affiliates,
insurers, successors and assigns, of and from any and all manner of claims,
actions, causes of action, suits, debts, dues, accounts, contracts,
agreements, continuing obligations, judgments, claims and demands
whatsoever, whether in law or in equity, which now exist or may hereafter
arise from any matter, fact, circumstance, happening or thing whatsoever
occurring or failing to occur in connection with the negotiation, execution
and performance of its obligations under the June 3 Big Stuff Agreement.
(c) Parent and each of Big Stuff and the Big Stuff Shareholders hereby
represent, warrant and acknowledge that the mutual covenants and agreements
in this ARTICLE X are made in good faith.
10.2 COVENANT NOT TO SUE.
(a) Parent hereby agrees that it will not institute any action against
Big Stuff and the Big Stuff Shareholders arising out of the June 3 Big Stuff
Agreement, including, but not limited to, any claim for contractual
indemnity or implied indemnity.
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<PAGE>
(b) Each of Big Stuff and the Big Stuff Shareholders hereby agrees that
it will not institute any action against Parent arising out of the June 3
Big Stuff Agreement, including, but not limited to, any claim for
contractual indemnity or implied indemnity.
10.3 NO ADMISSION OF LIABILITY. None of Parent, Big Stuff or the Big Stuff
Shareholders admits liability to any other party hereto and, in fact, each of
Parent, Big Stuff and the Big Stuff Shareholders denies any liability relating
to the June 3 Big Stuff YP Agreement.
ARTICLE XI--AMENDMENT AND WAIVER
11.1 AMENDMENT OF THIS RESTATED AGREEMENT. Prior to Parent stockholder
approval and except as is otherwise required by Applicable Law, this Restated
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. Following
receipt of approval by the Parent shareholders, the parties hereto acknowledge
and agree that this Restated Agreement may be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto; PROVIDED, HOWEVER, that any such amendment shall not have a material
adverse effect upon Parent.
11.2 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Acquisition Subsidiary, on the one hand, and Big Stuff and the Big Stuff
Shareholders, on the other, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made by such
other party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party; PROVIDED, HOWEVER, that an extension
pursuant to SECTION 1.2(b) hereof need not be set forth in writing in order to
be effective, unless such extension is to a date after March 1, 2000.
ARTICLE XII--GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent, to:
Advanced Communications Group, Inc.
390 South Woods Mill Road, Suite 150
St. Louis, Missouri 63017
Attn: Mr. Richard O'Neal
Facsimile: (314) 205-8141
with a copy to:
Blackwell Sanders Peper Martin LLP
720 Olive Street, Suite 2400
St. Louis, Missouri 63101-4834
Attn: Mr. Craig A. Adoor
Facsimile: (314) 345-6060
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(b) if to Big Stuff and Big Stuff Shareholders, to:
Big Stuff, Inc.
4515 South Georgia, Suite 118
Amarillo, Texas 79102
Attn: Mr. Richard L. Reid
Facsimile: (806) 354-2974
with a copy to:
Steinhart & Falconer
333 Market Street
32(nd) Floor
San Francisco, California 94105-2150
Attn: Mr. Robb A. Scott
Facsimile: (415) 442-0856
12.2 INTERPRETATION. The words "INCLUDE," "INCLUDES" and "INCLUDING" when
used herein shall be deemed in each case to be followed by the words "without
limitation". The table of contents and headings contained in this Restated
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Restated Agreement. All Disclosure Schedules
to this Restated Agreement constitute a part of this Restated Agreement as if
set forth in full herein and are incorporated herein.
12.3 COUNTERPARTS. This Restated Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
12.4 ENTIRE AGREEMENT; ASSIGNMENT. Subject to its becoming effective in
accordance with SECTION 1.2 hereof, this Restated Agreement (including, but not
limited to, the Recitals hereto), the Disclosure Schedules hereto, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof including, but not limited to, (A) the June 3 Big Stuff
Agreement; and (B) the Letter of Intent dated April 11, 1999 by and among the
Parent, the Company, Big Stuff, Web and O'Neal and the Confidentiality Agreement
dated April 11, 1999 by and among Parent, the Company, Big Stuff, Web and
O'Neal; (ii) are not intended to confer upon any Person not a party hereto any
rights or remedies hereunder except that the Representative shall have the
express rights articulated in ARTICLE IX; and (iii) shall not be assigned by
operation of law or otherwise, except that Parent may assign its rights and
delegate its obligations hereunder to its affiliates, provided that Parent shall
remain liable hereunder.
12.5 SEVERABILITY. In the event that any provision of this Restated
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Restated Agreement will continue in full force and effect and the
application of such provision to other Persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto so long
as consideration of the Restated Agreement is not materially affected for any
party hereof. The parties further agree to replace such void or unenforceable
provision of this Restated Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of such void or unenforceable provision.
12.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy
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<PAGE>
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
12.7 GOVERNING LAW. This Restated Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within the State of California, City and
County of San Francisco, in connection with any matter based upon or arising out
of this Restated Agreement or the matters contemplated herein, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California, City and County of San Francisco for such Persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
12.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Restated
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
ARTICLE XIII--DEFINITIONS
13.1 DEFINITIONS.
"Acquisition Subsidiary" shall have the meaning ascribed to it in the
preamble hereto.
"Active Parent Subsidiaries" shall mean Feist; FirsTel; Value; Great Western
Directories, Inc.; Telecom Resources, Inc.; the Switchboard of Oklahoma
City, Inc.; Long Distance Management of Kansas, Inc.; Long Distance Management
II, Inc.; and National Telecom, a proprietorship.
"Affiliate Agreements" shall have the meaning set forth in SECTION 4.8
hereof.
"Anniversary Date" shall mean the first anniversary of the Closing Date.
"Associates" shall mean affiliates of any Person (including, without
limitation, directors, officers, employees, agents, representatives and
shareholders or any affiliates or associates thereof).
"Benefit Plan" shall have the meaning ascribed to such term in SECTION 2.14
hereof.
"Big Stuff" shall have the meaning ascribed to such term in the preamble
hereto.
"Big Stuff Common Stock" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Big Stuff Financial Statements" shall have the meaning ascribed to such
term in SECTION 2.8 hereof.
"Big Stuff Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Big Stuff taken as a whole,
(ii) the ability of Big Stuff to perform its obligations set forth in this
Restated Agreement and the Big Stuff Transaction Agreements, or (iii) the
ability of Big Stuff or the Big Stuff Shareholders to timely consummate the
transactions contemplated by this Restated Agreement and the Big Stuff
Transaction Agreements.
"Big Stuff Material Contract" shall have the meaning ascribed to such term
in SECTION 2.13 hereof.
"Big Stuff Modified Representations" shall have the meaning ascribed to such
term in SECTION 7.3(a)(i) hereof.
"Big Stuff Nonmodified Representations" shall have the meaning ascribed to
such term in SECTION 7.3(a)(i) hereof.
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"Big Stuff Permits" shall have the meaning ascribed to such term in
SECTION 2.11 hereof.
"Big Stuff Real Property Leases" shall have the meaning ascribed to such
term in SECTION 2.19(b) hereof.
"Big Stuff Shares" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Big Stuff Shareholders" shall have the meaning ascribed to such term in the
preamble hereto.
"Big Stuff Shareholder Damages" shall have the meaning ascribed to such term
in SECTION 9.7(a) hereof.
"Big Stuff Stock" shall have the meaning set forth in SECTION 2.2 hereof.
"Big Stuff Transaction Agreements" shall have the meaning ascribed to such
term in SECTION 2.4 hereof.
"Certificate of Merger" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Certificates" shall mean the certificates which, prior to the Merger,
represented the Big Stuff Shares, and shall include a certificate issued upon
due execution and delivery of an affidavit of loss and a bond, if required by
Parent, in the event that a Big Stuff Shareholder is unable to produce and
deliver, at the Closing, the original certificate which prior to the Merger,
represented any Big Stuff Shares.
"Claim Notice" shall have the meaning ascribed to such term in
Section 9.2(a) hereof.
"Claimed Amount" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Class A Special Shares" shall have the meaning set forth in the Restated
Company Agreement.
"CLEC Operations" shall mean Feist, FirsTel, Valu, and such other non-yellow
pages operating subsidiaries or operations of Parent as shall be determined by
the Board of Directors of Parent.
"Closing" shall mean the closing of the Merger.
"Closing Date" shall mean the date on which the Closing actually occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
Treasury regulations thereunder.
"Company" shall have the meaning set forth in Recital E hereto.
"Company Shareholders" shall have the meaning set forth in Recital E hereto.
"Consent" shall have the meaning ascribed to such term in SECTION 2.5
hereof.
"Conversion Stock" shall have the meaning ascribed to such term in
SECTION 4.9 hereof.
"Convertible Note" shall have the meaning ascribed to such term in
SECTION 1.10 hereof.
"Corporation Laws" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Damages" shall have the meaning ascribed to such term in SECTION 9.1(a)
hereof.
"Defense Notice" shall have the meaning ascribed to such term in
SECTION 9.3(a) hereof.
"Disclosure Schedules" shall mean, collectively, that information required
to be delivered by Big Stuff to Parent, and by Parent to Big Stuff, pursuant to
this Restated Agreement.
"Effective Time" shall have the meaning ascribed to such term in
SECTION 1.2 hereof.
"Enforceability Exceptions" shall have the meaning ascribed to such term in
SECTION 2.4 hereof.
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"Environmental Laws" shall have the meaning ascribed to such term in
SECTION 2.17 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations thereunder.
"Event" shall mean any event, occurrence, fact, condition, change,
development or effect.
"Exchange Ratio" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Extraordinary Transactions" shall have the meaning ascribed to such term in
SECTION 6.7 hereof.
"Feist" shall mean Feist Long Distance Service, Inc.
"Final Order", with respect to any Consent of a Governmental Authority,
shall mean an action by the appropriate Governmental Authority as to which:
(i) no request for stay by such Governmental Authority of the action is pending,
no such stay is in effect, and, if any deadline for filing any such request is
designated by statute or regulation, it has passed; (ii) no petition for
rehearing or reconsideration of the action is pending before such Governmental
Authority, and no appeal or comparable administrative remedy is pending before
such Governmental Authority, and the time for filing any such petition, appeal
or administrative remedy has passed; (iii) such Governmental Authority does not
have the action under reconsideration on its own motion and the time for such
reconsideration has passed; and (iv) no appeal to a court, or request for stay
by a court, of the Governmental Authority action is pending or in effect, and if
any deadline for filing any such appeal or request is designated by statute or
rule, it has passed.
"FirsTel" shall mean FirsTel, Inc.
"Governmental Authority" shall mean a nation or government, any state or
other political subdivision thereof, any Person, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government including, without limitation, any governmental or
regulatory authority, agency, department, board, commission or instrumentality,
any court, tribunal or arbitrator and any self-regulatory organization.
"Great Western Credit Agreement" shall mean the Loan Agreement dated as of
May 14, 1999, by and among Great Western Directories, Inc., the lenders
signatories thereto, and Bank of America National Trust and Savings Association
as Administrative Agent.
"Great Western Notes" shall have the meaning ascribed to such term in
Recital E hereto.
"Great Western Shareholders" shall have the meaning ascribed to such term in
Recital E hereto.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"ICL" shall have the meaning ascribed to such term in Recital E hereto.
"Indemnifiable Claim" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Indemnitees" shall have the meaning ascribed to such term in
SECTION 9.1(a) hereof.
"Intellectual Property" shall have the meaning ascribed to such term in
SECTION 2.18 hereof.
"IP Claim Notice" shall have the meaning ascribed to such term in
SECTION 2.18 hereof.
"IRS" shall mean the United States Internal Revenue Service, or any
successor thereto.
"June 3 Big Stuff Agreement" shall have the meaning ascribed to such term in
SECTION 1.2(a) hereof.
"Law" shall mean applicable provision of any constitution, treaty, statute,
law, code, rule, regulation, ordinance, policy or order of any Governmental
Authority or other matters having the force
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of law including, but not limited to, any orders, decisions, injunctions,
judgments, awards and decrees of or agreements with any court or other
Governmental Authority.
"Letter of Transmittal" shall have the meaning ascribed to such term in
SECTION 1.5 hereof.
"Litigation" shall have the meaning ascribed to such term in SECTION 2.7
hereof.
"Merger" shall have the meaning ascribed to such term in Recital B hereto.
"Merger Consideration" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Multi-employer Plan" shall have the meaning ascribed to such term in
SECTION 2.14 hereof.
"NYSE" shall mean the New York Stock Exchange, Inc.
"O'Neal" shall have the meaning ascribed to such term in the preamble
hereto.
"Parent" shall have the meaning ascribed to such term in the Preamble
hereto.
"Parent Common Stock" shall have the meaning ascribed to such term in
SECTION 1.3 hereof.
"Parent Financial Statements" shall have the meaning ascribed to such term
in SECTION 3.8 hereof.
"Parent Guaranty" shall mean that certain Guaranty of Parent given pursuant
to the Great Western Credit Agreement.
"Parent Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of Parent and the Active Parent
Subsidiaries taken as a whole, (ii) the ability of Parent to perform its
obligations set forth in this Restated Agreement and the Parent Transaction
Agreements, or (iii) the ability of Parent to timely consummate the transactions
contemplated by this Restated Agreement and the Parent Transaction Agreements.
"Parent Material Contract" shall have the meaning ascribed to such term in
SECTION 3.13 hereof.
"Parent Modified Representations" shall have the meaning ascribed to such
term in SECTION 7.2(a)(i) hereof.
"Parent Nonmodified Representation" shall have the meaning ascribed to such
term in SECTION 7.2(a)(i) hereof.
"Parent Permits" shall have the meaning ascribed to such term in
SECTION 3.11 hereof.
"Parent Securities Filings" shall have the meaning ascribed to such term in
SECTION 3.7 hereof.
"Parent Series A Stock "shall have the meaning ascribed to such term in
SECTION 3.2 hereof.
"Parent Transaction Agreements" shall have the meaning ascribed to such term
in SECTION 3.4 hereof.
"Person" shall mean and include an individual, corporation, partnership,
association, trust or other entity or organization, including a Governmental
Authority.
"Registration Statements" shall have the meaning ascribed to such term in
SECTION 6.1(b) hereof.
"Reid" shall have the meaning ascribed to such term in the preamble hereto.
"Report Date" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Representative" shall have the meaning ascribed to such term in
SECTION 9.6 hereof.
"Resignations" shall have the meaning ascribed to such term in SECTION 6.8
hereof.
"Restated Agreement" shall have the meaning ascribed to it in the preamble
hereto.
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"Restated Company Agreement" shall have the meaning set forth in Recital E
hereto.
"Restated Web Agreement" shall mean that certain Amended and Restated
Acquisition Agreement dated as of October 26, 1999, among the Parent, ACG
Acquisition VII Corp., Web and the Web shareholders.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
"Surviving Corporation" shall have the meaning ascribed to such term in
SECTION 1.1 hereof.
"Surviving Corporation Common Stock" shall have the meaning ascribed to such
term in SECTION 1.3 hereof.
"Surviving Corporation Material Adverse Effect" shall mean a material
adverse effect on (i) the business, assets, condition (financial or otherwise),
properties, liabilities or the results of operations of the Surviving
Corporation, or (ii) the ability to timely consummate the transactions
contemplated by this Restated Agreement.
"Tax" shall have the meaning ascribed to such term in SECTION 2.15(a)
hereof.
"Tax Claim" shall have the meaning ascribed to such term in SECTION 9.3(b)
hereof.
"Third-Party Claim" shall have the meaning ascribed to such term in
SECTION 9.2(a) hereof.
"Transaction Expenses" shall have the meaning ascribed to such term in
SECTION 5.9 hereof.
"Valu" shall mean, collectively, Valu-line of Louisiana, Inc. and Valu-line
of Longview, Inc.
"Web" shall have the meaning ascribed to such term in Recital E hereto.
"WorldPages" shall have the meaning ascribed to such term in Recital E
hereto.
"Year 2000 Compliant" shall have the meaning ascribed to such term in
SECTION 2.27 hereof.
[SIGNATURES ON FOLLOWING PAGE]
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[Signature pages to the Amended and Restated Big Stuff Acquisition Agreement]
IN WITNESS WHEREOF, Parent, the Acquisition Subsidiary, Big Stuff and the
Big Stuff Shareholders have caused this Restated Agreement to be signed by their
duly authorized respective officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
ADVANCED COMMUNICATIONS GROUP, INC.
By: /s/ MICHAEL PRUSS
-----------------------------------------
Name: Michael Pruss
Title: Chief Financial Officer and
Secretary
ACG ACQUISITION VI CORP.
By: /s/ MICHAEL PRUSS
-----------------------------------------
Name: Michael Pruss Title: Secretary
BIG STUFF, INC.
By: /s/ RICHARD L. REID
-----------------------------------------
Title: CEO
/s/ RICHARD O'NEAL
-----------------------------------------
RICHARD O'NEAL
/s/ RICHARD L. REID
-----------------------------------------
RICHARD L. REID
</TABLE>
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ANNEX D
D-i
<PAGE>
INVESTMENT BANKING DIVISION
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
<TABLE>
<CAPTION>
<S> <C>
October 26, 1999
[LOGO]
</TABLE>
Confidential
Board of Directors
Advanced Communications Group, Inc.
390 South Woods Mill Road, Suite 150
St. Louis, MO 63017
Ladies and Gentlemen:
Advanced Communications Group, Inc. (the "Company"), along with subsidiaries
formed for such purpose, has entered into separate amended and restated
agreements (each, an "Amended Agreement") with each of YPtel Corporation
("YPtel"), Web YP, Inc. ("Web YP") and Big Stuff, Inc. ("Big Stuff" and,
together with YPtel and Web YP, the "Subject Companies") and their respective
stockholders. Pursuant to the Amended Agreements, at the Closing Date (as
defined in the Amended Agreements), the Company, directly or indirectly, through
merger or acquisition, will acquire all of the shares of common stock of the
Subject Companies issued and outstanding immediately prior to the Closing Date
(the "Acquisitions") in exchange for, in the aggregate, 19,545,454 shares of
capital stock of the Company, comprised of shares of common stock, $.0001 par
value, of the Company ("Company Common Stock") and shares of capital stock of
the Company exchangeable for Company Common Stock. In connection with the
Acquisitions, the Company also has entered into agreements (the "Redemption
Agreements") with the holders (the "Noteholders") of its $15 million principal
amount of 5% Subordinated Notes (the "Notes") pursuant to which the Company
shall redeem the Notes (the "Note Redemption") at the Closing Date in exchange
for 2,727,273 shares of Company Common Stock based on a value of $5.50 per
share. The Acquisitions and the Note Redemption are collectively referred to
herein as the "Transactions." The 19,545,454 shares and 2,727,273 shares of
Company Common Stock to be issued in connection with the Acquisitions and the
Note Redemption, respectively, together with the 1,198,864 Additional Shares (as
defined herein), are collectively referred to herein as the "Consideration." The
consummation of each of the Transactions is conditioned upon the concurrent
closing of all of the other Transactions. The Transactions are expected to be
considered by the stockholders of the Company and voted on as one transaction at
the annual meeting of the stockholders and consummated shortly thereafter.
You have asked us whether or not, in our opinion, the proposed Consideration
to be paid, in the aggregate, by the Company pursuant to the Transactions is
fair to the Company from a financial point of view.
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In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed YPtel's Amended and Restated Preliminary Prospectus dated
February 15, 1999 which includes related pro forma financial information for
YPtel for the fiscal year ended October 31, 1998 and related audited
financial information for Pacific Coast Publishing, Inc., a wholly-owned
subsidiary of YPtel, for the three fiscal years ended October 31, 1998, and
YPtel's internal, unaudited income statement, cash flow statement and
balance sheet for the eight months ended June 30, 1999;
(2) Reviewed Web YP's audited financial information for the fiscal year ended
December 31, 1998 and internal, unaudited income statement, cash flow
statement and balance sheet for the six months ended June 30, 1999;
(3) Reviewed Big Stuff's internal, unaudited income statement, cash flow
statement and balance sheet for the three fiscal years ended December 31,
1998 and the six months ended June 30, 1999;
(4) Reviewed the 5% Subordinated Note Agreements dated February 18, 1998;
(5) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended December 31, 1998, the Company's
Registration Statement on Form S-1 and related Prospectus each dated
February 12, 1998 and the Company's Form 10-Q and the related unaudited
financial information for the six months ended June 30, 1999;
(6) Reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of the Subject Companies
individually and the Company, furnished to us by the Subject Companies and
the Company, respectively, as well as a consolidated financial forecast of
the Subject Companies and the Company on a combined basis, relating to the
business, earnings, cash flow, assets and prospects of the Subject Companies
and the Company on a combined basis, furnished to us jointly by the Subject
Companies and the Company;
(7) Conducted discussions with members of senior management of each of the
Subject Companies and the Company concerning their respective businesses and
prospects;
(8) Reviewed the historical market prices and trading activity for the Company
Common Stock and compared them with those of certain publicly traded
companies which we deemed to be relevant;
(9) Compared the results of operations of the Subject Companies and the Company
with those of certain companies which we deemed to be relevant;
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<PAGE>
(10) Compared the proposed financial terms of the transactions contemplated by
the Amended Agreements with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(11) Considered the pro forma effect of the Transactions on the Company's
earnings, cash flow and capitalization;
(12) Reviewed draft Amended Agreements relating to YPtel, Web YP and Big Stuff
available as of October 20, 1999, and the Redemption Agreements each dated
as of June 3, 1999; and
(13) Reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as we deemed
necessary, including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by each of the
Subject Companies and the Company, and we have not assumed any responsibility to
independently verify such information. With respect to the financial forecasts
examined by us, we have assumed that they were reasonably prepared and reflect
the best currently available estimates and good faith judgments of the
respective managements of each of the Subject Companies and the Company as to
the future performance of the respective companies. We have also relied upon
assurances of the respective managements of the Subject Companies and the
Company that they are unaware of any facts that would make the information or
financial forecasts provided to us incomplete or misleading. We have not made
any independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Subject Companies and the Company or of the Notes nor have
we been furnished with any such evaluations or appraisals. We also limited, with
your consent, our analysis to information furnished to us on or prior to
October 20, 1999. We have also assumed with your consent that (i) the
Acquisitions will be accounted for under the purchase method of accounting,
(ii) the Acquisitions will be tax free reorganizations to the Company and
(iii) any material liabilities (contingent or otherwise, known or unknown) of
the Subject Companies and the Company are as set forth in the financial
information provided by such companies. In addition, you have instructed us to
assume that (i) the accrued interest on the Notes at the Closing Date will be
$593,750, resulting in the issuance, pursuant to the terms of the Redemption
Agreements, of 107,955 additional shares of Company Common Stock to the
Noteholders at the Closing Date; and (ii) Web YP and/or Big Stuff will receive
additional cash loans from their existing stockholders of an aggregate of
$6,000,000 from January 1, 1999, to the Closing Date, resulting in the issuance,
pursuant to the terms of the Amended Agreements relating to the acquisitions of
Web YP and Big Stuff, of 1,090,909 additional shares of Company Common Stock to
such stockholders upon conversion of such loans by such stockholders on the
Closing Date. The 1,198,864 total additional shares of Company Common Stock in
the preceding sentence are herein referred to as the "Additional Shares." No
opinion is expressed herein as to the price at which the Company Common Stock
may trade at any time. Our opinion is based on economic, monetary and market
conditions existing as of October 20, 1999.
D-3
<PAGE>
This opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote on the Transactions and does not address the
relative merits of the Transactions and any other transactions or business
strategies discussed by the Board of Directors of the Company as alternatives to
the Transactions or the decision of the Board of Directors of the Company to
proceed with the Transactions. No opinion is expressed herein as to any
Acquisition or the Note Redemption taken individually.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Transactions and will be receiving a fee in
connection with the rendering of this opinion and upon consummation of the
Transactions. In the past, PaineWebber Incorporated and its affiliates have
provided investment banking and other financial services to the Company and have
received fees for rendering these services.
On the basis of and subject to the foregoing, we are of the opinion that the
proposed Consideration to be paid, in the aggregate, by the Company pursuant to
the Transactions is fair to the Company from a financial point of view.
This opinion has been prepared for the information of the Board of Directors
of the Company in connection with the Transactions and shall not be reproduced,
summarized, described or referred to, provided to any person or otherwise made
public or used for any other purpose without the prior written consent of
PaineWebber Incorporated, provided, however, that this letter may be reproduced
in full in the Proxy Statement related to the Transactions.
Very truly yours,
[SIG]
PAINEWEBBER INCORPORATED
D-4
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS ON WEDNESDAY, FEBRUARY 16, 2000
The undersigned hereby appoints Michael A. Pruss and David Gould,
and each of them, with power of substitution, as proxies of the undersigned,
to attend the Special Meeting of Stockholders of ADVANCED COMMUNICATIONS
GROUP, INC. (the "Company"), to be held at the Company's Corporate Offices
located at 390 S. Woods Mill Road, Suite 260, St. Louis, Missouri 63017, on
Wednesday, February 16, 2000, at 10:00 a.m. local time, and all adjournments
thereof, and to vote, as indicated below, the shares of common stock of the
Company which the undersigned is entitled to vote with all the powers the
undersigned would possess if present at the meeting.
Please date and sign on the reverse side and mail promptly in the enclosed
envelope.
1. ELECTION OF DIRECTORS: Todd J. Feist,
Richard O'Neal
FOR WITHHOLD
/ / / /
(INSTRUCTION: to withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
_____________________________________________
2. Adoption of the change in the business focus, strategy and direction of
Advanced by approving the actions described in Proposal 2 of the "Notice of
Special Meeting of Stockholders"
/ / FOR / / AGAINST / / ABSTAIN
- -------------------------------------------------------------------------------
And, conditioned upon the approval of Proposal 2,
3. Approval of the benefits accruing to Richard O'Neal, the Chairman
and Chief Executive Officer of Advanced, as described in
Proposal 3 of the "Notice of Special Meeting of Stockholders"
/ / FOR / / AGAINST / / ABSTAIN
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s). If no direction is made, this proxy
will be voted FOR the election of the nominees listed and FOR Proposal 2 and
FOR Proposal 3.
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Date: _________________, 2000
_____________________________
(Signature)
_____________________________
(Signature if held jointly)
NOTE: Please sign exactly as named or names appears hereon. When shares are
held be joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<PAGE>
ADVANCED COMMUNICATIONS GROUP, INC.
THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS ON
WEDNESDAY, FEBRUARY 16, 2000
The undersigned hereby directs the Trustee of the Advanced
Communications Group, Inc. 401(k) Retirement Savings Plan (the "Plan") to
authorize the proxies (a) to vote as indicated on the reverse side of this
form and (b) to vote, in their discretion, upon such other business as may
properly come before the meeting hereinafter described, in each case with
respect to all of the shares of stock for which the undersigned is entitled
to direct the voting under the Plan. Such votes are to be cast at the Special
Meeting of Stockholders of Advanced Communications Group, Inc. (the
"Company") to be held at the Company's Corporate Offices located at 390 S.
Woods Mill Road, Suite 260, St. Louis, Missouri 63017 on Wednesday, February
16, 2000, at 10:00 a.m., local time, and at any adjournments thereof.
WHEN PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED BY THIS
VOTING INSTRUCTION CARD WILL BE VOTED IN THE MANNER INDICATED BY THE PLAN
PARTICIPANT, AND IN THE ABSENCE OF SUCH INDICATION, SUCH SHARES WILL BE VOTED
FOR THE ELECTION OF DIRECTORS IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
Please date and sign on the reverse side and mail promptly in the enclosed
envelope.
-TRIANGLE- FOLD AND DETACH HERE -TRIANGLE-
To Participants in the Advanced Retirement Savings Plan:
Enclosed with this voting instruction form are the notice and proxy
statement for the Special Meeting of Stockholders of Advanced Communications
Group, Inc., which will be held on Wednesday, February 16, 2000. The number
of shares shown on this voting instruction form represents the number of
shares with respect to which you are entitled to direct the voting because of
your account in the Advanced Communications Group, Inc. 401(k) Retirement
Savings Plan (the "Plan"). In order for these shares to be voted by the
trustee of the Plan in accordance with your confidential instructions, PW
Trust Company must receive your voting instructions by not later than
February 10, 2000. If your voting instructions are not received by February
10, 2000, shares as to which you are entitled to direct voting will be voted
by the Plan trustee as described in the following paragraph.
Your interest in the Plan that is invested in the Advanced Communications
Group, Inc. common stock fund is measured in terms of units. Your units
closely approximate the number of shares as to which you are entitled to
direct the voting. If you do not provide voting instructions, the trustee for
the Plan will vote shares you are entitled to vote in the same proportion as
the shares for which Plan participants have provided voting instructions,
unless doing so would be inconsistent with the trustee's duties. Keep in
mind that you will not be able to vote any Plan shares at the meeting, only
the Plan trustee can vote these shares as described above.
Number of shares ______________ _____________________________
Signature of Plan Participant
Date:__________
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS VOTING INSTRUCTION CARD IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
Please mark
your votes
like this /X/
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all proxies heretofore given by the
undersigned for said meeting. The proxy may be revoked prior to its exercise.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS - FOR all nominees WITHHOLD AUTHORITY to vote
listed below (except for all nominees
as marked to the listed below
contrary below)
/ / / /
01 Todd J. Feist
02 Richard O'Neal
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------
2. Adoption of the change in the business focus, strategy and direction
of Advanced by approving the actions described in Proposal 2 of the
"Notice of Special Meeting of Stockholders"
/ / FOR / / AGAINST / / ABSTAIN
And, conditioned on the approval of Proposal 2,
3. Approval of the benefits accruing to Richard O'Neal, the Chairman
and Chief Executive Officer of Advanced, as described in
Proposal 3 of the "Notice of Special Meeting of Stockholders."
/ / FOR / / AGAINST / / ABSTAIN
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s). If no direction is made, this proxy
will be voted FOR the election of the nominees listed and FOR Proposal 2 and
FOR Proposal 3.
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
---------------------------------------
COMPANY NUMBER:
---------------------------------------
PROXY NUMBER:
---------------------------------------
ACCOUNT NUMBER:
---------------------------------------
SIGNATURE
------------------------------------------
SIGNATURE IF HELD JOINTLY
--------------------------
DATE: ------------------------------------------
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEARS HEREON. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
- ------------------------------------------------------------------------------
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
