<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )*
---------
PHOENIX NETWORK, INC.
- -------------------------------------------------------------------------------
(Name of Issuer)
PHOENIX NETWORK, INC. COMMON STOCK
- -------------------------------------------------------------------------------
(Title of Class of Securities)
718910 10 2
- -------------------------------------------------------------------------------
(CUSIP Number)
JUDY VAN ESSEN, 1559 GENESEE VISTA, GOLDEN, CO, 80401; (303) 526-1653
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
1/16/96
- -------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with the statement / /. (A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class
of securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 718910 10 2 Page 2 of 7 Pages
----------- --- ---
- -------------------------------------------------------------------------------
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JUDY VAN ESSEN
- -------------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER (a) / /
OF A GROUP* (b) / /
N/A
- -------------------------------------------------------------------------------
(3) SEC USE ONLY
- -------------------------------------------------------------------------------
(4) SOURCE OF FUNDS*
00
- -------------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO / /
ITEMS 2(d) or 2(e)
- -------------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
- -------------------------------------------------------------------------------
NUMBER OF SHARES
BENEFICIALLY OWNED --------------------------------------------------
BY EACH REPORTING (7) SOLE VOTING POWER
PERSON WITH
2,800,000 SHARES
--------------------------------------------------
(8) SHARED VOTING POWER
N/A
--------------------------------------------------
(9) SOLE DISPOSITIVE POWER
2,800,000 SHARES
--------------------------------------------------
(10) SHARED DISPOSITIVE POWER
N/A
- -------------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,800,000 SHARES
- -------------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- -------------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.4%
- -------------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
2 of 7
<PAGE>
INSTRUCTIONS FOR COVER PAGE
(1) NAMES AND SOCIAL SECURITY NUMBERS OF REPORTING PERSONS -- Furnish the full
legal name of each person for whom the report is filed -- i.e., each
person required to sign the schedule itself -- including each member of a
group. Do not include the name of a person required to be identified in
the report but who is not a reporting person. Reporting persons are also
requested to furnish their Social Security or I.R.S. identification
numbers, although disclosure of such numbers is voluntary, not mandatory
(see "Special Instructions for Complying with Schedule 13D" below).
(2) If any of the shares beneficially owned by a reporting person are held
as a member of a group and such membership is expressly affirmed, please
check row 2(a). If the membership in a group is disclaimed or the
reporting person describes a relationship with other persons but does
not affirm the existence of a group, please check row 2(b) [unless a joint
filing pursuant to Rule 13d-1(f)(1) in which case it may not be
necessary to check row 2(b)].
(3) The 3rd row is for SEC internal use: please leave blank.
(4) Classify the source of funds or other consideration used or to be used
in making purchases as required to be disclosed pursuant to Item 3 of
Schedule 13D and insert the appropriate symbol (or symbols if more than
one is necessary in row (4):
CATEGORY OF SOURCE SYMBOL
Subject Company (Company whose securities are
being acquired)........................................... SC
Bank........................................................ BK
Affiliate (of reporting person)............................. AF
Working Capital (of reporting person)....................... WC
Personal Funds (of reporting person)........................ PF
Other....................................................... OO
(5) If disclosure of legal proceedings or actions is required pursuant
to either Items 2(d) or 2(e) of Schedule 13D, row 5 should be checked.
(6) CITIZENSHIP OR PLACE OF ORGANIZATION -- Furnish citizenship if the
named reporting person is a natural person. Otherwise, furnish place
of organization. (See Item 2 of Schedule 13D)
(7) (11), (13) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON, ETC. -- Rows (7) through (11) inclusive, and (13) are to be
completed in accordance with the provisions of Item 5 of Schedule 13D.
All percentages are to be rounded off to nearest tenth (one place after
decimal point).
(12) Check if the aggregate amount reported as beneficially owned in row (11)
does not include shares which the reporting person discloses in the
report but as to which beneficial ownership is disclaimed pursuant to
Rule 13d-4 [17 CFR 240.13d-4] under the Securities Exchange Act of 1934.
(14) TYPE OF REPORTING PERSON -- Please classify each "reporting person"
according to the following breakdown and place the appropriate symbol
(or symbols, i.e., if more than one is applicable, insert all applicable
symbols) on the form:
CATEGORY SYMBOL
Broker-Dealer............................................... BD
Bank........................................................ BK
Insurance Company........................................... IC
Investment Company.......................................... IV
Investment Adviser.......................................... IA
Employee Benefit Plan, Pension Fund, or
Endowment Fund............................................ EP
Parent Holding Company...................................... HC
Corporation................................................. CO
Partnership................................................. PN
Individual.................................................. IN
Other....................................................... OO
NOTES:
Attach as many copies of the second part of the cover page as are needed,
one reporting person per page.
3 3 of 7
<PAGE>
Filing persons may, in order to avoid unnecessary duplication, answer items
on the schedules (Schedule 13D, 13G or 14D-1) by appropriate cross references
to an item or items on the cover page(s). This approach may only be used
where the cover page item or items provide all the disclosure required by the
schedule item. Moreover, such a use of a cover page item will result in the
item becoming a part of the schedule and accordingly being considered as
"filed" for purposes of Section 18 of the Securities Exchange Act or
otherwise subject to the liabilities of that section of the Act.
Reporting persons may comply with their cover page filing requirements by
filing either completed copies of the blank forms available from the
Commission, printed or typed facsimiles, or computer printed facsimiles,
provided the documents filed have identical formats to the forms prescribed
in the Commission's regulations and meet existing Securities Exchange Act
rules as to such matters as clarity and size (Securities Exchange Act Rule
12b-12).
SPECIAL INSTRUCTIONS FOR COMPLYING WITH SCHEDULE 13D
Under Sections 13(d) and 23 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder, the Commission is authorized to solicit
the information required to be supplied by this schedule by certain security
holders of certain issuers.
Disclosure of the information specified in this schedule is mandatory, except
for Social Security or I.R.S. identification numbers, disclosure of which is
voluntary. The information will be used for the primary purpose of determining
and disclosing the holdings of certain beneficial owners of certain equity
securities. This statement will be made a matter of public record. Therefore,
any information given will be available for inspection by any member of
the public.
Because of the public nature of the information, the Commission can utilize
it for a variety of purposes, including referral to other governmental
authorities or securities self-regulatory organizations for investigatory
purposes or in connection with litigation involving the federal securities
laws or other civil, criminal or regulatory statements or provisions. Social
Security or I.R.S. identification numbers, if furnished, will assist the
Commission in identifying security holders and, therefore in promptly
processing statements of beneficial ownership of securities.
Failure to disclose the information requested by this schedule, except for
Social Security or I.R.S. identification numbers may result in civil or
criminal action against the persons involved for violation of the federal
securities laws and rules promulgated thereunder.
GENERAL INSTRUCTIONS
A. The item numbers and captions of the items shall be included but the text
of the items is to be omitted. The answers to the items shall be so
prepared as to indicate clearly the coverage of the items without
referring to the text of the items. ANSWER EVERY ITEM. If an item is
inapplicable or the answer is in the negative, so state.
B. Information contained in exhibits to the statements may be incorporated
by reference in answer or partial answer to any item or sub-item of the
statement unless it would render such answer misleading, incomplete,
unclear or confusing. Matter incorporated by reference shall be clearly
identified in the reference by page, paragraph, caption or otherwise. An
express statement that the specified matter is incorporated by reference
shall be made at the particular place in the statement where the
information is required. A copy of any information or a copy of the
pertinent pages of a document containing such information which is
incorporated by reference shall be submitted with this statement as an
exhibit and shall be deemed to be filed with the Commission for all
purposes of the Act.
C. If the statement is filed by a general or limited partnership, syndicate,
or other group, the information called for by Items 2-6, inclusive, shall
be given with respect to (i) each partner of such general partnership;
(ii) each partner who is denominated as a general partner or who
functions as a general partner of such limited partnership; (iii) each
member of such syndicate or group; and (iv) each person controlling such
partner or member. If the statement is filed by a corporation or if a
person referred to in (i), (ii), (iii) or (iv) of this Instruction is a
corporation, the information called for by the above mentioned items
shall be given with respect to (a) each executive officer and director of
such corporation; (b) each person controlling such corporation; and
(c) each executive officer and director of any corporation or other
person ultimately in control of such corporation.
ITEM 1. SECURITY AND ISSUER
State the title of the class of equity securities to which this statement
relates and the name and address of the principal executive offices of the
issuer of such securities.
4 4 of 7
<PAGE>
ITEM 2. IDENTITY AND BACKGROUND
If the person filing this statement or any person enumerated in
Instruction C of this statement is a corporation, general partnership,
limited partnership, syndicate or other group of persons, state its name, the
state or other place of its organization, its principal business, the address
of its principal business, the address of its principal office and the
information required by (d) and (e) of this Item. If the person filing this
statement or any person enumerated in Instruction C is a natural person,
provide the information specified in (a) through (f) of this Item with
respect to such person(s).
(a) Name:
(b) Residence or business address:
(c) Present principal occupation or employment and the name, principal
business and address of any corporation or other organization in
which such employment is conducted;
(d) Whether or not, during the last five years, such person has been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) and, if so, give the dates, nature of
conviction, name and location of court, and penalty imposed, or
other disposition of the case;
(e) Whether or not, during the last five years, such person was a party
to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect
to such laws; and, if so, identify and describe such proceedings and
summarize the terms of such judgment, decree or final order; and
(f) Citizenship.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
State the source and the amount of funds or other consideration used or
to be used in making the purchases, and if any part of the purchase price is
or will be represented by funds or other consideration borrowed or otherwise
obtained for the purpose of acquiring, holding, trading or voting the
securities, a description of the transaction and the names of the parties
thereto. Where material, such information should also be provided with
respect to prior acquisitions not previously reported pursuant to this
regulation. If the source of all or any part of the funds is a loan made in
the ordinary course of business by a bank, as defined in Section 3(a)(6) of
the Act, the name of the bank shall not be made available to the public if
the person at the time of filing the statement so requests in writing and
files such request, naming such bank, with the Secretary of the Commission.
If the securities were acquired other than by purchase, describe the method
of acquisition.
ITEM 4. PURPOSE OF TRANSACTION
State the purpose or purposes of the acquisition of securities of the
issuer. Describe any plans or proposals which the reporting persons may have
which relate to or would result in:
(a) The acquisition by any person of additional securities of the
issuer, or the disposition of securities of the issuer;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the issuer or any of its
subsidiaries;
(c) A sale or transfer of a material amount of assets of the issuer or
any of its subsidiaries;
(d) Any change in the present board of directors or management of the
issuer, including any plans or proposals to change the number of
term of directors or to fill any existing vacancies on the board;
(e) Any material change in the present capitalization or dividend policy
of the issuer;
(f) Any other material change in the issuer's business or corporate
structure including but not limited to, if the issuer is a
registered closed-end investment company, any plans or proposals to
make any changes in its investment policy for which a vote is
required by section 13 of the Investment Company Act of 1940;
(g) Changes in the issuer's charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control
of the issuer by any person;
(h) Causing a class of securities of the issuer to be delisted from a
national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered national
securities association;
(i) A class of equity securities of the issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Act;
or
(j) Any action similar to any of those enumerated above.
5 5 of 7
<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) State the aggregate number and percentage of the class of securities
identified pursuant to Item 1 (which may be based on the number of
securities outstanding as contained in the most recently available
filing with the Commission by the issuer unless the filing person has
reason to believe such information is not current) beneficially owned
(identifying those shares which there is a right to acquire) by each
person named in Item 2. The above mentioned information should also
be furnished with respect to persons who, together with any of the
persons named in Item 2, comprise a group within the meaning of
Section 13(d)(3) of the Act;
(b) For each person named in response to paragraph (a), indicate the number
of shares as to which there is sole power to vote or to direct the
vote, shared power to vote or to direct the vote, sole power to dispose
or to direct the disposition, or shared power to dispose or to direct
the disposition. Provide the applicable information required by Item 2
with respect to each person with whom the power to vote or to direct
the vote or to dispose or direct the disposition is shared;
(c) Describe any transactions in the class of securities reported or that
were effected during the past sixty days or since the most recent
filing on Schedule 13D (Section 240.13d-191), whichever is less, by
the persons named in response to paragraph (a).
INSTRUCTION. The description of a transaction required by Item 5(c)
shall include, but not necessarily be limited to: (1) the identity of
the person covered by Item 5(c) who effected the transaction; (2) the
date of the transaction; (3) the amount of securities involved; (4) the
price per share or unit; and (5) where and how the transaction was
effected.
(d) If any other person is known to have the right to receive or the power
to direct the receipt of dividends from, or the proceeds from the
sale of, such securities, a statement to that effect should be included
in response to this item and, if such interest relates to more than
five percent of the class, such person should be identified. A listing
of the shareholders of an investment company registered under the
Investment Company Act of 1940 or the beneficiaries of an employee
benefit plan, pension fund or endowment fund is not required.
(e) If applicable, state the date on which the reporting person ceased to
be the beneficial owner of more than five percent of the class of
securities.
INSTRUCTION. For computations regarding securities which represent a
right to acquire an underlying security, see Rule 13d-3(d)(1) and the
note thereto.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Describe any contracts, arrangements, understandings or relationships
(legal or otherwise) among the persons named in Item 2 and between such
persons and any person with respect to any securities of the issuer,
including but not limited to transfer or voting of any of the securities,
finder's fees, joint ventures, loan or option arrangements, put or calls,
guarantees of profits, division of profits or loss, or the giving or
withholding of proxies, naming the persons with whom such contracts,
arrangements, understandings or relationships have been entered into. Include
such information for any of the securities that are pledged or otherwise
subject to a contingency the occurrence of which would give another person
voting power or investment power over such securities except that disclosure
of standard default and similar provisions contained in loan agreements need
not be included.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following shall be filed as exhibits: copies of written agreements
relating to the filing of joint acquisition statements as required by Rule
13d-1(f) (Section 240.13d-1(f) and copies of all written agreements,
contracts, arrangements, understandings, plans or proposals relating to (1)
the borrowing of funds to finance the acquisition as disclosed in Item 3; (2)
the acquisition of issuer control, liquidation, sale of assets, merger, or
change in business or corporate structure or any other matter as disclosed in
Item 4; and (3) the transfer or voting of the securities, finder's fees,
joint ventures, options, puts, calls, guarantees of loans, guarantees against
loss or of profit, or the giving or withholding of any proxy as disclosed in
Item 6.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
June 25, 1996 /s/ JUDY VAN ESSEN
- --------------------------------- ----------------------------------------
Date Signature
Judy Van Essen
----------------------------------------
Name Title
6 6 of 7
<PAGE>
The original statement shall be signed by each person on whose behalf the
statement is filed or his authorized representative. If the statement is
signed on behalf of a person by his authorized representative (other than an
executive officer or general partner of this filing person), evidence of the
representative's authority to sign on behalf of such person shall be filed
with the statement, provided, however, that a power of attorney for this
purpose which is already on file with the Commission may be incorporated by
reference. The name and any title of each person who signs the statement
shall be typed or printed beneath his signature.
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE
FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001)
7 7 of 7
<PAGE>
SCHEDULE 13D
ITEM 1 Phoenix Network, Inc. Common Stock
Phoenix Network, Inc.
550 California Street - 11th Floor
San Francisco, CA 94104
ITEM 2 (a) Judy Van Essen
(b) 1559 Genesee Vista
Golden, CO 80401
(c) Chief Executive Officer of Vanessa Investments, Inc.
(d/b/a Cadeaux); 433 Park Pointe Drive - Ste. 280, Golden,
CO 80401
(d) No
(e) No
(f) United States
ITEM 3 Securities obtained from merger of Automated Communications, Inc.
("ACI") merger with Phoenix Network, Inc. ("Phoenix"). Ms. Van Essen
was the 100% shareholder of ACI and received her shares in Phoenix
as a result of the merger.
ITEM 4 The purpose of acquisition is to evidence Ms. Van Essen's equity
position in Phoenix as a result of a merger between ACI and
Phoenix that occurred January 16, 1996. Phoenix is the surviving
corporation of that merger. An Agreement and Plan of Merger
("Agreement") dated January 16, 1996 by and between Ms. Van Essen,
ACI, Phoenix, and Phoenix Network Acquisition Corp. provides
the terms of the merger. Pursuant to the terms of the Agreement,
Ms. Van Essen acquired 2,800,000 shares of newly issued voting
common stock in Phoenix.
ITEM 5 (a) Judy Van Essen: 2,800,000 shares of Phoenix Network, Inc.
Common Stock (19.4% of all such shares)
(b) Judy Van Essen: Ms. Van Essen has sole power to vote and
sole power to dispose all 2,800,000 shares identified
in item 5(a)
(c) None
(d) N/A
(e) N/A
ITEM 6 None
ITEM 7 A copy of the Agreement referenced in Item 4 is attached hereto
as Exhibit A.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "PLAN") is entered into this 16th
day of January, 1996, among PHOENIX NETWORK ACQUISITION CORP., a Delaware
corporation (hereinafter referred to as "PAC"), PHOENIX NETWORK, INC., a
Delaware corporation (hereinafter referred to as "PARENT"), AUTOMATED
COMMUNICATIONS, INC., a Colorado corporation (hereinafter referred to as
"ACI"), and JUDY VAN ESSEN, the sole shareholder of ACI (hereinafter referred
to as "SHAREHOLDER").
RECITALS
WHEREAS, Shareholder is the owner of 100,000 shares of voting common
stock of ACI, which shares represent one hundred percent (100%) of the
outstanding shares of capital stock of ACI;
WHEREAS, it is the intention of the parties to this Plan that in the
Merger (as defined below), in accordance with the provisions of Internal
Revenue Code Section 368(a)(2)(D), ACI merge with and into PAC, and PAC be
the surviving corporation in such Merger;
WHEREAS, by the vote of their respective members, the Boards of
Directors of PAC, Parent (the parent corporation of PAC) and ACI have adopted
resolutions approving this Plan and the consummation of the transactions
contemplated hereby and authorized the execution, performance and delivery of
this Plan; and
WHEREAS, the parties desire to set forth their agreement as to this Plan.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises and obligations hereunder, and the mutual covenants and agreements
herein contained, the parties hereto do hereby adopt and make this Plan as
follows:
PLAN
1. DEFINITIONS.
For purposes of this Plan, the following words and phrases shall have
the respective meanings set forth below:
ACI. "ACI" shall mean Automated Communications, Inc.
ACI COMMON STOCK. "ACI Common Stock" shall mean the shares of common
stock of ACI outstanding as of the Effective Time.
<PAGE>
ACI CONTRACT. "ACI Contract" shall mean any contract:
(A) to which ACI is a party;
(B) by which ACI or any of its assets is bound or under which ACI
has any material obligation; or
(C) under which ACI has or may acquire any right or interest,
including in particular, any contract that provides a material benefit
or any material right to ACI.
CBCA. "CBCA" shall mean the Colorado Business Corporation Act.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
CLOSING DATE AND CLOSING. "Closing Date" and "Closing" shall mean
January 16, 1996.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPARABLE ENTITIES. "Comparable Entities" shall mean entities (other
than ACI) that are engaged in business similar to ACI's business.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
CONTRACTS. "Contracts" shall mean all contracts, contractual rights,
purchase orders and sales orders of ACI or otherwise related to ACI's
business.
CURRENT BENEFIT PLAN. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(A) that was established or adopted by ACI or any ERISA Affiliate
or is maintained or sponsored by ACI:
(B) in which ACI participates;
(C) with respect to which ACI or any ERISA Affiliate is or may be
required or permitted to make any contributions; or
(D) with respect to which ACI or any ERISA Affiliate is or may
become subject to any liability.
DELAWARE CODE. "Delaware Code" shall mean the General Corporation Law
of Delaware.
2
<PAGE>
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Plan) delivered to PAC on behalf of ACI and
Shareholder, and to Shareholder on behalf on PAC and Parent, of which are
attached to the Plan and incorporated in the Plan by reference.
EFFECTIVE TIME. "Effective Time" shall mean the time and date the
Merger shall become effective as set forth in Articles of Merger duly
executed by the parties thereto meeting the requirements of the CBCA and
Delaware Code executed in accordance with all appropriate legal requirements,
and filed with the Secretary of State of the State of Colorado and the
Secretary of State of the State of Delaware.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was
or would be treated as a single employer with ACI under Section 414 of the
Code.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(A) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, endorsement, waiver,
certificate, designation, rating, registration, qualification or
authorization that is, has been issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement; or
(B) right under any contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(A) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of
any nature;
(B) federal, state, local, municipal, foreign or other government;
(C) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council, and any court or other
tribunal); or
(D) individual, entity or body exercising any executive,
legislative, judicial, administrative, regulatory, police, military or
taxing authority or power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(A) any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
3
<PAGE>
(B) any waste, gas or other substance or material that is
explosive or radioactive;
(C) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or "toxic
chemical" as designated, listed or defined (whether expressly or by
reference) in any statute, regulation or other Legal Requirement
(including CERCLA, any other so-called "superfund" or "superlien" law,
the Resource Conservation Recovery Act, the Federal Water Pollution Control
Act, the Toxic Substances Control Act, the Emergency Planning and
Community Right-to-Know Act and the respective regulations promulgated
thereunder);
(D) any other substance or material (regardless of physical form)
or form of energy that is subject to any Legal Requirement which
regulates or establishes standards of conduct in connection with, or
which otherwise relates to, the protection of human health, plant life,
animal life, natural resources, property or the enjoyment of life or
property from the presence in the environment of any solid, liquid, gas,
odor, noise or form of energy; and
(E) any compound, mixture, solution, product or other substance or
material that contains any substance or material referred to in clause
"(a)", "(b)", "(c)" or "(d)" above.
INDEMNITEE. In those instances where the Shareholder is the
indemnifying party, "Indemnitee" shall mean the following Persons:
(A) PAC;
(B) the Parent;
(C) PAC's and Parent's current and future affiliates;
(D) the respective Representatives of the Persons referred to in
clauses "(a)", "(b)" and "(c)" above; and
(E) the respective successors and assigns of the Persons referred
to in clauses "(a)", "(b)", "(c)" and "(d)" above.
In those instances where PAC and Parent are the indemnifying parties,
"Indemnitee" shall mean the following Persons:
(A) Shareholder;
(B) the respective Representatives of the Persons referred to in
clause "(a)"; and
4
<PAGE>
(C) the respective successors and assigns of the Persons referred to
in clauses "(a)" and "(b)" above.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion
or interpretation that has been issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body and that applies in any manner to the
business of ACI.
MATERIAL ACI CONTRACT. "Material ACI Contract" shall mean any ACI
Contract (i) which has a value of at least $25,000, or (ii) by its term lasts
for at least one year, but not switched or dedicated service term agreements.
MERGER. "Merger" shall mean the merger of ACI with and into PAC,
pursuant to Section 7-111-105 of the CBCA and Section 252 of the Delaware
Code.
ORDER. "Order" shall include any:
(A) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence or
award that is, has been issued, made, entered, rendered or otherwise put
into effect by or under the authority of any court, administrative
agency or other Governmental Body or any arbitrator or arbitration panel;
and
(B) contract with any Governmental Body that is or has been entered
into in connection with any Proceeding.
PAC. "PAC" shall mean Phoenix Network Acquisition Corp.
PARENT. "Parent" shall mean Phoenix Network, Inc.
PAST BENEFIT PLAN. "Past Benefit Plan" shall mean any Employee Benefit
Plan (other than a Current Benefit Plan):
(A) of which ACI or any ERISA Affiliate has ever been a "plan
sponsor" (as defined in Section 3(16)(B) of ERISA) or that otherwise has
at any time been established, adopted, maintained or sponsored by ACI or
by any ERISA Affiliate;
(B) in which ACI or any ERISA Affiliate has ever participated; or
(C) with respect to which ACI or any ERISA Affiliate has ever been
subject to any liability.
5
<PAGE>
PERSON. "Person" shall mean any individual, entity or Governmental Body.
PLAN. "Plan" shall mean the Agreement and Plan of Merger (including the
Disclosure Schedule and Exhibits), as it may be amended from time to time.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative or
appellate proceeding), prosecution, that is or has been commenced, brought,
conducted or heard by or before, or that otherwise has involved, any
Governmental Body or any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service
mark application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, franchise, system,
computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or
intangible asset.
RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(A) the Shareholder;
(B) each individual who is, or who has at any time been, an
officer, director or shareholder of ACI;
(C) each member of the immediate family of each of the individuals
referred to in clauses "(a)" and "(b)" above; and
(D) any entity (other than ACI) in which any one of the individuals
referred to in clauses "(a)", "(b)" and "(c)" above holds (or in which
more than one of such individuals collectively holds), beneficially or
otherwise, a 10% or greater voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SHAREHOLDER. "Shareholder" shall mean Judy Van Essen.
SURVIVING CORPORATION. "Surviving Corporation" shall mean PAC.
TAX. "Tax" shall mean any tax (including without limitation, income tax,
alternative minimum tax, franchise tax, estimated tax, gross receipts tax,
value-added tax, surtax, excise tax, ad valorem
6
<PAGE>
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
occupation tax, inventory tax, occupancy tax, withholding tax or payroll
tax), levy, assessment, tariff, imposition, toll, duty (including any customs
duty), deficiency or fee, and any related charge or amount (including any
fine, penalty or interest), that is, has been or was supposed to be (a)
imposed, assessed or collected by or under the authority of any Governmental
Body, or (b) payable pursuant to any tax-sharing agreement or similar
contract.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information that is, has been filed with or submitted to, or required to be
filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with
any Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(A) the Plan;
(B) the three Noncompetition Agreements referred to in Section
10.1(a) of the Plan;
(C) the Acknowledgment of Termination of Employment referred to in
Section 10.1(b) of the Plan;
(D) the Affiliates Agreement referred to in Section 10.1(k) of the
Plan;
(E) the Indemnification and Hold Harmless Agreements referred to in
Section 10.1(h) of the Plan;
(F) the Escrow Agreement referred to in Section 10.1(j) of the Plan;
(G) the Assumption of Contracts and Leases and Assumption of
Responsibility referred to in Section 10.1(k) of the Plan; and
(H) both the Shareholder's and ACI's Closing Certificates.
(I) the Note, the Temporary Note and the guarantys thereof by the
Parent.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery
of the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including the
performance by ACI, Shareholder, PAC and Parent of their respective
obligations under the Transactional Agreements and the exercise by ACI,
Shareholder, Parent and PAC of their respective rights under the
Transactional Agreements.
7
<PAGE>
2. MERGER AND MERGER CONSIDERATION
2.1 STRUCTURE OF THE MERGER. Subject to the terms and conditions hereof,
at the Effective Time, ACI shall merge with and into PAC (the "MERGER"). PAC
shall be the Surviving Corporation from the Merger. The Merger shall have the
effects specified in the CBCA and Delaware Code. At the Effective Time of the
Merger, the Articles of Incorporation and Bylaws of the Surviving Corporation
shall be the Articles of Incorporation and Bylaws of PAC in effect
immediately prior to the Effective Time, and the directors and officers of
the Surviving Corporation shall be the directors and officers of PAC
immediately prior to the Effective Time.
2.2 DETERMINATION OF THE MERGER CONSIDERATION. The consideration to be
transferred to the Shareholder of ACI (the "Merger Consideration") in the
Merger shall be equal to the following:
(A) $19,750,000;
(B) plus or minus (as the case may be) ACI's current assets plus
cash deposits (to the extent such cash deposits are not included in ACI's
current assets) less ACI's current liabilities, each as set forth on ACI's
audited balance sheet as of December 31, 1995 (the "Audited Balance Sheet");
(C) plus or minus (as the case may be) the Monthly Base Adjustment
(as defined below);
(D) minus the Attrition Adjustment (as defined below), if any;
(E) minus the Litigation Costs (as defined below);
(F) minus the Uncollected Accounts Receivable (as defined below);
(G) minus the fees and expenses of ACI and the Shareholder set
forth in Section 13.2(a) that are paid by ACI after December 31, 1995;
(H) minus all payments (except normal payroll) after December 31,
1995, by ACI to the Shareholder with respect to any indebtedness of ACI to
any Related Party, and any and all distributions, dividends and payments of
any kind to any Related Party;
(I) minus all payments by ACI after December 31, 1995 with respect
to the Excluded Assets transferred to the Shareholder prior to or as part of
this Transaction; and
(J) plus any discount obtained by PAC or Parent with respect to the
amount due and owing on ACI's note payable to WilTel.
8
<PAGE>
The "Litigation Costs" shall mean the sum of all costs, expenses
(including attorneys' fees and court and arbitration costs), liabilities,
obligations, judgments and payments (including settlement payments) resulting
from any claims against ACI relating to pending or threatened litigation
against ACI, including but not limited to those matters listed on Part 4.22
of the Disclosure Schedule incurred by ACI after December 31, 1995 and on or
before the Effective Time.
The "Uncollected Accounts Receivable" shall mean the sum of the portion
of all accounts receivable reflected on ACI's Audited Balance Sheet as of
December 31, 1995 for which payment has not been made in full and received by
PAC on or before April 1, 1996 and which PAC elects to put back to the
Shareholder or her assigns as of the close of business on April 1, 1996. All
of the accounts receivable put back by PAC to the Shareholder (or her
assigns) shall be transferred from PAC to the Shareholder (or her assigns)
effective as of April 1, 1996.
The "Monthly Base Adjustment" shall be computed as follows:
(I) in the event that the Monthly Base is less than $1,826,829,
then the Merger Consideration shall decrease by the factor of
[[$1,926,829 minus the Monthly Base] multiplied by [10.25]];
(II) in the event that the Monthly Base is at least $1,826,829
and not greater than $2,026,829, the Monthly Base Adjustment shall
be zero; and
(III) in the event that the Monthly Base is greater than
$2,026,829, then the Merger Consideration shall increase by the
factor of [[the Monthly Base minus $1,926,829] multiplied by [10.25]].
The "Monthly Base" shall be the dollar amount that results from (i)
ACI's monthly recurring long distance billed revenues including calling card,
debit card, conference calling, interstate, intrastate and international
traffic, excluding taxes, pass through, late charges, and any charges from
which ACI has not earned gross marginable income for the three month period
commencing at 12:01 a.m. on August 1, 1995 and ending at 11:59 p.m. on
October 31, 1995 as determined by Grant Thornton, CPA, in its audit of ACI,
multiplied by 62.4356, and (ii) the resulting number in (i) shall be divided
by 64, and (iii) the resulting number in (ii) shall be divided by three (3).
"Attrition Adjustment" shall be equal to $1,926,829, if the recurring,
long distance billed revenues from ACI's customers as of December 31, 1995,
plus any new customers of PAC added by the former employees, distributors,
representatives or agents of ACI including calling card, debit card,
conference calling, interstate, intrastate and international traffic,
excluding taxes, pass through, late charges, and any charges from which PAC
has not earned gross marginable income for the months of January, February
and March 1996 are less than $5,036,523. For purposes of this Attrition
Adjustment, "Attrition" shall not include (1) revenue declines resulting from
lowering the rates offered to pre-Closing ACI customers, or (2) the deflection
of revenue associated with pre-Closing ACI customers due to transferring or
converting them to PAC or Parent products or pricing.
9
<PAGE>
2.3 EFFECT ON OUTSTANDING SHARES. By virtue of the Merger,
automatically and without any action on the part of the Shareholder, all of
the shares of capital stock of ACI, issued and outstanding at the Effective
Time, shall become and be converted into the Merger Consideration, which
shall consist of the assumption of the ACI Note Payable (as defined below in
Subsection (a), shares of Parent Common Stock, and a promissory note issued
by PAC to Shareholder and guaranteed by Parent, in the following amounts:
(A) assumption of ACI's promissory note payable (the "ACI Note
Payable") to the Shareholder, a copy of which is attached hereto as EXHIBIT
A, in the outstanding principal amount of $4,000,000, which $4,000,000 ACI
Promissory Note will be paid in good funds to be transferred by wire transfer
or by certified or cashier's check on the Closing Date to Shareholder;
(B) $10,500,000 in shares (2,800,000 shares) of voting common
stock of Parent based on a value of $3.75 per share (the "Shares"). The
Shares will be issued to the Shareholder on the Closing Date and shall not be
registered under federal or state securities laws. The Shareholder may, by
providing prior written notice to Parent, require the Parent to register, up
to 50 percent of the total number of Shares (the "Registrable Shares")
(including any additional shares of the Parent that may be issued to
Shareholder with respect to a stock-split or stock dividend transaction) that
are not held in escrow under the Escrow Agreement attached hereto as EXHIBIT
B, under federal securities laws on or after one year after the Closing Date
or as reasonably practicable thereafter. If the Shareholder proposes to offer
the Registrable Shares in an underwritten offering, Parent must consent to
the use of the underwriter chosen by Shareholder. Such consent shall not be
unreasonably withheld. Notwithstanding the above, the Parent, in its sole
discretion, may register all or part of the Shares under federal securities
laws without receiving written notice or consent from the Shareholder. In the
event that Parent registers Shares without receiving written notice from the
Shareholder, the Shareholder may only require the Parent to register that
additional number of Shares, if any, up to the number of Registrable Shares
before or on or about one year after the Closing Date or as reasonably
practicable thereafter. In the event that Parent registers part or all of the
Shares, Parent may also register additional shares of its securities at the
same time as the registration of the Shares and in the same Registration
Statement filed with the U.S. Securities and Exchange Commission. The Shares
are "RESTRICTED SECURITIES" as that term is defined under federal securities
laws, and, therefore their transferability is limited. Parent shall pay for
the costs of registering the Shares (including any additional shares of the
Parent that may be issued to Shareholder with respect to a stock-split or
stock dividend transaction); Shareholder or its assigns shall pay for all
brokerage fees and costs and its or their own attorneys' fees, if any. Prior
to effectiveness of any Registration Statement Shareholder shall agree to
indemnify Parent against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Notwithstanding the foregoing, the
registration rights granted to Shareholder shall terminate if the
restrictive holding period imposed by Rule 144 under the Securities Act of
1933, as amended, is shortened to a period of one year or less by an amendment
to Rule 144 prior to the exercise of any registration rights hereunder. In
such event, PAC and Parent will use their best efforts to remove the then
stock legend relating to the Shares. The remaining fifty percent (50%) of the
Shares will be held in escrow under the Escrow Agreement; and
10
<PAGE>
(C) the Merger Consideration minus $14,500,000 shall be
represented by the promissory note of PAC (the "NOTE") to be issued and
delivered by PAC to the Shareholder as set forth below, in the form of the
attached EXHIBIT C. At the Closing, PAC will issue and deliver to Shareholder
a promissory note (the "TEMPORARY NOTE"), in the form of the attached EXHIBIT
D, in the principal amount of $2,400,000. The Temporary Note shall be
nonnegotiable and nontransferable. On April 1, 1996, Shareholder will return
the Temporary Note to PAC for cancellation and PAC will simultaneously issue
and deliver the Note to Shareholder. The Note and the Temporary Note each
will be guaranteed by the Parent, in the form of guaranty attached as EXHIBIT
E, and accrue interest at the rate of nine percent per annum. Accrued
interest under the Note shall accrue from the Closing Date. The Note and the
Temporary Note are subject to a right of setoff as further described in
Section 12.4 of this Plan. Principal and interest shall be payable as
provided for in the Note.
3. ADDITIONAL DEPOSITS BY THE SHAREHOLDER TO THE ESCROW.
To the extent that Shareholder receives any refunds relating to (i) U.S.
West "CAB" charges and (ii) Colorado state tax claims, then Shareholder shall
deposit as an addition to the Escrow Deposit, the cash amount equal to any
such refunds less and after the Shareholder has recovered (1) her accountable
out-of-pocket expenses incurred in obtaining such refunds and (2) $60,000.
4. REPRESENTATIONS AND WARRANTIES OF ACI AND THE SHAREHOLDER.
Except to the extent disclosed in the Disclosure Schedule, ACI and the
Shareholder, jointly and severally, make the following representations and
warranties to PAC and Parent, each of which is true and correct on the date
hereof, shall remain true and correct up to the Effective Time, and as to
Shareholder shall survive the Closing of the transactions provided for herein
for a period of 18 months following the Effective Time, unless otherwise set
forth herein.
4.1 CORPORATE.
(A) ORGANIZATION. ACI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and has
all necessary power and authority:
(1) to conduct its business in the manner in which its
business is currently being conducted;
(2) to own and use its assets in the manner in which its
assets are currently owned and used; and
(3) to perform its obligations under all of its Contracts.
(B) ACI has never conducted any business under or otherwise used,
for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other
11
<PAGE>
than the names "Mastercall", "Tithenet", "ACI of Arizona", "AC America,
Inc.", "USAC America, Inc.", "Automated Communications of Colorado, Inc.",
"Automated Communications of Arizona", "ACI", "ATS", "Automated
Communications, Inc." and "ATS, Inc."
(C) ACI reasonably believes that it is not required to be
qualified, authorized, registered or licensed to do business as a foreign
entity in any jurisdiction other than the jurisdictions identified in Part
4.1(c) of the Disclosure Schedule. ACI is in good standing as a foreign
entity in each of the jurisdictions identified in Part 4.1(c) of the
Disclosure Schedule.
(D) Part 4.1(d) of the Disclosure Schedule accurately sets forth
(1) the names of all of ACI's directors, and (2) the names and titles of
ACI's officers.
(E) Neither ACI nor any of its officers, directors or shareholders
has ever approved, or commenced any proceeding or made any election regarding
the dissolution or liquidation of ACI or the winding up or cessation of ACI's
business or affairs.
(F) ACI has no subsidiaries.
4.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS.
(A) ACI has delivered to PAC accurate and complete copies of:
(1) ACI's articles of incorporation and bylaws, including all
amendments thereto;
(2) the stock records of ACI including a list of all
shareholders and their holdings; and
(3) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise
without a meeting) of the shareholders and Board of Directors of ACI.
(B) There has not been any violation of any of the provisions of
ACI's articles of incorporation and bylaws or of any resolution adopted by
ACI's shareholders or Board of Directors or any committee of ACI; and no
event has occurred, and no condition or circumstance exists, that (with or
without notice or lapse of time) constitutes or will result directly or
indirectly in such a violation.
(C) All of the records of ACI are in the actual possession and
direct control of ACI. The books of account, stock records, minute book and
other records (collectively, the "Records") of ACI are accurate, up-to-date
and complete; and ACI has no obligations or liabilities, contingent or
otherwise, for a failure to keep its records complete, accurate and
up-to-date.
12
<PAGE>
4.3 FINANCIAL STATEMENTS.
(A) ACI has delivered to PAC the following financial statements
and notes (collectively, the "ACI FINANCIAL STATEMENTS"):
(1) the unaudited balance sheet of ACI as of December 31,
1994, and the related unaudited statements of operations, changes in equity
and cash flows of ACI for the year then ended, together with the notes
thereto; and
(2) the unaudited balance sheet of ACI as of October 31, 1995
(the "UNAUDITED INTERIM BALANCE SHEET"), and the related unaudited statements
of operations, changes in equity and cash flows of ACI for the ten months
then ended, together with the notes thereto;
(B) ACI has retained, and Shareholder agrees to pay up to $60,000
for the services of, and agrees to fully cooperate with, Grant Thornton, CPA,
to audit ACI's balance sheets as of December 31, 1993, 1994 and 1995 and
ACI's statements of operations, changes in equity and cash flows for each of
the three years then ended, together with the notes thereto and the
unqualified opinion and report of Grant Thornton, CPA, relating thereto,
which audit, opinion and report shall also include a statement of ACI's
monthly recurring billed long distance revenues including calling card, debit
card, conference calling, interstate, intrastate and international traffic
for the three month period ended October 31, 1995. PAC shall pay the costs of
Grant Thornton, CPA for the above-referenced audit to the extent such costs
exceed $60,000; and
(C) Subject to customary and reasonable year-end audit adjustments
(i) all of the ACI Financial Statements are accurate and complete in all
respects, and the dollar amount of each line item included in the ACI
Financial Statements is accurate in all respects; (ii) the financial
statements and notes referred to in Section 4.3(a)(1) present fairly the
financial position of ACI as of December 31, 1994 and the results of
operations, changes in equity and cash flows of ACI for the year then ended;
(iii) the financial statements and notes referred to in Sections 4.3(a)(2)
present fairly the financial position of ACI as of the date thereof and the
results of operations, changes in equity and cash flows of ACI for the period
covered thereby; and (iv) the ACI Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"), applied on
a consistent basis throughout the periods covered.
4.4 ABSENCE OF CHANGES. Except as set forth in Part 4.4 of the
Disclosure Schedule, since October 31, 1995:
(A) there has not been any materially adverse change in ACI's
business, condition, assets, liabilities, operations, financial performance,
revenue, net income or prospects (or on any aspect or portion thereof), and
no event has occurred that might have a materially adverse effect on ACI's
business, condition, assets, liabilities, operations, financial performance,
revenue, net income or prospects (or on any aspect or portion thereof);
13
<PAGE>
(B) there has not been any material loss, damage or destruction
to, or any interruption in the use of, any of ACI's assets (whether or not
covered by insurance);
(C) ACI has not purchased or otherwise acquired any asset from any
other Person, except for supplies and other assets acquired by ACI in the
ordinary course of business;
(D) ACI has not leased or licensed any asset from any other Person
that creates an obligation in excess of $25,000 per month;
(E) ACI has not made any capital expenditure in excess of $25,000;
(F) ACI has not sold or otherwise transferred, and has not leased
or licensed, any asset to any other Person except for assets sold by ACI in
the ordinary course of business;
(G) ACI has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness, except in the ordinary course of business, and all of which are
reflected in the ACI Financial Statements and will be reflected in the
Audited Balance Sheet;
(H) ACI has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any encumbrance;
(I) ACI has not made any loan or advance to any other Person in
excess of $25,000 in the aggregate;
(J) ACI has not (1) established, adopted or terminated any
Employee Benefit Plan, or (2) paid, declared or accrued any bonus,
profit-sharing or similar payment to, or increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to any of its directors, officers or employees except for ordinary
salary increases which do not increase the annual salary of any person in
excess of five percent;
(K) ACI has not entered into, and neither ACI nor any of the
assets owned or used by ACI has become bound by, any Contract in excess of
$25,000 in value or by its terms continues for one year or more, excluding
dedicated or switched service term contracts;
(L) ACI has not amended or terminated any Contract in excess of
$25,000 in value or any Contract which, by its terms, continues for one year
or more, by which ACI or any of the assets owned or used by ACI is or was
bound, or under which ACI has or had any rights or interest;
(M) ACI has not incurred, assumed or otherwise become subject to
any single liability in excess of $25,000 in value, other than liabilities
(of the type required to be reflected as current liabilities in the
"LIABILITIES" column of a balance sheet prepared in accordance with GAAP)
incurred by ACI in the ordinary course of business;
14
<PAGE>
(N) ACI has not discharged any encumbrance or discharged or paid
any indebtedness or other liability in excess of $25,000 in value, except for
liabilities that (1) are reflected as current liabilities in the "LIABILITIES"
column of the Unaudited Interim Balance Sheet or have been incurred by ACI
since October 31, 1995 in the ordinary course of business, and (2) have been
discharged or paid in the ordinary course of business;
(O) ACI has not forgiven any debt or otherwise released or waived
any right or claim except for the write-offs of accounts receivable in the
ordinary course of business, which amounts in the aggregate do not exceed
$25,000, or except as disclosed in the Audited Balance Sheet; and
(P) ACI has not agreed or committed (in writing or otherwise), to
take any of the actions referred to in clauses "(c)" through "(o)" above.
4.5 TITLE TO ASSETS.
(A) ACI owns, and has good, valid and marketable title to, all of
its assets, including:
(1) all assets reflected on the Unaudited Interim Balance
Sheet, except for assets converted into cash or disposed of in the ordinary
course of business from October 31, 1995 through the Effective Time;
(2) all assets acquired by ACI on or after October 31, 1995,
except for assets subsequently converted into cash or disposed of in the
ordinary course of business from October 31, 1995 through the Effective Time;
and
(3) all assets referred to in Sections 4.6, 4.8, and 4.10
hereof and all of ACI's rights under the ACI Contracts; and
(B) Part 4.5 of the Disclosure Schedule identifies all assets in
excess of $25,000 in value that are being leased or licensed to ACI.
(C) Part 4.5 of the Disclosure Schedule lists all leases,
contracts, and assets which are being transferred to Shareholder or any other
Related Party prior to the Effective Time and for which Shareholder assumes
all liability (the "Excluded Assets").
Except as set forth in Part 4.5 of the Disclosure Schedule, all of said
assets described in Section 4.5 (a) and (b) above are owned by ACI free and
clear of any liens or encumbrances. At the Closing, PAC will receive good and
marketable title to all of ACI's assets, free and clear of any liens or
encumbrances, except those described in Part 4.5 of the Disclosure Schedule.
15
<PAGE>
4.6 RECEIVABLES; MAJOR CUSTOMERS.
(A) Part 4.6 of the Disclosure Schedule provides a breakdown and
aging of all accounts receivable, notes receivable and other receivables of
ACI as of December 31, 1995.
(B) Except as set forth in Part 4.6 of the Disclosure Schedule, to
the best of ACI's knowledge, all existing accounts receivable of ACI
(including those accounts receivable reflected on the Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since October 31, 1995, and have not yet been collected)
represent valid obligations of customers to ACI arising from bona fide
transactions entered into in the ordinary course of business and all such
accounts receivable may be assigned and transferred to PAC as contemplated
herein.
(C) Part 4.6 of the Disclosure Schedule identifies, and provides a
list identifying all ACI customers (current or former) (1) whose last six
months of usage averaged $2,000.00 or greater, or (ii) who received a last bill
of $2,000.00 or more. To the knowledge of Shareholder, Gary Albrecht, Becky
Watson, Ann Miklos, Steve Jorgensen, Jennifer Burger, and Judy Todd, ACI has
not received any notice or other communication (in writing or otherwise), and
has not received any other information, and has no knowledge, indicating that
any customer or other Person identified in Part 4.6 of the Disclosure
Schedule may cease dealing with ACI or may otherwise materially reduce the
volume of business transacted by such Person with ACI (and after the Closing,
with PAC) below historical levels.
4.7 SHAREHOLDER.
(A) The Shareholder has the capacity and financial capability to
comply with and perform all of the Shareholder's covenants and obligations
under each of the Transactional Agreements to which the Shareholder is or may
become a party.
(B) The Shareholder:
(1) has not, at any time, (A) made a general assignment for
the benefit of creditors, (B) filed, or had filed against the Shareholder,
any bankruptcy petition or similar filing, (C) suffered the attachment or
other judicial seizure of all or a substantial portion of such Shareholder's
assets, (D) admitted in writing the Shareholder's inability to pay the
Shareholder's debts as they become due, (E) been convicted of, or pleaded
guilty to, any felony, or (F) taken or been the subject of any action that
may have an adverse effect on the Shareholder's ability to comply with or
perform any of the Shareholder's covenants or obligations under any other
Transactional Agreements; and
(2) is not subject to any Order that may have an adverse
effect on the Shareholder's ability to comply with or perform any of the
Shareholder's covenants or obligations under any of the Transactional
Agreements.
16
<PAGE>
(C) There is no Proceeding pending, and no Person has threatened
to commence any Proceeding, that may have an adverse effect on the ability of
the Shareholder to comply with or perform any of the Shareholder's covenants
or obligations under any of the Transactional Agreements. No event has
occurred, and no claim, dispute or other condition or circumstances exists,
that directly or indirectly will give rise to or serve as a basis for the
commencement of any such Proceeding.
4.8 EQUIPMENT, ETC.
(A) Part 4.8 of the Disclosure Schedule identifies all material
equipment (other than equipment in storage) including the DMS 250 Switches
containing the BCS 35 upgrades, computers, furniture, fixtures, improvements
and other tangible assets owned by ACI immediately prior to the Effective
Time, and sets forth in all material respects the approximate date of
acquisition, original cost and book value of each of said assets.
(B) To the best knowledge of Shareholder and ACI each asset
identified or required to be identified in Part 4.8 of the Disclosure
Schedule:
(1) is free of material defects and deficiencies and in
good condition and repair (ordinary wear and tear excepted); and
(2) complies in all material respects with, and is being
operated and otherwise used in compliance with, all applicable Legal
Requirements.
The assets identified in Part 4.8 of the Disclosure Schedule are, in all
material respects, adequate for the conduct of ACI's business in the manner
in which such business is currently being conducted.
4.9 REAL PROPERTY. ACI does not own any real property or any interest
in real property, except for the leaseholds created under the real property
leases identified in Part 4.9 of the Disclosure Schedule. Copies of such
leases have been delivered to PAC for review. ACI enjoys peaceful and
undisturbed possession of such premises and is not in breach of any
provision of such leases except as disclosed in Part 4.22 of the Disclosure
Statement.
4.10 PROPRIETARY ASSETS.
(A) Except as set forth in Part 4.10 of the Disclosure Schedule,
there is no material Proprietary Asset that is owned by or licensed to ACI
or that is otherwise used or useful in connection with ACI's business.
(B) ACI has taken all reasonable measures and precautions
necessary to protect the confidentiality and value of each Proprietary Asset
identified or required to be identified in Part 4.10 of the Disclosure
Schedule.
17
<PAGE>
(C) Except as set forth in Part 4.10 of the Disclosure Schedule,
ACI is not infringing and has not at any time infringed or received any notice
or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement of, any Proprietary Asset owned or used
by any other Person.
(D) The Proprietary Assets identified in Part 4.10 of the
Disclosure Schedule constitute the Proprietary Assets necessary to enable
ACI (and after the Closing, PAC) to conduct its business in the manner in
which its business is currently being conducted.
4.11 CONTRACTS.
(A) Part 4.11 of the Disclosure Schedule identifies and provides
a list of each Material ACI Contract, except for all customer letters of
authorization and switched and dedicated service term agreements. ACI has
delivered to PAC accurate and complete copies of all Material ACI Contracts
identified or required to be identified in Part 4.11 of the Disclosure
Schedule, including all amendments thereto. No switched and dedicated service
term contracts contain any period of free service to be provided by ACI to
the customer.
(B) To the best of ACI's and Shareholder's knowledge, (i) each
Material ACI Contract is valid and in full force and effect, and is
enforceable by ACI in accordance with its terms;
(C) Except as set forth in Part 4.11 of the Disclosure Schedule:
(1) to the best of ACI's and Shareholder's knowledge, no
Person has violated or breached, or declared or committed any default under,
any Material ACI Contract;
(2) to the best of ACI's and Shareholder's knowledge, no
event has occurred, and no circumstance or condition exists, that might
(with or without notice or lapse of time) (A) result in a violation or
breach of any of the provisions of any Material ACI Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Material ACI Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material ACI Contract, or (D) give any
Person the right to cancel, terminate or modify any Material ACI Contract;
(3) ACI has not received any notice or other communication
(in writing or otherwise) regarding any actual, alleged, possible or
potential violation or breach of, or default under, any Material ACI
Contract; and
(4) ACI has not affirmatively in writing waived any of its
rights under any Material ACI Contract.
(D) Except as set forth in Part 4.11 of the Disclosure Schedule,
ACI has no outstanding guarantys and has not agreed to cause, insure or
become liable for, and ACI has no
18
<PAGE>
outstanding pledges of any of its assets to secure the performance or payment of
any obligation or other liability of any other Person.
(E) To the best of ACI's and Shareholder's knowledge, the
performance of the Material ACI Contracts will not result in any violation
of or failure to substantially comply with any Legal Requirement.
(F) The contracts identified in Part 4.11 of the Disclosure
Schedule collectively constitute the contracts necessary to enable ACI to
conduct its business in the manner in which its business is currently
being conducted.
4.12 LIABILITIES; MAJOR SUPPLIERS.
(A) Except as set forth in Part 4.12 of the Disclosure Schedule,
ACI has no liabilities in excess of $50,000 in the aggregate, except for:
(1) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet and that will be identified
in the Audited Balance Sheet;
(2) accounts payable (of the type required to be reflected
as current liabilities in the "liabilities" column of a balance sheet
prepared in accordance with GAAP) incurred by ACI in the ordinary course of
business since October 31, 1995; and
(3) ACI's obligations under the contracts listed in part 4.12
of the Disclosure Schedule.
(B) Part 4.12 of the Disclosure Schedule:
(1) provides a complete and accurate breakdown and aging
of ACI's accounts payable as of November 30, 1995;
(2) provides a complete and accurate breakdown of all
customer deposits and other deposits held by ACI as of the date of this
Plan; and
(3) provides a complete and accurate breakdown of ACI's
long-term debt as of the date of this Plan.
4.13 COMPLIANCE WITH LEGAL REQUIREMENTS.
(A) Except as set forth in Part 4.13 of the Disclosure Schedule:
19
<PAGE>
(1) ACI is and has at all times been in compliance with each
Legal Requirement to the extent the failure to do so could result in a lien on
any of its assets or have a material adverse effect on its business;
(2) ACI has not received, on or after January 1, 1995, any
notice or other communication (in writing or otherwise) from any Governmental
Body or any other Person, which would have a material adverse effect on its
assets or business, regarding (1) any actual, alleged, possible or potential
violation of, or failure to comply with, any Legal Requirement, or (2) any
actual, alleged, possible or potential obligation on the part of ACI to
undertake, or to bear all or any portion of the cost of, any cleanup or any
remedial, corrective or responsive action of any nature.
4.14 GOVERNMENTAL AUTHORIZATIONS.
(A) Part 4.14 of the Disclosure Schedule identifies each material
Governmental Authorization that is held or required to be held by ACI to the
extent the lack of such authorizations, individually or in the aggregate,
would have a material adverse effect on ACI's assets or business. ACI has
delivered to PAC copies of all material Governmental Authorizations identified
in Part 4.14 of the Disclosure Schedule, including all renewals thereof and
all amendments thereto. Each material Governmental Authorization identified
or required to be identified in Part 4.14 of the Disclosure Schedule is valid
and in full force and effect, to the extent the lack of such authorization
would have a material adverse effect on ACI's assets or business.
(B) Except as set forth in Part 4.14 of the Disclosure Schedule:
(1) To the knowledge of ACI and Shareholder, ACI and its
employees are, and have at all times been, in substantial compliance with all
of the terms and requirements of each Governmental Authorization identified or
required to be identified in Part 4.14 of the Disclosure Schedule to the
extent the lack of such Governmental Authorization would have a material
adverse effect on ACI's assets or business.
(2) ACI has not received on or after January 1, 1995, any
notice or other communication (in writing or otherwise) from any Governmental
Body or any other Person, to the extent the lack of such Governmental
Authorization would have a material adverse effect on ACI's assets or
business, regarding (A) any actual, alleged, possible or potential violation
of or failure to comply with any material term or requirement of any material
Governmental Authorization, or (B) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization; and
(3) to the knowledge of ACI and Shareholder, all applications
required to have been filed for the renewal of the Governmental Authorizations
required to be identified in Part 4.14 of the Disclosure Schedule have been
duly filed on a timely basis with the appropriate Governmental Bodies, and
each notice or filing required to have been given or made with respect to
such material Governmental Authorizations has been duly given or made on a
timely basis with the
20
<PAGE>
appropriate Governmental Body to the extent the lack of such Governmental
Authorization would have a material adverse effect on ACI's assets or
business.
(C) The Government Authorizations identified in Part 4.14 of the
Disclosure Schedule constitute the Governmental Authorizations necessary to
conduct ACI's business in the manner in which its business is currently being
conducted.
4.15 TAX MATTERS.
(A) (1) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by ACI (whether pursuant to any Tax Return
or otherwise) has been duly paid in full on a timely basis; (2) any Tax
required to have been withheld or collected by ACI has been duly withheld and
collected; and (3) (to the extent required) each such Tax has been paid to
the appropriate Governmental Body.
(B) Part 4.15 of the Disclosure Schedule accurately identifies all
Tax Returns required to be filed by or on behalf of ACI with any Governmental
Body with respect to any taxable period ending on or before December 31, 1995
("ACI RETURNS"). All ACI Returns (1) have been or will be filed when due, and
(2) have been, or will be when filed, accurately prepared in compliance with
all applicable Legal Requirements. All amounts shown on the ACI Returns to be
due on or before December 31, 1995, and all amounts otherwise payable in
connection with the ACI Returns on or before December 31, 1995, have been or
will be paid or accrued on or before December 31, 1995. ACI has delivered to
PAC accurate and complete copies of all ACI Returns filed since January 1, 1993.
(C) The Audited Balance Sheet will fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with GAAP.
(D) Part 4.15 of the Disclosure Schedule identifies each
examination or audit of any ACI Return that has been conducted since January 1,
1993. ACI has delivered to PAC copies of all audit reports and similar
documents (to which ACI has access) relating to ACI Returns. Except as set
forth in Part 4.15 of the Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of ACI Returns has been granted (by ACI or
any other Person), and no such extension or waiver has been requested from
ACI.
(E) Except as set forth in Part 4.15 of the Disclosure Schedule,
no claim or other Proceeding is pending or has been threatened against or
with respect to ACI in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax
and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by ACI.
(F) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of ACI that,
21
<PAGE>
individually or collectively, could give rise directly or indirectly to the
payment of any amount that would not be deductible for tax purposes, by
reason of Section 280G or Section 162 of the Code. ACI is not, and ACI has
never been, a party to or bound by any tax indemnity agreement, tax sharing
agreement, tax allocation agreement or similar Contract.
(G) ACI is, has been for the past six years, and immediately
before the Effective Time will be, duly qualified as an "S" corporation under
the Code.
4.16 EMPLOYEE AND LABOR MATTERS.
(A) Part 4.16 of the Disclosure Schedule sets forth, with respect
to each employee of ACI (including any employee of ACI who is on a leave of
absence or on layoff status):
(1) the name of such employee and the approximate date as of
which such employee was originally hired by ACI;
(2) such employee's title, and a brief description of such
employee's duties and responsibilities;
(3) the approximate aggregate dollar amount of the
compensation (including wages, salary, commissions, director's fees, fringe
benefits, bonuses, profit-sharing payments and other payments or benefits of
any type) received by or due such employee from ACI with respect to services
performed during the first ten months of 1995;
(4) such employee's annualized compensation as of the date of
this Plan;
(5) each Current Benefit Plan in which such employee
participates or is eligible to participate; and
(6) any Governmental Authorization that is held by such
employee and that relates to or is useful in connection with ACI's business.
(B) Part 4.16 of the Disclosure Schedule identifies each former
employee of ACI who is receiving or is scheduled to receive (or whose spouse
or other dependent is receiving or is scheduled to receive) any material
benefits (whether from ACI or otherwise) relating to such former employee's
employment with ACI; and Part 4.16 of the Disclosure Schedule accurately
describes such benefits.
(C) Except as set forth in Part 4.16 of the Disclosure Schedule,
ACI is not a party to or bound by, any employment agreement or any union
contract, collective bargaining agreement or similar Contract, whether
written or oral, between ACI and Judy Van Essen, or any other current or
former employee of ACI.
22
<PAGE>
(D) Except as set forth in Part 4.16 of the Disclosure Schedule,
to the knowledge of ACI and Shareholder, the employment of each of ACI's
employees is terminable by ACI at will. ACI has delivered to PAC accurate and
complete copies of all employee manuals and handbooks, disclosure materials,
policy statements and other materials relating to the employment of the
current and former employees of ACI.
(E) ACI is not engaged, and has never been engaged, in any unfair
labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity
or dispute, affecting ACI or any of its employees. There is not now pending,
and no Person has threatened to commence, any such slowdown, work stoppage,
labor dispute or union organizing activity or any similar activity or
dispute. To the knowledge of ACI and Shareholder, no event has occurred, and
no condition or circumstance exists, that directly or indirectly will give
rise to or provide a basis for the commencement of any such slowdown, work
stoppage, labor dispute or union organizing activity or any similar activity
or dispute.
4.17 EMPLOYEE BENEFIT PLANS. Set forth in Part 4.17 of the Disclosure
Schedule is a list of all employment agreements, severance agreements or
arrangements, parachute agreements, employee or director bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock
purchase, employee stock ownership, stock appreciation rights, savings,
consulting, stock appreciation rights, group insurance, fringe benefit, and
other employee benefit, incentive, and welfare plans, policies, contracts and
arrangements, formal or informal, write or oral, and all trust agreements
related thereto, now in effect and relating to any present or former
directors, officers, or employees of ACI, whether or not described in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (collectively, the "EMPLOYEE PLANS"). All of the Employee Plans
have been maintained, operated, and administered in substantial compliance
with their terms, and ACI and all of the Employee Plans currently comply, and
have at all relevant times complied, in all material respects with applicable
provisions of ERISA, the Code, securities laws and other applicable laws.
With respect to each Employee Plan (whether currently in effect or which has
been terminated) which is a pension plan (as defined in Section 3(2) of
ERISA) (a "PENSION PLAN"), each such Pension Plan (and any trust relating
thereto) intended to be a qualified plan under Section 401(a) of the Code has
been determined by the IRS to be so qualified. Neither ACI nor any ERISA
Affiliate has in the past or now maintains, sponsors or contributes to any
plan subject to Title II of ERISA or Section 412 of the Code (including any
multi-employer pension plans defined in Section 3(37) of ERISA), and ACI has
never incurred any liability to any person, entity or agency by reason of the
withdrawal from or termination of any plan. No "PROHIBITED TRANSACTION" (as
defined in Section 406 of ERISA or Section 4975 of the Code) with respect to
any "EMPLOYEE BENEFIT PLAN" (as defined under Section 3(3) of ERISA, each
such plan an "ERISA PLAN") has occurred which is likely to result in any
penalties or taxes under Section 502(i) of ERISA or Section 4975 of the Code.
All reporting any disclosure requirements of ERISA and the Code have been
complied with in all material respects with respect to each of the ERISA
Plans and each other Employee Plan. ACI has not contributed to any
"MULTIEMPLOYER PLAN," as defined in Section 3(37) of ERISA, nor any plan that
is subject to Title IV of ERISA, on or after September 26, 1980. Except as
set forth in Part 4.17 of the Disclosure
23
<PAGE>
Schedule. ACI does not have any obligations for retiree health and life
benefits under any benefit plan, contract or arrangement.
With respect to each Employee Plan, ACI has attached as part of
Part 4.17 of the Disclosure Schedule a true and correct copy of (i) the most
recent annual report on Form 5500 filed with the IRS, if such report is
required, (ii) such Employee Plan, (iii) each trust agreement and insurance
contract relating to such Employee Plan, (iv) the most recent summary plan
description for such Employee Plan, if it is subject to Title I of ERISA, and
(v) the most recent determination letter issued by the IRS, if such Employee
Plan is intended to be qualified under Section 401(a) of the Code.
4.18 ENVIRONMENTAL MATTERS.
(A) To the best of the knowledge of ACI and Shareholder, ACI is
not liable, or potentially liable for any response cost or natural resource
damages under Section 107(a) of CERCLA, or under any other so-called
"SUPERFUND" or "SUPERLIEN" law or similar Legal Requirement, at or with
respect to any site.
(B) Since January 1, 1994, ACI has not received any notice or
other communication (in writing or otherwise) from any Governmental Body or
other Person regarding any actual, alleged, possible or potential liability
arising from or relating to the presence, generation, manufacture,
production, transportation, importation, use, treatment, refinement,
processing, handling, storage, discharge, release, emission or disposal of
any Hazardous Material. No Person has ever commenced or threatened to
commence any contribution action or other Proceeding against ACI in
connection with any such actual, alleged, possible or potential liability;
and no event has occurred, and no condition or circumstance exists, that may
directly or indirectly give rise to, or result in ACI becoming subject to,
any such liability.
(C) Except as set forth in Part 4.18 of the Disclosure Schedule,
ACI has never generated, manufactured, produced, transported, imported, used,
treated, refined, processed, handled, stored, discharged, released or
disposed of any Hazardous Material (whether lawfully or unlawfully). Except
as set forth in Part 4.18 of the Disclosure Schedule, ACI has never
permitted (knowingly or otherwise) any Hazardous Material to be generated,
manufactured, produced, used, treated, refined, processed, handled, stored,
discharged, released or disposed of (whether lawfully or unlawfully):
(1) on or beneath the surface of any real property that is,
or that has at any time been, owned by, leased to, controlled by or used by
ACI;
(2) in or into any surface water, groundwater, soil or air
associated with or adjacent to any such real property; or
(3) in or into any well, pit, pond, lagoon, impoundment,
ditch, landfill, building, structure, facility, improvement, installation,
equipment, pipe, pipeline, vehicle or storage
24
<PAGE>
container that is or was located on or beneath the surface of any such real
property or that is or has at any time been owned by, leased to, controlled by
or used by ACI.
(D) To the best of the knowledge of ACI and Shareholder, all
property that is owned by, leased to, controlled by or used by ACI:
(1) is in clean and healthful condition;
(2) is free of any Hazardous Material and any harmful
chemical or physical conditions; and
(3) is free of any environmental contamination of any nature.
(E) To the best of the knowledge of ACI and Shareholder, each storage
tank or other storage container that is or has been owned by, leased to,
controlled by or used by ACI that is or has been owned by, leased to,
controlled by or used by ACI, or that is located on or beneath the surface
of any real property owned by, leased to, controlled by or used by ACI:
(1) is in sound condition; and
(2) has been demonstrated by accepted testing methodologies
to be free of any corrosion or leaks.
4.19 UNDISCLOSED LIABILITIES. ACI has no liabilities, claims, demands,
actions, causes of action, or obligations (collectively referred to as a
"LIABILITY" or "LIABILITIES" herein) of any nature, direct or indirect,
absolute, contingent or otherwise except (i) as incurred in the ordinary
course of business since the date of such financial statements and as set forth
in the ACI Financial Statements and the Audited Balance Sheet, (ii) as
disclosed in Part 4.19 and Part 4.22 of the Disclosure Schedule, or (iii)
which are not material. For purposes of this Section 4.19 only, material
shall be defined as $50,000 in the aggregate for all Liabilities.
4.20 RELATED PARTY TRANSACTIONS. Except as set forth in Part 4.20 of
the Disclosure Schedule:
(A) no Related Party has any direct or indirect interest of any
nature in any asset used in or otherwise relating to the business of ACI;
(B) no Related Party is indebted to ACI;
(C) presently no Related Party has any direct or indirect material
financial interest in, any Contract, transaction or business dealing of
any nature involving ACI;
25
<PAGE>
(D) no Related Party is competing, or has at any time since
January 1, 1995 competed, directly or indirectly, with ACI; and
(E) no event has occurred, and no condition or circumstance
exists, that will (with or without notice or lapse of time) give rise to
or serve as a basis for any claim or right in favor of any Related Party
against ACI, except as provided for or contemplated by this Plan and the
Transactions.
4.21 CERTAIN PAYMENTS, ETC. ACI has not, and to the best of ACI's and
Shareholder's knowledge, no officer, employee, agent or other Person
associated with ACI, while acting for or on behalf of ACI, has at any time,
directly or indirectly:
(A) used any corporate funds (1) to make any unlawful political
contribution or gift or for any other unlawful purpose relating to any
political activity, (2) to make any unlawful payment to any governmental
official or employee, or (3) to establish or maintain any unlawful or
unrecorded fund or account of any nature;
(B) made any false or fictitious entry, or failed to make any
entry that should have been made, in any of the books of account or other
records of ACI;
(C) made any unlawful payment including any payoff, influence
payment, bribe to any person; or
(D) agreed or committed to take any of the actions described in
clauses "(a)" through "(c)" above.
4.22 PROCEEDINGS; LEGAL PROCEEDINGS; ORDERS. Part 4.22 of the
Disclosure Schedule sets forth the legal and administrative proceedings and
investigations of any kind or nature now pending or threatened before any
court, arbitrator or administrative body against ACI and/or the Shareholder.
None of such proceedings set forth in Part 4.22 of the Disclosure Schedule,
if determined adversely, except for the LDDS Litigation and unless
specifically set forth and explained, would have a material adverse effect on
ACI, its business, condition, assets, operations or earnings, or challenge
the transactions contemplated by this Plan. ACI is not subject to any
unsatisfied judgment, order or decree of any court of law, administrative
board, regulatory agency, arbitrator or arbitration panel. Except as
disclosed in Part 4.22 of the Disclosure Schedule, ACI is in substantial
compliance with all laws, rules and regulations of governmental agencies and
authorities, and any judgments, orders or decrees which by their terms apply
to them.
4.23 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(A) ACI has the right, power and authority to enter into and to
perform its obligations under this Plan and each of the other Transactional
Agreements to which it is or may become a party; and the execution, delivery
and performance by ACI of this Plan and the other
26
<PAGE>
Transactional Agreements have been duly authorized by all necessary action on
the part of ACI and the Shareholder. This Plan constitutes, and the other
Transactions Agreements constitute or will constitute, the legal, valid and
binding obligation of ACI, enforceable against ACI in accordance with their
terms.
(B) The Shareholder has the right, power and capacity to enter
into and to perform the Shareholder's obligations under each of the
Transactional Agreements to which the Shareholder is or may become a party.
This Plan constitutes the legal, valid and binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its
terms. Upon the execution of each of the other Transactional Agreements at
Closing to which she is a party, each of such other Transactional Agreements
will constitute the legal, valid and binding obligation of the Shareholder,
and will be enforceable against the Shareholder in accordance with its terms.
4.24 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 4.24 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(A) contravene, conflict with or result in a violation of (1) any
of the provisions of ACI's Articles of Incorporation or Bylaws (including
their amendments), or (2) any resolution adopted by ACI's sole shareholder,
Board of Directors or any committee of ACI's Board of Directors;
(B) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the valid right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which ACI, or any of the assets owned or used by
ACI, is subject;
(C) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by ACI or any of its employees or agents that
otherwise relates to ACI's business or to any of the assets owned or used by
ACI;
(D) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material ACI Contract;
(E) give any Person the right to (1) declare a default or exercise
any remedy under any Material ACI Contract, (2) accelerate the maturity or
performance of any Material ACI Contract, or (3) cancel, terminate or modify
any Material ACI Contract;
(F) cause ACI (or its successors) to pay, or to become liable for
the payment of, any Tax;
27
<PAGE>
(G) contravene, conflict with or result in a violation or breach
of or a default under any provision of, or give any Person the right to
declare a default under, any Contract to which ACI is a party or by which ACI
is bound; or
(H) result in the imposition or creation of any encumbrance upon
or with respect to any asset of ACI.
Except as set forth in Part 4.24 of the Disclosure Schedule, neither ACI nor
the Shareholder was, is or will be required to make any filing with or give
any notice to, or to obtain any Consent from, any Person in connection with
the execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of the Transactions.
4.25 BROKERS. Neither ACI nor the Shareholder nor their affiliates has
agreed to become obligated to pay, or has taken any action that might result
in any Person claiming to be entitled to receive, any brokerage commission,
finder's fee or similar commission or fee in connection with any of the
Transactions.
4.26 FULL DISCLOSURE.
(A) No Transactional Agreement contains or will contain any
materially untrue statement of fact, and none of the Transactional Agreements
omits or will omit to state any material fact necessary to make any of the
representations, warranties or other statements or information contained
therein not misleading.
(B) Except as set forth in Part 4.26 of the Disclosure Schedule,
there is no material fact within the knowledge of ACI and Shareholder (other
than publicly known facts relating exclusively to political or economic
matters of general applicability that will adversely affect all Comparable
Entities) that (1) might have a materially adverse effect on ACI's business,
condition, assets, liabilities, operations, financial performance, revenue,
net income or prospects (or on any aspect or portion thereof) or on the
ability of ACI or the Shareholder to comply with or perform any covenant or
obligation under any of the Transactional Agreements, or (2) might have the
effect of preventing, delaying, making illegal or otherwise interfering with
any of the Transactions.
(C) The information set forth in the Disclosure Schedule, and all
other information regarding ACI and its business, condition, assets,
liabilities, operations, financial performance, revenue, net income and
prospects that has been furnished to PAC, Parent or any of their
Representatives by or on behalf of ACI or any of ACI's Representatives, is
substantially accurate and complete in all material respects.
4.27 ACI'S BUSINESS. ACI represents and warrants that:
28
<PAGE>
(A) The Percentage Intrastate Usage (PIU) is accurate as
represented and reported to the local exchange carriers and that Shareholder
shall remain liable for any liabilities arising from shortfalls billed to ACI
by ACI's local exchange carriers up through the Effective Time;
(B) ACI has no extraordinary payments arising on or after December
31, 1995, or special arrangements owed to any agent or customer or that
relates to its business, assets, liabilities or condition, financial or
otherwise;
(C) ACI has not committed to any arrangements with customers or
sales agents that would require PAC or Parent to provide customer discounts,
credits or reduced pricing from and after the Effective Time;
(D) Its DMS 250 Switches have the BCS 35 upgrades and SS7
Signaling;
(E) ACI owns outright and with no further obligations the Phoenix,
Minneapolis, and Colorado Springs switches which are all Northern Telecom DMS
250 switches operating at the following total minutes of capacity levels:
- Phoenix - 20% of capacity;
- Colorado Springs - 65% of capacity;
- Minneapolis - 80% of capacity;
(F) ACI has no Billing Pad programmed into its billing or in the
Clock of any of the DMS 250 Switches;
(G) ACI has no volume commitments or term commitments with ACI's
carriers;
(H) ACI has or will have as of the Effective Time written letters
of agency for at least 80 percent of the customers of ACI; and
(I) ACI maintains an average usage of not less than $100 per
business customer.
4.28 REGISTRATION OF SHARES. The information to be supplied by
Shareholder to Parent for inclusion in Parent's Registration Statement(s) to
register part or all of the Shares to be filed under the Securities Act of
1933, as amended (the "1933 ACT"), with the Securities and Exchange
Commission ("SEC"), pursuant to Section 2 hereof, will not, at the time the
Registration Statement(s) become(s) effective, contain any untrue statement
of a material fact or 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. All documents which
the Shareholder is responsible for filing, or which she furnishes to Parent
in connection with the Registration
29
<PAGE>
Statement(s), will comply as to form and substance in all material respects
with the provisions of applicable law.
4.29 SECURITIES LAWS COMPLIANCE.
(A) INVESTMENT INTENT. Shareholder is acquiring the Shares, the
Note and the Temporary Note (collectively, the "Securities") solely for her
own account for investment and not with a view to or for sale in connection
with any distribution of the Securities or any portion thereof and not with
any present intention of selling, offering to sell or otherwise disposing of
or distributing the Securities or any portion thereof in any transaction
other than a transaction exempt from registration under the 1933 Act.
(B) RESIDENCE. Shareholder's principal residence is located at
1559 Genesee Vista, Golden, Colorado 80401.
(C) INFORMATION CONCERNING THE PARENT AND PAC. Shareholder has
heretofore received all information regarding Parent and PAC and their plans,
operations and financial condition as the Shareholder has deemed necessary
and appropriate to enable her to evaluate the financial risk inherent in
making an investment in the Securities, and Shareholder has received
satisfactory and complete information concerning the business and financial
condition of Parent and PAC in response to all inquiries in respect thereof.
(D) ECONOMIC RISK. Shareholder realizes that the Securities will
be a highly speculative investment and involve a high degree of risk, and
Shareholder is able, without impairing the Shareholder's financial condition,
to hold the Securities for an indefinite period of time and to suffer a
complete loss of her investment.
(E) RESTRICTED SECURITIES. Shareholder understands that the
Securities are being offered and sold without registration under the 1933
Act, and without qualification under the securities or blue sky laws of any
state, pursuant to exemptions from registration and qualifications relating
to transactions not involving a public offering or solicitation. These
exemptions only exempt the issuance of the Securities to Shareholder and not
any sale or other disposition of the Securities or any interest therein by
Shareholder. Accordingly, there can be no assurance that Shareholder will be
able to sell or transfer any of the Securities or any interest therein, and
Shareholder agrees not to make any such sales or dispositions unless the
Securities are so registered or qualified or other conditions (which may
never be met) are met. The Shareholder is acquiring the Securities solely for
her own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof.
(F) RESTRICTIVE LEGEND. (i) Shareholder acknowledges that the
certificate or certificates evidencing the Shares, the Temporary Note and the
Note will bear a legend to the following effect or in some variable form in
Parent and PAC's discretion:
30
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND SUCH STATE SECURITIES OR BLUE SKY LAWS.
(ii) The Shareholder acknowledges that the Note and the Temporary Note
will bear an additional legend to the following effect:
THIS PROMISSORY NOTE IS NONTRANSFERABLE AND SUBJECT TO A RIGHT OF SETOFF
AS SET FORTH IN THE AGREEMENT AND PLAN OF MERGER (THE "PLAN") ENTERED INTO AS
OF JANUARY 16, 1996 BY AND AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX
NETWORK, INC., AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN, AND THUS
THE PRINCIPAL AND ACCRUED INTEREST UNDER THIS NOTE MAY BE REDUCED IN PART OR
ENTIRELY IN ACCORDANCE WITH THE TERMS OF THE PLAN.
4.30 EXHIBITS AND DISCLOSURE SCHEDULES. All statements contained in the
Exhibits and Disclosure Schedule pursuant to this Plan are incorporated
herein and made a part of this Plan by reference thereto and shall be deemed
to be additional representations and warranties of the party furnishing the
Disclosure Schedule or Exhibit.
4.31 SOLE SHAREHOLDER. Judy Van Essen is the sole shareholder of ACI.
ACI has no capital stock issued and outstanding, and as of immediately before
the Effective Time will have no capital stock issued and outstanding, except
for 100,000 shares of voting common stock, all of which are, and will be
through the Effective Time, owned by Shareholder. Shareholder (i) is the
sole, exclusive owner of 100,000 shares of ACI Common Stock; (ii) will not
sell, encumber or dispose of any such shares prior to the Effective Time; and
(iii) has complete and unrestricted power to sell or exchange or otherwise
dispose of, such shares, and at the Effective Time such shares shall be free
and clear of all liens and encumbrances.
4.32 ASSUMPTION OF CONTRACTS, REAL AND PERSONAL PROPERTY LEASES.
(A) ACI does not own any real property. All of the leases of real
property with respect to real property leased or subleased by ACI, or by
which it holds any leasehold interest including the real property leases (the
"REAL PROPERTY LEASES") described in Part 4.32(a) of the Disclosure Schedule
with respect to the real property described thereon (the "LEASED REAL
PROPERTY"), are assumable by PAC pursuant to the Merger.
31
<PAGE>
(B) All of the Contracts are assumable by PAC pursuant to the
Merger.
(C) All of the leases of personal property with respect to
personal property leased or subleased by ACI, or by which it holds any lease
interest including the personal property (the "PERSONAL PROPERTY LEASES")
described in Part 4.32(c) of the Disclosure Schedule with respect to the
personal property described thereon (the "PERSONAL PROPERTY"), are assumable
by PAC pursuant to the Merger.
(D) If any Real Property Lease, Personal Property Lease and/or
Contract for which assumption by PAC is not allowed without the consent of a
third party, each party shall use its reasonable best efforts (without any
requirement on the part of them to pay any money or agree to any change in
the terms of any such Real Property Lease, Personal Property Lease and/or
Contract) to obtain the consent of such other party to the assumption of any
such Real Property Lease, Personal Property Lease and/or Contract by PAC in
all cases in which such consent is or may be required for such assumption. If
any such consent shall not be obtained, Shareholder shall indemnify, defend
and hold PAC and Parent harmless from any and all obligations, damages and
claims which arise as a result of ACI's and Shareholder's failure to obtain
consent to assumption. Any damages incurred by PAC or Parent and not paid by
Shareholder may be setoff against amounts due under the Temporary Note or
the Note or property held pursuant to the Escrow Agreement and the value of
any such Real Property Lease, Personal Property Lease and/or Contract shall
be deducted or setoff against the Merger Consideration or other amounts owed
to Shareholder.
4.33 REPRESENTATION OF PARTIES BY LEGAL AND TAX ADVISORS. Each of the
parties hereto has been advised by, consulted with and represented by its own
respective attorneys and other tax advisors concerning the Transactions, the
Transactional Agreements and their legal, tax and other consequences.
4.34 EXCLUDED ASSETS. Shareholder shall assume all liability for the
Excluded Assets and shall indemnify, defend and hold PAC and Parent harmless
against any claims, demands or damages incurred by PAC or Parent relating to
such Excluded Assets.
4.35 ACI NOTE PAYABLE. The ACI Note Payable to the Shareholder as of
the Closing will have an outstanding principal balance of $4,000,000 and all
accrued and unpaid interest will have been paid in full immediately prior to
the Closing.
5. REPRESENTATIONS AND WARRANTIES OF PAC AND PARENT.
PAC and Parent represent and warrant, as relates to their own respective
entity, to and for the benefit of ACI and the Shareholder, as follows:
5.1 ORGANIZATION AND GOOD STANDING. Each of PAC and Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all
32
<PAGE>
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted.
5.2 PROCEEDINGS, LEGAL PROCEEDINGS; ORDERS. Part 5.2 of the Disclosure
Schedule sets forth the material legal and administrative proceedings and
investigations of any kind or nature now pending or threatened before any
court, arbitrator or administrative body against PAC and/or the Parent. None
of such proceedings set forth in Part 5.2 of the Disclosure Schedule, if
determined adversely, unless specifically set forth and explained, would have
a material adverse effect on PAC or Parent, their business, condition,
assets, operations or earnings, or challenge the transactions contemplated by
this Plan. PAC and Parent are not subject to any unsatisfied judgment, order
or decree of any court of law, administrative board, regulatory agency,
arbitrator or arbitration panel. Except as disclosed in Part 5.2 of the
Disclosure Schedule, PAC and Parent are in substantial compliance with all
laws, rules and regulations of governmental agencies and authorities, and any
judgments, orders or decrees which by their terms apply to them.
5.3 FULL DISCLOSURE.
(A) None of the Transactional Agreement contains or will contain
any materially untrue statement of fact, and none of the Transactional
Agreements omits or will omit to state any material fact necessary to make
any of the representations, warranties or other statements or information
contained therein not misleading.
(B) Except as set forth in Part 5.3 of the Disclosure Schedule,
there is no material fact known by PAC or Parent (other than publicly known
facts relating exclusively to political or economic matters of general
applicability that will adversely affect all entities comparable to PAC and
Parent) that (1) might have a materially adverse effect on PAC and Parent's
business, condition, assets, liabilities, operations, financial performance,
revenue, net income or prospects (or on any aspect or portion thereof) or on
the ability of PAC or the Parent to comply with or perform any covenant or
obligation under any of the Transactional Agreements, or (2) might have the
effect of preventing, delaying, making illegal or otherwise interfering with
any of the Transactions.
(C) The information set forth in the Disclosure Schedule supplied
by PAC and the Parent, and all other information regarding PAC and Parent and
their business, condition, assets, liabilities, operations, financial
performance, revenue, net income and prospects that has been furnished to ACI
or any of its Representatives by or on behalf of PAC and Parent or any of
their Representatives, is substantially accurate and complete in all material
respects.
5.4 BROKERS. PAC and Parent have not agreed to become obligated to
pay, and have not taken any action that might result in any Person claiming
to be entitled to receive, any brokerage commission, finder's fee or similar
commission or fee in connection with any of the Transactions.
5.5 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 5.5 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the
33
<PAGE>
consummation or performance of any of the Transactions, will directly or
indirectly (with or without notice or lapse of time):
(A) contravene, conflict with or result in a violation of (1) any
of the provisions of PAC's and Parent's Articles of Incorporation or Bylaws
(including their amendments), or (2) any resolution adopted by PAC's and
Parent's stockholders, Board of Directors or any committee of their Board of
Directors;
(B) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the valid right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Parent or PAC is subject; and
(C) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Parent or PAC or any of their employees or
agents that otherwise relates to their business or to any of the assets owned
or used by them.
5.6 ISSUANCE OF SHARES OF PARENT. All of the Shares will be duly and
validly issued and will be fully paid and nonassessable. The Shares will not
be issued in violation of the preemptive rights of any stockholder of Parent.
5.7 ISSUANCE OF NOTE. Upon issuance, the Temporary Note will be
validly issued and a binding obligation of PAC. Upon issuance, the Note will
be validly issued and a binding obligation of PAC.
5.8 GUARANTEE. Upon issuance of the Temporary Note, Parent's guarantee
of the Temporary Note will be a valid and binding obligation of Parent. Upon
issuance of the Note, Parent's guarantee of the Note will be a valid and
binding obligation of Parent.
5.9 ACCESS TO RECORDS FOR LITIGATION AND TAXES. Upon reasonable prior
written notice to PAC, Shareholder shall have reasonable access to the
business records transferred to PAC and former employees of ACI then working
for PAC solely for matters relating to litigation and taxes of Shareholder.
5.10 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(A) Parent has the right, power and authority to enter into and to
perform its obligations under this Plan; and the execution, delivery and
performance by Parent of this Plan has been duly authorized by all necessary
action on the part of Parent. This Plan constitutes the legal, valid and
binding obligation of Parent, enforceable against Parent in accordance with
its terms.
34
<PAGE>
(B) PAC has the right, power and capacity to enter into and to
perform PAC's obligations under each of the Transactional Agreements to which
PAC is or may become a party. This Plan constitutes the legal, valid and
binding obligation of PAC, enforceable against PAC in accordance with its
terms. Upon the execution of each of the other Transactional Agreements at
Closing to which it is a party, each of such other Transactional Agreements
will constitute the legal, valid and binding obligation of PAC and will be
enforceable against PAC in accordance with its terms.
5.11 WILTELL NOTE. PAC and Parent shall use their reasonable efforts to
obtain a discount with regard to ACI's promissory note payable to WilTel.
6. COVENANTS OF THE PARTIES.
6.1 ACCESS AND INVESTIGATION. Each of Shareholder, PAC and Parent
shall use their best efforts at all times following the Closing Date so that:
(A) The parties and their Representatives provide the other
parties and their Representatives with reasonable access to the parties
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to ACI;
(B) The parties provide each other and their Representatives with
such copies of existing books, records, Tax Returns, work papers and other
documents and information relating to ACI as such party may reasonably request
in good faith; and
(C) The parties provide each other and their Representatives with
such additional financial, operating and other data and information regarding
ACI as such party may reasonably request in good faith.
6.2 FILINGS AND CONSENTS. Each of ACI, Shareholder, PAC and Parent
shall use their best efforts to effect the following:
(A) each filing or notice required to be made or given (pursuant
to any applicable Legal Requirement, Order or Contract, or otherwise) by ACI
or the Shareholder in connection with the execution and delivery of any of
the Transactional Agreements or in connection with the consummation or
performance of any of the Transactions (including each of the filings and
notices identified in Part 4.24 of the Disclosure Schedule) is made or given
as soon as possible after the date of this Plan;
(B) each consent required to be obtained (pursuant to any
applicable Legal Requirement, Order or Contract, or otherwise) by ACI or the
Shareholder in connection with the execution and delivery of any of the
Transactional Agreements or in connection with the consummation or
performance of any of the Transactions (including each of the Consents
identified
35
<PAGE>
in Part 4.24 of the Disclosure Schedule) is obtained as soon as reasonably
possible after the date of this Plan and remains in full force and effect
through after the Closing Date;
(C) Shareholder promptly delivers to PAC a copy of each filing
made, each notice given and each Consent obtained by Shareholder or ACI in
connection with the Transactions; and
(D) Each of ACI, Shareholder, PAC and Parent and their
Representatives shall cooperate with one another, and prepare and make
available such documents and take such other actions as it may request in
good faith, in connection with any filing, notice or Consent that PAC is
required or elects to make, give or obtain.
6.3 AFFILIATES AGREEMENT. The Shareholder shall execute and deliver to
PAC and Parent on or before the Closing an Affiliates Agreement,
substantially in the form of EXHIBIT F hereto.
6.4 PERSONNEL. Except for "cause", PAC shall not terminate any of the
sales people, sales agents or customers (other than those customers that are
delinquent in the payment of their accounts), of ACI immediately prior to the
Effective Time, for a period of three months commencing on the Closing Date.
6.5 COLLECTION PROCEDURES. PAC will use ACI's collection procedures
through March 31, 1996 and will not compromise any account receivable
acquired from ACI without Shareholder's prior consent.
7. [INTENTIONALLY LEFT BLANK]
36
<PAGE>
8. CONDITIONS PRECEDENT TO PARENT'S AND PAC'S OBLIGATION TO CLOSE.
Each and every obligation of PAC and Parent to be performed before or on
the Effective Time or thereafter shall be subject to the satisfaction prior
to or at the Closing of each of the following conditions (any of which may be
waived by PAC or Parent, in whole or in part, in accordance with Section
13.12):
8.1 SATISFACTORY COMPLETION OF PRE-ACQUISITION REVIEW. PAC shall have
satisfactorily completed its pre-acquisition investigation and review of
ACI's business, condition, assets, liabilities, operations, financial
performance, net income and prospects and shall be satisfied with the results
of that investigation and review.
8.2 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties made by ACI and Shareholder in this Plan (considered
collectively), and each of said representations and warranties (considered
individually), shall have been accurate in all material respects as of the
date of this Plan, and shall be accurate in all material respects as of the
Closing as if made at the Closing.
8.3 PERFORMANCE OF OBLIGATIONS.
(A) ACI and the Shareholder shall have executed and delivered each
of the agreements and other documents required to be executed and delivered
by ACI and the Shareholder pursuant to Section 10.1; and
(B) All of the other covenants and obligations that ACI and the
Shareholder are required to comply with or perform at or prior to the Closing
(considered collectively), and each of said covenants and obligations
(considered individually), shall have been duly complied with and performed
in all material respects.
8.4 APPROVAL OF PAC'S AND PARENT'S BOARDS OF DIRECTORS; CONSENTS.
(A) The boards of directors of each of PAC and Parent shall have
ratified the execution of this Plan by PAC and shall have approved the
consummation of the Transactions, on or before January 16, 1996; and
(B) All material Consents identified in Part 4.24 of the Disclosure
Schedule shall have been obtained and shall be in full force and effect.
8.5 NO ADVERSE CHANGE. There shall have been no material adverse change
in revenue, ACI's business, condition, assets, liabilities, operations,
financial performance, net income, revenue, or prospects (or in any aspect or
portion thereof) since the date of this Plan.
37
<PAGE>
8.6 ADDITIONAL DOCUMENTS. PAC and Parent shall have received the
following documents:
(A) an opinion letter from Christoffel, Elliott & Albrecht, P.A.,
dated the Closing Date, and
(B) such other documents as Parent and PAC may request in good faith
for the purpose of (1) evidencing the accuracy of any representation or
warranty made by ACI or the Shareholder, (2) evidencing the compliance by ACI
or Shareholder with, or the performance by ACI or Shareholder of, any
covenant or obligation set forth in this Plan, (3) evidencing the
satisfaction of any condition set forth in this Section 8, or (4) otherwise
facilitating the consummation or performance of any of the Transactions.
8.7 NO PROCEEDINGS. Since the date of this Plan, there shall not have
been commenced or threatened against PAC or Parent, or against any Person
affiliated with PAC or Parent, any Proceeding (a) involving any challenge to,
or seeking damages or other relief in connection with, any of the
Transactions, or (b) that might have the effect of preventing, delaying,
making illegal or otherwise interfering with or decreasing the value to PAC
of any of the Transactions.
8.8 NO CLAIM REGARDING OWNERSHIP OR SALE PROCEEDS. No Person shall have
made or threatened any claim asserting that such Person (a) may be the holder
or the beneficial owner of, or may have the right to acquire or to obtain
beneficial ownership of, any of the assets of ACI, as solely determined by
PAC, capital stock or other securities of ACI, or (b) may be entitled to all
or any portion of the Merger Consideration.
8.9 NO PROHIBITION. Neither the consummation nor the performance of any
the Transactions will, directly or indirectly (with or without notice or
lapse of time), contravene or conflict with or result in a violation of, or
cause PAC or Parent to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been proposed by or before any Governmental Body.
8.10 SECTION 1445 AFFIDAVIT. ACI shall have delivered to PAC an
affidavit, in form satisfactory to PAC, to the effect that ACI is not a
"foreign person," "foreign corporation," "foreign partnership," "foreign
trust," or "foreign estate" under Section 1445 of the Code, and containing
all such other information as is required to comply with the requirements of
such Section of the Code.
9. CONDITIONS PRECEDENT TO ACI'S AND THE SHAREHOLDER'S OBLIGATION TO CLOSE
ACI's and the Shareholder's obligation to close and take the other actions
required to be taken by ACI and the Shareholder at the Closing is subject to
the satisfaction, at or prior to the
38
<PAGE>
Closing, of each of the following conditions (any of which may be waived by
ACI and Shareholder, in whole or in part, in accordance with Section 13.12):
9.1 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties made by PAC and Parent in this Plan (considered collectively), and
each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Plan and
shall be accurate in all material respects as of the Effective Time.
9.2 PARENT'S AND PAC'S PERFORMANCE.
(A) PAC and Parent shall have executed and delivered all documents
required to be executed and delivered by PAC and Parent pursuant to Section
10 and shall have transferred the consideration contemplated by Section 2.
(B) All of the other covenants and obligations that PAC and Parent
are required to comply with or to perform pursuant to this Plan at or prior
to the Closing (considered collectively), and each of said covenants and
obligations (considered individually), shall have been complied with and
performed in all material respects.
9.3 NO INJUNCTION. There shall not be in effect any injunction that
shall have been entered by a court of competent jurisdiction since the date
of this Plan that prohibits the transactions contemplated herein.
9.4 NO ADVERSE CHANGE. There shall have been no material adverse change
in revenue, Parent's business, condition, assets, liabilities, operations,
financial performance, net income, revenue, or prospects (or in any aspect or
portion thereof) since September 30, 1995.
9.5 NO PROCEEDINGS. Since September 30, 1995, there shall not have been
commenced or threatened against the Parent, or against any Person affiliated
with the Parent, any Proceeding (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Transactions, or (b)
that might have the effect of preventing, delaying, making illegal or
otherwise interfering with or materially decreasing the value to the
Shareholder of any of the Transactions.
9.6 NO PROHIBITION. Neither the consummation nor the performance of any
of the Transactions will, directly or indirectly (with or without notice or
lapse of time), contravene or conflict with or result in a violation of, or
cause ACI or Shareholder to suffer any material adverse consequence under,
(a) any applicable Legal Requirement or Order, or (b) any Legal Requirement
or Order that has been proposed by or before any Governmental Body.
9.7 ADDITIONAL DOCUMENTS. ACI and Shareholder shall have received the
following documents:
(A) an opinion letter from Freeborn & Peters, dated the Closing
Date; and
39
<PAGE>
(B) such other documents as ACI and Shareholder may request in good
faith for the purpose of (1) evidencing the accuracy of any representation or
warranty made by PAC and Parent, (2) evidencing the compliance by PAC and
Parent with, or the performance by PAC and Parent of, any covenant or
obligation set forth in this Plan, (3) evidencing the satisfaction of any
condition set forth in this Section 9, or (4) otherwise facilitating the
consummation or performance of any of the Transactions.
10. CLOSING.
The closing of the sale of the transactions set forth herein shall take
place at the offices of Freeborn & Peters in Denver, Colorado at 3:00 P.M.
(Colorado time) on January 16, 1996 (or at such other place or time as PAC
and ACI may jointly designate).
10.1 ACI AND SHAREHOLDER DOCUMENTS.
(A) Shareholder shall execute and deliver to PAC and Parent three
Noncompetition Agreements in the form of EXHIBIT G.
(B) ACI and Judy Van Essen and Gary Albrecht shall execute and
deliver an Acknowledgment of Termination of Employment Agreement in the form
of EXHIBIT H, which shall acknowledge their resignations as employees from
ACI.
(C) Christoffel, Elliott & Albrecht, P.A., counsel to ACI and the
Shareholder, shall furnish a written opinion, dated as of the Effective Time,
addressed to PAC and Parent.
(D) ACI shall furnish a certified copy of the resolutions of the
Board of Directors and the sole Shareholder of ACI authorizing and approving
this Plan and the consummation of the transactions contemplated by this Plan.
(E) ACI shall furnish a copy of the bylaws of ACI certified by the
Secretary or Assistant Secretary of ACI to be true, correct and complete, and
a copy of the Articles of Incorporation of ACI certified by the Secretary of
State of the State of Colorado.
(F) Incumbency certificates relating to each person executing any
document executed and delivered to PAC and Parent pursuant to the terms
hereof shall be furnished by ACI.
(G) Such other documents as PAC and Parent may request in good
faith for the purpose of (1) evidencing the accuracy of any representation or
warranty made by ACI or Shareholder, (2) evidencing the compliance by ACI or
Shareholder with, or the performance by ACI or Shareholder, of any covenant
or obligation set forth in this Plan, (3) evidencing the satisfaction of any
condition set forth in Section 8, or (4) otherwise facilitating the
consummation or performance of any of the Transactions.
40
<PAGE>
(H) ACI and Shareholder shall execute and deliver to PAC and Parent
an Indemnification and Hold Harmless Agreement, substantially in the form of
EXHIBIT I.
(I) Shareholder shall execute and deliver an Affiliates Agreement
to PAC and Parent on or before the Closing, substantially in the form of
EXHIBIT F hereto.
(J) Shareholder shall execute and deliver to PAC and Parent an
Escrow Agreement, substantially in the form of EXHIBIT B, and Shareholder
shall deposit the Shares of Parent required under the Escrow Agreement with
the Escrow Agent (as defined in the Escrow Agreement).
(K) ACI and Shareholder shall execute and deliver to PAC and Parent
an Assignment of Contracts and Leases and Assumption of Responsibility,
substantially in the form of EXHIBIT J hereto.
10.2 PAC'S AND PARENT'S DOCUMENTS.
(A) PAC and Parent each shall deliver incumbency certificates
relating to each person executing any document executed and delivered to ACI
and Shareholder pursuant to the terms hereof.
(B) PAC and Parent each shall deliver all other documents,
instruments or writings required to be delivered to ACI and the Shareholder
at or prior to the Closing pursuant to this Plan and such other certificates
of authority and documents as ACI may reasonably request.
(C) PAC and/or Parent shall deliver to Shareholder at the Closing,
the following executed documents: (i) the Temporary Note, (ii) the Guaranty,
(iii) the opinion of Freeborn & Peters, (iv) certificates representing the
Shares, (v) the Indemnification and Hold Harmless Agreement, and (vi) the
Escrow Agreement.
(D) Parent and PAC shall furnish certified copies of the resolutions
of the Boards of Directors authorizing and approving this Plan and the
consummation of the transactions contemplated by this Plan.
(E) Parent and PAC shall each furnish a copy of the bylaws of each
of them certified by the Secretary or Assistant Secretary of Parent or PAC,
to be true, correct and complete, and copies of the Articles of Incorporation
of Parent and PAC certified by the Secretary of State of the State of
Delaware.
(F) Incumbency certificates relating to each person executing any
document executed and delivered to Shareholder pursuant to the terms hereof
shall be furnished by Parent and PAC.
41
<PAGE>
11. TERMINATION.
11.1 TERMINATION EVENTS. This Plan may be terminated by any party if it
is not executed and delivered by the parties hereto on or before 11:59 P.M.
Denver time on January 16, 1996.
12. INDEMNIFICATION, ETC.
12.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(A) All of the representations, warranties, covenants and
obligations of the Shareholder contained in this Plan shall survive the
Closing hereunder (even if PAC and/or the Parent knew or had reason to know
of any misrepresentation of breach of warranty or agreement at the time of
Closing) and continue thereafter in full force and effect including through
the periods set forth below:
(1) the Closing of the Merger;
(2) any sale or other disposition of any or all of the assets
acquired by PAC as part of the Merger, but any such party to whom the assets
are sold or transferred shall not be accorded any rights or remedies pursuant
to this Plan;
(3) any Acquisition Transaction effected by or otherwise
involving PAC or Parent; and
(4) the performance of the parties under any and all of the
Transactions Agreements.
All of said representations, warranties, covenants and obligations shall
remain in full force and effect and shall survive for a period of eighteen
months from the Closing Date, except for (i) Section 4.28 for which said
representations and warranties shall survive for a period of sixty months
from the Closing Date, and (ii) Parents' obligation to pay costs for
registering some of the Shares as set forth in Section 2.3(b) hereof. As to
any claim by an Indemnitee of a breach of a representation, warranty,
covenant or obligation of the Indemnifying Party under the Plan, the
Indemnitee must provide notice of the claim within 18 months of the date of
this Plan and, if the Indemnifying Party disputes the obligation to
indemnify, an arbitration proceeding pursuant to the provisions of this Plan
seeking resolution of such claim must be commenced within 90 days after the
end of the 18 month period or such claim will become void.
12.2 INDEMNIFICATION.
(A) BY SHAREHOLDER. Shareholder shall hold harmless and indemnify
each of the Indemnitees from and against, and shall compensate and reimburse
each of the Indemnitees for, any damages, expenses, costs, liabilities, and
obligations (collectively, the "Damages") which are directly
42
<PAGE>
or indirectly suffered or incurred by any of the Indemnitees or to which any
of the Indemnitees may otherwise become subject at any time (regardless of
whether or not such Damages relate to any third-party claim) and which arise
directly or indirectly from or as a direct or indirect result of, or are
directly or indirectly connected with:
(1) any breach of any representation or warranty made by ACI or
Shareholder in this Plan;
(2) any breach of any representation, warranty, statement,
information or provision contained or required to be contained in the
Disclosure Schedule or in the documents delivered by ACI and/or Shareholder
to PAC and/or Parent.
(3) any breach of any covenant or obligation of ACI or
Shareholder;
(4) any liability to which PAC or any of the other Indemnitees
may become subject and that arises directly or indirectly from or relates
directly or indirectly to (A) any product manufactured or sold, or any
service performed, by or on behalf of ACI on or at any time prior to the
Effective Time, (B) the presence of any hazardous material at any site owned,
leased, occupied or controlled by ACI on or at any time prior to the
Effective Time, or (C) the generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing,
handling, storage, discharge, release or disposal of any hazardous material
(whether lawfully or unlawfully) by or on behalf of ACI on or at any time
prior to the Effective Time; or
(5) any Proceeding relating directly or indirectly to any
breach, alleged breach, liability or matter of the type referred to in clause
"(1)," "(2)," "(3)," or "(4)" above (including any Proceeding commenced by
any Indemnitee for the purpose of enforcing any of its rights under this
Section 12).
(B) BY PAC AND PARENT. PAC and Parent shall hold harmless and
indemnify Shareholder from and against, and shall compensate and reimburse
Shareholder for, any Damages which are directly or indirectly suffered or
incurred by Shareholder or to which Shareholder may otherwise become subject
at any time (regardless of whether or not such Damages relate to any
third-party claim) and which arise directly or indirectly from or as a direct
or indirect result of, or are directly or indirectly connected with:
(1) any breach of any representation or warranty made by PAC or
Parent in this Plan or in the Closing Certificates;
(2) any breach of any representation, warranty, statement,
information or provision contained or required to be contained in the
Disclosure Schedule or in the documents delivered by PAC and/or Parent to ACI
and Shareholder.
43
<PAGE>
(3) any breach of any covenant or obligation of PAC or Parent to
ACI or Shareholder;
(4) any liability to which Shareholder may become subject and
that arises directly or indirectly from or relates directly or indirectly to
any product manufactured or sold, or any service performed, by or on behalf
of PAC and Parent after the Effective Time; or
(5) any Proceeding relating directly or indirectly to any
breach, alleged breach, liability or matter of the type referred to in clause
"(1)," "(2)," "(3)," or "(4)" above (including any Proceeding commenced by
Shareholder for the purpose of enforcing any of her rights under this
Section 12).
12.3 THRESHOLD AND SOURCE OF INDEMNITY. Shareholder shall not be required
to make any indemnification payment pursuant to Section 12.2(a) for any
breach of any of its or ACI's representations, warranties, covenants and
other agreements until such time as the total amount of all Damages
(including the Damages arising from such breach and all other Damages arising
from any other breaches of any representations, warranties, covenants and
other agreements) that have been directly or indirectly suffered or incurred
by any one or more of the Indemnitees, or to which any one or more of the
Indemnitees has or have otherwise become subject, exceeds $50,000 in the
aggregate. At such time as the total amount of such Damages exceeds $50,000
in the aggregate, the Indemnitees shall be entitled to be indemnified against
the full amount of such Damages (and not merely the portion of such Damages
exceeding $50,000).
Neither PAC or Parent shall be required to make any indemnification
payment pursuant to Section 12.2(b) for any breach of any of its
representations, warranties, covenants and other agreements until such time
as the total amount of all Damages (including the Damages arising from such
breach and all other Damages arising from any other breaches of any
representations, warranties, covenants and other agreements) that have been
directly or indirectly suffered or incurred by the Shareholder, or to which
the Shareholder has otherwise become subject, exceeds $50,000 in the
aggregate. At such time as the total amount of such Damages exceeds $50,000
in the aggregate, the Shareholder shall be entitled to be indemnified
against the full amount of such Damages (and not merely the portion of such
Damages exceeding $50,000). Nothing in this Section 12.3 shall be
construed to extend the time period specified in Section 12.1.
12.4 SETOFF. In addition to any rights of setoff or other rights that PAC
and/or Parent or any of the other Indemnitees may have at common law, by
statute or otherwise, PAC and/or Parent shall have the right to set off any
amount that may be owed to any Indemnitee under this Section 12 (including
but not limited to the breach by ACI or Shareholder of a representation,
warranty, covenant or other agreement) against any amount otherwise payable
by PAC or Parent under the Note, the Temporary Note and the Escrow Agreement
otherwise, or by any other Indemnitee, to the Shareholder. For example, in
the event that PAC is owed $75,000 by Shareholder pursuant to this Section
12, PAC shall have the right, in its sole discretion, to offset any payment
under the Note or the Escrow Agreement by a corresponding $75,000.
44
<PAGE>
PAC and Parent shall have the option of the setoff of all or any part of
any Damages they may suffer by notifying the Shareholder in writing that PAC
and/or Parent is electing to recover Shares from the Escrow Deposit
established by the Escrow Agreement between PAC and Shareholder, subject to
the terms and conditions of said Escrow Agreement and this Plan. For the
purposes of setoff against the Escrow Deposit, (i) in the event that the ask
price is lower than $3.75 per Share as of the date that PAC and/or PAC
exercise(s) its right of setoff herein, then PAC and Parent must setoff
against the Shares, and (ii) in the event that the bid price is at least
$3.75 per Share as of the date that PAC and/or PAC exercises its right of
setoff herein, then PAC and Parent may setoff against the Shares, the
Temporary Note, or the Note, in its sole discretion. Nothing in this Section
12.4 shall be construed to extend the time period specified in Section 12.1.
12.5 NONEXCLUSIVITY OF INDEMNIFICATION AND SETOFF REMEDIES. The
indemnification and setoff remedies and other remedies provided in this
Section 12 shall not be deemed to be exclusive. Accordingly, the exercise by
any Person of any of its rights under this Section 12 shall not be deemed to
be an election of remedies and shall not be deemed to prejudice, or to
constitute or operate as a waiver of, any other right or remedy that such
Person may be entitled to exercise (whether under this Plan, under any other
contract, under any statute, or other Legal Requirement, at common law, in
equity or otherwise). Nothing in this Section 12.5 shall be construed to
extend the time period specified in Section 12.1.
12.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PAC AND PARENT. No
Indemnitee (other than PAC, Parent or any successor thereto or assign
thereof) shall be permitted to assert any indemnification claim or exercise
any other remedy under this Plan unless PAC and Parent (or any successor
thereto or assign thereof) shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy.
13. MISCELLANEOUS PROVISIONS.
13.1 FURTHER ASSURANCES. Each party hereto shall execute and/or cause
to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may
reasonably request (prior to, at, or after the Closing) for the purpose of
carrying out or evidencing any of the Transactions.
13.2 FEES AND EXPENSES.
(A) Subject to the indemnification provisions set forth in
Section 12, Shareholder shall bear and pay all fees, costs and expenses
(including all legal fees and expenses payable to counsel for ACI and
Shareholder) that have been incurred or that are in the future incurred by,
on behalf of or for the benefit of ACI or Shareholder in connection with:
(1) the negotiation, preparation and review of any term
sheet or similar document relating to any of the Transactions;
45
<PAGE>
(2) the negotiation, preparation and review of this Plan
(including the Disclosure Schedule), the other Transactional Agreements and
all certificates, opinions and other instruments and documents delivered or
to be delivered in connection with the Transactions;
(3) the preparation and submission of any filing or notice
required to be made or given by the parties in connection with any of the
Transactions, and obtaining any Consent required to be obtained in connection
with any of the Transactions; and
(4) the consummation and performance of the Transactions.
(B) Subject to the indemnification provisions of Section 12, PAC
and Parent shall bear and pay all fees, costs and expenses (including all
legal fees and expenses payable to Freeborn & Peters) that have been incurred
or that are in the future incurred by or on behalf of PAC and Parent in
connection with:
(1) the negotiation, preparation and review of any term
sheet or similar document relating to any of the Transactions;
(2) the investigation and review conducted by PAC and Parent
and their Representatives with respect to ACI's business;
(3) the negotiation, preparation and review of this Plan,
the other Transactional Agreements and all certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
Transactions; and
(4) the consummation and performance of the Transactions.
13.3 ATTORNEYS' FEES. If any legal action or other legal proceeding
(including arbitration) relating to any of the Transactional Agreements or
the enforcement of any provision of any of the Transactional Agreements is
brought against any party hereto, including, but not limited to any claim under
which indemnity is sought pursuant to Section 12 hereunder, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party
may be entitled).
13.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Plan shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by telecopier) to
the address set forth beneath the name of such party below (or to such other
address as such party shall have specified in a written notice given to the
other parties hereto in accordance with this Section 13.4):
46
<PAGE>
IF TO SHAREHOLDER:
Judy Van Essen
1559 Genesee Vista
Golden, Colorado 80401
WITH A COPY TO:
Christoffel, Elliot & Albrecht, P.A.
805 Capital Centre
386 North Wabasha Street
Saint Paul, MN 55102
Attn: James F. Christoffel, Esq.
IF TO PAC OR PARENT:
Phoenix Network Acquisition Corp.
Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, CA 94104
Attention: Jeffrey L. Bailey
WITH A COPY TO:
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Attention: Ernest J. Panasci, Esq.
13.5 PUBLICITY. Without limiting the generality of anything contained
herein, on and at all times after the Closing Date:
(a) except as provided for in or as contemplated by the Plan, no
press release or other publicity concerning any of the Transactions shall be
issued or otherwise disseminated by or on behalf of ACI or Shareholder, and
ACI and Shareholder shall continue to keep the existence and terms of this
Plan and the other Transactional Agreements strictly confidential; and
(b) ACI and Shareholder shall keep strictly confidential, and
shall not use or disclose to any other Person, any non-public document or
other information in their possession that relates directly or indirectly to
the Merger, Parent or any other affiliates.
13.6 TIME OF THE ESSENCE. Time is of the essence of this Plan.
47
<PAGE>
13.7 HEADINGS. The underlined headings contained in this Plan are for
convenience of reference only, shall not be deemed to be a part of this Plan
and shall not be referred to in connection with the construction or
interpretation of this Plan.
13.8 COUNTERPARTS. This Plan may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
13.9 GOVERNING LAW; VENUE.
SUBJECT TO SECTION 13.18:
(A) This Plan shall be construed in accordance with, and governed
in all respects by the internal laws of the State of Colorado (without giving
effect to principles of conflicts of laws).
(B) In any legal action relating to this Plan, the parties hereto
agree (i) to the exercise of jurisdiction over it by a state or Federal court
in Jefferson County, Colorado; and (ii) that if any party brings the action,
it shall be instituted in one of the courts specified in subparagraph (b)(i)
above.
(C) The Shareholder agrees that, if any Proceeding is commenced
against any Indemnitee by any Person in or before any court or other tribunal
anywhere in the world, then such Indemnitee may proceed against the
Shareholder in such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such Proceeding or any of the matters
alleged therein or any of the circumstances giving rise thereto.
13.10 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon: ACI and
its successors and assigns (if any); the Shareholder and her personal
representatives, executors, administrators, estates, heirs, successors and
assigns (if any); and PAC, Parent and their successors and assigns (if any).
This Plan shall inure to the benefit of: ACI, the Shareholder, PAC, Parent,
the other Indemnitees, and the respective successors and assigns (if any) of
the foregoing. PAC may freely assign any or all of its rights under this Plan
(including its indemnification rights under Section 12), in whole or in part,
to any other Person without obtaining the consent or approval of any other
party hereto or of any other Person, but any such assignment shall not
relieve PAC from its obligations hereunder.
13.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative).
13.12 WAIVER.
(A) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Plan, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Plan,
shall operate as a waiver of such power, right, privilege or
48
<PAGE>
remedy, and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any
other power, right, privilege or remedy.
(B) No Person shall be deemed to have waived any claim arising out
of this Plan, or any power, right, privilege or remedy under this Plan,
unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have
any effect except in the specific instance in which it is given.
13.13 AMENDMENTS. This Plan may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of PAC, Parent, and Shareholder.
13.14 SEVERABILITY. In the event that any provision of this Plan, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Plan, and the application of such provision to
Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
13.15 NO THIRD PARTY BENEFICIARIES; PARTIES IN INTEREST. There are no
third party beneficiaries to this Plan except for the provisions of Section
12, and (except for the provisions of Section 12 hereof), none of the
provisions of this Plan is intended to provide any rights or remedies to any
Person other than the parties hereto and their respective successors and
assigns (if any).
13.16 ENTIRE AGREEMENT. The Transactional Agreements set forth the
entire understanding of the parties relating to the subject matter thereof
and supersede all prior agreements and understandings among or between any of
the parties relating to the subject matter thereof.
13.17 CONSTRUCTION.
(A) For purposes of this Plan, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(B) As used in this Plan, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(C) Except as otherwise indicated, all references in this Plan to
"Sections" and "Exhibits" are intended to refer to Sections of this Plan and
Exhibits to this Plan.
49
<PAGE>
13.18 ARBITRATION. Any controversy or claim arising out of or relating
to this Plan, or the making, performance or breach thereof, shall be settled
in the United States by arbitration (except as provided below), in accordance
with the rules then obtaining, of the American Arbitration Association (the
"Association"), except for any breach of the Noncompetition Agreements by
Shareholder. If the subject of the arbitration involves an intellectual
property, corporate, or bankruptcy matter, as determined by the Association,
then the arbitrator(s) shall have had experience in that subject. The
Association is authorized to make arrangements for this arbitration, to be
held under these rules in Denver, Colorado. In addition, in the event of a
dispute for which the aggrieved party seeks immediate equitable relief,
including without limitation an injunction, the appropriate action may be
brought in any court with appropriate jurisdiction, provided that any such
equitable relief shall be subject to modification by the court after
completion of arbitration of the dispute. This Plan shall be enforceable and
judgment upon any award rendered by all or a majority of the arbitrators may
be entered in any court of any county having jurisdiction.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
50
<PAGE>
The parties hereto have caused this Plan to be executed and delivered as
of January 16, 1996.
"PARENT":
PHOENIX NETWORK, INC.,
a Delaware corporation
BY /s/ WALLACE M. HAMMOND
------------------------------------
Wallace M. Hammond,
President and
Chief Executive Officer
"PAC":
PHOENIX NETWORK ACQUISITION CORP.
a Delaware corporation
BY /s/ WALLACE M. HAMMOND
------------------------------------
Wallace M. Hammond,
President and
Chief Executive Officer
"ACI":
AUTOMATED COMMUNICATIONS, INC.,
a Colorado corporation
BY /s/ JUDY VAN ESSEN
------------------------------------
Judy Van Essen, President
"SHAREHOLDER":
/s/ JUDY VAN ESSEN
---------------------------------------
Judy Van Essen
51
<PAGE>
DEMAND NOTE
January 16, 1996
Automated Communications, Inc., a Colorado corporation ("ACI") hereby
promises to pay to the order of Judy Van Essen, her successors and assigns,
on demand, the principal sum of FOUR MILLION AND NO/100THS DOLLARS
($4,000,000.00).
This Note shall bear interest from and after the date of demand at a rate
of nine percent (9%) per annum. If not paid within thirty (30) days after
demand, the interest applicable hereto shall increase to the higher of twenty
percent (20%) per annum or the highest rate permitted by applicable law.
This Note is accepted by Judy Van Essen in full satisfaction of all
amounts now due and owing by ACI to her for advances made to ACI by her.
Presentment and notice of dishonor are hereby waived by ACI. ACI agrees
to pay all costs of collection and enforcement of this note, including
attorneys' fees.
This Note shall be governed by the laws of the State of Colorado.
Automated Communications, Inc.
By: /s/ JUDY VAN ESSEN
-------------------------------
Its: President
-----------------------------
<PAGE>
EXHIBIT B TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") has been made and entered into
as of the 16th day of January 1996, by and among PHOENIX NETWORK ACQUISITION
CORP. ("PAC"), PHOENIX NETWORK, INC. ("Parent"), JUDY VAN ESSEN
("Shareholder"), and VECTRA BANK, a Colorado banking corporation ("Escrow
Agent").
WITNESSETH:
WHEREAS, Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") dated January 16, 1996, among PAC, Parent, Shareholder, and
Automated Communications, Inc. ("ACI"). ACI has agreed to merge with and into
PAC in exchange for the Merger Consideration (as defined in the Merger
Agreement). The Merger Consideration includes 2,800,000 shares of the Common
Stock of Parent (the "Common Stock") and a temporary PAC Promissory Note in
the amount of $2,400,000 (the "Temporary Note") subject to certain
adjustments; and
WHEREAS, Section 12 of the Merger Agreement and the Indemnification and
Hold Harmless, Agreement dated of even date herewith (the "Indemnification
Agreement") provide in substance that Shareholder shall indemnify, defend and
hold harmless PAC and Parent against any and all Damages (as defined in the
Merger Agreement) suffered by PAC and/or Parent (i) related to any breaches
by Shareholder of the representations, warranties, agreements and covenants
contained in the Merger Agreement, or (ii) which arise from the Legal Claims
(as defined in the Indemnification Agreement); and
WHEREAS, the Parties have agreed to secure a portion of the foregoing
indemnification obligations of Shareholder by a deposit in escrow of
1,400,000 shares of the Common Stock of Parent (each a "Share" and
collectively the "Shares") to be received by Shareholder in accordance with
the Merger Agreement and to be held and applied on the terms and conditions
of this Agreement and the Merger Agreement; and
WHEREAS, the Parties herein desire the Escrow Agent hold and the Escrow
Agent is willing to hold such Shares until the Shares are disbursed in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Parties, intending to be legally bound, agree as follows:
<PAGE>
1. ESCROW DEPOSIT.
1.1. Shareholder has deposited the Shares with the Escrow Agent (the
"Escrow Deposit"). The Escrow Deposit shall be held and released by the
Escrow Agent in accordance with the terms of this Agreement.
1.2. All dividends or other distributions, including stock splits,
declared or made with regard to the Shares shall be deposited with the Escrow
Agent and added to the Escrow Deposit. Such additions, if any, to the Escrow
Deposit shall be subject to the same terms and conditions as the original
Escrow Deposit.
1.3. To the extent that Shareholder receives any refunds relating to
(i) U.S. West "CAB" charges and/or (ii) Colorado state tax claims, then
pursuant to Section 3 of the Merger Agreement, Shareholder shall deposit as
an addition to the Escrow Deposit, the cash amount equal to any such refunds
after the Shareholder has recovered (1) her accountable out of pocket
expenses incurred in obtaining such refund(s) and (2) $60,000.
1.4. Shareholder shall have the right at any time to withdraw from
the Escrow Deposit any and all Shares and substitute in each Share's place an
amount of cash equal to the closing ask price of Parent's Common Stock on the
withdrawal date. In the event of any such substitution, Shareholder and PAC
shall deliver written notice to Escrow Agent stating the terms of the
substitution and instructing the Escrow Agent regarding the deliver of the
Shares.
2. CLAIMS AGAINST THE ESCROW DEPOSIT.
2.1. From the date of this Agreement and for eighteen (18) months
thereafter, PAC may deliver written notice (a "Claim Notice") to the Escrow
Agent and the Shareholder of claims (other than claims relating to the
matters disclosed in Exhibit A attached hereto (the "Existing Claims") under
the indemnification provisions of the Merger Agreement and Indemnification
Agreement specifying the known facts relating to each claim and the amount or
estimated amount thereof. Notwithstanding the foregoing, PAC may deliver a
Claim Notice relating to any or all of the Existing Claims until such time as
a final non-appealable dismissal of ACI, PAC and Parent is entered in each
matter without liability to PAC or Parent.
2.2. The Shareholder will have sixty (60) days from the delivery of
any Claim Notice to deliver a notice (a "Dispute Notice") indicating any
dispute as to liability or as to the amount of the claim or claims therein
together with the facts alleged to support such dispute.
2.3. If PAC asserts a claim in the manner specified in this Section
2 and the Shareholder accepts such claim or fails to dispute such claim by a
Dispute Notice given within the time permitted, Escrow Agent shall release
from the Escrow Deposit that number of Shares as is sufficient to pay in full
the amount of the Claim Notice pursuant to Section 2.5 herein.
-2-
<PAGE>
2.4. If the Shareholder shall properly deliver a Dispute Notice
with respect to any claim described in the Claim Notice, Escrow Agent shall
reserve an amount from the Escrow Deposit equal to the amount or estimated
amount to completely resolve the disputed claim alleged as the Claim Notice
and shall hold such amount until it shall receive written notice, signed by
the Parties hereto, furnishing agreed instructions with regard to payment or
nonpayment of the claim and the fact that such claim has been resolved to the
satisfaction of PAC.
2.5. With regard to Shares which are to be released by the Escrow
Agent to Parent or PAC pursuant to this paragraph 2, the Shares shall be
distributed in the following manner:
(a) As to the first Five Hundred Thousand dollars ($500,000)
in claims (the "Threshold") with respect to which the Shareholder agrees (an
"Undisputed Claim") or with respect to which a disputed claim has been
resolved in favor of PAC and/or Parent (a "Resolved Claim"), the Escrow Agent
shall distribute the released Shares to PAC or Parent. The released Shares
pursuant to this subparagraph 2.5(a) shall be valued at the closing ask price
of Parent's common stock on the date of withdrawal; and
(b) After the Threshold has been reached, all Shares that are
to be released to PAC or Parent due to an Undisputed Claim or Resolved Claim
may be sold, in the sole discretion of Parent. The Parties agree to cooperate
in the sale of such Shares, and Shareholder agrees to the sale of a
sufficient number of Shares to pay in full the amount of any and all
Undisputed Claims or Resolved Claims, which payment is to be made to PAC
and/or Parent pursuant to the terms of this subparagraph 2.5(b) and is to
include all costs associated with the satisfaction of any indemnification
payment pursuant to this subparagraph 2.5(b), including all costs associated
with the sale. If necessary, the costs of registration of such Shares shall
be borne by Parent.
2.6. The Escrow Agent shall in no event be required to resolve any
controversy concerning the Escrow Deposit or take any action concerning any
such controversy. Upon termination of the escrow provided for herein,
Shareholder and PAC agree to execute and deliver to the Escrow Agent such
further documents as the Escrow Agent may reasonably request to evidence the
termination of this Agreement.
3. RELEASE FROM ESCROW AND TERMINATION.
3.1. DURATION OF ESCROW. The Escrow Deposit shall remain on
deposit, unless released pursuant to paragraph 2 above, for the following
periods and in the following amounts:
(a) As to Shares of the Escrow Deposit having a value of
$2,500,000, until such time as:
(1) The entry of a final non-appealable dismissal of
ACI, PAC and Parent of the LDDS Litigation (as defined in Exhibit A), in
which case PAC shall deliver to Escrow Agent a written notice authorizing
Escrow Agent to release to Shareholder that number of Shares
-3-
<PAGE>
having a value of $2,000,000 using the closing ask price of Parent's Common
Stock as of the date of release from the Escrow Deposit, less any amount that
Parent or PAC is required to pay as part of any settlement or judgment
imposed in the LDDS Litigation; and
(2) The entry of a final non-appealable dismissal of
ACI, PAC and Parent of the YTE Litigation (as defined in Exhibit A), in
which case PAC shall deliver to Escrow Agent a written notice authorizing
Escrow Agent to release to Shareholder that number of Shares Shares having a
value of $500,000 using the closing ask price of Parent's Common Stock as of
the date of release from the Escrow Deposit, less any amount that Parent or
PAC is required to pay as part of any settlement or judgment imposed in the
YTE Litigation.
(3) The entry of a final non-appealable dismissal of
ACI, PAC and Parent of all other Existing Claims (other than those set forth
in 3.1(a)(1) and 3.1(a)(2) above), in which case PAC shall deliver to Escrow
Agent a written notice authorizing Escrow Agent to release to Shareholder
that number of Shares having a value of $250,000 using the closing ask price
of Parent's Common Stock as of the date of release from the Escrow Deposit,
less any amount that Parent or PAC is required to pay as part of any
settlement or judgment imposed in any other Existing Claims.
(b) As to the remaining Shares of the Escrow Deposit,
regardless of value, (i) the number of Shares necessary to fully cover the
potential liability (including costs, interest and fees) to PAC and/or Parent
with respect to the Claims for which a Notice of Claim has been delivered to
Shareholder (other than Existing Claims) shall remain on deposit with the
Escrow Agent pursuant to the terms of this Escrow Agreement until such Claims
shall have been, resolved, and (ii) the remaining (if any) shall be
distributed to the Shareholder 18 months from the date of this Agreement.
3.2. Upon termination of this Escrow Agreement, the balance of the
Escrow Deposit shall be distributed by the Escrow Agent to the Shareholder
upon receipt of written instructions executed by PAC and delivered to Escrow
Agent.
3.3. Subject to the arbitration provisions in Section 5.8 below, at
its discretion, and at anytime, Escrow Agent may commence in a court of
competent jurisdiction an interpleader action seeking a declaration of the
rights of the Parties. Escrow Agent may also, at its discretion, deposit the
Escrow Deposit with such court and shall thereupon be discharged of any and
all further duties and liability under this Agreement.
4. CONCERNING THE ESCROW AGENT.
4.1. FEES AND EXPENSES. The Escrow Agent shall be entitled to
charge its customary and reasonable fees for its services hereunder. All
escrow fees charged by the Escrow Agent shall be paid by PAC.
-4-
<PAGE>
4.2. PERFORMANCE. The duties and responsibilities of the Escrow
Agent are limited to those specifically set forth herein. The Escrow Agent
shall not be liable for any mistake of fact or error of judgment made in good
faith or for any acts or omissions by it of any kind resulting from other
than willful misconduct or gross negligence. The Escrow Agent shall be
entitled to rely, and shall be protected in doing so, upon (i) any written
notice, instrument or signature believed by the Escrow Agent to be genuine
and to have been signed or presented by the proper Party or Parties duly
authorized to do so, and (ii) the advice of counsel (which may be of the
Escrow Agent's own choosing). The Escrow Agent shall have no responsibility
for the contents of any writing submitted to them hereunder and shall be
entitled in good faith to rely without any liability upon the contents
thereof.
4.3. INDEMNIFICATION OF ESCROW AGENT. Shareholder and PAC, jointly
and severally, shall indemnify and hold harmless Escrow Agent against any
losses, claims, damages, liabilities, and expenses, including reasonable
costs of investigation and counsel fees and disbursements that may be imposed
on Escrow Agent or incurred by Escrow Agent in connection with its acceptance
of appointment of the performance of its duties under this Agreement,
including any litigation arising from this Agreement or involving the subject
matter hereof, unless any such loss, claim, damage, liability or expense
shall be the result of Escrow Agent's gross negligence, willful default or
breach of trust.
4.4. DISCHARGE BY DELIVERY. After the Escrow Agent has delivered
the Escrow Deposit pursuant to the terms of this Agreement the Escrow Agent
shall have discharged all of its obligations hereunder and neither PAC or
Shareholder shall thereafter have any claim against the Escrow Agent on
account of this Agreement.
5. MISCELLANEOUS.
5.1. ASSIGNMENT. No Party to this Escrow Agreement may assign its
rights and obligations hereunder without the prior written consent of the
other Parties hereto.
5.2. ENTIRE AGREEMENT, AMENDMENTS. This Escrow Agreement contains
the entire understanding of the Parties with respect to the subject matter
hereof, and may be amended only by a written instrument duly executed by all
the Parties hereto.
5.3. NOTICES. All notices, requests, demands and other
communications required or permitted under this Escrow Agreement shall be in
writing and shall be deemed to have been duly given when delivered (which
shall include delivery by Federal Express or facsimile) to the Party from
whom such communication is intended, or five (5) business days after the date
mailed by certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such communication is intended.
5.4. STOCK POWER. Shareholder shall execute and deliver to PAC as
of the signing of this Agreement ten executed and guaranteed stock powers. In
addition, to the extent requested
-5-
<PAGE>
to Escrow Agent, Shareholder agrees to execute and deliver any stock powers
necessary to support the transfer of the Shares to PAC.
5.5. VOTING POWER. Full power to vote the Shares held in the
Escrow Deposit shall remain with Shareholder.
5.6. PAYMENT OF INCOME TAXES. Shareholder shall report any
dividends paid with regards to the Shares and shall pay any and all income
taxes related thereto.
5.7. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the
State of Colorado (without giving effect to principles of conflicts of laws).
5.8. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled in the
United States by arbitration (except as provided below), in accordance with
the rules then obtaining, of the American Arbitration Association (the
"Association"). If the subject of the arbitration involves an intellectual
property, corporate, or bankruptcy matter, as determined by the Association,
then the arbitrator(s) shall have had experience in that subject. The
Association is authorized to make arrangement for this arbitration to be held
under these rules in Denver, Colorado. In addition, in the event of a dispute
for which the aggrieved party seeks immediate equitable relief, including
without limitation an injunction, the appropriate action may be brought in
any court with appropriate jurisdiction, provided that any such equitable
relief shall be subject to modification by the court after completion of
arbitration of the dispute. This Plan shall be enforceable and judgment upon
any award rendered by all or a majority of the arbitrators may be entered in
any court of any county having jurisdiction.
5.9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same instrument. In addition, this Agreement may contain more
than one counterpart of the signature page and this Agreement may be executed
by the affixing of the signatures of each of the Parties to one of such
counterpart signature pages; all of such signature pages shall be read as
though one, and they shall have the same force and effect as though all of
the signers had signed a single signature page.
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed and
delivered by the parties hereof as of the date first above written.
PHOENIX NETWORK PHOENIX NETWORK, INC.
ACQUISITION CORP.
- ----------------------------------- -----------------------------------
By: Wallace M. Hammonds, President By: Wallace M. Hammonds, President
JUDY VAN ESSEN VECTRA BANK
-6-
<PAGE>
- ----------------------------------- -----------------------------------
By: Judy Van Essen, individually By:
-------------------------------
Its:
-------------------------------
As Escrow Agent
-7-
<PAGE>
EXHIBIT C TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
THIS PROMISSORY NOTE IS SUBJECT TO A RIGHT OF SETOFF AS SET FORTH IN THE
AGREEMENT AND PLAN OF MERGER (THE "PLAN") ENTERED INTO AS OF JANUARY 16, 1996
BY AND AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN, AND THUS THE PRINCIPAL
AND ACCRUED INTEREST UNDER THIS NOTE MAY BE REDUCED IN PART OR ENTIRELY IN
ACCORDANCE WITH THE TERMS OF THE PLAN. THIS NOTE IS A "RESTRICTED SECURITY"
AS THAT TERM IS DEFINED BY RULE OF THE SECURITIES AND EXCHANGE COMMISSION AND
IT MAY NOT BE TRANSFERRED, HYPOTHECATED OR SOLD WITHOUT REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAW,
UNLESS EXEMPTIONS FROM SUCH REGISTRATION ARE AVAILABLE.
PROMISSORY NOTE
$__________ April 1, 1996
1. PROMISE TO PAY
FOR VALUE RECEIVED, Phoenix Network Acquisition Corp., a Delaware
corporation ("Maker"), hereby promises to pay to the order of Judy Van Essen
("Holder"), upon the terms and conditions set forth in this promissory note
(this "Note"), the principal amount of $___________. During the term of this
Note, interest shall accrue at an annual rate of nine percent (9%) and be
payable annually on January 16.
2. PAYMENT OF INTEREST AND PRINCIPAL
2.1. INTEREST PAYMENTS. Until this Note is paid in full, interest
shall accrue commencing on January 16, 1996 throughout the term of this Note
on the unpaid principal balance of this Note at an annual rate of nine
percent (9%) and shall be payable annually with the first annual payment to
occur on January 16, 1997 and each successive interest payment to occur on
January 16 every year thereafter. In the event that any of the payment dates
is a weekend or federal holiday, Maker may make the payment on the next
business day.
2.2. PRINCIPAL PAYMENTS. Until this Note is paid in full, the
unpaid principal balance of this Note shall be paid as follows (to be
adjusted for the right of setoff as set forth in Section 5 herein): (i) on
January 16, 1998, 16.67 percent of the original principal balance of the
Note, reduced by any setoff; (ii) on January 16, 1999, 16.67 percent of the
original principal balance of the Note, reduced by any setoff; (iii) on
January 16, 2000, 16.67 percent of the original
<PAGE>
principal balance of the Note, reduced by any setoff; and (iv) the remaining
unpaid principal balance on January 16, 2001. In the event that any of the
payment dates is a weekend or federal holiday, Maker may make the payment on
the next business day.
2.3. PREPAYMENT. Maker shall have the right to prepay all or part of
the principal and accrued interest under this Note at any time in its sole
discretion.
3. INVESTMENT RESTRICTIONS
The issuance of this Note has not been registered under any federal or
state securities laws. Holder may not sell, offer for sale, transfer, pledge
or hypothecate any or all of this Note in the absence of an effective
registration statement covering such transaction under all applicable federal
and state securities laws, unless the sale, offer of sale, transfer, pledge
or hypothecation is exempt from registration under all applicable federal and
state securities laws or unless the contemplated transactions otherwise comply
with all such laws. By accepting and holding this Note, Holder represents and
warrants to Maker that Holder is acquiring this Note for its own account for
investment purposes only and not with a view toward its sale and
distribution. This Note contains a restrictive legend in accordance with this
paragraph.
4. GUARANTEE BY MAKER'S PARENT
Phoenix Network, Inc. ("Guarantor"), the parent corporation of Maker,
shall fully guarantee the performance of Maker under this Note.
5. RIGHT OF SETOFF
As set forth more fully in Section 12 of the Plan, which applicable
parts are incorporated by reference herein, any and all amounts owed to Maker
and/or Guarantor by Judy Van Essen may be setoff against the obligations of
Maker and Guarantor to Holder and its assigns under this Note. The amounts
first payable under this Note (the accrued interest and next principal
payment(s)) shall be the first amounts setoff under this Note.
6. CHANGE OF CONTROL OF GUARANTOR
This Note will immediately be payable in full in the event of any of
the following: (i) the sale of all or substantially all of the assets of
Guarantor, except to an affiliate of Guarantor, in which the consideration
for such assets consists of at least 50 percent cash, or (ii) a business
combination to which Guarantor is one of the combining parties and whereby
the stockholders of Guarantor (at that time) wind up owning less than 40
percent of the equity interests of the resulting entity.
7. EVENTS OF DEFAULT
-2-
<PAGE>
This Note shall, at the option of Holder and exercised by written
notice to Maker, become and be due and payable if any one or more of the
following events (herein called "Events of Default") shall have occurred (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about and be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
a. If default shall be made in the due and punctual payment of
any accrued interest or principal on this Note when and as such accrued
interest and principal shall become due and payable, and such default shall
have continued for a period of 15 days after written notice is delivered to
Maker by Holder;
b. If default shall be made in the performance or observation of
any of the other covenants, agreements or conditions of Maker contained in
this Note, and such default shall have continued for a period of 30 days
after written notice is delivered to Maker by Holder;
c. If each of Guarantor and Maker shall:
(1) admit in writing its inability to pay its debts generally
as they become due;
(2) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(3) consent to the appointment of a receiver for itself or
for all or any substantial part of its property;
(4) be adjudicated a bankrupt in a petition in bankruptcy
filed against it; or
(5) file a petition or answer seeking reorganization or
arrangement under Federal bankruptcy laws or any other
applicable law or statute of the United States of America
thereof; or
d. If a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of Maker and Guarantor, a
receiver of each of Maker and Guarantor or of the whole or any substantial
part of their property, or approving a petition filed against each of them
seeking reorganization or arrangement of Maker and Guarantor under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any State thereof, and such orders, judgments or decrees
shall not be vacated or set aside or stayed within 30 days from the date of
assumption of such custody or control by the receiver.
e. (i) If Foothill Capital, Inc., and any successors to such
primary loan to Parent (the "Primary Lender"), shall declare a default under
its loan(s) to Parent, and (ii) within 30 days after such declaration of
default, the Primary Lender shall not have waived such default and such
-3-
<PAGE>
default has not been cured, and (iii) the Primary Lender accelerates the
principal under such loan(s) to Parent.
f. (i) If the Parent's Common Stock is "delisted" from the
American Stock Exchange, provided the Parent's Common Stock is not, within 30
days of "delisting", listed on the New York Stock Exchange or the Nasdaq
Stock Market, and (ii)(A) such "delisting" is not appealed by the Parent, or
(B) the Parent's appeal is lost, final, binding and nonappealable.
8. REMEDIES
Upon the occurrence of any Event of Default hereunder, the Holder shall
be entitled, at its option, to accelerate the entire unpaid principal balance
and all accrued interest hereunder by written notice to Maker and Guarantor;
upon delivery of such notice, those amounts shall become immediately due and
payable in full. In addition, the Holder shall be entitled to pursue each and
every right and remedy that it may have, if any, under the Plan or applicable
law. In any proceeding, the prevailing party shall be entitled to recover
from the losing parties all reasonable costs and expenses, including but not
limited to attorney's fees.
9. MISCELLANEOUS
9.1. WAIVER, REMEDIES CUMULATIVE. No failure on the part of the
parties to exercise, and no delay in exercising any right hereunder, shall
operate as a waiver of such right; nor shall any single or partial exercise
by the parties of any right preclude the exercise of any other right. The
remedies of the parties herein provided are cumulative and not exclusive of
any remedies provided herein or by law.
9.2. ENTIRE AGREEMENT; AMENDMENTS. Except for the Plan and the
transactions contemplated therein, this Note embodies the entire agreement
between the parties relating to this Note and supersedes all prior agreements
and understandings relating hereto. This Note only may be amended by a
writing signed by each of Holder, Maker and Guarantor.
9.3. NOTICES. All notices, requests, demands, directions and other
communications (collectively and individually referred to as "Notices")
concerning this Note shall be in writing and shall be mailed or delivered
personally to the applicable party at the address of such party set forth
below in this Section 9.3. When mailed, each such Notice shall be sent by
first class, certified mail, return receipt requested, enclosed in a postage
prepaid wrapper, and shall be effective on the fifth business day after it
has been deposited in the mail. When delivered personally, each such Notice
shall be effective when delivered to the address for the respective party set
forth in this Section 9.3. Each such Notice shall be addressed to the party
to be notified as shown below.
Holder: Judy Van Essen
1559 Genesee Vista
-4-
<PAGE>
Golden, CO 80401
With a copy to:
Christoffel, Elliott & Albrecht, P.A.
805 Capital Centre
386 North Wabasha Street
Saint Paul, MN 55102
Fax: (612) 224-0550
Attn: James F. Christoffel, Esq.
Maker: Phoenix Network Acquisition Corp.
550 California Street, 11th Floor
San Francisco, California 94104
Attn: Mr. Jeffrey L. Bailey
With a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 Seventeenth Street, Suite 2600
Denver, Colorado 80202
Guarantor: Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, California 94104
Attn: Mr. Jeffrey L. Bailey
With a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 Seventeenth Street, Suite 2600
Denver, Colorado 80202
Each of the parties may change its respective address for purposes of this
Section 9.3 by giving the other parties Notice of the new address in the
manner set forth above.
9.4. HEADINGS. The headings in this Note are intended for
convenience only; they form no part of this Note and shall not constitute a
part hereof.
-5-
<PAGE>
9.5. SEVERABILITY. Whenever possible, each provision of this Note
shall be interpreted in such a manner as to be effective and valid under
Colorado law, and if any provision of this Note shall become prohibited or
invalid in whole or in part for any reason whatsoever, that provision shall
be ineffective only to the extent of such prohibition or invalidity without
invalidating the remaining portion of that provision or the remaining
provisions of this Note.
9.6. INUREMENT. This Note shall be binding upon the parties; it
shall bind and benefit, respectively, each of the parties and their
respective successors and assigns. There are no third party beneficiaries to
this Note.
9.7. COUNTERPARTS. This Note may be executed in one or more
counterparts, all of which taken together shall constitute a single
instrument.
9.8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each covenant,
agreement, representation and warranty of the parties under this Note shall
survive the execution of this Note and the performance of their respective
obligations pursuant to this Note.
9.9. CHOICE OF LAW. This Note shall be construed in accordance
with the laws of the State of Colorado.
9.10. DEFINITIONS. Whenever used in this Note, the singular shall
include the plural and vice versa, and the use of any gender shall include
all genders and the neuter.
9.11. WAIVER OF PRESENTMENT, ETC. The Maker and Guarantor each
waive presentment and notice of dishonor.
-6-
<PAGE>
IN WITNESS WHEREOF, Maker has signed and sealed this Note on April 1,
1996.
MAKER:
PHOENIX NETWORK ACQUISITION CORP.
BY:
---------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
HOLDER:
---------------------------------
Judy Van Essen
GUARANTOR:
PHOENIX NETWORK, INC.
BY:
---------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
-7-
<PAGE>
EXHIBIT D TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
THIS PROMISSORY NOTE IS NONTRANSFERABLE AND SUBJECT TO A RIGHT OF SETOFF AS
SET FORTH IN THE AGREEMENT AND PLAN OF MERGER (THE "PLAN") ENTERED INTO AS OF
JANUARY 16, 1996 BY AND AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX
NETWORK, INC., AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN, AND THUS
THE PRINCIPAL AND ACCRUED INTEREST UNDER THIS NOTE MAY BE REDUCED IN PART OR
ENTIRELY IN ACCORDANCE WITH THE TERMS OF THE PLAN. THIS NOTE IS A "RESTRICTED
SECURITY" AS THAT TERM IS DEFINED BY RULE OF THE SECURITIES AND EXCHANGE
COMMISSION AND IT MAY NOT BE TRANSFERRED, HYPOTHECATED OR SOLD WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAW, UNLESS EXEMPTIONS FROM SUCH REGISTRATION ARE AVAILABLE.
PROMISSORY NOTE
$2,400,000 January 16, 1996
1. PROMISE TO PAY
FOR VALUE RECEIVED, Phoenix Network Acquisition Corp., a Delaware
corporation ("Maker"), hereby promises to pay to the order of Judy Van Essen
("Holder"), upon the terms and conditions set forth in this promissory note
(this "Note"), the principal amount of $2,400,000. During the term of this
Note, interest shall accrue at an annual rate of nine percent (9%).
2. PAYMENT OF INTEREST AND PRINCIPAL
2.1 RETURN AND CANCELLATION OF NOTE FOR APRIL NOTE. This Note shall be
returned to the Maker by Holder for cancellation on April 1, 1996, on which
date Maker shall deliver a newly issued promissory note (the "April Note") to
Holder substantially in the form of Exhibit 1 attached hereto.
2.2 INTEREST PAYMENTS. Until (i) this Note is paid in full or (ii) the
April Note is issued to Holder by Maker, interest shall accrue during the
term of this Note on the unpaid principal balance of this Note at an annual
rate of nine percent (9%) with the first interest payment, if any, to occur
on January 16, 1997 and successive annual interest payments, if any, to occur
on January 16 of the following years.
<PAGE>
2.3 PRINCIPAL PAYMENTS. Until (A) this Note is paid in full or (B) the
April Note is delivered to Holder by Maker, the unpaid principal balance of
this Note shall be paid as follows (to be adjusted for the right of setoff as
set forth in Section 5 herein): (i) on January 16, 1998, 16.67 percent of the
original principal balance of the Note, reduced by any setoff; (ii) on
January 16, 1999, 16.67 percent of the original principal balance of the
Note, reduced by any setoff; (iii) on January 16, 2000, 16.67 percent of the
original principal balance of the Note, reduced by any setoff; and (iv) the
remaining unpaid principal balance on January 16, 2001. In the event that any
of the payment dates is a weekend or federal holiday, Maker may make the
payment on the next business day.
2.4 PREPAYMENT. Maker shall have the right to prepay all or part of the
principal and accrued interest under this Note at any time in its sole
discretion.
3. INVESTMENT RESTRICTIONS
This Note is nonnegotiable and nontransferable. The issuance of this Note
has not been registered under any federal or state securities laws. Holder
may not sell, offer for sale, transfer, pledge or hypothecate any or all of
this Note in the absence of an effective registration statement covering such
transaction under all applicable federal and state securities laws, unless
the sale, offer of sale, transfer, pledge or hypothecation is exempt from
registration under all applicable federal and state securities laws or unless
the contemplated transactions otherwise comply with all such laws. By
accepting and holding this Note, Holder represents and warrants to Maker that
Holder is acquiring this Note for its own account for investment purposes
only and not with a view toward its sale and distribution. This Note contains
a restrictive legend in accordance with this paragraph.
4. GUARANTEE BY MAKER'S PARENT
Phoenix Network, Inc. ("Guarantor"), the parent corporation of Maker,
shall fully guarantee the performance of Maker under this Note.
5. RIGHT OF SETOFF
As set forth more fully in Section 12 of the Asset Purchase Agreement,
which applicable parts are incorporated by reference herein, any and all
amounts owed to Maker and/or Guarantor by Judy Van Essen may be setoff
against the obligations of Maker and Guarantor to Holder and as assigns under
this Note. The amounts first payable under this Note (the accrued interest
and next principal payment(s)) shall be the first amounts setoff under this
Note.
6. CHANGE OF CONTROL OF GUARANTOR
This Note will be immediately payable in full in the event of any of the
following: (i) the sale of all or substantially all of the assets of
Guarantor, except to an affiliate of Guarantor, in
-2-
<PAGE>
which the consideration for such assets consists of at least 50 percent cash,
or (ii) a business combination to which Guarantor is one of the combining
parties and whereby the stockholders of Guarantor (at that time) own less
than 40 percent of the equity interests of the resulting entity.
7. EVENTS OF DEFAULT
This Note shall, at the option of Holder and exercised by written notice
to Maker, become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any
reason whatsoever and whether such happening shall be voluntary or
involuntary or come about and be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
a. If default shall be made in the due and punctual payment of any
accrued interest or principal on this Note when and as such accrued interest
and principal shall become due and payable, and such default shall have
continued for a period of 15 days after written notice is delivered to Maker
by Holder;
b. If default shall be made in the performance or observation of any of
the other covenants, agreements or conditions of Maker contained in this
Note, and such default shall have continued for a period of 30 days after
written notice is delivered to Maker by Holder;
c. If each of Guarantor and Maker shall:
(1) admit in writing its inability to pay its debts generally as
they become due;
(2) file a petition in bankruptcy or a petition to take advantage
of any insolvency act;
(3) consent to the appointment of a receiver for itself or for all
or any substantial part of its property;
(4) be adjudicated a bankrupt in a petition in bankruptcy filed
against it; or
(5) file a petition or answer seeking reorganization or arrangement
under Federal bankruptcy laws or any other applicable law or
statute of the United States of America thereof; or
d. If a court of competent jurisdiction shall enter an order, judgment
or decree appointing, without consent of Maker and Guarantor, a receiver of
each of Maker and Guarantor or of the whole or any substantial part of their
property, or approving a petition filed against each of them seeking
reorganization or arrangement of Maker and Guarantor under the Federal
bankruptcy laws or any other applicable law or statute of the United States
of America or any
-3-
<PAGE>
State thereof, and such orders, judgments or decrees shall not be vacated or
set aside or stayed within 30 days from the date of assumption of such
custody or control by the receiver.
e. (i) If Foothill Capital, Inc., and any successors to such primary
loan to Parent (the "Primary Lender"), shall declare a default under its
loan(s) to Parent, and (ii) within 30 days after such declaration of default,
the Primary Lender shall not have waived such default and such default has
not been cured, and (iii) the Primary Lender accelerates the principal under
such loan(s) to Parent.
f. (i) If the Parent's Common Stock is "delisted" from the American
Stock Exchange, provided the Parent's Common Stock is not, within 30 days of
"delisting", listed on the New York Stock Exchange or the Nasdaq Stock
Market, and (ii)(A) such "delisting" is not appealed by the Parent, or (B)
the Parent's appeal is lost, final, binding and nonappealable.
8. REMEDIES
Upon the occurrence of any Event of Default hereunder, the Holder shall
be entitled, at its option, to accelerate the entire unpaid principal balance
and all accrued interest hereunder by written notice to Maker and Guarantor;
upon delivery of such notice, those amounts shall become immediately due
and payable in full. In addition, the Holder shall be entitled to pursue each
and every right and remedy that it may have, if any, under the Asset Purchase
Agreement or applicable law. In any proceeding, the prevailing party shall be
entitled to recover from the losing parties all reasonable costs and
expenses, including but not limited to attorneys' fees.
9. MISCELLANEOUS
9.1 WAIVER, REMEDIES CUMULATIVE. No failure on the part of the parties
to exercise, and no delay in exercising any right hereunder, shall operate as
a waiver of such right; nor shall any single or partial exercise by the
parties of any right preclude the exercise of any other right. The remedies
of the parties herein provided are cumulative and not exclusive of any
remedies provided herein or by law.
9.2 ENTIRE AGREEMENT; AMENDMENTS. Except for the Asset Purchase
Agreement and the transactions contemplated therein, this Note embodies the
entire agreement between the parties relating to this Note and supersedes all
prior agreements and understandings relating hereto. This Note only may be
amended by a writing signed by each of Holder, Maker and Guarantor.
9.3 NOTICES. All notices, requests, demands, directions and other
communications (collectively and individually referred to as "Notices")
concerning this Note shall be in writing and shall be mailed or delivered
personally to the applicable party at the address of such party set forth
below in this Section 9.3. When mailed, each such Notice shall be sent by
first class, certified mail, return receipt requested, enclosed in a postage
prepaid wrapper, and shall be
-4-
<PAGE>
effective on the fifth business day after it has been deposited in the mail.
When delivered personally, each such Notice shall be effective when delivered
to the address for the respective party set forth in this Section 9.3. Each
such Notice shall be addressed to the party to be notified as shown below.
Holder: Judy Van Essen
1559 Genesee Vista
Golden, CO 80401
With a copy to:
Christoffel, Elliott & Albrecht, P.A.
805 Capital Centre
386 North Wabasha Street
Saint Paul, MN 55102
Fax: (612) 224-0550
Attn: James F. Christoffel, Esq.
Maker: Phoenix Network Acquisition Corp.
550 California Street, 11th Floor
San Francisco, California 94104
Attn: Mr. Jeffrey L. Bailey
With a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 Seventeenth Street, Suite 2600
Denver, Colorado 80202
Guarantor: Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, California 94104
Attn: Mr. Jeffrey L. Bailey
With a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 Seventeenth Street, Suite 2600
Denver, Colorado 80202
-5-
<PAGE>
Each of the parties may change its respective address for purposes of this
Section 9.3 by giving the other parties Notice of the new address in the
manner set forth above.
9.4 HEADINGS. The headings in this Note are intended for convenience
only; they form no part of this Note and shall not constitute a part hereof.
9.5 SEVERABILITY. Whenever possible, each provision of this Note shall
be interpreted in such a manner as to be effective and valid under Colorado
law, and if any provision of this Note shall become prohibited or invalid in
whole or in part for any reason whatsoever, that provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remaining portion of that provision or the remaining
provisions of this Note.
9.6 INUREMENT. This Note shall be binding upon the parties; it shall
bind and benefit, respectively, each of the parties and their respective
successors and assigns. There are no third party beneficiaries to this Note.
9.7 COUNTERPARTS. This Note may be executed in one or more
counterparts, all of which taken together shall constitute a single
instrument.
9.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each covenant,
agreement, representation and warranty of the parties under this Note shall
survive the execution of this Note and the performance of their respective
obligations pursuant to this Note.
9.9 CHOICE OF LAW. This Note shall be construed in accordance with the
laws of the State of Colorado.
9.10 DEFINITIONS. Whenever used in this Note, the singular shall include
the plural and vice versa, and the use of any gender shall include all genders
and the neuter.
9.11 WAIVER OF PRESENTMENT, ETC. The Maker and Guarantor each waive
presentment and notice of dishonor.
-6-
<PAGE>
IN WITNESS WHEREOF, Maker has signed this Note on January 16, 1996.
MAKER:
PHOENIX NETWORK ACQUISITION CORP.
BY:
---------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
HOLDER:
----------------------------------
Judy Van Essen
GUARANTOR:
PHOENIX NETWORK, INC.
BY:
---------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
-7-
<PAGE>
EXHIBIT E TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
GUARANTY
WHEREAS, Phoenix Network Acquisition Corp., a Delaware corporation (the
"Debtor"), has obtained a loan from Judy Van Essen (hereinafter called the
"Creditor") pursuant to that certain Agreement and Plan of Merger dated
January 16, 1996; and
WHEREAS, the undersigned is the sole shareholder of the Debtor so that
the undersigned has a substantial economic interest in Debtor and expects to
derive substantial benefits from any loans and financial accommodations
resulting in the creation of indebtedness of Debtor to Creditor; and
WHEREAS, the Creditor has refused to provide such loans or other
financial accommodations to Debtor unless and until the undersigned agrees to
guaranty the obligations of Debtor to the Creditor;
NOW, THEREFORE in consideration of the above premises and to induce the
Creditor to hereafter extend credit to the Debtor, and for other
consideration, the undersigned does hereby unconditionally guarantee the
prompt payment to the Creditor when due, whether at the maturity date or
dates specified therein or theretofore upon acceleration of maturity pursuant
to the provisions thereof, Debtor's now existing or hereafter arising
obligations under (a) that certain Promissory Note of even date herewith (the
"Note") by and among the Debtor and the Creditor; and (b) any renewals or
extensions of or amendments to the foregoing (all of such obligations and
liabilities being hereinafter called "Guaranteed Obligations") together
with any and all expenses of and incidental to collection, including
reasonable attorneys' fees.
This guaranty is an absolute and completed one and shall be a continuing
one and no notice of the Guaranteed Obligations or of any renewal or
extension thereof need be given to the undersigned, who hereby expressly
waives presentment, demand notice of nonpayment, protest, and notice of
protest on any and all forms of such Guaranteed Obligations and also notice
of acceptance of this guaranty except as required below.
The undersigned hereby:
(a) Consents that the Creditor may without affecting or impairing
the liability of the undersigned hereunder take any one or more of the
following actions:
(i) Waive or delay the exercise of any of its rights or
remedies against the Debtor or any other person or entity;
<PAGE>
(ii) Release the Debtor or any other person or entity;
(iii) Renew or extend the terms of the Guaranteed
Obligations; or
(iv) Apply payments by the Debtor, the undersigned, or any
other person or entity, to the Guaranteed Obligations in such amounts
and proportions as the Creditor may deem advisable whether the same
shall be due or not.
(b) Further consents that upon the receipt by Guarantor of any
notice required to be sent to Debtor, the liability of the undersigned
hereunder shall not be affected or impaired:
(i) by any failure, neglect or omission on the part of
the Creditor to realize upon any Guaranteed Obligations;
(ii) by the taking by the Creditor of any other guaranty
or guaranties to secure the Guaranteed Obligations;
(iii) by the taking by the Creditor of collateral or
security of any kind; or
(iv) by any act or failure to act whatsoever (except
payment), which but for this provision might or could in law or in
equity act to release or reduce the undersigned's liabilities
hereunder.
The undersigned acknowledges that this guaranty is in effect and binding
as to the undersigned without reference to whether it is signed by any other
person or persons, or any other entity or entities, and agrees that
possession of this instrument of guaranty by the Creditor shall be conclusive
evidence of due delivery hereof by the undersigned. The undersigned
acknowledges that the undersigned's liability upon this guaranty shall be
terminated only upon payment of the Guaranteed Obligations, regardless of the
source of payment, provided however, that the undersigned's liability hereon
shall continue as to: (a) Guaranteed Obligations then existing in the event
of a partial payment; and (b) as to any Guaranteed Obligations collected by
Creditor from the Debtor which are required to be disgorged by a court or
other tribunal having jurisdiction over such matters. As to any portion of
the Guaranteed Obligations the undersigned will not, without the Creditor's
consent, collect from Debtor the claim, if any (by subrogation or otherwise),
acquired through payment by any of the undersigned of a part of the
Guaranteed Obligations regardless of whether or not such Guaranteed
Obligations have been paid and satisfied in full and any commitments therefor
have been terminated.
This guaranty shall be construed and interpreted in accordance with and
governed by the laws of the State of Colorado in which state it shall be
performed by the undersigned. The undersigned consents to the jurisdiction of
the state and federal courts located in the state of Colorado, waives any
arguments that venue in such forums is not convenient and agrees that any
litigation initiated by the undersigned will be venued in such forum.
2
<PAGE>
The provisions of this guaranty are severable, and in any action or
proceeding involving any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of the undersigned hereunder would
otherwise be held or determined to be void, invalid or unenforceable on
account of the amount of the liability of the undersigned under this
guaranty, then notwithstanding any other provision of this guaranty to the
contrary, the amount of such liability shall, without any further action by
the undersigned, the Creditor or any other person, be automatically limited
and reduced to the highest amount which is valid and enforceable as
determined in such action or proceeding.
This guaranty shall be binding upon the undersigned and upon the legal
representatives, successors and assigns of the undersigned, and shall inure
to the benefit of the Creditor and its successors and assigns. In case the
Creditor at any time transfers to any transferee any of the Guaranteed
Obligations then existing, the right to require the undersigned to pay the
same may be assigned to the transferee by, but will not vest in such
transferee in the absence of, an express written assignment thereof made by
the Creditor either at or after the time of the transfer of any of the
Guaranteed Obligations. No such assignment will impair the Creditor's right
hereunder to look to the undersigned for payment of untransferred Guaranteed
Obligations to the extent that they may not be required to answer to the
assignee up to the full limit of their liability hereunder.
Dated as of this ____ day of January, 1996.
PHOENIX NETWORK, INC.
________________________________________
By: Wallace M. Hammond, President/CEO
* * * * *
3
<PAGE>
EXHIBIT F TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
PHOENIX NETWORK, INC.
AFFILIATE AGREEMENT
Gentlemen:
The undersigned, a holder of shares of Common Stock ("Company Common
Stock") of Automated Communications, Inc., a Colorado corporation (the
"Company"), is entitled to receive in connection with the merger (the
"Merger") of the Company with and into Phoenix Network Acquisition Corp.
("PAC"), a Delaware corporation, with PAC being the surviving corporation
in such Merger, securities of Phoenix Network, Inc. ("Parent Securities").
The undersigned acknowledges that the undersigned may be deemed an "affiliate"
of Parent within the meaning of Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933, as amended (the "Act"), although nothing contained
herein should be construed as an admission of such fact.
If in fact, the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Parent Securities
received by it in exchange for any shares of Company Common Stock pursuant
to the Merger may be restricted unless such transaction is registered under
the Act or an exemption from such registration is available. The undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the
sale of such securities of Rules 144 promulgated under the Act.
The undersigned hereby represents and warrants to and covenants with
Parent and PAC that she will not sell, assign, or transfer any of the
Parent Securities received by her in exchange for shares of Company Common
Stock pursuant to the Merger except (i) pursuant to an effective Registration
Statement under the Act, or (ii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to Parent or as described in a
"no-action" or interpretive letter from the Staff of the Securities and
Exchange Commission, is not required to be registered under the Act.
In the event of a sale or other disposition of Parent Securities
pursuant to Rule 144, the undersigned will supply Parent with evidence
of compliance with such Rule, by delivery of a letter in the form of
EXHIBIT A hereto and the opinion of counsel referred to above. The
undersigned understands that Parent may instruct its transfer agent to
withhold the transfer of any Parent Securities disposed of by the
undersigned but that upon receipt of such letter and opinion the transfer
agent shall effectuate the transfer of the Parent Securities sold as
indicated in the letter.
1
<PAGE>
The undersigned acknowledges and agrees that appropriate legends will
be placed on certificates representing Parent Securities received by the
undersigned in the Merger or held by a transferee thereof, which legends
will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to Parent to
the effect that such legends are no longer required for the purpose of the
Act.
The undersigned acknowledges that she has carefully read this letter
and understands the requirements hereof and the limitations imposed upon
the distribution, sale, transfer or other disposition of shares of Parent
Securities.
Dated: January 16, 1996
----------------------------------------
Judy Van Essen
As an inducement to the above individual to deliver this letter, Parent
agrees that for so long as and to the extent necessary to permit such
individual to sell the Parent Securities pursuant to Rule 144 under the Act,
Parent shall use its reasonable best efforts to file, on a timely basis, all
reports and data required to be filed by it with the SEC pursuant to
Section 13 of the Securities Exchange Act of 1934. Upon written request
addressed to Phoenix Network, Inc., 550 California Street, 11th Floor, San
Francisco, California 94104, attention Mr. Jeffrey Bailey, Parent agrees to
promptly advise the above individual that Parent has complied with such
reporting requirements.
PHOENIX NETWORK, INC.
By:
------------------------------------
Wallace M. Hammond,
Chief Executive Officer
2
<PAGE>
EXHIBIT A
[Date]
Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, California 94104
Attention: Corporate Secretary
On ___________________, I sold the securities ("Parent Securities") of
Phoenix Network, Inc., ("Parent") described below in the space provided for
that purpose. The Parent Securities were received by me in connection with
the merger of Automated Communications, Inc. with and into Phoenix Network
Acquisition Corp.
Based upon the most recent report or statement filed by Parent with
the Securities and Exchange Commission, the Parent Securities sold by me
were within the prescribed limitations set forth in paragraph (e) of
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Act").
I hereby represent that the Parent Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. I
further represent that I have not solicited or arranged for the solicitation
of order to buy the Parent Securities, and that I have not made any
payments in connection with the offer or sale of the Parent Securities to
any person other than to the broker who executed the order in respect of
such sale.
Description of Securities:
---------------------------------
Very truly yours,
----------------------------------------
Judy Van Essen
3
<PAGE>
EXHIBIT G TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made this 16th day of
January, 1996, by and among AUTOMATED COMMUNICATIONS, INC., a Colorado
corporation (the "Corporation"), JUDY VAN ESSEN, the sole shareholder of the
Corporation (the "Shareholder"), PHOENIX NETWORK ACQUISITION CORP., a
Delaware corporation ("PAC"), and PHOENIX NETWORK, INC., a Delaware
corporation ("Parent").
RECITALS
WHEREAS, the Shareholder is a director, chief executive officer and sole
shareholder of the Corporation, which is engaged in the telecommunications
business, including but not limited to the reselling of long distance
telephone service and operating DMS 250 Switches in _____________ (the
"Business"). On the date hereof, PAC, Parent, Shareholder and the Corporation
entered into an Agreement and Plan of Merger (the "Plan") dated January 16,
1996 whereby the Corporation will merge with and into PAC (the "Merger").
WHEREAS, PAC and Parent would not have entered into the Plan and agreed
to the Merger unless the Shareholder agreed to enter into this Agreement.
WHEREAS, PAC and Parent recognize that the Shareholder has unique
knowledge and experience in the Business, and of the territory of the
Corporation, and that the Shareholder has personal knowledge of the market
for the Business in the State of ______________. Accordingly, the Shareholder
has agreed to enter into this Agreement which prohibits the Shareholder from
competing with PAC and Parent on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the Recitals hereto, which the
parties agree constitute a substantive part of this Agreement, the mutual
covenants, promises and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant, promise and agree as
follows:
1. COVENANT AGAINST COMPETITION.
1.1 The parties hereto acknowledge and agree that PAC and Parent
would not have agreed to the Merger and to enter into the Plan unless the
Shareholder agreed to enter into this Agreement. Accordingly, the Shareholder
agrees that for a period of five (5) years from the date of this Agreement,
the Shareholder shall not do any of the following:
1
<PAGE>
(a) Within the State of _______________, solicit for
employment or independent contract work or employ to or for the benefit or
account of any person or entity other than PAC or Parent any employee of PAC
and Parent, and any employee of Corporation as of January 1, 1996, nor shall
they urge, directly or indirectly, any customers of the Corporation, PAC and
Parent to discontinue, in whole or in part, business with the Corporation or
not to do business with PAC and Parent; provided, however that (i)
Shareholder may solicit for employment the following employees of the
Corporation, but only if such ensuing employment does not relate in any
manner to the Business, or the business of PAC and Parent: Lori Emory, Laura
Lanphier, Judy Todd, Jennifer Burger and Norma Nielsen; and (ii) from January
16, 1998 through January 16, 2001, Shareholder may solicit any employee or
former employee of the Corporation, but only if such ensuing employment does
not relate in any manner to the Business, or the business of PAC and Parent;
(b) Excluding the Shares issued pursuant to the Plan, have any
financial interest in any corporation or other business organization that is
engaged in any parts of the Business anywhere that the Corporation, PAC and
Parent, or any of their affiliates, previously conducted or has present plans
to conduct business in the future. Notwithstanding the above sentence,
nothing shall prevent Shareholder from owning any outstanding securities of
any corporation actively traded on a recognized securities exchange or the
Nasdaq Stock Market; PROVIDED, HOWEVER, that such ownership does not
constitute "control" of such corporation pursuant to Rule 405 of the
Securities Act of 1933, as amended; and
(c) Within the State of _____________, directly or indirectly
(whether as principal, agent, independent contractor, employee or otherwise)
own, manage, operate or control or otherwise carry on, or be engaged in, any
business engaged in any of the Business that the Corporation, PAC or Parent
conducts now or in the future. Notwithstanding this Section 1, Shareholder
may work as a distributor or other agent for PAC and/or Parent in connection
with the business opportunity (involving private labeling and provision of
long distance and, potentially, local telephone service, by cable companies
to their subscriber base) presented to the Corporation by Treasury and
Accounting Technologies, Inc. and Bruce Heverly, provided all such sales in
that capacity are made solely to PAC and Parent and any of their affiliates;
and Shareholder may also, whether individually or through an affiliation with
a business entity, sell or resell Internet access.
1.2 The parties hereto agree all such covenants and agreements
herein are separate and distinct and that to the extent that any provision or
portion of Section 1.1 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
then any such provision or portion thereof shall be deemed to be modified to
the extent necessary in order that any such provision or portion thereof
shall be legally enforceable to the fullest extent permitted by applicable
law; and the parties hereto do further agree that any court of competent
jurisdiction shall, and the parties hereto do hereby expressly authorize,
request and empower any court of competent jurisdiction to, enforce any such
provision or portion thereof or to modify any such provision or portion
thereof in order that any such
2
<PAGE>
provision or portion thereof shall be enforced by such court to the fullest
extent permitted by applicable law.
2. CONSIDERATION. In consideration of the covenants and agreements of
the Shareholder under this Agreement, PAC or Parent shall pay an aggregate
amount of $25,000 to the Shareholder on the date hereof; additional
consideration for such covenants and agreements is the consideration paid
under the Plan.
3. CONFIDENTIAL INFORMATION. The Shareholder recognizes that due to
the nature of the transactions contemplated under the Plan, the Shareholder
may have access to confidential and proprietary information (as described
below) relating to the business and operations of the Corporation, PAC and
Parent and their respective assets, liabilities, contracts and business. The
Shareholder acknowledges that such information has been and will continue to
be of critical importance to the business of PAC and Parent and that
disclosure of it to or its use by others could cause substantial loss to PAC
or Parent. Accordingly, the Shareholder agrees as follows:
3.1 The Shareholder will keep confidential any and all "trade
secrets and confidential and proprietary information" of the Corporation,
PAC and Parent and their respective assets, liabilities, prospects, condition
and business which are now known or which hereafter may become known to the
Shareholder and shall not at any time directly or indirectly disclose any
such information to any person or entity, or use the same in any way other
than in connection with the business of the Corporation, PAC and Parent
during and at all times after the term hereof; provided, however, that the
Shareholder may disclose "trade secrets and confidential and proprietary
information" to the extent (i) reasonably necessary to prosecute or defend
pending and future claims by and/or against the Shareholder and the
Corporation, which claims arise out of or relate to actions or omissions by
the Shareholder and/or the Corporation before the date hereof; and (2)
required by a court, tribunal or other administrative body.
3.2 For purposes of this Agreement, "trade secrets and confidential
and proprietary information" shall include but not be limited to information,
whether written or otherwise, unique to the Corporation, PAC and Parent and
their respective assets and business which has a significant business purpose
and is not known or generally available from sources outside PAC, Parent, the
Shareholder or the Corporation or typical of industry practice, including,
but not limited to, information with respect to costs, pricing, present and
prospective products, former, current and prospective customers, salary,
benefits, compensation, personnel records and files, sales and marketing
information and data, data relating to customers' buying practices and
procedures, prospective and executed contracts and other business
arrangements, technology, information regarding earnings, forecasts, reports,
bidding information, marketing, and any other information regarding the
Business, the Corporation, PAC and Parent, and their business, methods of
operations, personnel, assets and activities.
4. REMEDIES.
3
<PAGE>
4.1 The Shareholder agrees that: (i) the violation by the
Shareholder of any of the provisions of this Agreement would cause
irreparable injury to PAC and/or Parent, (ii) there is no adequate remedy at
law for such violation, (iii) PAC and Parent shall have the right, in
addition to any other remedies available at law or in equity, to enjoin the
Shareholder in a court of equity from violating such provisions, and (iv) the
Shareholder will not argue or claim that PAC and/or Parent have an adequate
remedy at law, or if raised, shall not be effective, in connection with any
such action.
4.2 In the event of any litigation or arbitration to resolve any
dispute related to this Agreement, the prevailing party shall be entitled to
recover from the non-prevailing party an award of its reasonable attorneys'
fees and costs.
5. MISCELLANEOUS.
5.1 SURVIVAL OF CERTAIN COVENANTS. The covenants contained in
Section 3 of this Agreement shall survive the termination and expiration of
the term of this Agreement.
5.2 NOTICES. All notices, requests, demands, consents, and other
communications which are required or may be given under this Agreement
(collectively, the "Notices") shall be in writing and shall be given either
(a) by personal delivery against a receipted copy, or (b) by certified or
registered U.S. mail, return receipt requested, postage prepaid, to the
following addresses:
If to the Shareholder:
Judy Van Essen
1559 Genesee Vista
Golden, Colorado 80401
If to the Corporation, PAC or Parent:
Mr. Wallace Hammond
550 California Street, 11th Floor
San Francisco, California 94104
with a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
or to such other address of which written notice in accordance with this
Section 5.2 shall have been provided by such party. Notices may only be given
in the manner hereinabove described in this Section 5.2 and shall be deemed
received when given in such manner.
4
<PAGE>
5.3 ENTIRE AGREEMENT. This Agreement constitutes the full, entire
and integrated agreement between the parties hereto with respect to the
subject matter hereof, and supersedes all prior negotiations, correspondence,
understandings and agreements among the parties hereto respecting the subject
matter hereof.
5.4 ASSIGNABILITY; NO THIRD PARTY BENEFICIARIES. This Agreement
shall not be assignable by Shareholder without the prior written consent of
PAC and Parent. PAC and Parent may assign this Agreement in the event that
either of them sells substantially all of their assets or is acquired by
another entity. There are no third party beneficiaries to this Agreement
except the affiliates of Parent.
5.5 SEVERABILITY. Any provision of this Agreement which is held by
a court of competent jurisdiction to be prohibited or unenforceable shall be
ineffective only to the extent of such prohibition or unenforceability,
without invalidating or rendering unenforceable the remaining provisions of
this Agreement.
5.6 AMENDMENT; WAIVER. No provision of this Agreement may be
amended, waived, or otherwise modified without the prior written consent of
each of PAC, Parent and the Shareholder. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance
with any provision herein contained. The waiver by any party hereto of a
breach of any provision or condition contained in this Agreement shall not
operate or be construed as a waiver of any subsequent breach or of any other
conditions or terms hereof.
5.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
5.8 APPLICABLE LAW; JURISDICTION AND VENUE; SERVICE OF PROCESS.
This Agreement shall be governed by, construed, interpreted and enforced in
accordance with the laws of the State of Colorado. All suits, proceedings and
other actions relating to, arising out of or in connection with this
Agreement shall be submitted to the in personam jurisdiction of the courts of
the State of Colorado, and venue for all such suits, proceedings and other
actions shall be in Jefferson County, Colorado. The Shareholder, PAC and
Parent hereby waive any claim against or objection to in personam jurisdiction
and venue in the courts of Jefferson County, Colorado.
5.9 USE OF GENDERS. Whenever used in this Agreement, the singular
shall include the plural and vice versa, and the use of any gender shall
include all genders and the neuter.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement effective as of the date first above written.
THE CORPORATION:
AUTOMATED COMMUNICATIONS, INC.
By:
------------------------------------------
Judy Van Essen, Chief Executive Officer
PAC:
PHOENIX NETWORK ACQUISITION CORP.
By:
------------------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
PARENT:
PHOENIX NETWORK, INC.
By:
------------------------------------------
Wallace M. Hammond, President
and Chief Executive Officer
SHAREHOLDER:
------------------------------------------
Judy Van Essen
6
<PAGE>
EXHIBIT H TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
ACKNOWLEDGMENT OF NON-EMPLOYEE STATUS
The undersigned, Judy Van Essen, Chief Executive Officer of Automated
Communications, Inc. ("ACI"), hereby certifies to Phoenix Network, Inc. and
Phoenix Network Acquisition Corp. ("PAC") that the following is true as of
the date set forth below.
1. Their exists no employment agreement between Judy Van Essen and
ACI.
2. Judy Van Essen shall cease to be Chief Executive Officer and an
employee of Automated Communications, Inc. and or PAC as of the
Closing (as defined in the Agreement and Plan of Merger by and
between ACI, Phoenix Network, Inc., Phoenix Network Acquisition
Corp. and Judy Van Essen). In addition, as of and after the
Closing their shall be no outstanding obligations, related to
employment by ACI of Judy Van Essen, of any sort of ACI and/or
PAC due and payable to Judy Van Essen.
Dated: JUDY VAN ESSEN
-----------------------
----------------------------------------
<PAGE>
EXHIBIT H TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
ACKNOWLEDGMENT OF NON-EMPLOYEE STATUS
The undersigned, Gary Albrecht, President of Automated Communications,
Inc. ("ACI"), hereby certifies to Phoenix Network, Inc. and Phoenix Network
Acquisition Corp. ("PAC") that the following is true as of the date set
forth below.
1. Their exists no employment agreement between Gary Albrecht and
ACI.
2. Gary Albrecht shall cease to be President and an employee of
Automated Communications, Inc. and or PAC as of the Closing (as
defined in the Agreement and Plan of Merger by and between ACI,
Phoenix Network, Inc., Phoenix Network Acquisition Corp. and
Judy Van Essen). In addition, as of and after the Closing their
shall be no outstanding obligations, related to employment by
ACI of Gary Albrecht, of any sort of ACI and/or PAC due and
payable to Gary Albrecht.
Dated: GARY ALBRECHT
-----------------------
----------------------------------------
<PAGE>
EXHIBIT I TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
This Indemnification and Hold Harmless Agreement (the "Agreement")
is entered into this 16th day of January, 1996, between and among PHOENIX
NETWORK ACQUISITION CORP., a Delaware corporation ("PAC"), PHOENIX NETWORK,
INC., a Delaware corporation ("Parent"), AUTOMATED COMMUNICATIONS, INC., a
Colorado corporation ("ACI"), and JUDY VAN ESSEN, individually
("Shareholder"), the sole shareholder of ACI prior to the merger of ACI
with and into PAC.
RECITALS
A. PAC, Parent, ACI and Shareholder have entered into an Agreement
and Plan of Merger ("Plan") whereby ACI will merge with and into PAC
effective as of the Effective Time as defined in the Plan.
B. ACI is involved in certain pending or threatened lawsuits,
including but not limited to those listed on Exhibit A attached hereto as
well as claims that may arise in the future relating solely to actions
which took place on or prior to the date of this Agreement (collectively,
the "Legal Claims").
C. PAC, Parent, ACI and Shareholder desire that PAC, ACI and Parent
shall be indemnified to the extent that any of them are required to
participate in, defend, or in any way be responsible or liable for any
costs, fees, judgments, settlements, payments or other obligations relating
in any manner to the Legal Claims.
E. PAC's and Parent's willingness to enter into the Plan is expressly
conditioned upon entering into this separate Indemnification and Hold
Harmless Agreement with Shareholder, and PAC would not agreed to have ACI
merged with and into PAC without Shareholder's agreement to fully indemnify
PAC, Parent and ACI pursuant to the terms and conditions of this Agreement.
F. Any capitalized term not defined herein shall have the meaning set
forth in the Plan.
NOW, THEREFORE, in consideration of the premises, promises, and the
mutual covenants and agreements set forth in this Agreement, the sufficiency
of which are hereby acknowledged, the Parties agree as follows:
<PAGE>
AGREEMENT
1. (a) Shareholder hereby acknowledges and agrees that she shall be
solely responsible for the defense (and related fees and costs) relating to
or arising from any and all of the Legal Claims. Shareholder shall have
the right and obligation to direct and control the defense, prosecution
and settlement of all of the Legal Claims.
(b) Shareholder hereby acknowledges and agrees that she shall be
solely responsible for the defense (and related fees and costs) relating to
or arising from the revocation or nonallowance of ACI's election to be
taxed under Subchapter "S" of the Internal Revenue Code of 1986, as amended
(a "Tax Claim") for the three (3) tax years ending prior to the Effective
Date. Shareholder shall have the right and obligation to direct and control
the defense, prosecution and settlement of a Tax Claim.
(c) Prior to the engagement of legal counsel to defend any Tax
Claim or Legal Claims pursuant to this paragraph 1, Shareholder shall provide
PAC and Parent with a letter signed by such legal counsel substantially
in the form attached hereto as Exhibit 1.
2. Shareholder further agrees to fully indemnify, defend and hold
harmless PAC, Parent and ACI against any and all claims, judgments, payments,
expenses, liabilities and actual damages, including reasonable attorneys'
fees, that PAC, Parent and/or ACI shall incur or suffer which arise, result
from or relate in any way to a Tax Claim or Legal Claims (collectively, a
"Claim"). Shareholder's indemnity obligation shall not extend to or cover
any claims asserted against PAC or Parent that are not Legal Claims or Tax
Claims.
3. Promptly after the receipt by PAC, Parent or ACI of written notice
of any Claim or threat of Claim, PAC, Parent or ACI shall give written
notice of such Claim to Shareholder. This notice shall include, at a
minimum, all details of the claim then known to PAC and/or Parent and all
documents which PAC and/or Parent received. Thereafter, Shareholder, upon
request of PAC, Parent or ACI, shall assume the defense thereof, including
retaining counsel mutually agreed upon with PAC to represent PAC, Parent
and ACI, and shall pay the fees and expenses of any such counsel related
to the Claim or proceeding as well as any outside professional fees and
expenses incurred by PAC, Parent and ACI. Concerning any such Claim or
proceeding, PAC, Parent and ACI shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of them, unless (i) PAC, Parent or ACI and Shareholder shall have mutually
agreed to retention of such counsel; (ii) the Claim relates to the
Omitted Claims; or (ii) the named parties to such proceeding (including
impleaded parties) include PAC, Parent or ACI and Shareholder, and
representation of more than one of such parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them.
-2-
<PAGE>
4. Notwithstanding anything to the contrary hereinabove, Shareholder's
obligation to indemnify pursuant to paragraphs 1 through 3 above shall
terminate under the following conditions:
(a) With regard to Claims relating to any of the matters disclosed
on Exhibit A attached hereto, Shareholder's obligations shall continue
indefinitely;
(b) With regard to Claims which arise in connection with the
collection of ACI's accounts receivable by PAC or Parent, written notice
of such a Claim must have been provided to Shareholder on or before
eighteen (18) months following the date of this Agreement or Shareholder's
obligations to indemnify shall terminate with regard to those Claims for
which notice has not been provided within such period;
(c) With regard to Tax Claims, written notice of a Tax Claim must
have been provided to Shareholder on or before thirty-six (36) months
following the date Shareholder files ACI's final tax return or Shareholder's
obligations to indemnify shall terminate with regard to a Tax Claim for
which notice has not been provided within such period;
(d) With regard to all other Claims not otherwise described in
subparagraphs (a) through (c) above, written notice of a such Claim must
have been provide to Shareholder on or before thirty-six (36) months
following the date of this Agreement or Shareholder's obligations to
indemnify shall terminate with regard to any such Claims for which notice
has not been provided within such period.
(e) To the extent any notice of a Claim is given pursuant to
any of subparagraphs 4(b), (c) or (d) above, and such Claim is disputed
by Shareholder, PAC or Parent shall initiate formal arbitration to resolve
such dispute with respect to such Claim within ninety (90) days of the
date of such notice of Claim or Shareholder's indemnification obligations
as to such Claim shall terminate and be null and void.
5. In addition to any rights of setoff or other rights that PAC
and/or Parent may have at common law, by statute or otherwise, PAC and/or
Parent shall have the right to set off any amount that may be owed to
either PAC or Parent pursuant to this Agreement against any amount
otherwise payable by PAC or Parent under the Note, the Temporary Note or
the Escrow Agreement (as these terms are defined in the Plan) to the
Shareholder.
PAC and Parent shall also have the option of the setoff of all or any
part of any damages they may suffer by notifying the Shareholder in
writing that PAC and/or Parent is electing to recover Shares from the
Escrow Deposit established by the Escrow Agreement (as those terms are
defined in the Plan) between PAC and Shareholder, subject to the terms
and conditions of said Escrow Agreement, the Plan and this Agreement.
For the purposes of setoff against the Escrow Deposit, the Temporary
Note, or the Note, the priorities set forth in the Plan shall control.
-3-
<PAGE>
6. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly
given on the fifth (5th) day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid and properly addressed, to the party as follows:
IF TO ACI:
Automated Communications, Inc.
1687 Cole Boulevard
Golden, CO 80401
Attention: President
WITH A COPY TO:
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Attention: Ernest J. Panasci, Esq.
IF TO THE PAC OR PARENT:
PAC Network Acquisition Corp.
PAC Network, Inc.
550 California Street, 11th Floor
San Francisco, CA 94104
Attention: Jeffrey L. Bailey
WITH A COPY TO:
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Attention: Ernest J. Panasci, Esq.
IF TO SHAREHOLDER:
Ms. Judy Van Essen
1559 Genesee Vista
Golden, Colorado 80401
-4-
<PAGE>
WITH A COPY TO:
Christoffel, Elliott & Albrecht, P.A.
805 Capital Centre
386 North Wabasha Street
Saint Paul, MN 55102
Attn: James F. Christoffel, Esq.
Fax: (612) 224-0550
Any party may change its address for the purpose of this Agreement by
giving the other party written notice of its new address in the manner
set forth above.
7. This Agreement binds and inures to the benefit of all the Parties,
their representatives, successors in interest, agents, employees, assigns,
or any other person or entity claiming through any party to this Agreement.
8. Each party to this Agreement has entered into the Agreement freely
and voluntarily. The parties have been advised by and represented by counsel
in the negotiation, drafting, and execution of this Agreement and have
consulted counsel prior to the signing of this Agreement.
9. This Agreement represents the entire agreement between the parties
and supersedes all prior negotiations, representations, or agreements
between the parties, either written or oral, on the subject matter of this
Agreement. This Agreement may be amended only by a written instrument
designed as an amendment to this Agreement and executed by all the parties.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date and year first written above.
PAC: PARENT:
PHOENIX NETWORK ACQUISITION CORP. PHOENIX NETWORK, INC.
By: By:
------------------------------ ------------------------------------
Wallace M. Hammond, Wallace M. Hammond,
President President
-5-
<PAGE>
ACI:
AUTOMATED COMMUNICATIONS, INC. SHAREHOLDER:
By: By:
------------------------------ ------------------------------------
Judy Van Essen, Judy Van Essen,
Chief Executive Officer individually
-6-
<PAGE>
EXHIBIT J TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 16, 1996
AMONG PHOENIX NETWORK ACQUISITION CORP., PHOENIX NETWORK, INC.,
AUTOMATED COMMUNICATIONS, INC. AND JUDY VAN ESSEN
ASSIGNMENT
For One Dollar ($1.00) and other good and valuable consideration, the
receipt of which is hereby acknowledged, Automated Communications, Inc.
("ACI") hereby transfers, conveys and assigns to Judy Van Essen the following
rights and assets:
1. All rights, if any, with respect to claims associated with
respect to possible overbilling by U.S. West of ACI for service
U.S. West provided to ACI before December 31, 1995, subject to the
requirements set forth at Article 3 of the Agreement and Plan of
Merger ("Plan") dated January 16, 1996, with regard to the foregoing
proceeds;
2. All rights to and all proceeds resulting from all claims for
refunds of taxes paid by ACI to any governmental entities at any time
before December 31, 1995, subject to the requirements of Article 3 of
the Plan;
3. All accounts receivable which ACI charged off in the ordinary
course of business before December 31, 1995, and which do not appear
in ACI's unaudited financial statements for the period ending
December 31, 1995;
4. All rights and duties related to the office leases between (i)
Genesee Park Associates, L.L.C. and MasterCall, and (ii) MasterCall
and International Learning Systems (sublease); and
5. All affirmative claims for monetary relief in the pending
litigation involving LDDS, YTE, Mountain Telecom.
In connection with this Assignment, Van Essen assumes, without recourse
to ACI, the obligation for all costs and other charges that she incurs in the
future in connection with realizing upon the assigned assets.
This Assignment is effective this 16th day of January, 1996.
AUTOMATED COMMUNICATIONS, INC.
By:
-----------------------------------
Its President
-----------------------------------
Judy Van Essen
