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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - January 16, 1996
PHOENIX NETWORK, INC.
(Exact Name of Registrant as specified in its Charter)
Delaware 0-17909 84-0881154
(State or other (Commission File (IRS Employer
Jurisdiction of Number) Identification
Incorporation) Number)
550 California Street, 11th Floor, San Francisco, California 94104
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: 415-399-3300
Item 2. Acquisition or Disposition of Assets
On January 16, 1996, pursuant to an Agreement and Plan of Merger (the
"Merger
Agreement") dated as of January 16, 1996 by and among the Registrant, Phoenix
Network Acquisition Corp., a wholly-owned subsidiary of the Registrant
("PNAC"), Automated Communications, Inc. ("ACI") and Judy Van Essen, the sole
shareholder of ACI, the Registrant acquired ACI through a merger (the
"Merger") of ACI with and into PNAC. PNAC is the surviving corporation in
the Merger and remains a wholly-owned subsidiary of the Registrant. The
board of directors of the Registrant approved the Merger at a special
meeting held on January 15, 1996. Automated Communications, Inc. is a
facilities based long distance phone service carrier that operates state-of
- -the-art switching centers in Colorado Springs, Minneapolis and Phoenix.
In the Merger, and in exchange for the ACI capital stock, the Registrant
issued 2,800,000 shares of its common stock and PNAC issued a $2,400,000
promissory note payable to the sole shareholder of ACI. In addition,
included in the liabilities of ACI that were assumed by PNAC was a
promissory note payable to the sole shareholder of ACI in the amount of
$4,000,000 which promissory note was paid in full shortly after the closing
of the Merger. The 2,800,000 shares issued represent approximately 16.4% of
the total shares of Registrant s common stock outstanding after the Merger.
The 2,800,000 shares of the Registrant s common stock have not been
registered under the Securities Act of 1933, as amended, and were issued
pursuant to exemptions from registration and qualification under state and
federal securities laws relating to transactions not involving a public
offering or solicitation.
The foregoing is qualified in its entirety by reference to the Merger
Agreement and the Registrant's press release dated January 17, 1996, copies
of which are attached as exhibits hereto and which are hereby incorporated
by reference herein. The Merger Agreement contains, among other things,
provisions with respect to adjustment of the consideration paid and
indemnification of PNAC and the Registrant.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
(4) At this time it is impracticable to provide the required
financial statements for ACI. The required financial
statements will be filed under cover of Form 8-KA as soon as
practicable, but not later than 60 days after the date hereof.
(b) Pro Forma Financial Information.
(2) At this time it is impracticable to provide the required
pro forma financial statements relating to the Merger.
The required pro forma financial statements will be filed
under cover of Form 8-KA as soon as practicable, but not later
than 60 days after the date hereof.
(c) Exhibits
2 Merger Agreement, dated January 16, 1996.
20 Press release, dated January 17, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: January 31, 1996 PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
----------------------
Wallace M. Hammond
President & CEO
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TABLE OF CONTENTS
Page No.
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. MERGER AND MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . 8
2.1 Structure of the Merger. . . . . . . . . . . . . . . . . . . . . . 8
2.2 Determination of the Merger Consideration. . . . . . . . . . . . . 8
2.3 Effect on Outstanding Shares . . . . . . . . . . . . . . . . . . . 10
3. ADDITIONAL DEPOSITS BY THE SHAREHOLDER TO THE ESCROW.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Additional Deposits. . . . . . . . . . . . . . . . . . . . . . . . 11
4. REPRESENTATIONS AND WARRANTIES OF ACI AND THE SHAREHOLDER
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Articles of Incorporation and Bylaws; Records . . . . . . . . . . . 12
4.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 Receivables; Major Customers . . . . . . . . . . . . . . . . . . . 16
4.7 Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Equipment, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Proprietary Assets . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Liabilities; Major Suppliers . . . . . . . . . . . . . . . . . . . 19
4.13 Compliance With Legal Requirements . . . . . . . . . . . . . . . . 19
4.14 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 20
4.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.16 Employee and Labor Matters . . . . . . . . . . . . . . . . . . . . 22
4.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 23
4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 24
4.19 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 25
4.20 Related Party Transactions . . . . . . . . . . . . . . . . . . . . 25
4.21 Certain Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . 26
4.22 Proceedings; Legal Proceedings; Orders . . . . . . . . . . . . . . 26
4.23 Authority; Binding Nature of Agreements . . . . . . . . . . . . . . 26
4.24 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 27
4.25 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.26 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.27 ACI s Business . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.28 Registration of Shares. . . . . . . . . . . . . . . . . . . . . . . 29
4.29 Securities Laws Compliance. . . . . . . . . . . . . . . . . . . . 30
4.30 Exhibits and Disclosure Schedules. . . . . . . . . . . . . . . . . 31
4.31 Sole Shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.32 Assignability Contracts, Real and Personal Property Leases. . . . . 31
4.33 Representation of Parties By Legal and Tax Advisors. . . . . . . . 32
4.34 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.35 ACI Note Payable. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5. REPRESENTATIONS AND WARRANTIES OF PAC AND PARENT . . . . . . . . . . . . 32
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . 32
5.2 Proceedings, Legal Proceedings; Orders . . . . . . . . . . . . . . 33
5.3 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.5 Non-Contravention; Consents. . . . . . . . . . . . . . . . . . . . 33
5.6 Issuance of Shares of Parent. . . . . . . . . . . . . . . . . . . . 34
5.7 Issuance of Note. . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.8 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.9 Access To Records For Litigation and Taxes. . . . . . . . . . . . . 34
5.10 Authority; Binding Nature of Agreements. . . . . . . . . . . . . . 34
6. COVENANTS OF ACI AND THE SHAREHOLDER . . . . . . . . . . . . . . . . . . 35
6.1 Access and Investigation . . . . . . . . . . . . . . . . . . . . . 35
6.2 Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . 35
6.3 Affiliates Agreement. . . . . . . . . . . . . . . . . . . . . . . . 36
6.4 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.5 Collection Procedures. . . . . . . . . . . . . . . . . . . . . . . 36
7. [INTENTIONALLY LEFT BLANK] . . . . . . . . . . . . . . . . . . . . . . . 36
8. CONDITIONS PRECEDENT TO PARENT S AND PAC S OBLIGATION TO CLOSE
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 Satisfactory Completion of Pre-Acquisition Review . . . . . . . . . 36
8.2 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 36
8.3 Performance of Obligations . . . . . . . . . . . . . . . . . . . . 36
8.4 Approval of PAC's and Parent s Boards of Directors; Consents . . . 37
8.5 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.6 Additional Documents . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.8 No Claim Regarding Ownership or Sale Proceeds . . . . . . . . . . . 37
8.9 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.10 Section 1445 Affidavit . . . . . . . . . . . . . . . . . . . . . . 38
9. CONDITIONS PRECEDENT TO ACI S AND THE SHAREHOLDER S OBLIGATION TO CLOSE 38
9.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 38
9.2 Parent s and PAC's Performance . . . . . . . . . . . . . . . . . . 38
9.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.4 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 39
9.5 No Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . 39
9.6 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.7 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.8 Additional Documents. . . . . . . . . . . . . . . . . . . . . . . . 39
10. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 ACI and Shareholder Documents . . . . . . . . . . . . . . . . . . . 39
10.2 PAC's and Parent s Documents . . . . . . . . . . . . . . . . . . . 41
11. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . 43
12. INDEMNIFICATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Survival of Representations and Covenants . . . . . . . . . . . . . 43
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.3 Threshold and Source of Indemnity . . . . . . . . . . . . . . . . . 45
12.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.5 Nonexclusivity of Indemnification And Setoff Remedies . . . . . . . 45
12.6 Exercise of Remedies by Indemnitees Other Than PAC . . . . . . . . 46
13. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 46
13.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 46
13.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.6 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . 48
13.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.9 Governing Law; Venue . . . . . . . . . . . . . . . . . . . . . . . 49
13.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 49
13.11 Remedies Cumulative; Specific Performance . . . . . . . . . . 49
13.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.15 No Third Party Beneficiaries; Parties in Interest . . . . . . 50
13.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 50
13.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.18 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . 50
<PAGE>
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.
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 businesses 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 contribution; 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.
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;
(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
(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.
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 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.
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 the
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.
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.
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 "Registerable 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 Registerable 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 Registerable 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
(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 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.
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);
(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;
(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.
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.
(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 circumstance 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.
(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 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:
(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 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, 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.
(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, written 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 and 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 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 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;
(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 govern-
mental 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 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;
(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:
(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
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:
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.
(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 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 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.
(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 WilTel 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 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]
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.
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 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
(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.
(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.
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 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.
(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 nor 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.
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;
(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):
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.
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 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.
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 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.
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
<PAGE>
Exhibit A 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
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:--------------------------------
Its:-------------------------------
<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:
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 shall 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.
2.4. 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 in 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 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.
4.2. 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 by 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
- --------------------------------- -----------------------------------
By: Judy Van Essen, individually By:
-----------------------------------
Its:
----------------------------------
As Escrow Agent
<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 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
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 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
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 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
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.
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.
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
<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.
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, the lesser of (A) $500,000
and (B) 16.67 percent of the original principal balance of the Note, each
reduced by any setoff; (ii) on January 16, 1999, the lesser of (A) $500,000 and
(B) 16.67 percent of the original principal balance of the Note, each reduced
by any setoff; (iii) on January 16, 2000, the lesser of (A) $500,000 and (B)
16.67 percent of the original principal balance of the Note, each 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 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 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 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 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 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
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.
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
<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;
(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.
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
<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.
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
<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
<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:
(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 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.
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.
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.
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
<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:
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.
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.
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
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 PHOENIX NETWORK, INC.
CORP.
By: By:
------------------------------ ------------------------------
Wallace M. Hammond, President Wallace M. Hammond, President
ACI:
AUTOMATED COMMUNICATIONS, INC. SHAREHOLDER:
By:
---------------------------- ----------------------------------
Judy Van Essen, Chief Executive Officer Judy Van Essen, individually
<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
<PAGE>
PHOENIX NETWORK
NEWS RELEASE
Phoenix Network Pushes Past $100 Million Mark
Acquisitions Increase Revenue by 47%
Pioneer Long Distance Reseller Initiates Switch-Based Activities
SAN FRANCISCO -- January 17, 1996 - Phoenix Network, Inc. (AMEX:PHX), a San
Francisco-based long distance reseller and provider of value-added
telecommunications services, announced today that it has reached agreement to
acquire two long distance companies, which will increase Phoenix Network's
annualized revenue by 47% from approximately $72 million to over $110 million.
Phoenix Network has acquired all of the outstanding shares of Automated
Communications, Inc. (ACI) of Golden, Colorado. ACI is a privately held,
facilities based carrier with annual revenues in excess of $22 million. ACI
operates state-of-the art switching centers in Colorado Springs, Minneapolis,
and Phoenix. Consideration for the acquisition will be in the form of 2.8
million shares of restricted Phoenix Network common stock and a long-term note.
The transaction will be accounted for as a purchase.
In a separate transaction, Phoenix Network has signed a Letter of Intent to
merge with AmeriConnect, Inc. (NASDAQ:AMCT) of Overland Park, Kansas, in a
stock-for-stock transaction. AmeriConnect is a publicly traded, non-facilities
based reseller with annual revenues in excess of $16 million. Phoenix Network
expects to issue approximately 4 million new shares in exchange for the shares
of AmeriConnect. The closing will take place on May 15, 1996, pending all
necessary regulatory approvals and the approvals the shareholders of both
companies. The transaction will be accounted for as a pooling of interests.
Wallace M. Hammond, President and CEO of Phoenix Network said, "When we
announced our acquisition strategy six months ago, we declared our intention to
pursue only those opportunities that meet a rigorous set of criteria. We made a
commitment that these transactions would be, first and foremost, accretive to
earnings per share, that they would also move us toward becoming a facilities-
based carrier, that they would expand our sales distribution network, and that
they would broaden the talent and experience of our management team. The
acquisition of ACI and the merger with AmeriConnect achieve all of these
objectives."
Long Contemplated Move to Switch Based Operation is Achieved Through ACI
Acquisition
ACI is a regionally focused carrier with three fully deployed Northern Telecom
DMS 250 switching systems, equipped with SS-7 signaling, which provide service
to a loyal and stable customer base. ACI has developed a very strong presence
in Denver and Minneapolis, which are - not coincidentally - two of Phoenix
Network's best markets as well.
Commenting on the ACI acquisition Hammond continued, "Our Denver sales office is
a top performer and our recent acquisition of Denver-based Tele-Trend, Inc. has
made Denver our most highly concentrated market. Minneapolis has always been
our most productive sales office and is ACI s mostly highly penetrated market.
These synergies will enable us to move a substantial amount of our switchless
traffic onto our own switched network, resulting in significantly lower
transmission costs, higher gross margins and better control of our customer
base. Furthermore, ACI s traffic will increase our total call volume, which
will improve our purchasing power and produce higher gross margins across all of
our business."
ACI is a ten year old company which is recognized as the fourth largest woman-
owned company in Colorado. "We are delighted to join forces with Phoenix
Network", said Judy Van Essen, President and Founder of ACI. "This is truly a
merger in which all parties benefit. Our customers gain access to a wider and
more diverse product line, which is now available nationwide, often with better
pricing. Our sales agents will gain additional products and compensation
flexibility. Our employees will be joining a growing company with rock solid
vision and the resources to achieve it."
Kaemmer to Join Phoenix as Vice President as a Result of AmeriConnect
Merger
Phoenix Network's merger with AmeriConnect is noteworthy because it is a union
of the two oldest public traded entrants into the non-facilities based long-
distance resale industry. AmeriConnect was organized in 1988 as Amerifax, Inc.
and was primarily devoted to reselling long distance transmission for facsimile
services. Following a small public offering of Amerifax in 1989, it refocused
its efforts to target the broader, more established interLATA long distance
market as a switchless reseller.
In describing the AmeriConnect merger Hammond said, "Phoenix and AmeriConnect
are a good fit because the two companies are so similar. We use the same
carriers, our operations are similar and we have both performed under the
scrutiny of public ownership for quite some time. The merger represents
tremendous opportunity for both companies because of the underlying synergies
which these similar operations produce. Having like carriers will allow us to
further reduce our carrier costs on both the Phoenix Network and AmeriConnect
traffic. Additional, the combined company will gain efficiencies by bringing in
house certain of AmeriConnect s provisioning and billing functions, which
AmeriConnect now outsources, as well as gain economies of scale in customer
service and administrative areas."
"The thing that makes this deal even more appealing is that we will have as an
executive a respected industry leader like Bob Kaemmer," Hammond continued. "I
am very pleased that Bob will join Phoenix Network as a vice President and the
head of our Midwest operations. His management expertise and industry-wide
knowledge will also be utilized as we step up our acquisition activities and
continue on the path of disciplined revenue growth which is accretive to
earnings per share."
Robert R. Kaemmer, AmeriConnect s President and CEO, said, "We are extremely
excited by the prospect of join AmeriConnect and Phoenix Network as a single
team. When we first contemplated a merger with another company, we recognized
that, upon the closing of the transaction, our shareholders would be
shareholders of the surviving company. Phoenix s positive operating results
over the last six fiscal quarters and our confidence in their growth strategy
were two of the determining factors in our decision to join forces in a move
which we believe will position Phoenix Network to continue its success in the
resale industry."
In assessing the overall impact of these two deals, Hammond concluded, "These
acquisitions meet perfectly our acquisition strategy criteria. As a result, we
fully expect significant positive impact on our earnings per share growth as the
synergies of these two transaction become fully realized. The additional
revenue significantly improves our buying power and, coupled with the
realization of our long contemplated move to becoming a switch-based carrier,
should dramatically improve our margins and consequently our earnings. With
annual revenues now exceeding a run rate of $100 million and with cash flow
expected to exceed $10 million, Phoenix Network is solidly positioned to acquire
the resources necessary to continue its dramatic growth curve."
Phoenix Network is one of the nation s largest and oldest publicly traded long
distance resellers. In addition to its core long distance offerings, Phoenix
Network provides conference calling, travel cards, debit cards, international
call-back, Internet access, customer invoices, management reports and a variety
of additional products and services.
Contact: Mary Ellen Warner, Investor Relations at (415) 399-3352
