<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---------- Exchange Act of 1934
For the Transition period from __________ to __________
Commission File No. 0-17909
PHOENIX NETWORK, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0881154
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1687 Cole Boulevard, Golden, Colorado 80401
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 232-4333
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
(1) Yes X (2) No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares outstanding at
Class August 1, 1996
----------------------------- --------------
<S> <C>
Common Stock, $.001 par value 17,712,245
</TABLE>
<PAGE> 2
PHOENIX NETWORK, INC.
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated 3
Balance Sheets
Condensed Consolidated 5
Statements of Operations
Condensed Consolidated 6
Statements of Cash Flow
Notes to Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ($225,356
restricted at December 31, 1995 and
June 30, 1996) $ 8,004,511 $ 1,572,196
Accounts receivable, net of
allowance for doubtful accounts
of $1,288,000 at December 31, 1995
and $1,628,000 at June 30, 1996 11,763,520 16,139,757
Deferred commissions 1,522,738 1,400,863
Other current assets 304,920 693,494
----------- -----------
Total current assets 21,595,689 19,806,310
Furniture, equipment and data processing
systems, at cost less accumulated
depreciation 743,463 2,703,034
Deferred commissions 1,454,483 1,068,608
Customer acquisition costs,
less accumulated amortization 2,447,619 3,720,676
Goodwill, less accumulated amortization 3,903,109 18,791,729
Other assets 223,520 886,584
----------- -----------
$30,367,883 $46,976,941
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
Current liabilities:
Note payable to finance company $ 41,468 $ 608,594
Note payable to stockholder - 131,406
Note payable to vendor - 1,931,315
Accounts payable and accrued liabilities 10,901,725 16,065,416
------------ ------------
Total current liabilities 10,943,193 18,736,731
Note payable to stockholder - long term - 1,182,650
Stockholders' equity:
Preferred stock, $.001 par value;
authorized, 5,000,000 shares;
issued and outstanding, 2,737,389 shares
at December 31, 1995 and 2,725,014
shares at June 30, 1996 2,737 2,725
Common stock, $.001 par value
authorized, 30,000,000 shares;
issued and outstanding, 14,459,658 shares
at December 31, 1995 and 17,698,974
shares at June 30, 1996 14,460 17,699
Additional paid-in capital 28,443,144 39,628,718
Treasury stock - 1,300
shares at cost (2,522) (2,522)
Accumulated deficit
from May 1, 1989 (9,033,129) (12,589,060)
------------ ------------
Total stockholders' equity 19,424,690 27,057,560
------------ ------------
$ 30,367,883 $ 46,976,941
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 13,489,242 $ 21,923,655 $ 27,683,463 $ 44,995,365
Cost of revenues 9,352,622 15,914,505 19,060,850 32,531,107
------------ ------------ ------------ ------------
Gross profit 4,136,620 6,009,150 8,622,613 12,464,258
Selling, general &
administrative expenses 3,791,902 6,426,936 7,915,701 12,856,313
Depreciation and amortization 128,812 1,075,214 274,024 2,159,187
Relocation expenses - 607,429 - 809,174
------------ ------------ ------------ ------------
3,920,714 8,109,579 8,189,725 15,824,674
Income (loss) from operations 215,906 (2,100,429) 432,888 (3,360,416)
Net interest expense (69,202) (125,718) (158,181) (163,185)
------------ ------------ ------------ ------------
Net income (loss) 146,704 (2,226,147) 274,707 (3,523,601)
Preferred stock dividends (63,701) (312,270) (126,891) (625,073)
------------ ------------ ------------ ------------
Net income (loss) attributable
to common shares $ 83,003 $ (2,538,417) $ 147,816 $ (4,148,674)
============ ============ ============ ============
Net income (loss) per common share
$ 0.01 $ (0.14) $ 0.01 $ (0.24)
============ ============ ============ ============
Weighted average number
of shares outstanding 13,049,454 17,569,201 12,788,101 17,456,065
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 26,682,710 $ 43,323,241
Interest received 3,648 39,777
Cash paid to suppliers and employees (26,623,473) (45,152,540)
Interest paid (161,828) (202,962)
------------ ------------
Net cash used in operating activities (98,943) (1,992,484)
Cash flows from investing activities:
Purchases of furniture and equipment (188,372) (214,567)
Purchase of other assets (70,168) (281,958)
Business acquisitions, net of cash acquired - (4,085,093)
------------ ------------
Net cash used in investing activities (258,540) (4,581,618)
Cash flows from financing activities:
Proceeds from (payment on) note payable to
finance company (752,788) 567,126
Payment on note payable to vendor - (1,081,810)
Proceeds from issuance of common stock 727,519 -
Proceeds from exercise of common stock options 132,972 656,471
------------ ------------
Net cash provided by financing activities 107,703 141,787
------------ ------------
Net decrease in cash (249,780) (6,432,315)
Cash at beginning of period 1,209,999 8,004,511
------------ ------------
Cash at end of period $ 960,219 $ 1,572,196
============ ============
Reconciliation of net income (loss) to net cash
used in operating activities:
Net income (loss) $ 274,707 $ (3,523,601)
Adjustments
Provision for doubtful accounts 720,107 1,007,788
Depreciation and amortization 274,024 2,159,187
Changes in assets and liabilities
Accounts receivable (1,000,753) (2,509,912)
Deferred commissions (119,983) 507,750
Other assets (298,838) (363,728)
Accounts payable and accrued expenses 51,793 730,032
------------ ------------
Net cash used in operating activities $ (98,943) $ (1,992,484)
============ ============
Schedule of noncash financing activity
Noncash components of consideration issued in
connection with business combination:
Common stock $ - $ 10,500,000
Note payable to stockholder - 1,314,056
Assumption of net liabilities - 1,606,976
Conversion of preferred stock into common stock 7,221 32,330
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
PHOENIX NETWORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Registrant's Form 10-K for year ended December 31, 1995.
NOTE B - ACQUISITION
In January 1996, the Company acquired Automated Communications, Inc. ("ACI"), a
Golden, Colorado facilities-based long distance phone service carrier operating
switching centers in Colorado Springs, Minneapolis and Phoenix. Consideration
for the acquisition was in the form of $4,086,693 in cash, 2,800,000 shares of
the company's common stock valued at $10,500,000, a long term note of $1,314,056
bearing interest at 9%, and the assumption of net liabilities of $1,606,976. The
Company's consolidated results of operations for the periods ended June 30, 1996
include those of ACI from January 1, 1996, the effective date of the purchase
transaction. The excess of the purchase price over the fair market value of the
assets and liabilities acquired has been allocated to customer acquisition
costs ($1,950,000) and to goodwill ($15,557,725). Customer acquisition costs
are amortized over 4 years using the sum-of-the-years-digits method and goodwill
is amortized on a straight line basis over 20 years.
The following condensed pro forma information presents the results of operation
of the Company as if the acquisition of ACI, and certain other acquisitions
completed in 1995, had occurred on January 1, 1995.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1995 June 30, 1995
------------- -------------
<S> <C> <C>
Revenue $21,577,099 $45,014,507
Net income 492,047 1,141,316
Net income attributable to common shares 173,833 516,268
Net income per common share 0.01 0.03
</TABLE>
NOTE C - PROPOSED MERGER
In June 1996, Phoenix and AmeriConnect, Inc., a long distance reseller based in
Overland Park, Kansas, signed a definitive merger agreement and are proceeding
to take the necessary steps to close the merger. Under the terms of the
agreement, Phoenix will issue approximately 2,700,000 share of common stock in
exchange for all of the shares of
7
<PAGE> 8
capital stock held by AmeriConnect stockholders. For accounting purposes, the
transaction will be treated as a pooling of interests. The following unaudited
pro forma condensed consolidated statements of operations for the three and six
month periods ended June 30, 1996 reflect the historical consolidated statements
of operations for the periods then ended to give effect to the proposed merger.
Statements of Operations
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1996 June 30, 1996
------------------- ----------------
<S> <C> <C>
Revenues $ 26,266,000 $ 53,602,000
Cost of revenues 19,085,000 38,903,000
------------ ------------
Gross profit 7,181,000 14,699,000
Selling, general and
administrative 9,038,000 17,962,000
------------ ------------
Loss from operations (1,857,000) (3,263,000)
Other (125,000) (173,000)
------------ ------------
Net loss (1,982,000) (3,436,000)
Preferred dividends (312,000) (625,000)
------------ ------------
Pro forma net loss
attributable to common shares $ (2,294,000) $ (4,061,000)
============ ============
Net loss per common share $ (0.11) $ (0.20)
============ ============
Weighted average
shares outstanding 20,278,000 20,165,000
============ ============
</TABLE>
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the quarter ended June 30, 1996 revenues increased to $21,923,655 compared
with revenues of $13,489,242 for the comparable period of the prior year. The
increase of 62.5% was due to acquisitions completed by the Company in late 1995
and the quarter ended March 31, 1996. Billed minutes to customers increased 88%
between periods while the average revenue per minute declined by 13.6% between
periods. The average rate decline was due to the combination of the Company's
customers utilizing more competitively priced services offered by the Company
over the past year and the effect of the acquired companies' rate structures
which generally were lower than those offered by the Company. For the six months
ended June 30, 1996, revenues increased 62.5% from the comparable period of the
prior year due to the same reasons as the quarterly comparison.
Cost of revenues for the three months ended June 30, 1996 increased to
$15,914,505 from $9,352,622 in the prior year's period which, as a percentage of
revenue, increased to 72.6% compared to 69.3% for the prior year's period. For
the six month period, cost of revenues increased to 72.3% from 68.9%. Although
the Company's average cost per minute of usage has declined by 9.5% for the
three months ended June 30, 1996 and 9.6% for the six months ended June 31, 1996
compared to the prior year's comparable periods, the higher percentage decrease
in the average revenue per minute resulted in the decline in the Company's gross
profit margin percentage. As a result of the Company's acquisition of ACI, as
described in Note B to the financial statements, the Company now operates three
long distance switches located in Minneapolis, Colorado Springs and Phoenix and
is in the process of moving its customers' traffic to these facilities where
economically feasible. Additionally, the Company has signed an agreement with US
ONE Communications Corp., a switched based carrier which has plans to offer both
long distance origination and local dial tone service from its AT&T #5ESS-2000
switching platforms. Beginning in July 1996, US ONE will start deploying
switches nationwide in 16 major cities with a scheduled completion date in mid
1997. Phoenix will begin moving its customers' traffic to this platform as the
switches become operational. In addition to the US ONE arrangement, the Company
has also entered into an agreement with a division of Comdisco, Inc. which
provides computer disaster recovery assistance to companies on a nationwide
basis. In support of its disaster recovery clients, Comdisco Network Services
has built a nationwide fiber optic, high speed data network which is fully
satellite redundant. The terms of the agreement allow Phoenix to acquire private
line services from Comdisco at discounts to prevailing prices offered by other
private line providers. Phoenix plans to utilize the Comdisco private line
services in conjunction with the US ONE switching platform to offer its
customers a nationwide telecommunications network with a lower cost per minute
of usage than currently available under the Company's reseller contracts with
other facilities based carriers. Accordingly, the Company anticipates
improvement in its gross profit margin as a percentage of revenue as it is able
to move its traffic to these new platforms.
9
<PAGE> 10
Selling, general and administrative (SG&A) expenses increased slightly as a
percentage of revenue from 28.1% for the quarter ended June 30, 1995 to 29.3%
for the quarter ended June 30, 1996 and were the same at 28.6% as a percentage
of revenue for the comparable six month periods. As a result of the acquisition
of ACI in January 1996, the Company has been operating headquarters facilities
in Golden, Colorado in addition to its San Francisco location for the six months
ending June 30, 1996. The Company has substantially completed relocating its
offices to the Golden facilities in July 1996 and anticipates a reduction in
SG&A as a percentage of revenue for the remainder of 1996. Relocation expenses
for the six month period ended June 30, 1996 were $809,174 and consist primarily
of employee severance, travel, relocation and training costs.
Depreciation and amortization expense increased from $128,812, or 1.0% of
revenue, in the June 1995 quarter to $1,075,214, or 4.9% of revenue, in the
quarter ended June 1996. The increase resulted primarily from the amortization
of the ACI acquisition and the Tele-Trend acquisition completed in August 1995.
The reasons for the changes in the six month periods are the same as for the
quarterly comparisons.
Liquidity and Capital Resources
Cash flows from operations for the six months ended June 30, 1996 resulted in a
net negative cash flow of $1,992,484 compared to a negative cash flow of $98,943
for the prior year. Accounts receivable, net of the allowance for doubtful
accounts, and accounts payable, each increased at June 30, 1996 compared to
December 31, 1995, as a result of the acquisition described in Note B to the
financial statements and as a result of increased billings of the Company for
the period. In January 1996, the Company expended $4,086,693 as the cash
component of the consideration paid for ACI (see Note B to the Condensed
Consolidated Financial Statements). The Company has a line of credit available
through a finance company allowing for borrowings of up to $10,000,000 based on
the Company's trade receivable. There was $608,594 outstanding under the line at
June 30, 1996.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
10(a) Comdisco Telecommunications Services Agreement
10(b) US One Communications Services Agreement
(a) 11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) None
11
<PAGE> 12
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 thereunto duly authorized.
PHOENIX NETWORK, INC.
(Registrant)
Date 8/14/96 /s/ Wallace M. Hammond
--------------- ------------------------------------
Wallace M. Hammond
Chief Executive Officer
Date 8/14/96 /s/ Jeffrey L. Bailey
--------------- ------------------------------------
Jeffrey L. Bailey
Chief Financial Officer
(Chief Accounting Officer)
12
<PAGE> 13
PHOENIX NETWORK, INC.
INDEX TO EXHIBITS
10(a) Comdisco Telecommunications Services Agreement
10(b) US One Communications Services Agreement
11 Statement of Computation of Per Share Earnings
27 Financial Data Summary
13
<PAGE> 1
COMDISCO DISASTER RECOVERY TELECOMMUNICATIONS
SERVICES, A DIVISION OF COMDISCO, INC. SERVICES AGREEMENT
AGREEMENT dated March 25, 1996 between COMDISCO DISASTER
RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. ("Comdisco") with offices
located at 6111 North River Road, Rosemont, IL 60018, and PHOENIX NETWORK ,
INC. ("Customer"), with offices located at 550 California Street, 11th Floor,
San Francisco, CA 94104.
1. SERVICES
A. Comdisco agrees to provide Customer with the telecommunication network and
related services (the "Services") and the Services related products (the
"Products") specified in Exhibit A.
B. Customer is responsible for, at its expense, (i) obtaining all necessary
site preparations required by Comdisco's installation and maintenance
specifications attached hereto as Exhibit B; (ii) all cabling and conduits for
the connection of power; (iii) transportation and in-transit insurance,
installation, and deinstallation of any Products; (iv) operation and
maintenance of any equipment or software provided by Customer (including the
transmission and reception of signals); (v) returning the Products to Comdisco
or the vendor upon termination of this Agreement, in the same operating order,
condition and appearance as when received, less normal wear and tear, to the
address specified by Comdisco within the continental United States; and (vi)
the cost of relocating Products and Services once installed by Comdisco.
Comdisco shall not be responsible for the security of any transmissions.
C. Customer will give Comdisco reasonable access to its premises to install,
inspect, maintain, service, replace, relocate and remove Products and Services.
Customer will also provide access to representatives of organizations
maintaining any Products.
2. USE OF SERVICES AND PRODUCTS
A. Customer will not modify the Products and Services without the prior
written consent of Comdisco ("Modification") which will not be unreasonably
withheld. If Modification occurs, Comdisco is released from any liability or
obligation to Customer for the modified portion of the Product or Services,
Customer will be liable to Comdisco for any costs or damages incurred by
Comdisco (including damage to the Comdisco network) caused by a Modification
for which consent was not received pursuant to this paragraph.
B. Any Product provided to Customer is for Customer to access and use the
Services. Customer agrees not to use any Product for any other purpose.
Customer will not use the Products and Services to knowingly violate any law or
to aid any unlawful act.
C. Customer is responsible for ensuring that any equipment or software
provided by Customer will not (i) interfere with any of the Products or
Services; (ii) endanger the safety of Comdisco
<PAGE> 2
employees or the public; (iii) damage or require alteration to the Products or
Services. Upon notice from Comdisco that the equipment or software provided
by Customer is causing or is likely to cause such a hazard or interference, the
Customer will remove the equipment or software. Comdisco may require Customer
provided equipment be certified by Comdisco prior to use with Products or
Services.
3. TERM. The term of this Agreement begins upon acceptance by Comdisco
("Commencement Date") and continues for 36 months beginning on the first day of
the month following the Commencement Date (or beginning on the Commencement
Date if it is the first day of the month) ("Initial Term"). Customer shall
have the right to terminate this Agreement upon ninety (90) days prior written
notice to Comdisco. At the expiration of the Initial Term, the Agreement will
automatically renew for successive ninety (90) day terms, at Comdisco's then
current rate for the Products and Services, unless Customer or Comdisco gives
notice of termination at least thirty (30) days prior to the end of the Initial
Term or a renewal term.
4. FEES AND TAXES
A. Customer will pay Comdisco for the Services and Products as specified in
Exhibit A. Comdisco will invoice Customer monthly for the monthly fees and
Customer will pay the monthly fees within thirty (30) days from the date of
invoice. All other usage fees and charges (including applicable taxes)
incurred by Customer in any calendar month will be invoiced to Customer during
the following calendar month and Customer will pay them within thirty (30) days
from the date of invoice. If any payment is not made when due, Customer will
pay interest at the lesser of 18% per year or the maximum percentage permitted
under applicable law. Comdisco will have the right to increase any monthly
fees, upon 30 days prior written notice, due to an increase in the rates of
underlying carriers. Notwithstanding anything to the contrary herein, Comdisco
shall not increase its fees, in the aggregate, more than ten percent (10%) per
year for the first two years of this Agreement.
B. Customer agrees to pay when due or reimburse and indemnify and hold
Comdisco harmless from all taxes, fees or other charges of any nature
whatsoever (together with any related interest or penalties not arising from
negligence on the part of Comdisco) now or hereafter imposed or assessed during
the term of this Agreement against Comdisco, Customer or the Services and
Products by any federal, state, county, or local governmental authority (except
only Federal, state or local taxes based on or measured by the net income of
Comdisco).
5. LIMITED WARRANTY. Comdisco warrants that it has all necessary rights
to provide the Services and Products to Customer. EXCEPT AS SET FORTH IN THIS
PARAGRAPH, COMDISCO MAKES NO, AND EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, FOR THE SERVICES, THE PRODUCTS OR ANY OTHER
EQUIPMENT, SOFTWARE, OR PRODUCT USED BY CUSTOMER OR COMDISCO IN CONNECTION WITH
THE SERVICES (OR THE RESULTS OF THE SERVICES OR PRODUCTS) INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Unforeseen downtime and unscheduled maintenance may interrupt Customer's access
to the Services. Comdisco does not guarantee that access to the Services will
be uninterrupted. Comdisco will attempt to minimize the duration of any such
occurrence. In the event Services are interrupted for a period of twenty-
<PAGE> 3
four (24) consecutive hours, Customer shall have the right to immediately
terminate this Agreement which termination will be effective upon receipt by
Comdisco of notice of termination by Customer.
6. LIMITATION ON LIABILITY
A. Comdisco's liability to Customer for any losses or damages, direct or
indirect, arising out of this Agreement, will not in any event exceed the total
amount of cash fees paid by Customer during the 12-month period preceding the
month in which Customer's loss or damage is incurred. This limitation of
liability will not apply to the indemnity set forth in Section 7. Except as
provided for in this Agreement, Comdisco will not be liable to Customer or any
other person for any claim or damage arising, directly or indirectly, from the
furnishing of Services or Products or from interruption or loss of use of the
Services or Products. Comdisco will not be liable, under any circumstances,
for special, exemplary or consequential damages, including but not limited to,
loss of anticipated profits, even if Comdisco has been advised of the
possibility of such damages.
B. The Customer will reimburse Comdisco for (i) any loss through theft or
vandalism of Products or Services or any other damage to the Products
whatsoever while on Customer's premises and (ii) all charges for maintenance
services caused by Customer's misuse of the Services or Products, or misuse of
any Customer-owned equipment or software that is used with the Services or
Products. The Products and Services are Comdisco's property and may be removed
by Comdisco at any time after termination of this Agreement upon reasonable
notice to Customer.
7. MUTUAL INDEMNIFICATION. Each party agrees to indemnify (the
"Indemnifying Party) and holds the other party (the "Indemnified Party"), and
any parent, subsidiaries and affiliates and the employees and agents of any of
them, harmless against any and all claims, liabilities, losses, damages and
causes of action relating to personal injury, death, or property damage arising
out of the intentional or negligent acts or omissions of Indemnifying Party in
the performance or nonperformance by Indemnifying Party of this Agreement.
However, the Indemnifying Party will not be responsible for injury attributable
to the acts or omissions of the Indemnified Party, and any parent, subsidiaries
and affiliates or the agents and employees of any of them.
Customer will indemnify and hold Comdisco, its subsidiaries and affiliates and
the respective employees and agents of any of them, harmless against any and
all claims, liabilities, losses, damages and causes of action relating to (i)
libel, slander, invasion of privacy or infringement of copyright, and invasion
or alteration of private records or data arising from any information, data or
message transmitted over the network by Customer or its users; or (ii)
infringement of patents arising from the use of apparatus and systems of the
Customer in connection with Products or Services furnished by Comdisco.
8. TERMINATION
A. Either Customer or Comdisco may, by notice, and subject to the provisions
of Paragraph B. below, terminate this Agreement for cause without further
obligation upon the other party's
<PAGE> 4
failure to timely cure a material default under this Agreement. Any such
material default(s) will be expressly identified in the notice of termination.
B. Written notification must be given of an alleged default, the notified
party will have thirty (30) days to remedy the specific default(s). Failure to
cure any specified material default(s) within the applicable allotted time, or
recurrence of the same material default within thirty (30) days after its
initial cure, will give cause for immediate termination. In the event of
termination due to Customer's material default, Customer will be liable for
amounts then owing and the present value of monthly fees for all of the
remaining months of the Initial Term of the Agreement or any extension thereof.
Reasonable attorney's fees and costs incurred by the non-breaching party as a
result of the breaching party's default shall be immediately due and payable by
the breaching party upon incurrence.
9. SECURITY AND CONFIDENTIALITY
Each party will follow the other's security requirements while on the
other's premises. Comdisco and Customer will each exercise the same standard
of care to protect any proprietary or confidential data of the other disclosed
during the negotiation or performance of this Agreement, as is used to protect
its own proprietary or confidential data from unauthorized disclosures.
10. INTELLECTUAL PROPERTY INDEMNITY
Comdisco hereby represents and warrants to Customer that neither the
Products nor the Services nor any party thereof will infringe or misappropriate
any copyright, patent, or any trade secret or other proprietary right of any
third party. Comdisco agrees that it will defend at its expense any action
brought against Customer to the extent that such action is based upon a claim
that the Products or Services or any part thereof infringes or misappropriates
a patent, copyright, trade secret, or other proprietary right of any third
party and Comdisco will pay any costs and damages incurred by or finally
awarded against Customer in such action which are attributed to such claim,
provided that Customer notifies Comdisco promptly in writing of the claim and
that Comdisco may fully participate in the defense and/or any settlement of
such claim. Should the Products or Services or any part thereof become the
subject of a claim of infringement, Comdisco shall either (a) procure for
Customer the right to continue using the same or (b) replace or modify them to
make them non-infringing. Comdisco shall have no liability for any claim or
infringement based on use of any Products or Services with software, data, or
materials not supplied by Comdisco if such alleged infringement would not have
arisen but for the use of software, data or materials not supplied by Comdisco
in conjunction therewith.
11. MISCELLANEOUS A. This Agreement will be binding upon, and will inure
to the benefit of the parties hereto, their successors and permitted assigns.
Customer may not assign this Agreement or any of its rights or obligations
(except to its successor under a merger, consolidation, or sale of all or
substantially all of its assets) without obtaining the prior written consent of
Comdisco. B. This Agreement will be governed by the laws of the State of
Illinois. C. No waiver by either party of any breach or default of any of the
covenants or conditions hereof and performed by the other party will be
construed as a waiver of any succeeding breach of the same or of any other
covenant or condition. D. Neither party will be considered in default due
<PAGE> 5
to, and will have no liability for, any failure in its performance of this
Agreement should such failure arise out of causes beyond its control,
including, but not limited to, Acts of God or a public enemy, acts of any
federal, state or local government or authority, fires, floods or other
disasters, epidemics, quarantines, strikes, freight embargoes, degradation of
telephone or other means of communication service, utility outages, equipment,
software or parts failure or unavailability, or unusually severe weather
conditions. E. This Agreement constitutes the entire agreement between the
parties and supersedes all prior proposals, oral or written, all purchase
orders, all previous negotiations and all other communications, representations
and understandings between Comdisco and Customer with respect to the subject
matter, and may not be modified in any manner except by a writing signed by an
authorized representative of the party being bound thereby. F. Any notice,
request or other communication to either party by the other will be given in
writing and will be deemed received upon the earlier of receipt or three days
after mailing if sent by certified mail, postage prepaid, return receipt
requested, at the address for such party as set forth above. G. No third
party is intended to be, or will be construed to be, a beneficiary of any
provision of this Agreement and no third party will have any right to enforce
any provision of this Agreement or to pursue any remedy for the breach of any
provision hereof. H. If any one or more of the provisions of this Agreement
is for any reason held invalid, illegal or unenforceable, the remaining
provisions of this Agreement will remain unimpaired, and the invalid, illegal
or unenforceable provision replaced by a mutually acceptable valid, legal and
enforceable provision that is closest to the original intent of the parties.
The parties have caused this Agreement to be executed by their duly authorized
officers as of the date first written above.
PHOENIX NETWORK, INC. COMDISCO DISASTER RECOVERY
SERVICES, A DIVISION OF COMDISCO INC.
By: [ILLEGIBLE] By: [ILLEGIBLE]
---------------------------------- ----------------------------------
Title: President/CEO Title:
------------------------------- -------------------------------
<PAGE> 6
EXHIBIT A DATED MARCH 25, 1996_
TO THE TELECOMMUNICATIONS SERVICES AGREEMENT
DATED MARCH 25, 1996 BETWEEN COMDISCO DISASTER RECOVERY SERVICES,
A DIVISION OF COMDISCO, INC., ("COMDISCO") AND
PHOENIX NETWORK, INC., ("CUSTOMER")
TELECOMMUNICATION SERVICES Three T-1 circuits from area codes 612-622 to
area codes 303-572. (All local access will be provided by Customer.) Customer
shall have the right to decrease the number of T-1 circuits upon 60 days prior
written notice to Comdisco. Customer shall have the right to increase the
number of T-1 circuits upon 30 days prior written notice to Comdisco, subject
to service intervals of the service provider.
FEES
A. CASH FEES
MONTHLY FEES: [ ]
B. ADDITIONAL EQUITY CONSIDERATION
As additional consideration for the Products and Services provided
hereunder, Customer agrees to deliver to Comdisco Common Stock of Customer in
the amounts as determined below. On a quarterly basis, a determination will be
made as to the amount Customer has saved (the "Cost Savings") by obtaining the
Services from Comdisco as opposed to obtaining similar services from the "Next
Best Alternative" as defined below. Comdisco will receive an "Equity Credit"
equal to fifty percent (50%) of the Cost Savings for the prior period. On a
quarterly basis, Customer will deliver to Comdisco the number of shares of
Customer's Common Stock with a value equal to the Equity Credit (rounded to the
nearest whole share). This valuation will be determined on the basis of the
average closing price of the Customer's Common Stock as reported on the
American Stock Exchange Consolidated Tape over the preceding 90 day period.
"Next Best Alternative" means the rate of [ ] per month per T-1 for
the initial ninety day period. The parties will mutually agree upon the Next
Best Alternative rate prior to the commencement of each successive quarter of
this Agreement. The "Cost Savings" means the difference between the Next Best
Alternative cost and the actual out of pocket Comdisco costs which Phoenix has
paid in cash.
Portions of this exhibit have been redacted pursuant to a request for
confidential treatment made with the Securities and Exchange Commission and are
reflected herein by [ ]. The Company has filed unredacted versions with the
Securities and Exchange Commission under separate cover.
<PAGE> 7
C. ELECTION TO CONVERT TO ALL CASH FEES
After the expiration of the 12th month of the term of this Agreement
and upon at least 30 days prior written notice to Comdisco, Customer may
elect to pay any future Equity Credit in cash rather than in the form of Common
Stock as outlined in subsection B above. Such cash payment shall be equal to
the amount of the Cost Savings.
D. ACQUISITION OF COMMON STOCK AND REGISTRATION RIGHTS
The acquisition of Customer's Common Stock will be made pursuant to
the stock purchase agreement attached hereto as Exhibit C, which shall include
demand and piggy-back registration rights.
PHOENIX NETWORK, INC. COMDISCO DISASTER RECOVERY
SERVICES, A DIVISION OF COMDISCO, INC.
By: [ILLEGIBLE] By: [ILLEGIBLE]
---------------------------------- -----------------------------------
Title: President/CEO Title:
------------------------------- --------------------------------
<PAGE> 1
COMMUNICATIONS SERVICES AGREEMENT
CARRIER: Phoenix Network Inc.
--------------------
CARRIER'S STATE California AGREEMENT 5/22/96
---------- -------
OF INCORPORATION: DATE:
INITIAL
TERM: 7 YEARS
-----
This Agreement between US ONE Communications Corp., a Delaware
corporation ("USOC"), and the above-named Carrier establishes the terms and
conditions under which USOC will furnish Communications Services to Carrier.
GENERAL TERMS AND CONDITIONS
1. Mutual Agreements.
USOC agrees to provide, and Carrier agrees to pay for,
Communications Services available in any Service Area that are ordered by
Carrier, on the terms and conditions of this Agreement. Each Communications
Service will be available in each Service Area indicated on the most recent
Service Availability Schedule.
2. Incorporated Terms; Tariffs.
2.1 Definitions.
For purposes of this Agreement, capitalized words and phrases
shall have the respective meanings set forth in the Definitions Annex attached
hereto, which is incorporated in and made a part of this Agreement.
2.2 Terms.
Subject to Section 2.3, the terms and conditions under which
USOC will provide any Communications Service to Carrier in any Service Area
shall be as set forth in (i) the Tariff, if any, for such Communications
Service in effect for such Service Area, (ii) the General Terms of this
Agreement, (iii) the Service Description for such Communications Service, and
(iv) the Service Request for such Communications Service in such Service Area.
Each of the Tariffs relating to any Communications Service in any Service Area,
each Service Description for any Communications Service and each Service
Request are incorporated in and made a part of this Agreement.
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2.3 Priorities Upon Conflict Between Terms.
In the event of a conflict as to any Communications Service
for any Service Area between the terms of this Agreement, the related Service
Description, the related Service Request and any applicable Tariff, the
following order of precedence will prevail (from highest priority to lowest
priority):
(i) the Service Request for such Communications Service
in such Service Area;
(ii) the Service Description for such Communications
Service (except as to matters specified in Section 18
of the General Terms of this Agreement, as to which
such Section 18 will prevail);
(iii) the General Terms of this Agreement; and
(iv) the Tariff for Communications Service in effect for
such Service Area.
2.4 Service Description.
Subject to Section 2.3, the Service Description for any
Communications Service, together with any applicable Tariff, will describe the
terms and conditions under which USOC will provide such Communications Service
under this Agreement.
2.5 Service Requests.
No Service Request shall be valid and binding on USOC under
this Agreement unless USOC has issued a Service Request Confirmation confirming
such Service Request, whereupon such Service Request will be incorporated in
and made a part of this Agreement. No service request confirmation shall be
unreasonably delayed by USOC.
2.6 Scope of Tariff.
A Tariff for any Communications Service will, in general, set
forth general regulations applicable to such Communications Service and the
terms for such matters as carrier common line (CCL), end user common line
(EUCL), subscriber line charges (SLC), ordering options, service options,
specialized or ancillary services, service areas, special charges (assessed due
to tax or regulatory authorities), data communications, database or enhanced
data services and rates applicable to such Communications Service. USOC shall
furnish copies of all tariffs and amendments to Carrier at time of filing.
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3. Term of Agreement.
3.1 Term & Renewals.
The term of this Agreement shall commence on the Agreement
Date specified above, terminating on the date that is the Initial Term
specified above thereafter. This Agreement shall be automatically renewed in
successive one-year periods unless terminated by written notice by one of the
parties at least 30 days prior to the end of the last year of the term.
3.2 Survival
In the event the Service Term for a particular Communications
Service to be provided by USOC to Carrier as specified in a Service Request
extends beyond the effective date of termination, such Communications Service
shall remain in effect for the agreed upon time for such Communications
Service, with all of the terms and conditions of this Agreement otherwise
expiring upon such termination remaining in effect with respect to (but only
with respect to) such Communications Service.
3.3 Termination for Breach by Carrier
In the event Carrier is in material breach of this Agreement,
including without limitation, failure to pay charges due hereunder by the date
stated in any Suspension Notice described in Section 4.5, USOC, in addition to
rights under any applicable Tariff shall have the right, after giving Carrier
an additional ten days prior written notice, to terminate this Agreement. If
Carrier fails to make payment by the date stated in the Suspension Notice and
USOC, after giving Carrier an additional ten days prior written notice,
terminates this Agreement as provided in this Section 3.3, Carrier shall be
liable for payment of any applicable Cancellation Charges as if this Agreement
had been terminated pursuant to Section 4.7. USOC shall not have the right to
terminate this Agreement for Carrier's failure to pay charges by the date
stated in the Suspension Notice where (a) the charges set forth in the
Suspension Notice are Withheld Amounts under Section 4.4; (b) Carrier has
initiated arbitration proceedings under Section 17.3 with respect to the
charges described in the Suspension Notice; or (c) the unpaid charges described
in the Suspension Notice do not exceed $250,000.00
3.4 Termination for Breach by USOC.
In the event USOC misses its Switch Implementation Schedule in
any Service Areas by 30 days or more ("material miss"), and this material miss
results in economic harm to Carrier which has not been offset by USOC's other
switch installations and provisioning of services to Carrier in other Service
Areas, Carrier has the right to either (a) enter into an agreement for
Communications Services with any Comparable Switching Service Provider(s) in
the affected Service Area, or (b) terminate this Agreement without assessment
of any penalties or cancellation charges. Carrier shall not be entitled to
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<PAGE> 4
terminate if USOC agrees, in writing, to compensate Carrier for the increased
cost Carrier has incurred or will incur due to USOC's material miss. This
compensation is for the cost differential between USOC's pricing and Carrier's
cost to cover, that is, the pricing Carrier receives from its current Carrier
or the entity Carriers purchases like services from the date of the material
miss until USOC's Switch(es) is installed and Communications Services are
available to Carrier and/or other direct costs incurred by Carrier due
specifically to USOC's material miss.
4. Charges and Payment Terms.
4.1 Invoices.
USOC will bill for any Communications Service provided
hereunder on a monthly basis on pricing terms specified in the applicable
Tariff (as modified or supplemented by the related Service Description and
Service Request).
4.2 Taxes.
Carrier shall file an appropriate exemption certificate or
pay, in addition to all other charges provided for herein, any applicable
federal, state or local use, excise, gross receipts, sales and privilege taxes,
duties, fees or similar liabilities (other than general income or property
taxes), whether charged to or against USOC or Carrier because of any
Communications Service furnished to Carrier ("Additional Charges"). Carrier
acknowledges and understands that USOC will compute all charges under this
Agreement without deduction or credit for any Additional Charges.
4.3 Payment.
Each USOC invoice will be due and payable for any
Communications Service in full on the date of the invoice ("Invoice Date"). If
payment is not received by USOC on or before the date (the "Late Fee Date")
that is 30 days after receipt of month end CDR media (as defined in section
18.12), Carrier shall also pay a late fee from the Late Fee Date until paid in
the amount of the lesser of one and one-half percent (1 1/2%) of the unpaid
balance of the charges per month or the maximum lawful rate under applicable
state law.
4.4 Billing Disputes.
Late fees shall not apply for amounts reasonably disputed by
Carrier, provided Carrier:
(i) pays all outstanding undisputed charges due on or before the Late Fee
Date, other than the disputed amount ("Withheld Amount") which cannot be
greater than 25% of total outstanding charges.
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(ii) presents a written statement of any billing discrepancies to USOC in
reasonable detail on or before the Late Fee Date of the invoice in question,
and
(iii) negotiates in good faith with USOC for the purpose of resolving such
dispute within 60 days of USOC scheduled meeting for appropriate exchange of
information.
Within ten (10) business days, USOC will respond, in writing, to all amounts
Carrier has disputed in writing. USOC's failure to respond within ten (10)
business days, shall constitute USOC's agreement that the disputed amounts were
billed in error. If USOC determines that Carrier was billed in error, a credit
for the amount billed incorrectly will appear on the next invoice. If USOC
determines that the disputed amount was billed correctly, then Carrier shall
have ten (10) business days to pay the amount due. If Carrier does not agree
with USOC's assessment, both parties agree to resolution through binding
arbitration in the State of Colorado within thirty (30) days of USOC's
determination that the bill was issued properly. Late fees shall not begin to
accrue on any disputed billing amounts (i) so long as Carrier pays within the
ten business day period following USOC's determination; or (ii) until a final
arbitration decision in USOC's favor. Notwithstanding the above, Carrier shall
notify USOC in writing within 30 days following Carriers discovery of any
billing discrepancy.
4.5 Suspension of Communications Service.
Except as to Withheld Amounts described in Section 4.4 above,
in the event charges due pursuant to any USOC invoice are not paid in full by
the Late Fee Due Date, USOC shall have the right, after giving Carrier 10
business days' prior notice, to suspend all or any portion of any
Communications Service to Carrier ("Suspension Notice") until such time
(designated by USOC in its Suspension Notice) as Carrier has paid in full all
charges then due to USOC, including any late fees. Following such payment, USOC
shall reinstitute Communications Service to Carrier only when Carrier provides
USOC with satisfactory assurance of Carrier's ability to pay for any
Communications Service (i.e., a cash deposit, letter of credit or other means
acceptable to USOC) and Carrier's advance payment of the cost of reinstituting
any Communications Service. The Suspension Notice shall set forth USOC's good
faith estimate of the costs of reinstituting service if Carrier's service is
suspended. If Carrier fails to make the required payment by the date set forth
in the Suspension Notice, Carrier will be deemed to have canceled any
Communications Service suspended effective as of the date of suspension. Such
cancellation shall not relieve Carrier for payment of applicable Cancellation
Charges as described in Section 4.7.
4.6 Special Charges.
In the event Carrier requests expedited provisioning of any
Communications Service or changes to any Service Request and USOC agrees to
such request, USOC may
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<PAGE> 6
condition its performance of such request upon Carrier's payment of additional
charges to USOC provided that Carrier is advised of the amount of such charges
in writing prior to the date the services are performed.
4.7 Cancellation.
(a) At any time, subject to Section 18, Carrier may
cancel any Communications Service in any Service Area or effect an early
termination of this Agreement (and thereby cancel all Communications Services
in all Service Areas) if Carrier provides written notification thereof to USOC
not less than 30 days prior to the effective date of cancellation or
termination.
(b) In such case, Carrier shall pay to USOC all charges
for each canceled Communications Service provided through the effective date of
such early cancellation plus the Cancellation Charge, if any, pertaining to
such Communications Service canceled.
(c) It is agreed that USOC's damages in the event Carrier
cancels any or all Communications Services shall be difficult or impossible to
ascertain. The provision for a Cancellation Charge in this Section 4.7 is
intended, therefore, to establish liquidated damages in the event of a
cancellation and is not intended as a penalty.
(d) Cancellation charges shall not apply in the event of
a termination caused by USOC's material breach of its agreement herein.
4.8 Modification of Services or Terms.
USOC reserves the right to terminate providing any
Communications Service provided in any Service Area under this Agreement or
modify the charges or other terms for any Communications Service provided in
any Service Area under this Agreement, including by means of modifying any
then-existing Tariff, upon not less than 60 days' prior notice to Carrier,
which notice will state the effective date for such termination or
modification. Carrier may accept the rate change or cancel the affected portion
of the Communications Service without penalty by notifying USOC in writing at
least 30 days prior to the effective date of the modification. USOC shall
reimburse Carrier for any Cancellation and/or Termination fees incurred by
Carrier as a result of actions taken by USOC under Section 4.8.
5. Credit.
(a) Execution of this Agreement signifies (1) Carrier's
acceptance of USOC's initial and continuing credit approval procedures and
policies; and (2) USOC's approval of Carrier's credit worthiness.
(b) If at anytime there is a material adverse change in
Carrier's
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creditworthiness, then in addition to any other remedies available to USOC,
USOC may elect, in its sole discretion, to exercise one or more of the
following remedies: (i) cause the start of service for any Communications
Service described in a previously executed Service Request to be withheld; (ii)
cease providing any Communications Service pursuant to a Suspension Notice;
(iii) decline to accept a Service Request or other requests from Carrier to
provide any Communications Service which USOC may otherwise be obligated to
accept; or (iv) condition its provision of any Communications Service or
acceptance of a Service Request on Carrier's assurance of payment which shall
be a deposit of cash or such other means to establish reasonable assurance of
payment.
(c) A material adverse change in Carrier's
creditworthiness shall include, but not be limited to: (i) Carrier's material,
uncured default in its obligations to USOC under this or any other agreement
with USOC; (ii) failure of Carrier to make full payment of undisputed charges
due hereunder on or before the Late Fee Date on three or more occasions during
any period of 12 or fewer months or Carrier's failure to make such payment on
or before the Late Fee Date in any two consecutive months; (iii) acquisition by
Carrier (whether in whole or by majority or controlling interest) by an entity
which is insolvent, which is subject to bankruptcy or insolvency proceedings,
or (iv) Carrier's being subject to or having filed for bankruptcy or insolvency
proceedings or the insolvency of Carrier.
(d) USOC shall provide Carrier with a written description
of all credit approval procedures and policies including any subsequent
modifications of those procedures and policies.
6. Fraudulent Calls.
Provided USOC implements Carrier's Fraud control parameters
and/or provides Carrier with access to and control of Carriers fraud control
parameters Carrier shall indemnify and hold USOC harmless from all costs,
expenses, claims or actions arising from calls the purpose or effect of which
is theft or unauthorized usage of communications services or misleading or
fraudulent communications (including, without limitation, communications
intended to effect theft through unauthorized use of credit cards) of any
nature (collectively, "fraudulent calls") which may comprise a portion of any
Communications Service. USOC shall reimburse or credit Carrier for fraudulent
call if Carrier notifies USOC, in writing, of reasonable fraud prevention
measures Carrier wishes USOC to undertake, but USOC either elects not to or
fails to implement those measures and fraudulent calling occurs. Carrier shall
not be excused from paying USOC for any Communications Service provided to
Carrier or any portion thereof on the basis that fraudulent calls comprised a
corresponding portion of the Communications Service. In the event USOC
discovers fraudulent calls being made (or reasonably believes fraudulent calls
are being made), nothing contained herein shall prohibit USOC from taking
immediate
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action that is reasonably necessary to prevent such fraudulent calls from
taking place, including without limitation, denying any Communications Service
to particular ANI's or terminating any Communications Service to or from
specific locations. USOC must provide notice within 30 minutes of such action
to Carrier. Additionally, USOC will review with Carrier on a monthly basis
fraud control parameters to insure both parties remain in agreement on the
control levels as well as continue to reasonably move towards notifying Carrier
as soon as possible on actions taken by USOC on Carrier's ANI's.
7. Regulatory Certifications.
(a) Carrier warrants that in all jurisdictions in which
it provides services that require certification, it has obtained the necessary
certification from the appropriate governmental authority. Further, if required
by USOC, Carrier agrees to provide proof of such certification acceptable to
USOC which USOC's acceptance shall not be unreasonably withheld. In the event
Carrier is prohibited, either on a temporary or permanent basis, from
conducting its telecommunications operations in a given state, Carrier shall
(i) immediately notify USOC by facsimile transmission and (ii) send written
notice to USOC within 72 hours of such prohibition.
(b) In the event USOC provides any Communications Service
under this Agreement the provision of which, or the rates chargeable for which,
is dependent on the percentage of traffic of Carrier utilizing such service that
is intrastate or interstate, (i) USOC shall be entitled to determine the
percentage of interstate (including international) and intrastate minutes of use
relevant to the minutes of traffic utilizing such service to the extent USOC has
the ability to make such determination directly or (ii) to the extent USOC does
not have such ability or elects not to make such determination, Carrier shall,
on USOC's request, provide USOC with a written certification ("PIU
Certification") of such percentage. If requested, each PIU Certification shall
be provided by Carrier prior to start of service for any such Communications
Service and may be modified from time to time by Carrier and subject to
recertification upon the request of USOC, which requests shall not be made
unilaterally by USOC more than once each calendar quarter. Any such
modifications) of PIU Certification(s) shall be effective as of the first day of
any calendar month and following at least forty-five (45) days notice from
Carrier. USOC will provide Carrier written notice of Carrier's failure to
provide requested PIU Certification. Carrier has 60 days to provide said
certification to USOC. In the event Carrier fails to make any such requested PIU
Certification as to any Communications Service the rates chargeable for which
are so dependent, the relevant minutes of use will be deemed to be subject to
the intrastate rates provided for in the related Service Description or Tariff.
USOC is authorized to (i) rely on such PIU Certification in its own PIU Filings
and (ii) file any such PIU Certification with any governmental authority, any
Third Party Provider or any LEC or CLEC. In the event any governmental authority
requires an audit of USOC's PIU Certifications, or to the extent (but only to
the extent) such governmental authority is entitled to audit the
interstate/intrastate minutes of Carrier's traffic, Carrier agrees to cooperate
in such audit at its expense and make its call detail records, billing systems
and other necessary
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information reasonably available to USOC solely for the purpose of verifying
Carrier's interstate/intrastate minutes of traffic. Carrier agrees to indemnify
USOC for any liability or costs (including, without limitation, any
back-billing or penalties and legal fees and expenses) USOC incurs in the event
the percentages in any PIU Certification are different than those determined by
any such audit.
8. Use of Service.
USOC will provide any Communications Services specified in any
Service Request to Carrier only upon the condition that such Communications
Service shall not be used for any unlawful purpose. Except as specified in any
Service Description, neither this Agreement nor the provision of any
Communications Service hereunder will constitute either party as the agent or
legal representative of the other party, create a partnership or joint venture
between the parties or result in a joint communications service offering to any
third parties. Neither party shall have any authority to enter into any
agreement on behalf of or bind the other party in any manner whatsoever. USOC
and Carrier agree that this Agreement, to the extent it is subject to FCC
regulation, is an inter-carrier agreement which is not subject to the filing
requirements of Section 211(a) of the Local Telephone Network Act of 1934
(47 U.S.C. Section 211(a)) as implemented in 47 C.F.R. Section 43.51.
9. Operating Subsidiaries; Third Party Providers.
Carrier acknowledges and agrees that USOC, in providing
Communications Services under this Agreement, (i) may provide Communications
Service through one or more operating subsidiaries and (ii) will, in whole or
in part, lease the facilities of, or obtain communications services from, one
or more Third Party Providers. Carrier shall have the right to consent in
advance to the exercise of USOC's rights, and to the fulfillment of USOC's
obligations, under this Agreement by any such subsidiary or Third Party
Provider which consent shall not be unreasonably withheld. Before the
commencement of any transaction in which USOC reasonably foresees any Third
Party Provider having access to any of Carrier's proprietary information, USOC
shall obtain a nondisclosure agreement executed by such Third Party Provider
agreeing to hold Carrier's proprietary information in confidence pursuant to
Section 15.
10. Nonexclusive Market Rights.
This Agreement does not prevent USOC from providing services
to purchasers other than Carrier, nor, except as expressly provided in Section
18 hereof, does it prevent Carrier from purchasing services from suppliers
other than USOC. USOC shall have no
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obligation under this Agreement to provide any facilities or services except
those Communications Services ordered by Carrier in accordance with a Service
Request. Carrier or the End User, as applicable, and not USOC, will be
responsible for provision of any equipment or communications service beyond the
applicable interfaces at the APM or, where USOC is providing the Entrance
Facility or the Connection Facility, at the Served Carrier POP or Underlying
Carrier POP, as applicable, or, where USOC provides Special Access (Software
Defined) Services, at the End User Premises, respectively.
11. Warranty.
USOC represents and warrants to Carrier that:
(i) USOC is duly organized, validly existing and
in good standing under the laws of its incorporation, with all
requisite power to enter into and perform its obligations under this
Agreement in accordance with its terms;
(ii) USOC will have full operating authority to
offer and provide Communications Service in each Service Area listed
in the latest Service Availability Schedule relating to the Service
Description for such Communications Service under this Agreement; and
(iii) USOC will use all reasonable efforts under
the circumstances to maintain an overall quality of Communications
Services provided hereunder that is consistent with telecommunications
common carrier industry standards, government regulations and sound
business practices. At the present time, the grade of service
generally accepted as the industry standard is P.01.
(iv) The Switches USOC will install and deploy in
connection with the provision of Communications Services under this
Agreement shall be configured at the time of their installation and
deployment so that they are capable of delivering dial tone.
(v) USOC represents and warrants to Carrier that
the Communications Service provided over USOC's network hereunder
shall be 99.9% free of service outages over a one year period, other
than for reasons of planned service outages (e.g., scheduled
maintenance) or cable cuts. Planned service outages or cable cuts
shall not exceed 30 continuous or cumulative hours, or any combination
thereof per month with respect to any circuit. If USOC fails to meet
the quality standards above, Carrier may, without penalty, provision
services with another Comparable Switching Service Provider for
redundant service requirements.
(vi) USOC shall produce and deliver CDR's, so as
to enable Carrier to bill End Users, to Carrier within 10 days of the
end of Carriers
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defined billing cycle,. If USOC fails to do so, and if Carrier is
unable to bill its End Users as a result, Carrier shall be entitled to
recover its lost revenue and related damages from USOC,
notwithstanding any other provisions of this Agreement. Additionally,
Carrier must notify USOC in writing of any desired changes requested
in CDR format. USOC must then respond within 30 days in writing with a
proposed timeframe for being able to process CDR's in the manner
requested and no changes can be made until both parties agree in
writing on format and implementation dates.
USOC MAKES NO OTHER WARRANTIES ABOUT THE SERVICE PROVIDED HEREUNDER, EXPRESS OR
IMPLIED, WRITTEN, ORAL, OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
12. Liability; General Indemnity: Reimbursement.
12.1 Limited Liability.
The liability of each party under this Agreement for defaults,
breaches of representations, warranties or agreements hereunder, or in any
other respect hereunder, shall not exceed an amount equal to the amounts that
were (or, in the case of a failure by Carrier to use a Communications Service
required to be used by Carrier hereunder, amounts that would have been) charged
for the related Communications Service provided under this Agreement.
12.2 No Consequential Damages.
IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR ANY
INDIRECT, SPECIAL, RELIANCE, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES,
INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE, HARM TO BUSINESS, LOSS OF
CUSTOMERS OR CLIENTS, LOSS OF GOODWILL, LOSS OF DATA, LOST SAVINGS OR LOSS OF
PROFITS ARISING IN ANY MANNER FROM THIS AGREEMENT OR THE PERFORMANCE OR
NONPERFORMANCE OF OBLIGATIONS HEREUNDER, WHETHER OR NOT INVOLVING NEGLIGENCE OF
SUCH PARTY AND WHETHER OR NOT SUCH PARTY HAD OR SHOULD HAVE HAD ANY ACTUAL OR
CONSTRUCTIVE KNOWLEDGE THAT SUCH LOSSES OR DAMAGES MIGHT BE INCURRED. EACH
PARTY HEREBY RELEASES THE OTHER PARTY (AND SUCH OTHER PARTY'S AFFILIATES, AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND SUPPLIERS
(INCLUDING ANY THIRD PARTY PROVIDERS)) FROM ANY SUCH CLAIM.
12.3 General Indemnity.
(a) Carrier agrees to forever indemnify and hold USOC and
its Affiliates and their respective officers, directors, employees, agents and
suppliers (including any Third Party
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<PAGE> 12
Providers) harmless from and against any and all claims, demands, suits,
actions, losses, damages, assessments or payments which parties other than
Carrier (e.q., Carrier's Customers (or, where USOC is furnishing Switching
Service to Carrier, Carrier's Underlying Carriers)) may assert (i) arising out
of or relating to any defect or alleged defect in any Communications Service or
(ii) caused by the gross negligence or willful misconduct on the part of
Carrier or their representatives.
(b) USOC agrees to forever indemnify and hold Carrier and its
Affiliates and their respective officers, directors, employees, agents and
suppliers (including any Third Party Providers) harmless from and against any
and all claims, demands, suits, actions, losses, damages, assessments or
payments which parties other than USOC may assert (i) arising out of or
relating to any defect or alleged defect in any Communications Service or (ii)
caused by the gross negligence or willful misconduct on the part of USOC or
their representatives.
12.4 Reimbursement.
USOC agrees to reimburse Carrier for all reasonable costs and
expenses incurred by Carrier due to Carrier's direct participation (either as a
party or witness) in any administrative, regulatory or criminal proceeding
concerning USOC if Carrier's involvement in said proceeding is based solely on
Carrier's utilization of USOC's provision of Communications Services to
Carrier.
12.5 Insurance.
If one party is to perform work on the premises of the other
party, of an Underlying Carrier or of an End User, the party performing the
work shall secure and maintain worker's compensation and public liability
insurance in accordance with sound business practices and as required by law.
13. Force Majeure.
If USOC's performance of this Agreement or any obligation
hereunder is prevented, restricted or interfered with by causes beyond its
reasonable control, including, without limitation, acts of God, fire, water
main break, explosion, industrial sabotage or vandalism, conduit collapse,
cable cut, storm, flood or other similar occurrence, pest damage, power surge,
fluctuation or failure, any law, order, regulation, direction, action or
request of the United States government or any state or local government or any
department, agency, commission, court, military authority, bureau, corporation
or other instrumentality of any one or more such governments, natural
emergency, insurrection, riot, war, strike, lockout, work stoppage or other
labor difficulties, or failure, shortage, breach or delay (in delivery of goods
in good working order, in provision of satisfactory services, in compliance
with any contract or Tariff or otherwise) by, or material change in non USOC
Tariff of, any hardware, software or other supplier or LEC, then USOC shall be
excused from such
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<PAGE> 13
performance on a day-to-day basis to the extent of such prevention, restriction
or interference. USOC shall use reasonable efforts under the circumstances to
avoid or remove such causes of nonperformance and shall proceed to perform with
reasonable dispatch whenever such causes are avoided or removed.
14. Partial Invalidity; Government Action.
14.1 No Violations Known.
Each party represents that it is not aware of any facts that
would justify a complaint to the FCC or any state regulatory authority
concerning the prices, terms or conditions of the transactions contemplated by
this Agreement.
14.2 Partial Invalidity.
If any part of any provision of this Agreement shall be
invalid or unenforceable under applicable law, rule or regulation, that part
shall be ineffective to the extent of such invalidity only, without in any way
affecting the remaining parts of that provision or the remaining provisions of
this Agreement. In such event, Carrier and USOC will negotiate in good faith
with respect to any such invalid or unenforceable part to the extent necessary
to render such part valid and enforceable.
14.3 Government Action.
If any material rate or term contained herein and relevant to
any Communications Service is substantially changed (to the detriment of the
terminating party) or found to be unlawful or the relationship between the
parties hereunder is found to be unlawful, in either case by order of the
highest court of competent jurisdiction to which the matter is appealed, the
FCC or other local, state or federal government authority of competent
jurisdiction, (i) Carrier and USOC will negotiate in good faith with respect to
such rate, term or relationship to the extent necessary to minimize the
consequences of such change or to render such rate, term or relationship
lawful, as applicable, and (ii) to the extent such good faith negotiation is
not successfully concluded, subject to Section 18, upon 30 days' prior written
notice, either party shall have the right, without liability to the other, to
cancel any affected portion of the affected Communications Service.
15. Proprietary Information.
15.1 Confidential Information.
The parties understand and agree that the terms and conditions
of this Agreement, limited to any pricing of Communication Services contained
herein and all conditions set forth in Section's 18.1 and 3.1 respectively, are
confidential as between Carrier and USOC.
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15.2 Limited Disclosure.
A party shall not disclose Confidential Information unless
subject to discovery or disclosure pursuant to legal process, or to any other
party other than the directors, officers and employees of a party or a party's
agents including their respective brokers, lenders, insurance carriers or bona
fide prospective purchasers who have specifically agreed in writing to
nondisclosure of the terms and conditions hereof. Any disclosure hereof
required by legal process in any judicial or administrative proceeding
(including any public service commission proceeding) shall be made only after
providing the non-disclosing party with notice thereof in order to permit the
non-disclosing party to seek an appropriate protective order or exemption.
Violation by a party or its agents of the foregoing provisions shall entitle
the non-disclosing party, at its option, to obtain injunctive relief without a
showing of irreparable harm or injury and without bond.
15.3 Use of Name.
Neither party shall, without the prior written consent of the
other party, (i) refer to itself as an authorized representative of the other
party whenever it refers to the Communication Services in promotional,
advertising or other materials, or (ii) use any logos, trade marks or service
marks of the other party in any of its promotional, advertising or other
materials. Additionally, each party shall provide to the other party for its
prior review and written approval, all promotions, advertising or other
publication using or displaying the other party's name. Each party agrees to
change or correct, at such party's expense, any such material or activity which
the other party, in its reasonable judgment, determines to be inaccurate,
misleading or otherwise objectionable.
15.4 Survival of Confidentiality.
The provisions of this Section 15 will be effective as of the
Agreement Date and remain in full force and effect for a period which will be
the longer of (i) one year following the Agreement Date, or (ii) one year from
the termination of all Communication Services hereunder.
16. Notices.
Notices under this Agreement shall be in writing and delivered
by hand-delivery, overnight courier, mail or facsimile transmission to:
(i) if to Carrier, to
Phoenix Network
1687 Cole Blvd.
Golden, CO 80401
Attn.: Office of the President
Telecopy No. (303) 232-1250
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or such other address designated by Carrier by
written notice to USOC; or
(ii) if to USOC, to
US ONE Communications Corp.
206 West Pearl Street
Suite 1610
Jackson, MS 39201
Attn.: Carrier Sales Dept.
Telecopy No.: (601) 948-3555
or such other address designated by USOC by written
notice to Carrier.
Carrier shall notify USOC in writing if Carrier's billing address is different
from the address of Carrier specified pursuant to clause (i) above. The
effective date for any notice under this Agreement shall be the date of actual
receipt of such notice by the appropriate party, notwithstanding the date of
deposit of such notice with a courier or mailing.
17. Miscellaneous.
17.1 Exclusive Remedies.
Except as otherwise specifically provided for herein, the
remedies set forth in this Agreement comprise the exclusive remedies available
to either party at law or in equity.
17.2 No Waiver.
No term or provision of this Agreement shall be deemed waived and no breach or
default shall be deemed excused unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. A consent
to waiver of or excuse for a breach or default by either party, whether express
or implied, shall not constitute a consent to, waiver of, or excuse for any
different or subsequent breach or default.
17.3 Arbitration
Notwithstanding anything to the contrary in this Agreement, any dispute or
claim arising out of or relating in any way to this Agreement, its making,
performance, or interpretation, or the transactions contemplated hereby, shall
be settled by arbitration at a mutually agreed upon location in Denver,
Colorado; provided, however, that nothing in this Section shall restrict the
right of either party to apply to a court of competent jurisdiction for
emergency relief pending final determination of a claim by arbitration in
accordance with this Section. All arbitration shall be conducted in accordance
with the rules and regulations of the American Arbitration Association, in
force at the time of any such dispute, and shall be conducted by a panel of
three arbitrators, one selected by USOC, one selected by Carrier,
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<PAGE> 16
and the third selected by the other two arbitrators. Each party shall pay its
own expenses associated with such arbitration, including the expenses of any
arbitrator selected by such party and fifty percent (50%) of the expenses of
the third arbitrator. The prevailing party in any arbitration shall be entitled
to reimbursement of reasonable attorney's fees and expenses, including, without
limitation, arbitration expenses, relating to the arbitration. The decision of
the arbitrators, based upon written findings of fact and conclusions of law,
shall be binding upon the parties and judgment in accordance with that decision
may be entered in any court having jurisdiction.
17.4 Choice of Law.
This agreement and all disputes arising out of or relating in
any way to it, including disputes relating to its making, performance, and
interpretation, shall be determined by reference to the internal laws of the
State of Colorado without regard to choice of law principles.
17.5 Successors and Assigns.
This Agreement, and each of the parties' respective rights and
obligations hereunder, shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors or assigns for the
initial 36 months of this Agreement. Neither party shall assign or transfer its
rights or obligations under this Agreement without the prior written consent of
the other party, which consent shall not be unreasonably withheld. Any such
assignment or transfer without such consent shall be void. At any time after
the third anniversary of the effective date of this Agreement, if Carrier is
acquired by any Comparable Switching Service Provider, Carrier has the right to
terminate this Agreement without penalties or cancellation charges.
17.6 No Third Party Beneficiaries.
Subject to Section 9.3, 12.2 and 12.3, this Agreement does
not provide and is not intended to provide third parties with any right,
remedy, claim, liability, reimbursement, cause of action or other privilege.
17.7 Survival of Terms.
The terms and provisions contained in this Agreement that by
their sense and context are intended to survive the performance thereof by the
parties hereto shall so survive the completion of performance and termination
of this Agreement, including, without limitation, provisions for
indemnification and the making of any and all payments due hereunder.
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17.8 Headings.
Descriptive headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
17.9 Industry Terms.
Words having well-known technical or trade meanings shall be
so construed, and all listings of items shall not be taken to be exclusive, but
shall include other items whether similar or dissimilar to those listed, as the
contract reasonably requires.
17.10 Rule of Construction.
No rule of construction requiring interpretation against the
drafting party hereof shall apply in the interpretation of this Agreement.
17.11 Entire Agreement.
This Agreement consists of (i) all the terms and conditions
contained herein and (ii) all documents incorporated herein specifically by
reference. This Agreement constitutes the complete and exclusive statement of
the understandings between the parties and supersedes that certain letter of
intent between the parties hereto November 8, 1995 and all proposals and prior
agreements (oral or written) between the parties relating to any Communication
Service provided hereunder. No subsequent agreement between the parties
concerning any Communication Service shall be effective or binding unless it is
made in writing and subscribed to by authorized representatives of Carrier and
USOC, except that USOC, by written notice to Carrier may unilaterally modify
this Agreement by (i) adding Service Descriptions for additional Communications
Services, (ii) changing any existing Service Availability Schedule to add to
the list of Service Areas in which the related Communications Services are to
be available, (iii) modifying any Service Description in a manner which does
not adversely affect Carrier in any material respect, (iv) modifying any Tariff
(any effect thereof on carrier to be subject to the provisions of Section 2.3),
or (v) subject to Section 4.8, changing the terms and conditions for providing
any Communications Service herein.
18. Service Commitments.
18.1 General Agreement.
In consideration of USOC's agreement to provide Switching
Service,
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Switched Access Service and Special Access (Software Defined) Service to
Carrier in each Service Area in which such Communications Services are
available on a "most-favored-customer" basis as specified in Sections 18.2,
18.3 and 18.4 below and the other agreements of USOC herein, Carrier agrees to
request Switching Service, Switched Access Service and Special Access (Software
Defined) Service from USOC in each Service Area in which such Communications
Service is available subject to the terms and conditions specified in Sections
18.2, 18.3 and 18.4 below, all as specified in this Section 18.
18.2 Switching Service.
(a) USOC agrees that, promptly after installation of any
host switching module in a Switching Service Area, subject to Section 13, USOC
will take such actions as may be reasonably required in order that USOC is able
to offer Switching Service for all calls ("Eligible Calls") for which Carrier
is the Primary IXC, underlying carrier or switching service provider that
originate or terminate in such Switching Service Area.
(b) If USOC delivers a Service Availability Schedule with
respect to Switching Service specifying the availability of Switching Service
in any Switching Service Area Carrier commits and agrees to utilize Switching
Service for each Eligible Call in respect of such Switching Service Area
(except during any installation period as provided in the Service Description
for Switching Service), unless:
(i) Carrier is not so required as specified in
Section 18.8; or
(ii) the usage of Switching Service provided by
USOC in accordance with the Service Description for such Eligible Call
is not economically justified by the volume or cost of Eligible Calls
in respect of such Switching Service Area (as reasonably determined by
Carrier after consultation with USOC); or
(iii) At any time after the third anniversary of
the effective date of this Agreement the rates per minute USOC charges
Carrier for incremental Switching Service, in accordance with the
Service Description and Tariff, is more expensive than the switching
service of a Comparable Switching Service Provider in the same Service
Area, Carrier may elect to purchase that service from a Comparable
Switching Service Provider. Carrier may also move existing traffic
associated with the involved Switching Service to the Comparable
Switching Service Provider. Carrier shall notify USOC in writing 60
days before making the referenced election. If USOC agrees in writing
to meet or better the rate per minute offered by the Comparable
Switching Service Provider and to implement the new pricing on the
next invoice, Carrier must purchase the involved Switching Service
from USOC.
(a) In the event that Carrier exercises (iii),
USOC reserves the right to cancel any underutilized
Ports and associated
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traffic in the affected Service Area and apply
Cancellation Charges to such. Underutilization shall
be determined by USOC based upon industry standard
engineering practices. USOC must provide Carrier with
written notice 30 days prior to any such
Cancellation.
(c) USOC will provide Carrier, at USOC's expense, a
minimum of two (2) data links to the USOC network control systems for use by
Carrier in managing the customer features, trunk group functions, routing and
call processing databases of the Partitions dedicated to Carrier relating to
any Switching Service provided hereunder.
(d) Carrier will provide such terminal equipment or
workstations at Carrier's premises as may be necessary for managing of
Carrier's customer base and switched network.
(e) To the extent permitted by law and applicable
regulation, USOC will cause the per minute usage charges for any month for any
Switching Service provided by USOC to Carrier in any Service Area not to exceed
the per minute charges for such month paid or payable by any Comparable Entity
purchasing Switching Service from USOC in such Service Area in such month.
Furthermore, if USOC extends pricing to any Comparable Entity involving rates
per minute that are equal to or lower than those offered to Carrier, then in
addition to Carrier's election option described in (b)(iii) above, Carrier
shall be entitled to substitute any other terms or conditions USOC has offered
to the Comparable Entity. USOC shall also refund to Carrier the difference
between Carrier's rates per minute and the lower rates per minute extended to
any Comparable Entity in the same Service Area, times the number of minutes
affected by the difference for the length of time the lower rates were in
effect for the Comparable Entity.
(f) For the purpose of monitoring USOC's pricing
agreements described in subparts (b)(iii) and (e) above, USOC shall provide for
independent verification by USOC's external auditors certifying USOC's
compliance with the pricing terms conditions set forth herein as compared to
any carrier USOC is providing services to.
(g) With respect to Switching Service, Carrier will pay
USOC the following charges:
(i) port charges, consisting of a [ ] per month
per each Carrier Dedicated Port in any Service Area in which USOC is
providing Switching Service to Carrier pursuant to this Agreement. The
Switching Service Port Charge will not apply to ports used in the
provision of USOC Switched Access Services, or to ports used in the
provision of dialtone services to end user customers. Additionally,
USOC commits to accept assignment of all Carrier provisioned Switched
Access Services upon installation of switch by USOC in respective
Service Areas or at USOC's option, allow for Carrier provisioned
Switched Access
Portions of this exhibit have been redacted pursuant to a request for
confidential treatment made with the Securities and Exchange Commission and are
reflected herein by [ ]. The Company has filed unredacted versions with the
Securities and Exchange Commission under separate cover.
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Services to be turned up on USOC's switch with all connecting Port
charges waived until such time as USOC notifies Carrier that USOC
provisioned Switched Access Service is available and that Carrier will
in no way be harmed economically by turning up such services.
(ii) subject to Section 18.2(e), a usage charge
with respect to each Eligible Call switched through one or more USOC
host switching modules as part of Switching Service provided to
Carrier by USOC pursuant to this Agreement equal to the product of (x)
[ ] per minute (as to the first [ ] minutes of usage for
all such Eligible Calls in all Service Areas in any calendar month (or
portion thereof)), [ ] per minute (as to the next [ ]
minutes of usage for all such Eligible Calls in all Service Areas in
such period) and [ ] per minute (as to any minutes of usage above
[ ] for all such Eligible Calls in all Service Areas in such
period) and (y) either one (1) (if such Eligible Call is switched
through only one USOC host switching module) or two (2) (if such
Eligible Call is switched through two or more USOC host switching
modules). Carrier shall never incur more than 2 Switching Services
Charges per Eligible Call regardless of the number of switches USOC
routes said Eligible Call. Additionally, for purposes of this
agreement, Eligible Call minutes shall be calculated in increments of
6 seconds and rounded to such per Eligible Call.
(h) USOC will provide, and Carrier will be obligated to
pay the port charges specified in Section 18.2(f)(i) in respect of, Carrier
Dedicated Ports on any host switching module only in groups of 24 (regardless
of actual Carrier usage). USOC commits to work with Carrier to insure best
engineering practices are employed and where and if possible, provision for the
minimum number of Ports necessary to handle Carriers traffic per Carrier's
defined traffic engineering standards and where and if possible, only charge
for Ports utilized either for inbound or outbound purposes. USOC also agrees to
uses its best efforts to reduce ingress/egress costs, e.g., through use of
direct trunks, and to pass the resulting savings or economies on to Carrier.
18.3 Switched Access Service.
(a) After USOC delivers a Service Availability Schedule
with respect to Switched Access Service specifying the availability of Switched
Access Service in any Service Area Carrier commits and agrees to use only USOC
for switched access service in such Service Area (except during any
installation period as provided in the applicable Service Description and
Tariff), unless:
(x) Switched Access Service provided by USOC in such
Service Area in accordance with the Service Description and
Tariff is more expensive than the switched access service of
the LEC or "Market Basket of Comparable
Portions of this exhibit have been redacted pursuant to a request for
confidential treatment made with the Securities and Exchange Commission and are
reflected herein by [ ]. The Company has filed unredacted versions with the
Securities and Exchange Commission under separate cover.
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Switching Service" in such Service Area;
(y) Switched Access Service provided by USOC in such
Service Area in accordance with the Service
Description and Tariff has less favorable operating
characteristics than the access service of the LEC in
such Service Area; or
(z) Carrier has no Customers in such Service Area.
(b) Where Carrier is obtaining both Switching Service and
Switched Access Service in any Service Area from USOC, USOC will waive any
Entrance Facility charges otherwise imposed by USOC in connection with Switched
Access Service provided by USOC through such Entrance Facility.
18.4 Special Access (Software Defined) Service.
(a) After USOC delivers a Service Availability Schedule
with respect to Special Access (Software Defined) Service specifying the
availability of Special Access (Software Defined) Service in any Service Area
Carrier commits and agrees to use only USOC in order to provide special access
service to Customers in such Service Area (except during any installation
period as provided in the applicable Service Description), unless:
(x) Special Access (Software Defined) Service
provided by USOC in such Service Area in accordance with the
Service Description and Tariff is more expensive than the
special access service of the LEC or Market Basket of
Comparable Switching Service Providers in such Service Area;
(y) Special Access (Software Defined) Service
provided by USOC in such Service Area in accordance with the
Service Description and Tariff has less favorable operating
characteristics in the sound business judgment of Carrier,
than the special access service of the LEC in such Service
Area; or
(z) Carrier has no Customers in such Service Area.
(b) Where Carrier is obtaining both Switching Service and
Special Access (Software Defined) Service in any Service Area from USOC, USOC
will waive any Entrance Facility charges otherwise imposed by USOC in
connection with Special Access (Software Defined) Service provided by USOC
through such Entrance Facility.
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18.5 Engineering Assistance.
For a period of eighteen (18) months after the Agreement
Date, or for a period of six (6) months following the actual installation date
of the last Switch identified in the Switch Implementation Schedule, whichever
is later, USOC agrees, at its own expense, to provide Carrier with such network
design engineering assistance and consultation as may be reasonably required to
facilitate Carrier's transition into utilizing Switching Service, Switched
Access Service and Special Access (Software Defined) Service provided by USOC
hereunder and in developing systems or procedures for management of such
Communications Services provided by USOC hereunder. If Carrier elects to
utilize USOC's network design engineering assistance, Carrier will be
responsible for providing traffic data in a structure and format compatible
with USOC's data processing systems.
Additionally, USOC commits to provide to Carrier premise based Network
Management systems and all necessary associated training so as to allow Carrier
to fully or partially operate any or all aspects of their network. USOC and
Carrier commit to devoting resources 60 days after the first switch
installation to agree upon design of and schedule for implementation of such
services.
18.6 Local Telephone Service.
USOC and Carrier agree, to the extent permitted by law and
applicable regulation, that, when and if USOC offers local exchange services
(including basic telephone service and enhanced or data services such as ISDN,
Wideband, Broadband, Frame Relay or ATM) in one or more Service Areas:
(i) USOC and Carrier will develop a cooperative
marketing effort to market such services to End Users;
(ii) if requested by Carrier, USOC will license
Carrier to offer such services under a "private label"
arrangement of Carrier; and
(iii) Carrier will "resell" such services to its
Customers in a manner substantially similar to the manner in
which Carrier currently resells to Customers the long distance
services obtained from Underlying Carrier.
18.7 Product Development.
USOC agrees to use its best commercially reasonable efforts to
respond to any requests of Carrier to develop communications services to be
offered to Customers that utilize the Centrex and AIN (advanced intelligent
network) capabilities of the USOC host switching modules.
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18.8 Other Contracts.
(a) Notwithstanding any other provision of this Section 18, in
order to comply with its obligations in Sections 18.2, 18.3 or 18.4, Carrier
shall not be required hereunder to breach any contract existing on the
Agreement Date, or contracts entered into after the Agreement date necessitated
by USOC not being able to provision services in a respective Service Area, with
any other company offering telephone communications services; provided,
however, that Carrier shall use its best commercially reasonable efforts to
seek early termination or waiver of any provision that would otherwise restrict
Carrier from complying with such obligations. Carriers inability to obtain
early termination or waiver, even if Carrier cannot comply with its obligations
in Sections 18.2, 18.3, or 18.4 as a result, shall not constitute a breach
under this Agreement.
(b) Should USOC materially miss, or should it appear to Carrier
that USOC will materially miss, its Switch Installation Schedule, Carrier may
enter into a contract with any Comparable Switching Service Provider for
Communication Services in the affected Service Areas. Should USOC thereafter
have the ability to provide the Communications Services in the affected Service
Areas, Carrier shall use its best commercially reasonable efforts to seek early
termination or waiver of any provision of any contracts with any Comparable
Switching Service Providers that would otherwise restrict Carrier from
complying with its obligations in Sections 18.2, 18.3, or 18.4. Carrier's
inability to obtain early termination or waiver, even if Carrier cannot comply
with its obligations in Sections 18.2, 18.3, or 18.4 as a result, shall not
constitute a breach under this Agreement.
18.9 APMs.
In connection with making Switching Service, Switched Access
Service and Special Access (Software Defined) Service available to Carrier in
any Service Area, USOC will, at Carrier's request, use its commercially
reasonable efforts to provide an APM in the point of presence of each Major
Carrier designated by Carrier in the immediate vicinity of the Service Hub.
18.10 Reselling.
Carrier may, to the extent permitted by law and applicable
regulation, resell to other companies offering telephone communications
services to the general public any Switching Service, Switched Access Service
or Special Access (Software Defined) Service provided to Carrier by USOC
hereunder.
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18.11 Customer Record Detail.
USOC shall provide to Carrier all pertinent Call Detail Record
(CDR) no later than 5 business days following the last day of the previous
month.
18.12 Quality of Service
USOC agrees to provide all services described herein in
accordance with reasonable industry standards of quality. If USOC fails in
meeting this obligation for any reasonable period of time for three consecutive
months, then Carrier may notify USOC of termination with no cancellation
charges incurred.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written by their duly authorized representatives.
US ONE COMMUNICATIONS CORP. Phoenix Network, Inc.
(USOC) (Carrier)
By: /s/ BARENT S. WAGAR By: /s/ WALLACE HAMMOND
------------------------------ ------------------------------
Name: Barent S. Wagar Name: Wallace Hammond
Title: President and COO Title: President and CEO
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DEFINITIONS ANNEX
For purposes of this Agreement, the following capitalized words and
phrases shall have the respective meanings set forth below:
"Access Service" means Switched Access Service, Special Access
(Software Defined) Service or any other access service provided by USOC to
Carrier in a Service Area pursuant to a Service Description under the
Agreement. This includes all Recurring and Non recurring services passed
through to Carrier for ONLY what is used by Carrier. Formula's for calculating
how Carrier will be charged for Access Service shall be provided by USOC to
Carrier to insure Carrier that Carrier IS NOT being penalized for being an
initial customer of USOC and is being charged no more than ANY other customer
USOC may have.
"Access Service Request" or "ASR" means a Service Request by Carrier to
initiate or cancel an Access Service, including a firm order by Carrier in the
Industry Support Interface (ISI) format.
"Affiliate" means as to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such person.
"Agreement" means the attached Communications Services Agreement
between USOC and Carrier, dated the Agreement Date, including the General Terms
and the Service Descriptions, Service Availability Schedules, Definitions Annex
and applicable Tariffs incorporated in and made a part thereof as specified in
Section 2.2 of the General Terms.
"Agreement Date" means the Agreement Date specified on the first page
of the Agreement.
"ANI" means the automatic number identification of a calling party.
"APM Interface" means the DSX-1 frame, DSX-3 frame or other equipment
installed by USOC at each APM for purposes of enabling physical interconnection
of the USOC Facilities to the Served Carrier POP through installation of an
Entrance Facility joining the APM Interface to the Served Carrier POP or, where
USOC is furnishing Switching Service to Carrier in such Service Area, with
respect to calls transmitted by an Underlying Carrier over lines dedicated to
Carrier, to an Underlying Carrier POP through installation of a Connection
Facility joining the APM Interface to the Underlying Carrier POP.
"Available Physical Meetpoint" or "APM" means, with respect to
Communications Service in any Service Area, one or more geographical locations
(i.e., buildings) designated by USOC in the Service Availability Schedule for
such Communications Service as the places in such Service Area where connection
of USOC's Facilities for such Communications Service may be made to Carrier's
network or, where USOC is furnishing Switching Service to Carrier in such
Service Area, to an Underlying Carrier's network, in each case at the related
APM Interface, in order that USOC's mileage usage rates or other location
sensitive charges will be computed as if such connection were made at the Rate
Center for such Service Area. In each Service Area, the Service Hub for such
Service Area will be one of the APMs for such Service Area.
"Cage" means a Collocated Interconnection Node.
"Call Detail Record" means specific information provided by USOC to
Carrier reflecting characterisctics of calls made by Carriers' customers
utilizing USOC services which allow Carrier to then bill Carriers customers.
<PAGE> 26
"Cancellation Charge" means, with respect to any Communications
Service, the charge payable by Carrier upon cancellation of such Communication
Service (either directly or as a result of terminating this Agreement) as
specified in the related Service Description. Such charge shall be calculated
in the following manner:
1. Switching Services:
a: Total usage switching services incurred through date of
termination divided by number of months from inception of contract to date of
termination equals Average Monthly Switching Services Fee. This Fee is then
multiplied by the number of months remaining in the contract and then is
discounted by 90%.
b: Total Ports in service at time times per port charge for
remainder of contract.
"Carrier" means the IXC, local exchange carrier, reseller or other
company offering telephone communications services to the general public
identified on the first page of the Agreement, and its permitted successors and
assigns under the Agreement.
"Carrier Dedicated Port" means, with respect to any Switching Service,
a port on a USOC Switch that is available for use solely for Carrier's traffic,
including a port assigned to a Carrier as a result of a Partition. "Carrier
Dedicated Ports" include, without limitation, ports used by Carrier for
connection to facilities of another IXC, another USOC Switch or (where
permitted) to another LEC or CLEC but exclude ports used in the provision by
USOC of Access Service or Dialtone Service.
"CLEC" means a certified local exchange company other than a LEC.
"Collocated Interconnection Node" means a point of interconnection for
CLEC or CAP communications services that is physically or virtually collocated
in the serving wire center or central office of a LEC.
"Communications Service" means Access Service, Switching Service or
any other communications service provided by USOC to Carrier in a Service Area
pursuant to a Service Description under this Agreement.
"Comparable Entity' means, with respect to any Service Area, in any
month, any other entity purchasing Switching Service from USOC in such Service
Area in such month.
"Comparable Switching Service Provider" means, any entity involved in
the provision and sale of tariffed Communications Services for resale.
"Competitive Switching Service" means a type of communications service
(other than Switching Service provided hereunder) whereby an IXC or reseller is
able to obtain long-distance or Class 4 tandem switching functionality for long
distance telephone calls of customers of such carrier or reseller (such
functionality enabling such carrier or reseller to obtain a degree of control
over routing of such calls or to be eligible for pricing schedules of an
underlying carrier that are normally reserved for carriers with such switching
capabilities and routing control). Competitive Switching Service may be
self-provided by such an IXC where such carrier owns the necessary equipment or
may be provided under a contract with a third party vendor of communications
service.
"Connection Facility" means the leased circuits, cable or other
equipment that connects an Underlying Carrier POP to an APM Interface, which
leased circuits, cable or other equipment may
DA-2
<PAGE> 27
be provided by, and deemed a part of the network of, Carrier or where
available, at Carrier's option, may be provided by USOC for a Connection
Facility charge as specified in the related Tariff.
"Customer" means a customer of Carrier that purchases from Carrier,
under Tariff or contract, communications services to be provided by Carrier,
such services to be provided in part, by utilizing a Communications Service
provided to Carrier by USOC under this Agreement. Carrier or any of its
affiliates may be a Customer if so served by Carrier.
"Customer Premises" means the End User Premises of a Customer.
"Customer Premises Interface" means the location selected by Carrier
for termination of a Special Access (Software Defined) Service at a Served
Customer Premises.
"Dialtone Service" means local exchange telephone service provided to
an End User by a LEC or a CLEC.
"Eligible Call" has the meaning specified in Section 18.2(a).
"End User" means a business or residential user of telephone service,
and includes each of the Customer originating a telephone call and the party
(which may or may not be a Customer of Carrier) receiving such telephone call.
"End User Premises" means an End User's business or residential
premises.
"End User Premises Interface" means (i) the location designated by the
local exchange company or other Local Loop provider for termination of local
telephone service at an End User Premises and (ii) in the case of Special
Access (Software Defined) Service, a Customer Premises Interface.
"Entrance Facility" means the leased circuits, cable or other
equipment that connects a Served Carrier POP to an APM Interface, which leased
circuits, cable or other equipment may be provided by, and deemed a part of the
network of, Carrier or where available, at Carrier's option, may be provided by
USOC for an Entrance Facility charge as specified in the related Tariff.
"Facilities" means the equipment, switches, computer hardware and
software, apparatus, transmission media, risers and racks, bays, cabinets,
frames, conduit, entrance facilities, serving office facilities, leased
transmission facilities (except Local Loop) and other plant and equipment
(exclusive of building space and electrical power plant at Served Premises)
required to provide Communications Services under this Agreement. Facilities
include, without limitation, the various APM Interfaces, and in the case of
Special Access (Software Defined) Services provided to particular Customers,
the network service connections to such Customers. Facilities do not include
any Entrance Facility or Connection Facility of Carrier, the LEC End Offices
and equipment therein or the LEC lines connecting to End User Premises.
"FCC" means the Federal Communications Commission.
"Firm Order Confirmation" or "FOC" means USOC's written confirmation
of Carrier's Access Service Request or Switching Service Request.
"General Terms" means Sections 1 through 18 of the attached
Communications Services Agreement, the terms and conditions specified in which
shall apply, subject to Section 2.2 and 2.3, to all Communications Services
provided by USOC to Carrier.
DA-3
<PAGE> 28
"Industry Support Interface" or "[SI" means the standardized ordering
forms adopted by the telecommunications industry for access services ordered by
an IXC.
"Initial Term" means the Initial Term (in years) specified on the
first page of the Agreement.
"Installation Charge" means the nonrecurring charge payable by Carrier
upon acceptance of a new or modified Communications Service hereunder.
"Late Fee Date" means, with respect to any invoice for Communications
Service, the date 20 days after the invoice date on such invoice.
"Least Cost Routing" means an aspect of Switching Service provided by
USOC pursuant to the Agreement enabling Carrier to select the preferred order
of route selection on each individual call based upon digits dialed and other
criteria.
"LEC" means an incumbent local exchange carrier or operating telephone
company.
"LEC End Office" means, with respect to each Service Area in which
Switched Access Service is available, each end office of the LEC in such
Service Area.
"Local Loop" means the transmission link connecting an End User
Premises to a LEC End Office or CLEC Cage or Switch.
"Major Carrier" means ATT Corp., Sprint Communications L.P., MCI
Telecommunications Corporation and Worldcom Inc.
"MARKET BASKET OF COMPARABLE SWITCHING SERVICE PROVIDERS" means the
average price of Switched Access Service as provided by 3 Comparable Switching
Service Providers, as chosen by Carrier, in the affected Service Area. If there
are fewer than three Comparable Switching Service Providers in the affected
Service Area, then the pricing offered by the actual providers present at the
time shall be used.
"Partition" means, with respect to any Switch in respect of which
Switching Service is provided hereunder, the specified ports (Carrier Dedicated
Ports) of such Switch and capabilities assigned in software for separate or
semi-autonomous control by a Carrier.
"PIU" means the percentage of interstate usage as defined in the USOC
or other relevant LEC or CLEC tariffs.
"PIU Certificate" means a certification by Carrier in good faith as to
the PIU relevant to any Communications Service provided under the Agreement.
"Primary IXC" or "PIC" means the choice of a customer of a LEC or
CLEC, as communicated to the LEC or CLEC, of the interexchange carrier for such
customer for each optionable class of calls.
"Provisioning Intervals" means, with respect to any APM, for any new
Communications Service, the maximum period of time expected to connect USOC's
Facilities for providing such Communications Service at such APM, as set forth
in the Tariff (as modified or supplemented by the related Service Description
and Service Request) or, where no Tariff exists for such Communications
Service, in the related Service Description and Service Request.
DA-4
<PAGE> 29
"Rate Center" means, with respect to any Service Area for Access
Service, the coordinates that are the V&H coordinates of the Service Hub in
such Service Area and that shall be deemed to be the V&H coordinates of each
APM in such Service Area, in each case for purposes of measuring mileage from
such Service Hub or APM to another location having established V&H coordinates,
such as a LEC central office or tandem.
"Served Carrier POP" means a specific geographical location in a
Service Area where, through the related Entrance Facility, Carrier originates
or terminates its interexchange services.
"Served Customer Premises" means a Served Premises that is the
premises of a Customer connected to Carrier through Special Access (Software
Defined) Service.
"Served Premises" means a Served Carrier POP, a Underlying Carrier POP
or a Served Customer Premises designated by Carrier in a Service Request to
receive a Communications Service from USOC.
"Service Area" means, for any Communications Service, at any time, one
of the defined areas listed on the Service Availability Schedule in effect at
such time relating to the Service Description for such Communications Service
as areas in which USOC is then capable of furnishing such Communications
Service.
"Service Availability Schedule" means, with respect to any Service
Description, a listing of defined Service Areas in which the related
Communications Service is then available to Carrier from USOC, as well as
projected future availability dates.
"Service Description" means a service description attached to and made
a part of the Agreement, each of which describes the terms and conditions under
which USOC will provide a particular Communications Service under this
Agreement.
"Service Due Date" means the date for Carrier's acceptance of new
Communications Service, or for USOC's disconnection of an existing
Communications Service, each as specified in Carrier's Service Request.
"Service Hub" means the location in a Service Area for Switching
Service or Access Service that houses USOC's host switching module or other
location designated in the Service Availability Schedule.
"Service Request" means a request by Carrier to initiate or cancel a
Communications Service.
"Service Request Confirmation" means USOC's response to Carrier's
Service Request.
"Service Term" means, with respect to any Communications Service, the
term for which such Communications Service is to be provided under the
Agreement.
"Special Access (Software Defined) Service" means special access
service provided by means of software definition (as opposed to dedicated
lines) by USOC to Carrier under the Special Access (Software Defined) Service
Description under the Agreement.
"Suspension Notice" has the meaning specified in Section 4.6 of the
General Terms.
"Switch" means an intelligent network element capable of creating or
breaking down transmission paths between multiple transmission links.
DA-5
<PAGE> 30
"Switched Access Service" means switched access service provided by
USOC to Carrier under the Switched Access Service Description under the
Agreement.
"SWITCH IMPLEMENTATION SCHEDULE" MEANS THE RESPECTIVE DATES THAT USOC
COMMITS TO CARRIER TO INSTALL USOC SWITCH IN RESPECTIVE SERVICE AREAS AND
CAPABLE OF PROCESSING 90% OF CARRIERS TRAFFIC WITHIN 6 WEEKS OR LESS FROM SAID
DATES. THIS SCHEDULE IS TO BE REFLECTED IN ATTACHMENT 1 TO THIS AGREEMENT AND
CAN BE UPDATED FROM TIME TO TIME BY USOC SUBMITTING IN WRITING ANY CHANGES TO
CARRIER. IN NO CASE, SHALL DATES BE MOVED BACK AND CONSIDERED APPROVED BY
CARRIER UNLESS CARRIER SPECIFICALLY AGREES TO SUCH CHANGES IN WRITING AND
PROVIDES WRITTEN APPROVAL TO USOC AS PART OF ATTACHMENT 1 AND PART OF THIS
AGREEMENT.
"Switching Service" means a service provided by USOC to Carrier under
the Service Description for Switching Service under the Agreement in a Service
Area whereby Carrier is able to obtain long-distance or Class 4 tandem
switching functionality for calls originating or terminating in, or switched by
tandem switching through, such Service Area through use of Carrier Dedicated
Ports on one or more USOC Switches located in such Service Area (such
functionality enabling such carrier or reseller to obtain a degree of control
over routing of such calls or to be eligible for pricing schedules of an
underlying carrier that are normally reserved for carriers which such switching
capabilities and routing control).
"Switching Service Request" or "SSR" means a Service Request by
Carrier to initiate or cancel Switching Service.
"Switching Service Area" means a Service Area designated for Switching
Service in the related Service Availability Schedule.
"Tariff" means any tariff filed or available for public inspection
with respect to any Communications Service proposed to be provided by USOC in
any Service Area.
"Underlying Carrier" means, with respect to Carrier (if USOC is
providing Switching Service to Carrier under the Agreement), an IXC whose
transmission or switching facilities are utilized by Carrier to transmit long
distance telephone calls.
"Underlying Carrier POP" means, with respect to any Service Area where
USOC is furnishing Switching Service to Carrier, a specific geographical
location in such Service Area where, through a related Connection Facility,
Carrier interconnects with the facilities of an Underlying Carrier.
"USOC" meansUS ONE Communications Corp., a Delaware corporation, and
its permitted successors and assigns under the Agreement.
DA-6
<PAGE> 31
ATTACHMENT 1 TO COMMUNICATIONS SERVICES AGREEMENT BETWEEN PHOENIX NETWORK
INC. AND US ONE COMMUNICATIONS CORP.
SWITCH IMPLEMENTATION SCHEDULE
SERVICE AREA INSTALLATION DATE
- ------------ -----------------
1. DENVER, COLORADO JULY 15TH, 1996
2. CHICAGO, ILLINOIS AUGUST 15TH, 1996
3. NEW YORK CITY, NEW YORK SEPTEMBER 15TH, 1996
4. TAMPA, FLORIDA OCTOBER 15TH, 1996
5. LOS ANGELES, CALIFORNIA NOVEMBER 15TH, 1996
6. BOSTON, MASSACHUSETTS DECEMBER 15TH, 1996
7. DALLAS, TEXAS JANUARY, 1997
8. SAN FRANCISCO, CALIFORNIA FEBRUARY, 1997
9. ATLANTA, GEORGIA MARCH, 1997
10. MINNEAPOLIS, MINNESOTA MARCH, 1997
11. SEATTLE, WASHINGTON APRIL, 1997
12. WASHINGTON D.C. APRIL, 1997
13. KANSAS CITY, MISSOURI MAY, 1997
14. CLEVELAND, OHIO MAY, 1997
15. MIAMI, FLORIDA JUNE, 1997
16. NEW ORLEANS, LOUISIANA JUNE, 1997
DA-7
<PAGE> 1
Exhibit 11
PHOENIX NETWORK, INC.
Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Six
Three Months Three Months Months Months
Ended Ended Ended Ended
6/30/95 6/30/96 6/30/95 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary
Net income (loss) $ 146,704 $ (2,226,147) $ 274,707 $ (3,523,601)
Preferred stock dividend (63,701) (312,270) (126,891) (625,073)
------------ ------------ ------------ ------------
Adjusted net income (loss) $ 83,003 $ (2,538,417) $ 147,816 $ (4,148,674)
============ ============ ============ ============
Weighted average number
of common shares outstanding 11,847,360 17,569,201 11,628,181 17,456,065
Dilution from assumed exercise of
options and warrants using the
treasury stock method 1,202,094 - 1,159,920 -
------------ ------------ ------------
Total weighted average shares 13,049,454 17,569,201 12,788,101 17,456,065
============ ============ ============ ============
Net income (loss) per common share $ 0.01 $ (0.14) $ 0.01 $ (0.24)
============ ============ ============ ============
Fully Diluted
Net income (loss) $ 146,704 $ (2,226,147) $ 274,707 $ (3,523,601)
============ ============ ============ ============
Weighted average number of shares outstanding:
Primary 13,049,454 17,569,201 12,788,101 17,456,065
Convertible preferred stock 1,595,431 6,218,743 1,595,431 6,218,743
conversion
Dilution from assumed exercise of
options and warrants using the
treasury stock method - 1,916,612 - 1,749,960
------------ ------------ ------------ ------------
Total 14,644,885 25,704,556 14,383,532 25,424,768
============ ============ ============ ============
Net income (loss) per common and
common equivalent share $ 0.01 $ (0.09) $ 0.02 $ (0.14)
============ ============ ============ ============
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,572,196
<SECURITIES> 0
<RECEIVABLES> 17,767,757
<ALLOWANCES> 1,628,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,806,310
<PP&E> 9,919,148
<DEPRECIATION> 7,216,114
<TOTAL-ASSETS> 46,976,941
<CURRENT-LIABILITIES> 18,736,731
<BONDS> 0
0
2,725
<COMMON> 17,699
<OTHER-SE> 27,037,136
<TOTAL-LIABILITY-AND-EQUITY> 46,976,941
<SALES> 44,995,365
<TOTAL-REVENUES> 44,995,365
<CGS> 0
<TOTAL-COSTS> 32,531,107
<OTHER-EXPENSES> 14,816,886
<LOSS-PROVISION> 1,007,788
<INTEREST-EXPENSE> 163,185
<INCOME-PRETAX> (3,523,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,523,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,523,601)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
