<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, 1997
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) 205-3500
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.
Shares outstanding at
Class August 1, 1997
----------------------------- ---------------
Common Stock, $.001 par value 29,179,368
<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 8
Item 5. Recent Developments 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,548,061 $ 463,821
Accounts receivable, net of allowance for
doubtful accounts of $3,600,830 at
December 31, 1996 and $1,865,296 at June
30, 1997 14,419,829 12,858,593
Deferred commissions 969,940 599,307
Other current assets 686,271 540,849
------------ ------------
Total current assets 17,624,101 14,462,570
Furniture, equipment and data processing
systems, at cost less accumulated
depreciation 5,522,771 6,487,417
Deferred commissions 414,873 224,765
Customer acquisition costs, less accumulated
amortization 2,725,275 2,106,220
Goodwill, less accumulated amortization 18,553,332 18,045,116
Other assets 953,831 888,168
------------ ------------
$ 45,794,183 $ 42,214,256
============ ============
</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, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Current liabilities:
Line of Credit - Finance Company $ 4,698,645 7,047,437
Current Maturities - Finance Company Note 444,839 470,483
Current Maturities - Stockholder Note - 231,414
Current Maturities - Capital Lease - 125,989
Note Payable to vendor 1,161,148 170,349
Accounts payable and accrued liabilities 19,105,317 16,342,229
------------ ------------
Total current liabilities 25,409,949 24,387,901
Notes payable to stockholder - long term 1,388,206 1,156,792
Capital Leases - 90,110
Finance Company Note, less current maturities 824,306 481,092
Stockholders' equity:
Preferred stock, $.001 par value; authorized,
5,000,000 shares; issued and outstanding,
546,458 shares at December 31, 1996 and
194,250 at June 30, 1997 546 194
Common stock, $.001 par value authorized,
50,000,000 shares; issued and outstanding,
25,851,894 shares at December 31, 1996 and
27,888,074 shares at June 30, 1997
25,851 27,901
Additional paid-in capital 45,225,554 49,500,628
Treasury stock - 1,300 shares at cost (2,522) (2,522)
Accumulated deficit from May 1, 1989 (27,077,707) (33,427,840)
------------ ------------
Total stockholders' equity 18,171,722 16,098,361
------------ ------------
$ 45,794,183 $ 42,214,256
============ ============
</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,
--------------------------- -------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 26,268,640 $ 19,922,350 $ 53,604,952 $ 41,280,046
Cost of revenues 19,084,456 14,959,624 38,903,404 30,391,313
----------------- ------------- ---------------- -------------
Gross profit 7,184,184 4,962,726 14,701,548 10,888,733
Operating expenses:
Selling, general &
administrative expenses 7,335,241 7,045,659 14,953,192 14,115,231
Depreciation and amortization 1,095,011 954,898 2,199,189 1,933,864
Relocation expenses 607,429 - 809,174 -
----------------- ------------- ---------------- -------------
9,037,681 8,000,557 17,961,555 16,049,095
Income (loss) from operations (1,853,497) (3,037,831) (3,260,007) (5,160,362)
Net interest expense (128,109) (349,469) (175,998) (544,178)
----------------- ------------- ---------------- -------------
Net income (loss) (1,981,606) (3,387,300) (3,436,005) (5,704,540)
Preferred stock dividends (312,270) (69,285) (625,073) (116,510)
----------------- ------------- ---------------- -------------
Net income (loss) attributable to
common shares $ (2,293,876) $ (3,456,585) $ (4,061,078) $ (5,821,050)
================= ============= ================ =============
Net income (loss) per common
share $ (.11) $ (0.13) $ (0.20) $ (0.22)
================= ============= ================ =============
Weighted average number of shares
outstanding 20,248,434 27,061,922 20,135,298 26,427,671
================= ============= ================ =============
</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>
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 51,342,868 $ 41,606,630
Interest received 39,777 2,522
Cash paid to suppliers and employees (53,249,158) (45,328,817)
Interest paid (186,402) (546,700)
--------------- ---------------
Net cash used in operating activities (2,052,915) (4,266,365)
Cash flows from investing activities:
Purchases of furniture and equipment (229,894) (1,500,167)
Purchase of other assets (296,321) 65,663
Business acquisitions, net of cash acquired (4,085,093) -
--------------- ---------------
Net cash used in investing activities (4,611,308) (1,434,504)
Cash flows from financing activities:
Advances on line of credit - 2,348,792
Proceeds from (payment on) note payable to finance
company 567,126 (317,570)
Payment on notes payable to vendor (1,081,810) (990,799)
Payments on capital lease - (54,973)
Proceeds from issuance of preferred stock - 2,832,500
Proceeds from issuance of common stock - -
Proceeds from exercise of common stock options and
warrants 661,059 798,679
--------------- ---------------
Net cash provided by financing activities 146,375 4,616,629
--------------- ---------------
Net increase (decrease) in cash (6,517,848) (1,084,240)
Cash at beginning of period 8,298,003 1,548,061
--------------- ---------------
Cash at end of period $ 1,780,155 $ 463,821
=============== ===============
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
Net income (loss) $ (3,436,005) (5,704,540)
Adjustments
Provision for doubtful accounts 1,136,468 1,234,652
Depreciation and amortization 2,199,189 1,933,864
Changes in assets and liabilities
Accounts receivable (3,096,982) 326,584
Deferred commissions 543,044 560,741
Other assets (362,227) 145,422
Accounts payable and accrued expenses 963,598 (2,763,088)
--------------- ---------------
Net cash provided by (used in) operating activities $ (2,052,915) $ (4,266,365)
=============== ===============
Schedule of noncash activity
- ----------------------------
Noncash components of consideration issued in connection
with business combination:
Common stock $ 10,500,000 -
Note payable to stockholder 1,388,206 -
Assumption of net liabilities 1,606,976 -
Conversion of preferred stock into common stock 32,330 644,435
Equipment acquired with capital lease - 271,072
</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, 1996.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the quarter ended June 30, 1997 revenues decreased to $19,922,350 compared
with revenues of $26,268,640 for the comparable period of the prior year. The
decrease was due to an overall decrease in billed minutes of 14.3% and a drop
in the average revenue per minute of approximately 11.8%. The rate per minute
decline was due to the Company's customers continuing to utilize more
competitively priced services offered by the Company. These new services have
been a result of the Company's reaction to an overall decline in retail rates
and price sensitivity in the telecommunications industry. For the six months
ended June 30, 1997, revenues decreased to $41,280,046 compared with revenues
of $53,604,952 for the comparable period of the prior year due the same reasons
as the quarterly comparison. For the six month period billed minutes decreased
by 14.3%, with the average rate per minute down by 9.9%.
Cost of revenues for the three months ended June 30, 1997 decreased to
$14,959,624 from $19,084,456 in the prior year's period, however, as a
percentage of revenue, cost of revenues increased to 75.1% compared to 72.7%
for the prior year's period. For the six month period, cost of revenues
increased as a percentage of revenue to 73.6% from 72.6%. Although the
Company's average cost per minute of usage has declined by 8.5% for the three
months ended June 30, 1997 and 9.3% for the six months ended June 30, 1997,
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.
Selling, general and administrative (SG&A) expenses decreased from $7,335,241
for the second quarter of 1996 to $7,045,659 for the second quarter of 1997.
For the six month period ending June 30, 1997, SG&A expenses also decreased to
$14,115,231 as compared to $14,953,192 for the comparable period last year.
However, as a percentage of revenue, SG&A costs have increased by 7.5% between
second quarter of 1996 and second quarter 1997. For the six month period ended
June 30, 1997, these costs as a percentage of revenue have increased by 6.3%
over the comparable period of the prior year.
Depreciation and amortization expense decreased from $1,095,011, or 4.2% of
revenue, in the June 1996 quarter to $954,898, or 4.8% of revenue, in the
quarter ended June 1997. The decrease resulted primarily from the write-down
of prepaid telemarketing commissions at year end. 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, 1997 resulted in a
net negative cash flow of $4,266,365 compared to a negative cash flow of
$2,052,915 for the prior year, primarily as a result of the loss incurred for
the period. 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 receivables. There was $7,144,561 outstanding under the line at June 30,
1997.
8
<PAGE> 9
Item 5. Recent Developments
In April 1997, the Company filed a Summons and Complaint in the
Circuit Court for Palm Beach County, Florida against Alpha Digital Technology,
a former customer ("Alpha Digital"), seeking to recover for services rendered
in the amount of approximately $560,000. The Company plans to file a Summons
and Complaint in the Circuit Court for Hillsborough County, Florida against
Classic Personnel Services, Inc. d/b/a World Placement Services, a former
customer ("World Placement"), seeking to recover for services rendered in the
amount of approximately $486,000. No revenue has been recorded related to these
amounts. To date, the Company has been unable to effectuate service of process
on Alpha Digital; efforts to do so are continuing. It is unlikely that the
actions against Alpha Digital and World Placement, if pursued, will be
successful because, to date, efforts to locate the defendants have been
unsuccessful and the defendants may never be found and/or may not be
financially viable. The Company has incurred approximately $510,000 in carrier
costs related to services provided to Alpha Digital and World Placement in the
second quarter ended June 30, 1997.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company(1)
3.2 -- Bylaws of the Company(1)
10.1 -- 1989 Stock Option Plan(2)
10.2 -- Forms of option grant pursuant to the 1989 Stock Option Plan(3)
10.3 -- 1992 Non-Employee Directors' Stock Option Plan, as Amended(5)
10.4 -- Form of option grant pursuant to the 1992 Non-Employee Directors' Stock Option Plan(5)
10.5 -- Sublease and Consent between the Company and Richard Goldman & Co. relating to the
premises at One Maritime Plaza, San Francisco, CA(4)
10.6 -- Amended and Restated Loan and Security Agreement, among the Company, Phoenix
Network Acquisition Corp., Americonnect, Inc. and Foothill Capital Corporation, dated
September 26, 1995 (the "Original Foothill Agreement")(10)
10.7 -- Amendment Number One to the Original Foothill Agreement, dated October 17, 1996(10)
10.8 -- Amendment Number Two to the Original Foothill Agreement, dated December 23, 1996(10)
10.9 -- Amendment Number Three to the Original Foothill Agreement, dated March 12, 1997(10)
10.10 -- Amendment Number Four to the Original Foothill Agreement, dated March 28, 1997
10.11 -- Office Lease Agreement with Itel Rail Corporation, dated June 8, 1994(8)
10.12 -- Communications Services Agreement, between the Company and US ONE Communications
Corp., dated May 22, 1996 (the "Original US ONE Agreement")(6)
10.13 -- Amendment No. 1 to the Original US ONE Agreement, dated October 11, 1996(10)
10.14 -- Amendment No. 2 to the Original US ONE Agreement, dated October 11, 1996(10)
10.15 -- Amendment No. 3 to the Original US ONE Agreement, dated January 3, 1997(10)
10.16 -- Amendment No. 4 to the Original US ONE Agreement, dated December 30, 1996(10)
10.17 -- Amendment No. 5 to the Original US ONE Agreement, dated March 26, 1997(10)
10.18 -- Amendment No. 6 to the Original US ONE Agreement, dated June 21, 1997
10.19 -- Telecommunications Services Agreement, between the Company and Comdisco Disaster
Recovery Services, a Division of Comdisco, Inc., dated March 25, 1996(6)
10.20 -- Employment Agreement, between the Company and Wallace M. Hammond, dated January
1, 1996(10)
10.21 -- Employment Agreement, between the Company and Jon Beizer, dated February 1, 1997
10.22 -- Warrant to Purchase 200,000 Shares of Common Stock issued to Foothill Capital
Corporation, dated as of March 12, 1997(11)
11.1 -- Computation of earnings per share(9)
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
18.1 -- Letter re change in accounting principles(7)
27.1 -- Financial Data Schedule
- ----------
</TABLE>
(1) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 (file no. 333-20923), as filed with the Commission on January 31,
1997, and amended on Form S-3/A on February 12, 1997, and incorporated
herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1990, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1990, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1990, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by
reference.
(8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by reference.
(9) This data appears in the Consolidated Statement of Operations included
in the Company's Consolidated Financial Statements.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and incorporated herein by
reference.
(b) Reports on Form 8-K: See the Company's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on January 23, 1997, the
Company's Current Report on Form 8-K, as filed with the Securities and Exchange
Commission on April 25, 1997, the Company's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on July 10, 1997 and the
Company's Current Report on Form 8-K, as filed with the Securities and Exchange
Commission on July 17, 1997.
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 08/12/97 /s/ Wallace M. Hammond
-------- ----------------------
Wallace M. Hammond
Chief Executive Officer
Date 08/12/97 /s/ Jon Beizer
-------- --------------
Jon Beizer
Chief Financial Officer
(Chief Accounting Officer)
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company(1)
3.2 -- Bylaws of the Company(1)
10.1 -- 1989 Stock Option Plan(2)
10.2 -- Forms of option grant pursuant to the 1989 Stock Option Plan(3)
10.3 -- 1992 Non-Employee Directors' Stock Option Plan, as Amended(5)
10.4 -- Form of option grant pursuant to the 1992 Non-Employee Directors' Stock Option Plan(5)
10.5 -- Sublease and Consent between the Company and Richard Goldman & Co. relating to the
premises at One Maritime Plaza, San Francisco, CA(4)
10.6 -- Amended and Restated Loan and Security Agreement, among the Company, Phoenix
Network Acquisition Corp., Americonnect, Inc. and Foothill Capital Corporation, dated
September 26, 1995 (the "Original Foothill Agreement")(10)
10.7 -- Amendment Number One to the Original Foothill Agreement, dated October 17, 1996(10)
10.8 -- Amendment Number Two to the Original Foothill Agreement, dated December 23, 1996(10)
10.9 -- Amendment Number Three to the Original Foothill Agreement, dated March 12, 1997(10)
10.10 -- Amendment Number Four to the Original Foothill Agreement, dated March 28, 1997
10.11 -- Office Lease Agreement with Itel Rail Corporation, dated June 8, 1994(8)
10.12 -- Communications Services Agreement, between the Company and US ONE Communications
Corp., dated May 22, 1996 (the "Original US ONE Agreement")(6)
10.13 -- Amendment No. 1 to the Original US ONE Agreement, dated October 11, 1996(10)
10.14 -- Amendment No. 2 to the Original US ONE Agreement, dated October 11, 1996(10)
10.15 -- Amendment No. 3 to the Original US ONE Agreement, dated January 3, 1997(10)
10.16 -- Amendment No. 4 to the Original US ONE Agreement, dated December 30, 1996(10)
10.17 -- Amendment No. 5 to the Original US ONE Agreement, dated March 26, 1997(10)
10.18 -- Amendment No. 6 to the Original US ONE Agreement, dated June 21, 1997
10.19 -- Telecommunications Services Agreement, between the Company and Comdisco Disaster
Recovery Services, a Division of Comdisco, Inc., dated March 25, 1996(6)
10.20 -- Employment Agreement, between the Company and Wallace M. Hammond, dated January
1, 1996(10)
10.21 -- Employment Agreement, between the Company and Jon Beizer, dated February 1, 1997
10.22 -- Warrant to Purchase 200,000 Shares of Common Stock issued to Foothill Capital
Corporation, dated as of March 12, 1997(11)
11.1 -- Computation of earnings per share(9)
</TABLE>
<PAGE> 14
EXHIBIT INDEX
<TABLE>
Exhibit No. Description
----------- -----------
<S> <C>
18.1 -- Letter re change in accounting principles(7)
27.1 -- Financial Data Schedule
- ----------
</TABLE>
(1) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 (file no. 333-20923), as filed with the Commission on January 31,
1997, and amended on Form S-3/A on February 12, 1997, and incorporated
herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1990, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1990, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1990, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by
reference.
(8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by reference.
(9) This data appears in the Consolidated Statement of Operations included
in the Company's Consolidated Financial Statements.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NUMBER FOUR TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment") is entered into as of March 29, 1997, by and between
Foothill Capital Corporation, a Ca1ifornia corporation ("Foothill"), on the one
hand, and Phoenix Network, Inc., a Delaware corporation ("Phoenix"), Phoenix
Network Acquisition Corp., a Delaware corporation ("PNAC"), and AmeriConnect,
Inc., a Delaware corporation ("AmeriConnect"), on the other hand, with
reference to the following facts:
A. Foothill, as lender, and Phoenix, as borrower heretofore entered into
that certain Amended and Restated Loan and Security Agreement, dated
as of September 26, 1995 (despite the fact that the recitals thereof
erroneously referred to "1993" rather than "1995") (herein the
"Original Agreement");
B. Phoenix and PNAC entered into that certain Amendment Number One to
Amended and Restated Loan and Security Agreement, dated as of a date
in October, 1996 (the "First Amendment"), with Foothill to amend the
Original Agreement to, among other things, add PNAC as a secured
co-borrower, and modify the Borrowing Base, in each case as set forth
in the First Amendment;
C. Phoenix, PNAC, and AmeriConnect (individually and collectively,
jointly and severally, "Borrower") entered into that certain Amendment
Number Two to Amended and Restated Loan and Security Agreement, dated
as of December 23, 1996 (the "Second Amendment"), with Foothill, to
amend the Original Loan Agreement, as previously amended, to, among
other things, add AmeriConnect as a secured co-borrower. and modify
the Borrowing Base, in each case as set forth in the Second Amendment;
D. Borrower entered into that certain Amendment Number Three to Amended
and Restated Loan and Security Agreement, dated as of March 12, 1997
(the "Third Amendment"), with Foothill, to amend the Original Loan
Agreement, as previously amended, to, among other things, provide for
a $2,000,000 bridge loan to Borrower, provide for a reducing
Overadvance to Borrower, change certain pricing with respect to the
credit facilities under the Agreement, provide for the issuance of the
Warrants to Foothill, and modify the Borrowing Base, in each case as
set forth in the Third Amendment (the Original Agreement, as amended
by the First Amendment, by the Second Amendment, and by the Third
Amendment, is referred to herein as the "Agreement");
E. Borrower has requested Foothill to amend the Agreement to, among other
things, provide for the restatement of certain covenants, the
elimination of certain covenants, the addition of certain covenants,
and the waiver of certain described Events of Default in existence as
of March 28, 1997, in each case as set forth in this Amendment;
F. Foothill is willing to so amend the Agreement in accordance with the
terms and conditions hereof; and
<PAGE> 2
G. All capitalized terms used herein and not defined herein shall have
the meanings ascribed to them in the Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein Foothill and Borrower hereby agree as follows:
1. Amendments to the Agreement.
a. Section 1.1 of the Agreement hereby is
amended by adding the following new defined terms in alphabetical order:
"Debt Service" means, for any Relevant Measuring
Period, consolidated interest expense of Borrower for such period determined in
accordance with GAAP, plus principal of Indebtedness payable during such
period, plus taxes due from Borrower during such period.
"Debt Service Ratio" means, for any Relevant
Measuring Period, EBITDA for such period divided by Debt Service for such
period.
"EBITDA" means, for any Relevant Measuring Period,
Borrower's consolidated earnings before interest, tax, depreciation, and
amortization, determined in accordance with GAAP.
"Fourth Amendment" means that certain Amendment
Number Four to Amended and Restated Loan and Security Agreement, dated as of
March 28, 1997, between Foothill and Borrower.
"Relevant Measuring Period" means, with
respect to the fiscal quarter of Borrower ending March 31, 1997, such fiscal
quarter of Borrower, with respect to the fiscal quarter of Borrower ending June
30, 1997, such fiscal quarter of Borrower and the immediately preceding fiscal
quarter of Borrower, with respect to the fiscal quarter of Borrower ending
September 30, 1997, such fiscal quarter of Borrower and the two immediately
preceding fiscal quarters of Borrower, and with respect to each fiscal quarter
of Borrower ending on or after December 31, 1997, such fiscal quarter of
Borrower and the three immediately preceding fiscal quarters of Borrower.
b. The following definitions contained in
Section 1.1 of the Amendment are amended and restated in their entirety to read
as follows:
"Loan Documents" means this Agreement, the First
Amendment, the Second Amendment the Third Amendment, the Fourth Amendment, the
Suretyship Agreement, any Lock Box Agreement, any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered into by
Borrower or any Affiliate of Borrower in connection with this Agreement.
c. The following specified provisions of the
Agreement hereby are_amended and restated in their entirety as follows:
2
<PAGE> 3
(1) Section 6.14:
6.14 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of
Consolidated Current Assets divided by Consolidated Current
Liabilities of at least the amounts set forth below as of the relevant
corresponding dates set forth below:
<TABLE>
<CAPTION>
Date Minimum Ratio
<S> <C>
3/31/97 .50
6/30/97 .50
9/30/97 .50
12/31/97 .50
3/31/98 .75
6/30/98 .75
9/30/98 .75
12/31/98 .75
3/31/99 1.00
6/30/99 1.00
9/30/99 1.00
12/31/99 1.00
3/31/2000 1.00
6/30/2000 1.00
9/30/2000 1.00
12/31/2000 and each fiscal quarter 1.00
ending date thereafter
</TABLE>
EBITDA. EBITDA of not less than the amounts set forth with respect
to the Relevant Measuring Periods ending on the corresponding dates set forth
below:
<TABLE>
<CAPTION>
Date Minimum Amount
<S> <C>
3/31/97 ($150,000)
6/30/97 ($75,000)
9/30/97 $1,000,000
12/31/97 $2,000,000
3/31/98 $2,000,000
6/30/98 $3,200,000
9/30/98 $4,200,000
12/31/98 $4,800,000
3/31/99 $5,000,000
6/30/99 $5,000,000
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
9/30/99 $5,000,000
12/31/99 $5,000,000
3/31/2000 $5,000,000
6/30/2000 $5,000,000
9/30/2000 $5,000,000
12/31/2000 and each fiscal quarter $5,000,000
ending date thereafter
</TABLE>
(c) Debt Service Ratio A Debt
Service Ratio of not less than the amounts set forth with
respect to the Relevant Measuring Periods ending on the
corresponding dates set forth below:
<TABLE>
<CAPTION>
Date Minimum Ratio
<S> <C>
3/31/97 (.25)
6/30/97 (.25)
9/30/97 0.00
12/31/97 0.00
3/31/98 0.25
6/30/98 0.75
9/30/98 1.25
12/31/98 2.00
3/31/99 2.50
6/30/99 2.50
9/30/99 2.50
12/31/99 2.50
3/31/2000 3.00
6/30/2000 3.00
9/30/2000 3.00
12/31/2000 and each fiscal quarter 3.00
ending date thereafter
</TABLE>
(2) Section 7.10:
7.10 CAPITAL EXPENDITURES. Make any capital
expenditure, or any commitment therefor, where the aggregate amount of such
capital expenditures, made or committed for in any fiscal year, is in excess of
the amount set forth below with respect to such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Capital Expenditure Limit
<S> <C>
1997 $1,500,000
1998 $1,000,000
1999 $1,000,000
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
2000 $1,000,000
</TABLE>
2. Representations and Warranties. Borrower hereby represents
and warrants to Foothill that (a) the execution, delivery, and performance of
this Amendment and of the Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, Court,
or governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its
properties may be bound or affected, and (b) this Amendment and the Agreement,
as amended by this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
3. Conditions Precedent to Amendment The satisfaction of each
of the following, on or before the Fourth Amendment Closing Deadline, unless
waived or deferred by Foothill in its sole discretion, shall constitute
conditions precedent to the effectiveness of this Amendment and each and every
provision hereof;
a. Foothill shall have received a certificate
from the Secretary of Phoenix attesting to the incumbency and signatures of
authorized officers of Phoenix and to the resolutions of Phoenix's Board of
Directors authorizing its execution and delivery of this Amendment and the
other Loan Documents to which it is a party and contemplated in this Amendment
and the performance of this Amendment, the Agreement as amended by this
Amendment, and such other Loan Documents, and authorizing specific officers of
Phoenix to execute and deliver the same;
b. Foothill shall have received a certificate
from the Secretary of PNAC attesting to the incumbency and signatures of
authorized officers of PNAC and to the resolutions of PNAC 'S board of
directors or equivalent governing body authorizing its execution and delivery
of the Loan Documents to which it is a party and contemplated in this Amendment
and the performance of such Loan Documents, and authorizing specific officers
of PNAC to execute and deliver the same;
c. Foothill shall have received a certificate
from the Secretary of AmeriConnect attesting to the incumbency and signatures
of authorized officers of AmeriConnect and to the resolutions of board of
directors or equivalent governing body authorizing its execution and delivery
of the Loan Documents to which it is a party and contemplated in this Amendment
and the performance of such Loan Documents. and authorizing specific officers
of AmeriConnect to execute and deliver the same;
d. Foothill shall have received an opinion of
counsel to Borrower in form and substance satisfactory to Foothill in its
reasonable discretion;
e. The representations and warranties in this
Amendment, the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
5
<PAGE> 6
f. Other than the Events of Default expressly
waived by Foothill herein, no Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
g. No injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the consummation
of the transactions contemplated herein shall have been issued and remain in
force by any governmental authority against Borrower or Foothill; and
h. All other documents and legal matters in
connection with the transactions contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.
4. Express Waiver of Certain Events of Default. Effective as of
March 28, 1997, Foothill expressly hereby forever waives each and every Event
of Default that existed on March 28, 1997, with respect to any breach by
Borrower of Section 6.14 or Section 7.10 of the Agreement, or any subpart of
either such Section, which breach occurred prior to March 28, 1997.
5. Effect on Agreement. The Agreement, as amended hereby, shall
be and remain in full force and effect in accordance with its respective terms
and hereby is ratified and confirmed in all respects. Except as expressly set
forth herein, the execution, delivery, and performance of this Amendment shall
not operate as a waiver of, or as an amendment of, any right, power, or remedy
of Foothill under the Agreement, as in effect prior to the date hereof.
Borrower ratifies and reaffirms the continuing effectiveness of the Suretyship
Agreement with respect to the Agreement as amended by this Amendment and the
other Loan Documents.
6. Further Assurances.` Borrower shall execute and
deliver all agreements, documents and instruments, in form and substance
satisfactory to Foothill, and take all actions as Foothill may reasonably
request from time to time, to perfect and maintain the perfection and priority
of Foothill's security interests in the Collateral, and to fully consummate the
transactions contemplated under this Amendment and the Agreement, as amended by
this Amendment
7. Miscellaneous
a. Upon the effectiveness of this Amendment,
each reference in the Agreement to "this Agreement", "hereunder", "herein",
"hereof" or words of like import referring to the Agreement shall mean and
refer to the Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment,
each reference in the Loan Documents to the "Loan Agreement" "thereunder"
"therein" "thereof" or words of like import referring to the Agreement shall
mean and refer to the Agreement as amended by this Amendment.
6
<PAGE> 7
c. As used in this Amendment, "Fourth
Amendment Closing Deadline" means March 31, 1997.
d. This Amendment shall be governed by and
construed in accordance with the laws of the State of California.
e. This Amendment may be executed in any number
of counterparts, and/or by facsimile (followed promptly by delivery of original
signatures), all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
(balance of page intentionally omitted)
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION
a California corporation
By: /s/ Kurt R. Marsden
-------------------------------------------
Title: Assistant Vice President
----------------------------------------
PHOENIX NETWORK, INC., a Delaware corporation
By: /s/ Jeffrey L. Bailey
-------------------------------------------
Title: S.V.P.
----------------------------------------
PHOENIX NETWORK ACQUISITION CORP., a
Delaware corporation
By: /s/ Jeffrey L. Bailey
-------------------------------------------
Title: V.P.
----------------------------------------
AMERICONNECT, INC., a Delaware corporation
By: /s/ Jeffrey L. Bailey
-------------------------------------------
Title: V.P.
----------------------------------------
8
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 6
TO SERVICE AGREEMENT
This Amendment No. 6 to Service Agreement (this "Amendment") is
entered into as of the 21st day of June, 1997, between Phoenix Network, Inc., a
Delaware corporation ("Carrier") and US ONE Communications Services Corp., a
Delaware corporation ("USOC").
RECITALS
A. Carrier and US ONE Communications Corp., a Delaware
corporation and parent corporation of USOC ("Parent") entered into a
Communications Services Agreement, dated May 22, 1996 (the "Original
Agreement") regarding the provision of various services by Parent to Carrier.
B. With the consent of Carrier, Parent assigned its rights and
obligations under the Original Agreement to USOC on November 19, 1996.
C. Amendment No. 1 to Service Agreement was entered into by
Carrier and Parent on October 11, 1996; Amendment No. 2 to Service Agreement
was entered into by Carrier and Parent on October 11, 1996; Amendment No. 3 to
Service Agreement was entered into on January 3, 1997; Amendment No. 4 to
Service Agreement was entered into on December 30, 1996; and Amendment No. 5 to
Service Agreement was entered into on March 26, 1997 (hereinafter, the "Prior
Amendments"). (The Original Agreement, as amended by the Prior Amendments, is
referred to herein as the "Agreement.")
D. Pursuant to this Amendment, Carrier and USOC desire to amend
the Agreement to more closely reflect the parties' intentions.
AGREEMENT
Now, therefore, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used without definition
herein shall have the meanings assigned to them in the Agreement.
2. Vendor Carrier Shortfalls. Retroactively effective to January
1, 1997, USOC shall not be responsible to Carrier, either by way of payment or
offset, for any Vendor Carrier Shortfalls (as that term is defined in Amendment
No. 5 to Service Agreement).
1
<PAGE> 2
3. Scope. Except to the extent modified or amended herein, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written by their duly authorized representative.
US ONE COMMUNICATIONS PHOENIX NETWORK, INC.
SERVICES CORP.
By: /s/ J.H. Sturges By: /s/ Wallace M. Hammond
------------------------------ ------------------------
Name: J. H. Sturges Name: Wallace M. Hammond
---------------------------- Title: President and CEO
Title: Chairman & CEO
---------------------------
2
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement is to be made effective the 1st day of February,
1997, between Jon F. Beizer ("Employee") and Phoenix Network, Inc. a Delaware
corporation ("Employer").
1. Employment. Employer employs Employee as Senior Vice President--Chief
Financial Officer--to perform such specific duties and have such
responsibilities as the President and Chief Executive Officer will, from time
to time, establish. Attached, as Schedule A, is a general list of those duties
and responsibilities which is intended to provide initial guidance but not
intended to be complete or all inclusive.
2. Term of Employment. Employee's employment shall commence on February
1, 1997, and shall continue thereafter for a term of twenty three (23) months
ending December 31, 1998, unless sooner terminated as provided herein.
3. Change of Control. In the event of a merger, reverse merger, pooling,
consolidation, outright sale of the company or any other event which
constitutes a "change of control" of the Employer at any time during the
duration of this agreement Employee shall have the right to terminate his
employment with Employer at will. In the event Employee does terminate his
employment with Employer or if Employer elects to terminate Employee's
employment with company, the Employee's unvested options will immediately vest
and will be exercisable by employee at any time for a subsequent period of
thirty six (36) months. Also, Employee shall receive eighteen (18) months
severance or the balance of the salary Employee would have received had the
employment continued for the full term of this Agreement, whichever is greater,
and including all earned bonuses and unused PTO. All severance, bonus and
unused PTO payments will be made within fifteen (15) days of such termination
at Employee's rate of annual pay as defined herein.
4. Compensation and Benefits. (a.) At the commencement of this
Agreement and through December 31, 1998, Employee shall be paid a salary at an
annual rate of $150,000. Payment will be made on the regularly scheduled pay
dates of the Employer subject to all appropriate withholdings or other
deductions required by law or by Employer's established policies. Employer may
increase Employee's salary at Employer's sole discretion but shall not reduce
such salary below the annual rates established by this agreement without
Employee's prior written consent.
(b.) Employer agrees to provide to Employee a quarterly bonus beginning on
January 1, 1997, which shall be calculated as three- quarters of one percent
(.75%) of Employer's Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) as reported in the Company's quarterly 10Qs and annual
10K, provided 70% of the Company's budgeted EBITDA has been achieved, subject
to all appropriate withholdings or other deductions required by law or by
Employer's established policies. It is the intent of the Employer that this
bonus be equal to three-quarters of one percent (.75%) of Employer's EBITDA on
an annual basis. Because the bonus will be paid on a quarterly basis there is
the possibility that a positive EBITDA in one quarter and a negative EBITDA in
a subsequent quarter could produce a situation where the Employee has actually
been paid an amount equal to more than .75% of Employer's year to date EBITDA.
If this situation occurs it is understood that all bonus payments to Employee
by Employer will be suspended until such time as payments to Employee are less
than or equal to three-quarters of one percent (.75%) of Employer's year to
date EBITDA.
(c.) Employee shall have the right to and be covered by all benefits normally
afforded to Employer's full time Employees. Such benefits may include, but are
not limited to, 401K Plan, Medical, Dental and Life insurance coverage, Sick
and Disability income, Pension and Profit Sharing plans, Leave of Absence,
personal days and paid holidays. On a yearly basis, Employee shall have
twenty (20) Days of "Paid Time Off' (PTO).
(d.) If Employee dies or is disabled so he cannot perform his job while under
the term of this Agreement, all of Employee's un- vested options will
immediately vest and Employer will pay the family of Employee death and
disability benefits equal to eighteen (18) months of salary or the balance of
the salary Employee would have received had the employment continued for the
full term of this Agreement, whichever is greater, including all earned bonuses
and unused PTO.
<PAGE> 2
(e.) Employer shall reimburse Employee for such reasonable out-of-pocket
expenses as Employee may incur for and on behalf of the furtherance of
Employer's business provided that the Employee submits to the Employer
satisfactory documentation or other support for such expenses in accordance
with Employer's expense reimbursement policy.
5. Extension of Agreement. In the event Employee continues Employee's
employment with Employer beyond the expiration of this Agreement and no new
Agreement is executed between Employee and Employer this agreement will
automatically be extended for a period of one (1) year and all the rights and
obligations contained herein will continue to apply.
6. Covenants of Employee. (a.) During the term of this agreement while
Employee is employed by Employer Employee shall not directly or indirectly
engage in any business, whether as proprietor, partner, joint venture,
employer, agent, employee, consultant, officer or beneficial or record owner of
more than one percent of the stock of any corporation or association which is
competitive to the business conducted by Employer.
(b.) During the term of this agreement or for a period of one year after
termination of employment Employee will not divulge or appropriate to
Employee's own use or to the use of others any trade secrets or confidential
information or confidential knowledge pertaining in any way to the business of
Employer.
(c.) In the event Employee terminates this agreement by quitting or otherwise
resigning prior to the expiration of the term hereof as set forth in paragraph
2 of this agreement, Employee separately agrees, being fully aware that the
performance of this agreement is important to preserve the present value of the
property and business of Employer, that for 12 calendar months following the
date of such termination, Employee shall not directly engage in any business,
whether as proprietor, partner, joint venture, employer, agent, employee,
consultant, officer or beneficial or record owner of more than ten (10) percent
of the stock of any corporation or association which is competitive to the
business conducted by Employer. During such 12 month period, Employee shall
not solicit or do business competitive to the business conducted by Employer.
(d.) Employee agrees that the breach by Employee of any of the foregoing
covenants is likely to result in irreparable harm, directly or indirectly, to
Employer and Employee, therefore, consents and agrees that if Employee violates
any of such covenants, Employer shall be entitled, among and in addition to any
other rights or remedies available under this agreement or at law or in equity,
to temporary and permanent injunctive relief to prevent Employee from
committing or continuing a breach of such covenant.
(e.) It is the desire, intent and agreement of Employee and Employer that the
restriction placed on Employee by this paragraph 6 be enforced to the fullest
extent permissible under the law and public policy applied by any jurisdiction
in which enforcement is sought. Accordingly, if and to the extent that any
portion of this paragraph 6 shall be adjudicated to be unenforceable, such
portion shall be deemed amended to delete therefrom or to reform the portion
thus adjudicated to be invalid or unenforceable, such deletion or reformation
to apply only with respect to the operation of such portion in the particular
jurisdiction in which such adjudication is made.
7. Termination. (a.) Employer shall have the right to terminate
Employee's employment at any time for cause for any of the following reasons:
(1) Employee shall be convicted by a court of competent and final
jurisdiction of any crime that constitutes a felony in the
jurisdiction involve,
(2) It is proven that Employee has committed any act of fraud,
misappropriation or embezzlement against Employer,
(3) Employee shall materially breach this agreement or fail or refuse
to perform any of his material duties as required by the Chief
Executive Officer or this agreement in any material respect.
(b.) In the event Employee is terminated under this agreement for cause the
Employer shall present to Employee in writing any and all reasons for this
termination for cause at the time such allegation is raised. Employee shall
then
2
<PAGE> 3
have a period not to exceed thirty (30) days to respond to such allegations.
Upon receipt of such response Employer shall have as its option to exercise
such termination of Employee at its sole discretion.
(c.) In the event Employee's employment is terminated by Employer for cause,
Employee shall receive no severance pay.
(d.) Employer shall have the right to terminate the services of Employee
without cause.
(1.) In the event Employer terminates the Employee's employment
without cause within six (6) months after the signing of a
letter of intent or a definitive agreement which contemplates
a "change of control" of Employer, this termination shall be
deemed to be a direct result of such "change of control" and
the terms and conditions outlined in paragraph 3 shall apply.
(2.) In the event Employer terminates the Employee's employment
without cause, and not within six (6) months after the signing
of a letter of intent or definitive agreement which
contemplates a "change of control", all of Employee's
un-vested options will immediately vest and Employee shall
receive as severance pay an amount equal to twelve (12) months
of Employee's salary or the balance of the salary Employee
would have received had the employment continued for the full
term of this Agreement, whichever is greater and including all
earned bonuses and unused PTO. In addition, Employer will pay
for Employee's family's complete relocation expenses from
Denver to the San Francisco Bay area. Employer will pay
directly to the provider or shall reimburse Employee for
Employee's reasonable relocation expenses based on the actual
amount of such expenses incurred up to a maximum amount of
$20,000. For purposes of this provision, relocation expenses
consist of Employee's moving costs and expenses incidental
thereto, including but not limited to, trips by the employee
and his family in search of housing. Regardless of the actual
amount of these incurred expenses the maximum expense to the
Employer for the Employee's relocation under this provision
shall be $20,000.
(e.) Employee may terminate this agreement if Employer materially breaches any
of the provision in this agreement. If Employee shall terminate this agreement
then, provided that Employee is not materially at fault, Employee may terminate
this Agreement and Employee shall receive severance pay in an amount equal to
eighteen (18) months of Employee's salary or the balance of the salary Employee
would have received had the employment continued for the full term of this
Agreement, whichever is greater and including all earned bonuses and unused
PTO. In addition, all of Employee's un-vested options shall immediately vest
and will be exercisable by Employee at any time for a subsequent period of
thirty six (36) months.
8. Employment beginning January 1, 1998. If Employee is still employed
by Employer beginning January 1, 1998, Employee, at his option, will be
entitled to complete relocation expenses for Employee and his family from
Denver to the San Francisco Bay area. Effective January 1, 1998, Employer will
pay directly to the provider or shall reimburse Employee for Employee's
reasonable relocation expenses based on the actual amount of such moving
expenses incurred up to a maximum amount of $20,000. For purposes of this
provision, relocation expenses consist of Employee's moving costs and expenses
incidental thereto including but not limited to trips by Employee and his
family in search of housing. If Employee chooses to exercise this option,
Employee's stock options will continue to vest according to schedule and
Employer will continue to pay Employee's salary, at its current rate, through
December 31, 1998. For the period between January 1, 1998, and December 31,
1998, Employee will work for Employer from the San Francisco Bay area as a
part-time employee working on consulting projects and earning a fixed salary of
$12,500 per month. The consulting projects will be reasonably determined by
the Employer and will require approximately twenty (20) hours per week.
Notwithstanding the changes in Employee's location, and level of
responsibility, during this twelve (12) month period, Employee and Employer
will be otherwise held to the provisions of this contract and both parties will
retain all of the rights and obligations as heretofore set forth.
9. Arbitration. Any controversy, claim or dispute arising out of or
relating to any paragraph or clause of this agreement shall be settled by
arbitration in Denver, Colorado, in accordance with the rules then in effect of
the American Arbitration Association and judgment upon the award or decision
rendered will be entered in any court having jurisdiction thereon.
3
<PAGE> 4
10. Notices. Any notice, request or other communication to be given by
any party to this agreement shall be in writing and be sent by certified mail,
postage prepaid, addressed to the parties as follows:
<TABLE>
<S> <C>
If to Employer: Wallace M. Hammond, President
C/O Phoenix Network
1687Cole Boulevard
Golden, CO 80401
If to Employee: C/O Phoenix Network, Inc.
1687 Cole Boulevard
Golden, CO 80401
</TABLE>
or mailed to such other address as the parties respectively may designate by
notice given in a like manner and any such notice, request or other
communication shall be deemed to have been given when mailed as described
above.
11. Waiver of Breach. The waiver by Employee or Employer of any breach of
any provision of this agreement by Employer or Employee respectively shall not
operate or be construed as a waiver by Employee or Employer of any subsequent
breach by Employer or Employee respectively.
12 Entire Agreement. All prior negotiations and agreements between the
parties to this agreement with respect to the matters herein contained are
superseded by this agreement and there are no representations, warranties,
understandings or agreements other than those expressly set forth in this
agreement.
13. Amendment. This agreement may be amended only by written instrument
signed by all parties hereto.
14. Governing Law. This agreement shall be governed by the laws of the
state of Colorado without giving effect to the choice of law principles.
15. Partial Invalidity. The invalidity or unenforceability of any
provision in this agreement shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS THEREOF, the parties have executed this agreement on the date above
set forth.
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
-------------------------------
Wallace M. Hammond, President
/s/ Jon F. Beizer
--------------------------------
Jon F. Beizer, Employee
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 463,821
<SECURITIES> 0
<RECEIVABLES> 14,723,889
<ALLOWANCES> (1,865,296)
<INVENTORY> 0
<CURRENT-ASSETS> 14,462,570
<PP&E> 9,542,188
<DEPRECIATION> 3,054,771
<TOTAL-ASSETS> 42,214,256
<CURRENT-LIABILITIES> 24,387,901
<BONDS> 1,727,994
194
0
<COMMON> 27,901
<OTHER-SE> 16,070,266
<TOTAL-LIABILITY-AND-EQUITY> 42,214,256
<SALES> 19,922,350
<TOTAL-REVENUES> 19,922,350
<CGS> 14,959,624
<TOTAL-COSTS> 14,959,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,234,652
<INTEREST-EXPENSE> 349,469
<INCOME-PRETAX> (3,387,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,387,300)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
